Up to what bracket should I do Roth Conversions

[MarieIG]

Did my last pre-Christmas Roth conversions. Today's conversions were cash.

Will need to tweak next week.

Next year, I will need to map out my conversion strategy in advance, for conversions in kind - and stick to it.

 

[Dash man]

Looks like next year we’ll be converting about $225K into our Roths. Less than this year to drop us into a lower IRMAA bracket. If the markets have a big drop as some pundits are calling for, we will take the hit with IRMAA and convert more shares at lower prices.

 

[MarieIG]

Looks like next year we’ll be converting about $225K into our Roths. Less than this year to drop us into a lower IRMAA bracket. If the markets have a big drop as some pundits are calling for, we will take the hit with IRMAA and convert more shares at lower prices.

Owwwwwww-ch! But understand. [-]Dancing with pushing DH into a higher IRMAA from this year's conversions, but had I thought it through, I probably would have withheld more and done a larger 60 day rollover allowing for more conversions.[/-]

Seems I've already pushed DH up two IRMAAs; and a quick and dirty shows that I've withheld enough to reach the next bracket. I'm going to have to figure out our income this week, so I don't push over. (I'll probably leave about 5k headroom to be on the safe side.)

 

[audreyh1]

Looks like next year we’ll be converting about $225K into our Roths. Less than this year to drop us into a lower IRMAA bracket. If the markets have a big drop as some pundits are calling for, we will take the hit with IRMAA and convert more shares at lower prices.

Wow!

 

[Chuckanut]

The IRMAA increases do bother me. So do the higher 2026 tax brackets that we are currently headed for (Will Congress will make the current ones permanent? I doubt it.) So, who knows? Save some IRMAA costs now and pay more taxes later? Or boost IRMAA in 2024 and but pay higher taxes in 2026?

It would be nice not to be under the threat of IRMAA and RMD.

 

[NW-Bound]

I find this graphic heat map representation pretty informative

https://www.bogleheads.org/w/images/6/6a/SSHeatMapMFJ2023.png

https://www.bogleheads.org/wiki/Taxation_of_Social_Security_benefits

With $60k of SS income you will hit a 22% marginal rate pretty early (marginal rate isn’t always the same thing as tax bracket ). If rates revert in 2026 as scheduled then they will be higher. Given that it would seem pretty safe to do more Roth conversions now at 22%.

Yes. If one cannot escape paying 22% or higher, then it's better to pay now than later. If the market continues to grow, one may get pushed by RMD beyond the 22% bracket. And then, after a spouse dies, say hello to 35%!

The sooner you pay, the more time the Roth gets to grow to make up for the shrinkage due to taxes.

Looking at the Bogleheads chart, it is easy to see that if one of the couple is delaying SS to 70, they need to do enough Roth to get all the 12% slots that are still open to them.


PS. Of course, if the market is going to shrink your IRA/401k like a deflated balloon, then there goes the fear of higher taxes.

 

[OldShooter]

... The sooner you pay, the more time the Roth gets to grow to make up for the shrinkage due to taxes. ...

No. Unless the account owner's tax rate changes, converting and not converting both produce exactly the same end result. See my post #23 above.

 

[Dash man]

No. Unless the account owner's tax rate changes, converting and not converting both produce exactly the same end result. See my post #23 above.

Except that we know under current law the tax brackets will revert to the pre TCJA rates after 2025 and for a joint couple there is a likelihood of one spouse passing before the other, resulting in the surviving spouse filing as an individual paying higher rates. Plus adding social security into the mix pushes us higher into tax brackets.

 

[RunningBum]

You come out a little ahead if you pay tax out of taxable, rather than the conversion, assuming the investments continue to grow and you eventually sell the part that stayed in taxable.

 

[OldShooter]

Except that we know under current law the tax brackets will revert to the pre TCJA rates in 2025 and for a joint couple there is a likelihood of one spouse passing before the other, resulting in the surviving spouse filing as an individual paying higher rates. Plus adding social security into the mix pushes us higher into tax brackets.

Of course. Expecting higher net marginal tax rates is the reason for doing conversions earlier. Almost the only reason.

But the math is the math and Roth conversions are simply a tax rate arbitrage play with future taxes somewhat unknown. No change in net marginal rates, no reason to convert.

 

[NW-Bound]

... for a joint couple there is a likelihood of one spouse passing before the other, resulting in the surviving spouse filing as an individual paying higher rates...

Yes. I mentioned that twice earlier. 22% or 24% sounds really good compared to 35%. Then, there's IRMAA.

And whatever in the IRA is left to the kids, they are already at 24% bracket. Say hello to 35% again.

PS. Unless the market tanks badly and I lose a lot, when I start SS and RMD, we will be in the 24% bracket. I only a few years left to shuffle money into our Roths.

And even if the market drops to 1/2, SS and RMD still keeps me in the 22% bracket.

Yes, no escaping 22%, so I might as well pay now.

