Sorry to be so late to this thread... can a stock be moved "as is" from tIRA to a ROTH? If so, is the tax calculated on the value at that time? So if my share of XOM were worth $25K based on the market on the day of transfer, they would simply get put into the ROTH and I would owe the tax based on the $25K? Then, whatever happens to the stock value once it is in the ROTH is a separate question. Thanks!
Should I Do A Roth Conversion Tutorial
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Dash man
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Yes, in kind conversions can be made. There may be some issues if you’re trying to move a mutual fund between brokers, if the fund is proprietary to your IRA, but otherwise it’s easy. We only do transfers within the same brokerage for ease.
The brokerage will track the value of the shares at conversion time and provide a 1099R.
pb4uski
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That's pretty much the only way that I do Roth conversions these days, via in-kind transfers of positions from tIRA to Roth.
orbops
Recycles dryer sheets
Fidelity allows in-kind transfers from tIRA to Roth (I just did one in Dec 2023), while Vanguard did not seem to offer in-kind transfers.
I've been doing small Roth conversions since I retired at 50 back in 2017 just enough to keep me around the $35K AGI mark, which keeps my wife and my Marketplace premiums as low as possible (and then I also qualify for the low income electricity, gas, internet subsidies). By the time I have to take RMDs when I turn 75, the RMD should be around $25K/year.
I've been doing small Roth conversions since I retired at 50 back in 2017 just enough to keep me around the $35K AGI mark, which keeps my wife and my Marketplace premiums as low as possible (and then I also qualify for the low income electricity, gas, internet subsidies). By the time I have to take RMDs when I turn 75, the RMD should be around $25K/year.
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SecondCor521
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Vanguard does indeed offer in kind transfers. I did five or six last year and one as recently as a couple of weeks ago.
HI Bill
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Yes, they do! I've done it several times, even with individual stocks.
Newbie to your community, great forum!!
Rather than clutter up the board with a (not) new topic, I was hoping to jump on here to see if I'm on the right conceptual track regarding a potential Roth conversion. I have much research to do, but I'm hoping you can inform me if my conceptual thoughts are correct.
I have a tentatively planned retirement in two years at age 58, so SS, Medicare, etc. won't apply for a while and I'm in Texas, so no state income tax. My work/earned income will drop to $0. I will have significant investment income (LTCG + return of capital) for about 6 years.
This seems like a perfect opportunity to take advantage of low income tax brackets and convert over as much as possible, probably up to the max of the 12% bracket annually for married/jointly couples.
The only hurdle I see is the investment returns during those 6 years will be uneven, so there could be some years where my returned LTCG + Roth conversion push me over the cliff into the top cap gains rate, thus adding a 5% tax on all my gains.
Am I on the right path to looking at this correctly? Thanks!
Rather than clutter up the board with a (not) new topic, I was hoping to jump on here to see if I'm on the right conceptual track regarding a potential Roth conversion. I have much research to do, but I'm hoping you can inform me if my conceptual thoughts are correct.
I have a tentatively planned retirement in two years at age 58, so SS, Medicare, etc. won't apply for a while and I'm in Texas, so no state income tax. My work/earned income will drop to $0. I will have significant investment income (LTCG + return of capital) for about 6 years.
This seems like a perfect opportunity to take advantage of low income tax brackets and convert over as much as possible, probably up to the max of the 12% bracket annually for married/jointly couples.
The only hurdle I see is the investment returns during those 6 years will be uneven, so there could be some years where my returned LTCG + Roth conversion push me over the cliff into the top cap gains rate, thus adding a 5% tax on all my gains.
Am I on the right path to looking at this correctly? Thanks!
N02L84ER
Thinks s/he gets paid by the post
Yes. Many of us wait(ed) until December when we have a better idea of our total income before doing the conversion(s) to prevent unnecessary taxes.
SevenUp
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If your qualified dividends plus long term capital gains will be even half the bracket boundary between 15% and 20%, your marginal tax rate on Roth conversions will never be less than 18.8%.
Not the worst problem to have.
If your qualified dividends plus long term capital gains will be even half the bracket boundary between 15% and 20%, your marginal tax rate on Roth conversions will never be less than 18.8%.
Not the worst problem to have.
Thanks all!
My concern was being pushed into the 23.8% cap gains rate due to big lumps of return during that period. FWIW, it's a private investment outside of all my retirement and brokerage accounts.
