Another Roth conversion question (spread over multiple years?)

[ncbill]

One of my retirement calculators now recommends I convert a ~$150k tIRA to Roth, all in 2021.

With a projected $30k in ordinary income, $30k in qualified dividends, MFJ w/1 dependent wouldn't we pay less tax spreading the conversion over multiple years instead?

Thanks for any feedback!

 

[SecondCor521]

Almost certainly yes.

The only exception I can think of is if your income in those multiple years is quite a bit higher than the $30K you project in 2021.

So if your 2021/2022/2023 income is $30K/$30K/$30K, then yes. If your income pattern is $30K/$150K/$150K, then maybe not.

 

[Out-to-Lunch]

Is this calculator I-ORP?

If so, are you specifying a different AA in your Roth vs. tIRA, or the same?

 

[pb4uski]

One of my retirement calculators now recommends I convert a ~$150k tIRA to Roth, all in 2021.

With a projected $30k in ordinary income, $30k in qualified dividends, MFJ w/1 dependent wouldn't we pay less tax spreading the conversion over multiple years instead?

Thanks for any feedback!

Yes, I would look at converting up to the top of the 0% qualified income tax bracket, which is $80,000 of taxable income for MFJ (2020)... you'll convert ~$44-45k a year and pay ~11-12% on that incremental $44-45k of conversion income.... so it'll take you about 4 years convert the whole ~$150k tIRA.

 

[pb4uski]

Almost certainly yes.

The only exception I can think of is if your income in those multiple years is quite a bit higher than the $30K you project in 2021.

So if your 2021/2022/2023 income is $30K/$30K/$30K, then yes. If your income pattern is $30K/$150K/$150K, then maybe not.

+1

 

[sengsational]

Is this calculator I-ORP?

If so, are you specifying a different AA in your Roth vs. tIRA, or the same?

That's a factor I mention often because the optimization drains bonds first, which isn't the way most people will execute withdrawals. There should be a checkbox on the page that says "I rebalance across all tax categories", and when that is clicked, it would give you a single column for stock/bond split, rather than the three columns (tIRA, Roth, taxable).

 

[Out-to-Lunch]

That's a factor I mention often because the optimization drains bonds first, which isn't the way most people will execute withdrawals. There should be a checkbox on the page that says "I rebalance across all tax categories", and when that is clicked, it would give you a single column for stock/bond split, rather than the three columns (tIRA, Roth, taxable).

I agree!

The way I handle it is to just put my desired global AA as the AA for each subaccount. There may be some 2nd-order effect of this that I haven't thought of, but it would seem to get the zeroth- and first-order actions correct.

 

[ncbill]

Is this calculator I-ORP?

If so, are you specifying a different AA in your Roth vs. tIRA, or the same?

NewRetirement's calculator...a new feature called "Roth Conversion Explorer."

No changes in AA...would choose the same investments in the Roth as in the traditional IRA, so arbitrage against potential future higher tax rates, while trying to minimize taxes paid on the conversion, thanks!