Tell me about Roth conversions in this bear market

[tominboise]

We have traditional IRA's and 401k's but no Roth IRA's at the moment. I see people mention that now is the time to covert traditional IRA's to Roth. Is that because if our IRA's have dropped in value, my tax obligation will be reduced, over converting at some other point? Once I convert, I can't touch the money for 5 years, correct? Can I convert an entire 401k or just certain parts of it?

 

[Clone]

In our case-

I have some funds that are in an individual IRA. I chose to convert those holdings that were in a Total Market Fund from the IRA to a ROTH IRA. The value of those funds is low right now, thus the amount of taxes owed will also be held down. We also have plans to ROTH convert some funds from DW's IRA to a ROTH- some of those are in Disney stock, and some in a mutual fund. They will transfer at this depressed price.

If we would have transferred them at the peak, we would have owed taxes on perhaps 100k of conversion. Now, it will be taxes on perhaps 80k. We have not changed what we are holding or anything like that, everything slid from one account to the other in-kind.

There is the 5-year rule. We are in a mode where we do not have concerns about drawing from those ROTH accounts for some time. With my 401k, I can not directly do a ROTH conversion. It is a 2 step process. I do a withdrawal from the 401k to a rollover IRA. Then later, I can do a ROTH conversion from the rollover IRA. Your 401k may have different rules.

 

[Dogpeace]

We have traditional IRA's and 401k's but no Roth IRA's at the moment. I see people mention that now is the time to covert traditional IRA's to Roth. Is that because if our IRA's have dropped in value, my tax obligation will be reduced, over converting at some other point? Once I convert, I can't touch the money for 5 years, correct? Can I convert an entire 401k or just certain parts of it?

You should open the Roth now even if you decide to convert later. I believe the 5 years is measured from the date the account was opened, not the date of the conversion. I am 80% sure so please don't hold me to this.

 

[tominboise]

If I am in a loss position on a fund in my IRA (an actual loss) and I roll it to a Roth, can I use the loss against my taxes for 2020, and would it go into the Roth at the value of the fund on the day of the rollover (setting a new cost basis)?

 

[pb4uski]

We have traditional IRA's and 401k's but no Roth IRA's at the moment. I see people mention that now is the time to covert traditional IRA's to Roth. Is that because if our IRA's have dropped in value, my tax obligation will be reduced, over converting at some other point?....

Yes, the reason people are talking about Roth conversions now is assuming a recovery you will pay lower taxes. So if you had $100k in a tIRA that would have cost you $15k in tax to convert and it dips to $75k it only costs you $11.25k in tax so assuming that it later grows back to $100k you have saved yourself $3.75k in tax.

 

[pb4uski]

If I am in a loss position on a fund in my IRA (an actual loss) and I roll it to a Roth, can I use the loss against my taxes for 2020, and would it go into the Roth at the value of the fund on the day of the rollover (setting a new cost basis)?

No, you never get to use that loss. Assuming that your tIRA is all deductible contributions (and many are) basis isn't particularly relevant... ditto for a Roth.

 

[Sunset]

You should open the Roth now even if you decide to convert later. I believe the 5 years is measured from the date the account was opened, not the date of the conversion. I am 80% sure so please don't hold me to this.

+1
OP - I have no idea why people don't do this, but do it now !!!

 

[tominboise]

So I took the advice and opened a Fido Roth tonight. At least I have it ready when I figure out what to do.

 

[Sunset]

So I took the advice and opened a Fido Roth tonight. At least I have it ready when I figure out what to do.

Great, the clock has started.

Remember to tell your friends/relatives/kids to open one, so they get the 5 yr clock started.

 

[Dtail]

So I took the advice and opened a Fido Roth tonight. At least I have it ready when I figure out what to do.

See below for some good reading on the Roth different types of rules.

https://www.kitces.com/blog/underst...s-for-roth-ira-contributions-and-conversions/

 

[RetireBy90]

We have traditional IRA's and 401k's but no Roth IRA's at the moment. I see people mention that now is the time to covert traditional IRA's to Roth. Is that because if our IRA's have dropped in value, my tax obligation will be reduced, over converting at some other point?