PPS. And if I continue to get lucky with the market, I may get in the 35% bracket with RMD, but that's counting chicken before the eggs hatch. Still, there's no pitfall to having more money in Roth even if the market tanks, in my case.

 

[JBTX]

Yes. If one cannot escape paying 22% or higher, then it's better to pay now than later. If the market continues to grow, one may get pushed by RMD beyond the 22% bracket. And then, after a spouse dies, say hello to 35%!

The sooner you pay, the more time the Roth gets to grow to make up for the shrinkage due to taxes.

Looking at the Bogleheads chart, it is easy to see that if one of the couple is delaying SS to 70, they need to do enough Roth to get all the 12% slots that are still open to them.


PS. Of course, if the market is going to shrink your IRA/401k like a deflated balloon, then there goes the fear of higher taxes.

There are no guarantees either way, but if you are in the higher range of social security benefits (we will also eventually have 2 people drawing above average security ) it seems like the risk of the marginal rate being above 22% is higher than it being below 22%. I have been waffling and waiting to the last minute but i will probably do a modest conversion before end of year at 24%. It isn’t likely we will have much of any future room in the 12/15% brackets- as my wife plans to keep working, and there are several scenarios where rates could be higher (one spouse dies, rates increase, we both die and money goes into children’s trusts and taxed at much higher rates)

 

[audreyh1]

Except that we know under current law the tax brackets will revert to the pre TCJA rates in 2025 and for a joint couple there is a likelihood of one spouse passing before the other, resulting in the surviving spouse filing as an individual paying higher rates. Plus adding social security into the mix pushes us higher into tax brackets.

In 2026.

 

[Dash man]

In 2026.

Thanks. I meant to say “after 2025.” But my coffee hadn’t kicked in yet…still hasn’t. [emoji23]

 

[audreyh1]

As we get closer that one additional year makes a big difference!

 

[Dash man]

As we get closer that one additional year makes a big difference!

Yes it does! But if we can get it down to a manageable amount, QCDs will more than cover RMDs.

 

[TheWizard]

Big question I have for 2026 is: will we get full deductibility of state and local taxes back?
My total tax didn't really decrease when my marginal bracket went from 28% to 24% because of this limitation...

 

[Dash man]

Big question I have for 2026 is: will we get full deductibility of state and local taxes back?
My total tax didn't really decrease when my marginal bracket went from 28% to 24% because of this limitation...

As of now, yes. Who knows what will change?

 

[Ronstar]

We have no heirs. I'll do Roth conversion up to 12%. I went more than that once and didn't like the outcome. In our situation, it makes sense to pay later.

 

[MarieIG]

Big question I have for 2026 is: will we get full deductibility of state and local taxes back?
My total tax didn't really decrease when my marginal bracket went from 28% to 24% because of this limitation...

I was surprised, but my taxes went down. I was glad to see the AMT go - which was imposed upon us due to our deductions arising from state income and property tax. We hope to be out of our high income tax, high property tax, high sales tax, mediocre services location before the end of 2025.

 

[MarieIG]

Converted more cash this morning. I will keep an eye on the market to see if I want to transfer a few shares in kind before the end of the trading day if something is down . . .

 

[NW-Bound]

I have not done an accurate tax assessment, but have enough Roth conversion this year to come close to the top of the 22% bracket.

Mucho tax payment this year, compared to last year. I should not fear penalty for underpayment of taxes, as I have withheld plenty for taxes to satisfy the safe harbor requirement.

Currently, I have only 8% of investable assets in Roth. Still a long way to go.

 

[explanade]

How exactly does conversion work?

Can you do it from a 401k account still held by the former employer's custodian?

Or would I need to roll over, 8-9 years after I retired, to an IRA and then convert from that?


And is it a normal sell and then buy investments for Roth IRA account with the proceeds or is there a special type of transaction when doing ROTH conversions?

 

[oldtimer]

How exactly does conversion work?

Can you do it from a 401k account still held by the former employer's custodian?

Or would I need to roll over, 8-9 years after I retired, to an IRA and then convert from that?


And is it a normal sell and then buy investments for Roth IRA account with the proceeds or is there a special type of transaction when doing ROTH conversions?

You can convert from a former employer's qualified plan if the plan allows it. The IRS allows it - Rollover Chart. Of course the converted amount increases your income for the year and likely your taxes.

 

[explanade]

How exactly does conversion work?

Can you do it from a 401k account still held by the former employer's custodian?

Or would I need to roll over, 8-9 years after I retired, to an IRA and then convert from that?


And is it a normal sell and then buy investments for Roth IRA account with the proceeds or is there a special type of transaction when doing ROTH conversions?

You can convert from a former employer's qualified plan if the plan allows it. The IRS allows it - Rollover Chart. Of course the converted amount increases your income for the year and likely your taxes.

Thanks, what I mean to say is whether I can rollover from the 401k custodian over to a Roth IRA account in another institution and do that for a few years.

I would imagine the custodian of my former employer would not let me open or host a new Roth IRA account there.

I guess I will have to ask them.