ERD50
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
No, in the 12% now 22% later scenario you realize the savings when the conversion occurs and the tax is paid. ...
I still do not see this. I can see where you could say you 'book' the savings, but I can't see how you realize it when the conversion occurs.
To my thinking, the only way I could realize it in the same year, is if on my tax form that year, there was one line that would debit me for the tax for the conversion ($1.2K on a $10K conversion), and a second line that credited me that same tax year for the future savings (but we don;t know what it is yet). It does not happen in the same tax year. It is not realized in the same tax year.
Yes, the future liability for the taxes is gone at the time I convert, because that money is no longer in an account that will tax it - but that's not 'realizing' it. Just like when a stock goes up, I have a gain, but I have not realized it until I sell. I don't think I 'realize' the tax savings, until I see my RMD reduced by the % of that conversion, or until I've liquidated the tIRA.
Say I converted, and a few years later my 1st RMD was $10K, but I decided to take out $15K. I get taxed on $15K that year, whether I converted some of it or not. If I keep taking more than my RMD, I don't realize any tax saving until that last year, when the amount I take out is less than it would have been had I not done a conversion. If my tax didn't change for all those years, then I certainly did NOT 'you realize the savings when the conversion occurs'. If I didn't convert that earlier year, no tax is owed that year. Paying a tax is not 'saving'.
I think we are stuck on 'booking' the savings, versus 'realizing' the savings. Am I wrong? Where?
-ERD50