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Annual Roth Conversions All at Once Early? Late? 4 Equal Pymts?
Old 02-13-2020, 04:21 PM   #1
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Annual Roth Conversions All at Once Early? Late? 4 Equal Pymts?

This was discussed briefly a while back but I cannot find it.

Those who do large annual Roth conversions, do you:
  1. Do a big (e.g. 80% of planned) conversion and pay big estimated taxes early in the year with a small trim conversion and taxes at year end.
  2. Wait until year end when all other income is largely known and convert and pay estimated taxes in Dec/Jan.
  3. Plan on converting about 1/4 of planned amount each quarter, paying about 1/4 of estimated taxes quarterly.
  4. Other.
I’m leaning toward the first option just to have tax free growth start sooner rather than later.

Other suggestions?

I’d like to convert 95% now and pay no estimated taxes until Jan - but I know that won’t fly with the IRS (without penalty).
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Old 02-13-2020, 04:31 PM   #2
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I’m in the year-end camp. Managing for ACA and a few moving pieces on income and expenses during the year.

When that changes, I think I will mostly front load the conversion (50%) and be a DMT “buying the dips” with the balance
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Old 02-13-2020, 04:35 PM   #3
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I have been doing it at the end of the year for no particular reason... it just dovetails well with my year-end tax planning.

It'll be later again this year because I want to wait until we are officially Florida residents to do my Roth conversions to make it clear that it is Florida income and not Vermont income.

But for 2021 and beyond, I'll probably do your #1 with a twist. I'll do most of it early to grow tax free and then do a conversion with high percentage withholdings to pay my taxes in December to top it up to target. So for example, let's say I think I can do $100k and will pay $16k in tax.... I'll do $80k in January with no withholdings and then $20k in with $16k federal tax withheld in December.
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Old 02-13-2020, 04:45 PM   #4
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I am a January guy. Convert and tell Fido to pay the taxes.
Not managing for ACA.
Know that my Medicare premium will increase.
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Old 02-13-2020, 04:47 PM   #5
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I do my Roth conversions in December because I value having knowledge and control over my tax situation more than I do saving some money by converting earlier in the year. Also, I'm at a period in my life where my tax situation is not 100% deterministic - depends on how much money my kids make, and whether they're enrolled in college, etc.

In a few years, if things stabilize, I'll probably consider doing a moderate conversion (half of target, maybe) in January and the rest in December.
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Old 02-13-2020, 05:06 PM   #6
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https://www.early-retirement.org/for...ng-101309.html

(this is the earlier thread/poll you were most likely looking for)
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Old 02-13-2020, 05:08 PM   #7
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Quote:
Originally Posted by RunningBum View Post
https://www.early-retirement.org/for...ng-101309.html

(this is the earlier thread/poll you were most likely looking for)
Thanks. How on earth did I miss that?

Wish I could stop this duplicate thread...
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Old 02-13-2020, 05:41 PM   #8
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I just started conversions last year and there were several moving pieces tax wise, DW started SS, got payout from mom’s annuity that was partly taxed so I did end-of-year conversion.
This year I did most of it in Jan as I moved 300 shares of Boeing at about $313 and saved on tax bill N.Y. moving when they were down. I plan to wait for 10% or greater drop and conver more, or if not then in Dec when I can verify my income projections are correct.
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Old 02-13-2020, 06:19 PM   #9
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Wait until year end when all other income is largely known and convert and pay estimated taxes in Dec/Jan

This
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Old 02-13-2020, 07:13 PM   #10
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I'd love to do it early, so my goal would be something like your number 1 option. But our finances are a quickly moving target, and I never know until the end of the year (if then) what the final tax situation will look like. So I do it at the end, if at all. I pay my estimated taxes plus 10% to stay in the safe harbor, and then at the end of the year I convert (if I have room) and just pay whatever is due in April.

I'm hoping 2020 will be a little calmer, with no home sales or purchases or other major taxable events. I'm 64 now, and I'd like to get a lot of my tIRA converted before SS and RMDs kick us into an even higher tax bracket.
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Old 02-13-2020, 08:26 PM   #11
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Our strategy:

1. Convert early. No withholding from the conversion or any other income / distributions through the year. The conversion earnings accrue in the no-tax Roth instead of the taxable traditional IRA for the whole year.

2. Mid-December we take a distribution for our total estimated tax liability. We use Fido and they allow withholding up to 99% of a distribution. So, if we expect to owe $2000 Federal and $900 State we would take a $3000 distribution with 67% Federal withholding and 30% State withholding. The IRS considers withholding to be across the entire year so no need to make early-year guesses or file quarterly payments.

Here is Ed Slott's confirmation that this is legit (see the "IRA Witholding" section):
https://www.irahelp.com/slottreport/...s-and-when-not

We have found this to be the least-hassle, most-accurate way of paying what is due.

Yes, we lose out on the option of paying the tax with after-tax money (going against Slott's other recommendation) but we are taking IRA money for spending each year so we would be paying the tax with IRA money anyway. Plus, the money that would have been paid quarterly or at time of distribution keeps on earning until December.

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Old 02-13-2020, 08:29 PM   #12
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I do both monthly and end of year.
The $1500 monthly started about five years ago when I found I had excess retirement income most of the time, so I changed the $1500 from going to my checking account to going to my Roth IRA.

Early December, I look at my AGI for the year compared to IRMAA thresholds, etc and do an additional lump conversion...
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