Anyone Regret doing a Roth Rollover ?

[qwerty3656]

Quote:

Originally Posted by RunningBum The one thing I wish I had done was take more advantage of the special rule, I think it was in 2010, where you could convert and split the taxes over 2011 and 2012. It seems like the "convert now, pay the taxes a little later" strategy was worth a better look at the time than I gave it. Too late now, so I never figured out how big that mistake was after the fact.

I lucked out on that one - I converted in the beginning of 2010 while the market was still pretty low from the 2009 crash.

[Guamaniac]

Quote:

Originally Posted by Jenna Lots of data on why or why not to do Roth Rollovers but what I would really love to hear, anyone regret doing an IRA to Roth rollover. And if you did why?

I've been asking the same question myself. After doing some calculations on future RMD's I was astonished at those amounts especially when you reach 90yo. A recent (SS?) table showed that there was a 50% chance that one of us would live to that age. The amount for 90 was about half our current home price! I know it's inflated dollars but still...

But the problem I'm wrestling with is my WR is somewhat high from now (age 59) until we start social security (planning 2029ish) and our mortgage is paid off in 2028 then drops drastically. So do we take $15k a year to pay the taxes for conversion on top of the WR or spend that money now and enjoy it?

[Out of Steam]

To avoid having to time a stock sale, I have set up a monthly Roth conversion. I'm slightly ambivalent since it is at the 22% Federal tax bracket and most taxes are coming from the balance, but realize that when one of us is gone, the survivor will have to deal with both IRMAA and a 24% bracket at current rates.

[RunningBum]

Quote:

Originally Posted by Guamaniac I've been asking the same question myself. After doing some calculations on future RMD's I was astonished at those amounts especially when you reach 90yo. A recent (SS?) table showed that there was a 50% chance that one of us would live to that age. The amount for 90 was about half our current home price! I know it's inflated dollars but still... But the problem I'm wrestling with is my WR is somewhat high from now (age 59) until we start social security (planning 2029ish) and our mortgage is paid off in 2028 then drops drastically. So do we take $15k a year to pay the taxes for conversion on top of the WR or spend that money now and enjoy it?

Many of us find that spending and taxable income aren't related that closely. For example, if you have an asset with a very small unrealized capital gain, you can sell that asset and get those funds with very little tax impact.

The benefit of Roth conversions is primarily due to tax rate arbitrage. Figure out if you can spend what you want to but still have room at a tax rate lower than what you expect later to do Roth conversion too. You could always pay the Roth conversion taxes out of the conversion, though that reduces the conversion advantage. I'm not sure of the timing of that in a year when you turn 59.5. You want to avoid an early withdrawal penalty.

[RetiredHappy]

Quote:

Originally Posted by EastWest Gal Unless, of course, DS looks at his tax situation and the inheritance, and decides to move to a lower COL state, and retire himself.

With his disability, changes are very hard. I don't see him ever wanting to leave California. But who knows?!

[RetiredHappy]

Quote:

Originally Posted by Midpack RMDs and Soc Sec are what pushed me to start Roth conversions, we won't start either for 3-5 years (was 6-8 years when I started conversions). If you've already started RMDs and Soc Sec, Roth conversions probably won't matter anymore...

In my total panic with the decision to sell our business and retire 5 years ago at the age of 53, I turned my entire IRA into deferred income annuities which will start at age 60 and 70, running for 25 years. It is about 15% of our total portfolio but it calmed my panic of not making another dime from working. I turn 60 towards the end of next year, so my "RMD" is now my annuity payout. I will also start SS at 62 because my older husband took his starting at 70 a couple of years ago. The only reason why ROTH may make sense is to stuff it away and grow tax-free and at withdrawal for my son. Either way, he should have enough to live on. In case anyone wonders, he has a disability which makes it very difficult for him to find employment even though he has 2 Bachelor degrees. I support him financially.

[RetiredHappy]

Quote:

Originally Posted by Sunset The difference between 22% and 24% is pretty small. If that were the only issue, I'd convert to avoid the 32% rate as that is 10% more than 22%. However, you may need to look at the effect on IRMA , are you close enough in age that it would push you up to a higher rate for medicare. Also the NIT tax of 3.8% begins at $250K (married).

My husband is already hit with IRMAA as it stands. It is certainly a tough one whether to do conversion or not.

[Dtail]

Only converting through the 12% bracket for my DGF, as I get more bang for the buck in keeping MAGI very low for large tax subsidies until 65. Then I expect to do some converting on my side.

[TheWizard]

Quote:

Originally Posted by harley The only reason to I can think of to regret doing a Roth conversion is if your income ends up being too high and you get kicked into a higher tax bracket. I had that happen last year, due to a massively successful year with my side gig as well as an unexpected house sale. I had done a Roth early in 2019, based in my normal-ish income level. Since they had changed the law a couple of years earlier and got rid of the ability to recharacterize I was stuck.

Tax brackets apply to income incrementally, so if you were a few thousand into the next bracket, then it's just that few thousand that gets taxed at the higher rate.
But I agree on waiting until December to finalize your conversion amount for the year.

The IRMAA tier thresholds are much nastier than tax brackets for being a little over...

[captain3d]

If you have low enough income for max ACA health refund then it can be another regret

[BoredAtWork]

I did a small Roth conversion in 2020. Now I’m rethinking this of not doing any more. I’m in one of the highest income tax brackets and expect to be in a high tax bracket until retirement when I’ll drop down considerably. About 90% of wealth is in taxable accounts and only 10% in tax deferred. I was originally thinking I need to find ways to get more into tax deferred but I’m capped on contributions to IRA or Roth based on income level. Doing Roth conversions right now with income bracket so high doesn’t seem to make sense. Perhaps worth revisiting when retired but not until then.

