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Roth conversion favorable years in terms of tax?
Old 08-19-2012, 08:10 PM   #1
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Roth conversion favorable years in terms of tax?

I am 56, wife 51, and both not retired yet. We do not have Roth IRA due to our income level.

We plan to retire at 2014. We have enough taxable funds to last a decade, so we plan to convert tax-deferred as much as possible. My time to start converting to Roth IRA will begin after we both retire.

As to SS, it looks that I might be better off delaying and not to take at 62. Taking it at 66 will give me about 8 years to convert and manage my tax rate at 15%. After 8 years, I will reduce the conversion amount still, and eventually take another few years to complete.

Is this a reasonable plan for both SS and Roth conversion timing-wise?
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Old 08-19-2012, 08:15 PM   #2
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I think so, DW and I are doing the same thing at this point. I'm 63 DW 61 but DW will take her SS at 62 as it's a small amount. When I decide to take my SS DW's SS will increase. We have been doing Roth conversions and will continue till I decide I'm ready for my SS. Sounds like a good plan to me.
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Old 08-22-2012, 07:43 AM   #3
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Similar to my own plan as well. Retired at 62. Will do Roth conversions from age 62 to 70 at which time will start SS benefits. I should be able to convert almost all of it by age 70 without going over our marginal bracket limit.
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Old 08-22-2012, 07:53 AM   #4
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Originally Posted by Khufu View Post
Similar to my own plan as well. Retired at 62. Will do Roth conversions from age 62 to 70 at which time will start SS benefits. I should be able to convert almost all of it by age 70 without going over our marginal bracket limit.
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Old 08-22-2012, 01:28 PM   #5
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Quote:
Originally Posted by 73ss454 View Post
I think so, DW and I are doing the same thing at this point. I'm 63 DW 61 but DW will take her SS at 62 as it's a small amount. When I decide to take my SS DW's SS will increase. We have been doing Roth conversions and will continue till I decide I'm ready for my SS. Sounds like a good plan to me.
+1

I'm 57, DW is 56 and we retired in 2010. Figured we have plenty of time to do ROTH conversions, particularly since my pensions are non-COLA so won't keep up with the tax bands.
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Old 08-22-2012, 02:43 PM   #6
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Just remember you need to keep your conversion amount + divs + cap gains - deductions - exemptions (+- anything else I forgot) under the 15% bracket, under the current rules. This way those divs and cap gains aren't taxed. Otherwise, for every $1 you push over the bracket, not only is the conversion $1 being taxed at 15%, but $1 of cap gains or divs is also now taxed at 15%, for an effective 30% marginal rate until you push every dollar of CGs and Divs above the line. Run some trial numbers with your tax program to prove this, or just work it out on paper in the Qual Divs and Cap Gains Tax Worksheet.
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Old 08-26-2012, 08:59 AM   #7
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Also, it might be a good idea to model what your expected RMD's could be. I know it's difficult because you don't know the growth rate between now and then. Still, I was surprised at how "little" RMD's would turn out to be (I AM closer to 70). Since that exercise, I have reduced my ROTH conversions a bit.

Be sure to do your own homework as YMMV.
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