Poll: How Big Are Your Annual Roth Conversions?

[RobbieB]

waited too long. now it makes no sense to do them.

Me too.

 

[Midpack]

Aren't the first two categories the same thing?

The second was meant to mean maximizing conversions to the top of the 12% threshold. The first was deliberately less. Maybe I could’ve chosen better words.

For example how much I convert every year is the amount that brings our taxable income to the limit of the 22% bracket, but not over. By making my fourth conversion in Dec of each year, I can hit the amount almost on the money - not that spilling over into 24% is the end of the world. And IRMAA keeps me inside 22% anyway.

 

[SevenUp]

For example how much I convert every year is the amount that brings our taxable income to the limit of the 22% bracket, but not over.

Where the poll uses "up to" should one mentally add "the top of," not "the start of"?

 

[TheWizard]

I'm 71 and have been Roth converting well into the 24% Federal tax bracket the last few years, previously the 28% tax bracket.

But I didn't and don't convert up close to the top of a particular tax bracket and don't particularly recommend that others do.
Instead, I Roth converted enough to "levelize" my AGI based on my projected AGI at age 72 with RMDs and no further Roth conversions.
So my annual Roth conversion amounts have been modest, in the $30k to $40k range.

I also try to keep my AGI under the next higher IRMAA tier threshold, which fortunately is now indexed to inflation...

 

[SecondCor521]

But I didn't and don't convert up close to the top of a particular tax bracket and don't particularly recommend that others do.
Instead, I Roth converted enough to "levelize" my AGI based on my projected AGI at age 72 with RMDs and no further Roth conversions.
So my annual Roth conversion amounts have been modest, in the $30k to $40k range.

I also try not to keep my AGI under the next higher IRMAA tier threshold, which fortunately is now indexed to inflation...

Could you articulate your reasoning?

The most common argument I've seen is for generally levelizing marginal tax rates.

I know pb4uski levelizes effective tax rates, which I don't completely understand but I respect his abilities so I'm probably missing something there.

I try to maximize after-tax NPV, accounting for federal and IRMAA and a bit for ACA. Sort of a poor-man's manual I-ORP in my Excel spreadsheet. This does seems to align with the popular levelizing marginal tax rates notion above.

But I'm also considering doing a one year "pulse" where I do one large conversion in about two years, taking the tax hit once in an effort to shift a large chunk of the IRA early, which obviously has a bigger effect on the tax torpedo issue. It also seems to line up with I-ORP's usual suggestion.

 

[TheWizard]

Aren't the first two categories the same thing?

They appear to be.
Both have you converting an amount such that your Taxable Income is below the start of the 12% bracket...

 

[TheWizard]

Could you articulate your reasoning?

The most common argument I've seen is for generally levelizing marginal tax rates.

I know pb4uski levelizes effective tax rates, which I don't completely understand but I respect his abilities so I'm probably missing something there.

I try to maximize after-tax NPV, accounting for federal and IRMAA and a bit for ACA. Sort of a poor-man's manual I-ORP in my Excel spreadsheet. This does seems to align with the popular levelizing marginal tax rates notion above.

But I'm also considering doing a one year "pulse" where I do one large conversion in about two years, taking the tax hit once in an effort to shift a large chunk of the IRA early, which obviously has a bigger effect on the tax torpedo issue. It also seems to line up with I-ORP's usual suggestion.

Well, it's easier to deal with AGI in a planning spreadsheet rather than either tax rates or total income tax amounts.
And while my marginal Federal tax rate went from 28% to 24% a couple years ago, my tax total was about the same due to the SALT limitation.

Nextly, I have had no particular interest in paying a huge additional amount of taxes in my pre-72 years to convert a major portion of approximately $1M in tax deferred. I'm content to continue deferring taxes on most of that indefinitely.

Thirdly, if I had converted $5k more in either of the past few years, I would get bumped into the next higher IRMAA tier and that would make me frown ��.

So what I'm doing neutralizes any tax torpedo thing and that was sort of my goal...

 

[RunningBum]

I'm 71 and have been Roth converting well into the 24% Federal tax bracket the last few years, previously the 28% tax bracket.