[target2019]

Regretting the Roth Rollover?

Could be a dance craze in this decade.

[RunningBum]

Quote:

Originally Posted by BoredAtWork I did a small Roth conversion in 2020. Now I’m rethinking this of not doing any more. I’m in one of the highest income tax brackets and expect to be in a high tax bracket until retirement when I’ll drop down considerably. About 90% of wealth is in taxable accounts and only 10% in tax deferred. I was originally thinking I need to find ways to get more into tax deferred but I’m capped on contributions to IRA or Roth based on income level. Doing Roth conversions right now with income bracket so high doesn’t seem to make sense. Perhaps worth revisiting when retired but not until then.

Correct, it makes no sense to convert or contribute to a Roth with your income so high. The message you should be getting here is that Roth conversions are mainly a tax arbitrage play. The sweet spot is usually between early retirement and taking SS/RMDs/pension.

[chassis]

Regretting a Roth conversion seems likely to me, for a person who calculates the lifetime wealth impact of the conversions.

I don’t see actual calculations along those lines on this or many of the Roth threads. Just a lot of patting each other on the back for “tax arbitraging” and avoiding the much-feared “tax missile” or “torpedo”. Roth conversions provide a minuscule benefit to a small number of investors and only then under ideal conditions. Calculate the lifetime wealth benefit and convince yourself.

[finnski1]

Quote:

Originally Posted by RunningBum The one thing I wish I had done was take more advantage of the special rule, I think it was in 2010, where you could convert and split the taxes over 2011 and 2012. It seems like the "convert now, pay the taxes a little later" strategy was worth a better look at the time than I gave it. Too late now, so I never figured out how big that mistake was after the fact.

By sheer coincidence and not some brilliance on my part I did take advantage of that. Though at the time it wasn't a huge ($40K) sum, I did get to spread it out over 2 years.

[SecondCor521]

Quote:

Originally Posted by Jenna Lots of data on why or why not to do Roth Rollovers but what I would really love to hear, anyone regret doing an IRA to Roth rollover. And if you did why?

Not yet, but I almost did.

I typically do my Roth conversions in December when I know my tax situation. Last year I did about half of my 2020 Roth conversion in March when the market was down. Since conversions can no longer be undone, that conversion income was locked in.

At the end of last year, there was briefly an opportunity tax-wise that occurred to me, but it required ultra-low income. My Roth conversion from March prevented me from exercising that opportunity.

I subsequently decided that it wasn't the best choice tax-wise, but I briefly was in a situation where I could have regretted it.

...

There are other scenarios where I would regret Roth conversions, but I think they are unlikely (which is why I do conversions):

1. If the value of my traditional IRA drops greatly and I end up not facing the higher tax brackets that I currently predict.

2. If the tax treatment of Roth IRAs becomes more adverse.

3. If my children end up inheriting my traditional IRA and they are in low tax brackets during their 10ish year SECURE withdrawal window. Although in this scenario I'll be dead, so it's questionable how much regret I would experience.

4. If the taxability of my SS is lower than I expect, or if the amount of my SS is drastically lower than I predict.

[TheWizard]

Quote:

Originally Posted by Guamaniac I've been asking the same question myself. After doing some calculations on future RMD's I was astonished at those amounts especially when you reach 90yo. A recent (SS?) table showed that there was a 50% chance that one of us would live to that age. The amount for 90 was about half our current home price! I know it's inflated dollars but still... But the problem I'm wrestling with is my WR is somewhat high from now (age 59) until we start social security (planning 2029ish) and our mortgage is paid off in 2028 then drops drastically. So do we take $15k a year to pay the taxes for conversion on top of the WR or spend that money now and enjoy it?

Well, the RMD percentage at age 90 will generally apply to a lower balance in your tax-deferred account compared to your early 70s.
You can model this in a spreadsheet rather easily using a growth rate for your remaining portfolio of 6%, 8%, or whatever.
Reality, of course, is that mostly stock portfolios grow (or shrink!) at widely varying rates from one 12/31 to the next, but the spreadsheet gives you some idea of what might happen...

[ncbill]

Quote:

Originally Posted by RunningBum I thought that extra ACA subsidies did not have to be paid back for 2020, that year only? That's what it says in https://www.healthinsurance.org/faqs...e-to-repay-it/ and I've seen a lot of discussion here. I converted to the top of the 25% bracket a few times in retirement, not predicting that tax brackets would drop, but I used the best info I had at the time, so I don't regret that. The one thing I wish I had done was take more advantage of the special rule, I think it was in 2010, where you could convert and split the taxes over 2011 and 2012. It seems like the "convert now, pay the taxes a little later" strategy was worth a better look at the time than I gave it. Too late now, so I never figured out how big that mistake was after the fact.

Wasn't there an offer years earlier to split the taxes over 4 years?

I want to stay in the 12% federal bracket (MFJ) so it will take me several years to convert my small rollover IRA.

[braumeister]

Quote:

Originally Posted by RunningBum The one thing I wish I had done was take more advantage of the special rule, I think it was in 2010, where you could convert and split the taxes over 2011 and 2012.

Yes, that's exactly how it worked. A one-time good deal, unfortunately. I took advantage of it and converted my entire TIRA using that. Should have done at least some of DW's larger TIRA as well, but at least I got the break.

[BubbaChris]

Quote:

Originally Posted by captain3d If you have low enough income for max ACA health refund then it can be another regret

Right now I'm trying to figure out the ARP rule that limits ACA premium payments to 8.5% of income for this year and 2022. If it's really that straight forward, I'll be evaluating the value of a ROTH conversion versus taking LTCGs in my after-tax account.

Best regards,
Chris