But, your comments make me a little concerned that I'm missing something basic. So, I'll state my understanding and you can correct me. A conversion from a traditional IRA to a Roth generates earned income that it taxed as such. The cap gains from my outside investments stack on top of that for cap gains tax, but don't impact the tax rates for the conversion (income). Say I convert $123K, our marginal tax rate on that would be 12% with an effective rate around 10% while my cap gains rate on that portion would be 18.8%.
SevenUp
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Need three more pieces of information:
1) filing status (up until the word "our" it appeared you file single but now MFJ seems likely)
2) the amount of QD & LTCG
3) the amount of all other income (interest, etc.)
If you want to check for yourself, you could put those into the Tax estimation tool of your choice, then add various amounts of Roth conversions to see the marginal rates on each (ignore effective rate), or use something like the case study spreadsheet that will generate a chart for you.
Thanks for those links!
From my point today, I'm just trying to make sure I understand the process for a strategy before doing a deep specific dive with details. I'm just getting started and this will be a 2+ year process of investigation on my part.
Answers to your inquiries:
1. MFJ
2. QD & LTCG - Those will vary wildly over those 5-6 years, but there could be a couple years well over $500K, and those would be the years I was concerned about going over the cap gains upper rate cliff if I was doing a conversion at that time.
3. For this exercise, let's assume $0. It will be more, but it will likely not be material unless I'm right at the edge of that cliff.
Thanks again!
SevenUp
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In those years the minimum marginal tax rate on any Roth conversion will be 18.8%.
Thank you so much for your time!
I've just learned what I didn't know that I didn't know. Started playing around with spreadsheet you linked and it is very helpful for planning. Back to the drawing board.
Koolau
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Maybe I missed it, but do you know what your tax situation will be when you have to take RMDs in the future? IOW will your tax rate go up to the same as you would be paying now to convert? Not sure how to advise (not that you should listen to me.) Just need to think in terms of tax rates then and now.
By the way, there are special advantages to ROTHS that you might want to consider. You can pay the taxes for a conversion to ROTH and, in effect, increase the value of the IRA (IOW you increase the "value" by the amount of taxes you paid from already taxed money.) I also think there are some real advantages to your heirs, but I'll stop now. Be certain to do your own research. My favorite book on ROTHS is by FAIRMARK.
https://www.amazon.com/Fairmark-Guide-Roth-Kaye-Thomas/dp/0967498104
TheWizard
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It's Roth, not ROTH...
Koolau
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
"Retirees Owe Taxes, Hah!" If you have beneficiaries, be aware the relatively-new "exhaust the inherited IRA within 10 years" rule could drive up their tax rate. Inherited Roth IRAs also must be depleted within 10 years, but avoid that tax issue.
skyking1
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As much as we like to dance around it, many of us will be single with the same income and the next bracket (or two) higher because of that.
This pushes the tax arbitrage aspect even more.
Koolau
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Excellent point.
DW didn't want to "mess" with converting her tIRAs to ROTHS back in the day (excuse me, Roths.) When I told her it would help her pay less taxes when I kicked, she was back on board with the whole thing - as long as I did all the w*rk of converting.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
+1 Annoying as well. ROTH makes it look like it is an acronym, but it isn't, it is named for the US Senator Roth who proposed the legislation allowing these tax-free account.
IRA is an acronym.
Somewhere (try google) is a chart that shows the order of which your various taxable income streams are stacked for tax purposes.
But mostly it doesn't matter. The keyword is "marginal" tax rate. That means how much more tax you owe on the additional income you take. In your case, the "additional" would be the income that you voluntarily take. Which would be the Roth conversions.
Long time ago when the wife decided to go back to work, she couldn't understand why I told her to put zero exemptions on her W-4 form. She wanted to know why her paycheck would get hit with the largest withholding rate while mine got the smallest withholding rate.
I explained to her that it was her income that stacked on top of all our other income, therefore it was exposed to our highest marginal rate.
Couple of year later we had a really good year in the market, and when doing the taxes she noticed that our total tax was equal to her annual salary.
She said. "I'll be damned if I am going to work for the IRS to take all my salary." And quit the next day.
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Koolau
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Well ROTHs loom large in my legend. Thus, I've taken to capitalizing the term. It's clearly my only vice, so...
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Well ROTHs loom large in my legend. Thus, I've taken to capitalizing the term. It's clearly my only vice, so...
No, I don't think so.