But I didn't and don't convert up close to the top of a particular tax bracket and don't particularly recommend that others do.
Instead, I Roth converted enough to "levelize" my AGI based on my projected AGI at age 72 with RMDs and no further Roth conversions.
So my annual Roth conversion amounts have been modest, in the $30k to $40k range.

I also try to keep my AGI under the next higher IRMAA tier threshold, which fortunately is now indexed to inflation...

For someone with many years to convert, 21 years in my case, it can be hard to levilize since the tIRA is growing as you convert it. So I'm more inclined to go to the top of a limit such as a bracket, 0% LTCGs, ACA subsidy cliff, and eventually IRMAA bumps. Otherwise I agree with your approach, except that I would take more advantage of 24%, knowing that without congressional action that bracket would return to 28%.

 

[Midpack]

They appear to be.
Both have you converting an amount such that your Taxable Income is below the start of the 12% bracket...

No, all answers were meant to be to the top of the bracket, except the first. Unfortunately I have a history of misguided polls...

 

[Splash]

We have been targeting our conversions so our MAGI comes in just under the ACA subsidy cliff which is less than the top of the 12% bracket.

 

[jollystomper]

We're in the 22% bracket from our income, so we are converting within that bracket.

 

[Golden sunsets]

Me too.

Me three.

Or more accurately, we were in a high tax bracket up until turning 70.5 when we started taking RMD withdrawals. This year our IRMAA payments, are already twice the base rate and would increase further with Roth conversions. Plus our state phases out the state standard deduction and personal exemptions over certain thresholds. We already lose a portion of those deductions as it is, without conversions and would lose more with conversions. And then there is the 3.8% NIIT which would apply to more of our investment income if we converted. So the effective tax on any conversions is extremely high.

 

[Done]

After much analysis, we moved from filling the 12% bracket three years ago to partially filling the 22% bracket. As a result, we didn't qualify for stimulus payments based on 2019 or 2020 income, but if we keep income under $150k in 2021, we'll qualify for the third stimulus credit of 2 x $1400.

 

[TheWizard]

Me three.

Or more accurately, we were in a high tax bracket up until turning 70.5 when we started taking RMD withdrawals. This year our IRMAA payments, are already twice the base rate and would increase further with Roth conversions. Plus our state phases out the state standard deduction and personal exemptions over certain thresholds. We already lose a portion of those deductions as it is, without conversions and would lose more with conversions. And then there is the 3.8% NIIT which would apply to more of our investment income if we converted. So the effective tax on any conversions is extremely high.

I am not planning on doing anymore Roth conversions after this year, since I turn 72 and start RMDs in 2022.

Primetime for Roth conversions is for those youngsters in their 60's or even 50's, once they quit full-time employment and have a lower AGI than they might likely have from age 72 and beyond.

Cheerio...

 

[Dash man]

Unfortunately I have a history of misguided polls...

Doesn’t everybody? Especially the professional pollsters!! [emoji13][emoji13]

 

[Green Papaya]

This is the first year we will do a Roth conversion, up to somewhere in the 24% bracket. I vacillated between deferring taxes until RMD years or swallowing the pain and pay it now. I have decided to spread out my effective tax rates over the remaining years; that and fear of paying taxes as a single filer.

 

[lem1955]

https://www.tax-brackets.org/federaltaxtable/2022

I had to look it up.

Wanted to convert up to $172,500 (24% - Joint), but probably spilled a few dollars into 32%.

Isn't that the 22% bracket? $81,050 - $172,499 is the range taxed. If you go much higher you run into IRMAA.

 

[Cobra9777]

We converted to the top of the 15% bracket for several years after ER. But with 2 pensions, those were really small amounts. I wanted to do more. But I was not keen on going to 25%, since that's almost certainly the same rate we'll pay on RMDs.

Then the temporary TCJA rates entered the picture. So last few years, we've converted to the top of the 22% bracket. But we can only convert about half by 2026 when the rate reverts to 25% (in theory). So I've been pondering the 24% bracket. We could actually convert it ALL by 2026. And that's still a decent rate compared to the rates we avoided when we deferred that income (28%-33%). But then I'd be really pissed if rates DON'T revert and the 22% rate was still available.

I think we'll probably stay at 22%. If rates do in fact revert, we'll drop back down to 15%. By my estimation, we'll still convert roughly 70% by age 72. So RMDs would be fairly small.