My plan (in year 2 of plan now) is to convert most of my TIRA to Roth for various reasons. This year I converted Boeing stock because the stock is down. I'm converting "in-kind" that is just moving securities from one account to another without selling and buying. To move my 300 shares of BA now cost me less in taxes than if the stock was higher priced.

If I look at it by the asset I'm moving then I can see savings in how much tax I pay. If I just move say $50K my taxes for 2020 will be the same regardless of how much my portfolio is up or down.

So yes, moving to a Roth now in down market is a way to save on taxes.

 

[Time2]

I'm 65 yrs old, if I Roth convert, Do I have to wait 5 years?
I do have a Roth accounts, but, I will be opening Roth's within other umbrellas, i.e. IRA, SEP/IRA, my wife's IRA, SEP/IRA.

 

[tominboise]

My plan (in year 2 of plan now) is to convert most of my TIRA to Roth for various reasons. This year I converted Boeing stock because the stock is down. I'm converting "in-kind" that is just moving securities from one account to another without selling and buying. To move my 300 shares of BA now cost me less in taxes than if the stock was higher priced.

If I look at it by the asset I'm moving then I can see savings in how much tax I pay. If I just move say $50K my taxes for 2020 will be the same regardless of how much my portfolio is up or down.

So yes, moving to a Roth now in down market is a way to save on taxes.

If my stocks are in VG and the Roth is in Fido, is there a way to transfer in kind between the two institutions?

 

[CRLLS]

I'm 65 yrs old, if I Roth convert, Do I have to wait 5 years?
I do have a Roth accounts, but, I will be opening Roth's within other umbrellas, i.e. IRA, SEP/IRA, my wife's IRA, SEP/IRA.

I am not aware that you can open a Roth IRA within another IRA type account. Or, if you can, if there is any benefit to doing so. AFAIK It is a standalone account.

 

[pb4uski]

I'm 65 yrs old, if I Roth convert, Do I have to wait 5 years?
I do have a Roth accounts, but, I will be opening Roth's within other umbrellas, i.e. IRA, SEP/IRA, my wife's IRA, SEP/IRA.

Time, you can't open a Roth within an IRA or SEP/IRA .

Since you are over 65 you do not have to wait 5 years... you can withdraw from a Roth anytime you want without tax or penalty.

 

[Time2]

I am not aware that you can open a Roth IRA within another IRA type account. Or, if you can, if there is any benefit to doing so. AFAIK It is a standalone account.

Ya, I guess I ask that wrong. My wife and I both have Roths along with IRAs and SEP/IRAs. Each under our own name. So we would just transfer from our existing tIRA into our existing Roth?
Now, what about the 5 year rule, does our age matter? Can I withdraw what has already been there 5 years, but the 5 yr clock starts on new contributions?

 

[pb4uski]

Ya, I guess I ask that wrong. My wife and I both have Roths along with IRAs and SEP/IRAs. Each under our own name. So we would just transfer from our existing tIRA into our existing Roth?
Now, what about the 5 year rule, does our age matter? Can I withdraw what has already been there 5 years, but the 5 yr clock starts on new contributions?

Yes, you just transfer from existing tIRA to existing Roth... you have to pay tax on the the amount transferred (assuming the tIRA was all deductble contributions... if it includes non-deductible contributions then only a part of the conversion is taxable).

Since you are over 65, no restrictions on withdrawals... you could withdraw the whole shabang after that but you do you lose out on tax free growth within the roth.

 

[Time2]

Yes, you just transfer from existing tIRA to existing Roth... you have to pay tax on the the amount transferred (assuming the tIRA was all deductble contributions... if it includes non-deductible contributions then only a part of the conversion is taxable).

Since you are over 65, no restrictions on withdrawals... you could withdraw the whole shabang after that but you do you lose out on tax free growth within the roth.

Thank you.

 

[RetireBy90]

If my stocks are in VG and the Roth is in Fido, is there a way to transfer in kind between the two institutions?

I am all at Fido, so can't answer with certainty, but when I moved accounts to Fido, I told them I wanted to move in-kind from 2 other agencies and they moved both IRA and after tax accounts in-kind. Call them or visit the local office.