Anyone Regret doing a Roth Rollover ?

[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?

 

[Whisper66]

I assume you are talking about an IRA to Roth conversion? If so, I just regretted pulling the trigger on a large conversion in early 2020. The stock I converted was around $70/shr. If I had waited until the big correction in March 2020, could have converted a much larger number of shares at around $45/shr for the same amount of $$. Oh well.

 

[Safire]

I converted too much in 2020 and didn't qualify for the stimulus checks as a result. UGH.

 

[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.

Even so, I don't really regret it. I just regret paying more taxes than I'd have had to otherwise. I've learned my lesson. Since I have unforeseeable income I just need to wait until the last quarter of the year before I do the conversion.

 

[Sunset]

No regrets.
in 2020 I kept them low so we would be under $150K to get the free money
I am now doing the same as harley , leaving it to the end of the year, so we don't get a surprise taxable event.
I will always keep $300K in my IRA, as LTC insurance, meaning if I need to spend it on medical/nursing home costs, there will be a giant tax deduction so most of it will end up tax free, so no need to convert.

 

[SevenUp]

I assume you are talking about an IRA to Roth conversion? If so, I just regretted pulling the trigger on a large conversion in early 2020. The stock I converted was around $70/shr. If I had waited until the big correction in March 2020, could have converted a much larger number of shares at around $45/shr for the same amount of $$. Oh well.

Same here. But that's just playing "if only I'd have known..." about specific tactics. No regrets about the strategy.

 

[DrRoy]

I converted too much in 2020 and didn't qualify for the stimulus checks as a result. UGH.

I raised my WR to 3% last year and the same thing happened.

 

[qwerty3656]

I will always keep $300K in my IRA, as LTC insurance, meaning if I need to spend it on medical/nursing home costs, there will be a giant tax deduction so most of it will end up tax free, so no need to convert.

So medical costs paid out of a regular IRA aren't taxed? What is the point of an HSA?

 

[Philliefan33]

So medical costs paid out of a regular IRA aren't taxed? What is the point of an HSA?

Medical expenses more than 7.5% of AGI are deductible for FIT purposes. If you have a year with high enough medical expenses (or any high deductions, really) you could withdraw IRA money without having to pay income tax.

 

[bingybear]

I have had roth conversions near local minimum and some not. Obviously I wish my timing was better.

Missing on stimulus if part of the game. In the long term the multi- 100k conversions is more beneficial for me

 

[Midpack]

No real regrets so far. IRMAA is a PITA but not a reason to avoid conversions. Having share NAVs fall after conversions is unfortunate but not really predictable. And I do my conversions quarterly so almost no chance of missing my income/bracket target - I do my fourth quarter conversion in Dec so I pretty much know my other income and YTD conversions so I can adjust the last conversion accordingly.

 

[RetiredHappy]

I have been toying with ROTH conversions since we retired 5 years ago. There was always something going on each year which made ROTH conversion very expensive and we had never done it.

We are now at 22% and 24% tax brackets, depending on whether capital gains for that year push us into the 24% bracket. It is just too much of a financial hit to pay taxes on ROTH conversions. We have about the same amount of net worth in taxable and tax deferred accounts. If/when one of us passes away first, we are looking at the dreaded 32% tax bracket. Then when both of us pass away, my son in California will be paying California income tax on inherited IRA withdrawals as well. It is just hard to win in this tax avoidance/reduction game.

 

[EastWest Gal]

I have been toying with ROTH conversions since we retired 5 years ago. There was always something going on each year which made ROTH conversion very expensive and we had never done it.

We are now at 22% and 24% tax brackets, depending on whether capital gains for that year push us into the 24% bracket. It is just too much of a financial hit to pay taxes on ROTH conversions. We have about the same amount of net worth in taxable and tax deferred accounts. If/when one of us passes away first, we are looking at the dreaded 32% tax bracket. Then when both of us pass away, my son in California will be paying California income tax on inherited IRA withdrawals as well. It is just hard to win in this tax avoidance/reduction game.

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

 

[Midpack]

I have been toying with ROTH conversions since we retired 5 years ago. There was always something going on each year which made ROTH conversion very expensive and we had never done it.

We are now at 22% and 24% tax brackets, depending on whether capital gains for that year push us into the 24% bracket. It is just too much of a financial hit to pay taxes on ROTH conversions. We have about the same amount of net worth in taxable and tax deferred accounts. If/when one of us passes away first, we are looking at the dreaded 32% tax bracket. Then when both of us pass away, my son in California will be paying California income tax on inherited IRA withdrawals as well. It is just hard to win in this tax avoidance/reduction game.

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...

 

[old medic]

RMDs and Soc Sec are what pushed me to start Roth conversions,

More SS than RMDs for us, but they wont help. FC shows major growth for us and prefer to BTD tax free...

 

[Sunset]

I have been toying with ROTH conversions since we retired 5 years ago. There was always something going on each year which made ROTH conversion very expensive and we had never done it.

We are now at 22% and 24% tax brackets, depending on whether capital gains for that year push us into the 24% bracket. It is just too much of a financial hit to pay taxes on ROTH conversions. We have about the same amount of net worth in taxable and tax deferred accounts. If/when one of us passes away first, we are looking at the dreaded 32% tax bracket. Then when both of us pass away, my son in California will be paying California income tax on inherited IRA withdrawals as well. It is just hard to win in this tax avoidance/reduction game.

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).

 

[Jenna]

OP Here...thanks for all the great input! Gathering info and mulling it all over to come up with our plan

 

[swakyaby]

Last year, I decided to initiate following i-ORP’s recommendation that I begin 5 years of large ROTH IRA conversions. So I did a $250K conversion in January 2020, and spent the whole rest of the year kinda regretting it, but unable to recharacterize the conversion due to new laws preventing that. I knew it would put me in a higher tax bracket, but it also caused me to return the ACA premium subsidy at tax time, and we no longer qualified for the stimulus money. Also, DH is facing IRMAA Medicare premium increases since he begins Medicare this month. So overall, I wish I had waited till December to make the decision instead of January. I would have made the amount much smaller, I think.

 

[ivinsfan]

Last year, I decided to initiate following i-ORP’s recommendation that I begin 5 years of large ROTH IRA conversions. So I did a $250K conversion in January 2020, and spent the whole rest of the year kinda regretting it, but unable to recharacterize the conversion due to new laws preventing that. I knew it would put me in a higher tax bracket, but it also caused me to return the ACA premium subsidy at tax time, and we no longer qualified for the stimulus money. Also, DH is facing IRMAA Medicare premium increases since he begins Medicare this month. So overall, I wish I had waited till December to make the decision instead of January. I would have made the amount much smaller, I think.

Obviously the key point is that you really didn't have enough info to make this decision. You can't make an informed move without knowing the details. You might have made the same call but there is no way these things should have been a surprise to you.



What are your plans for a conversions going forward, what's going to be the magic number tradeoff number?

 

[RunningBum]

Last year, I decided to initiate following i-ORP’s recommendation that I begin 5 years of large ROTH IRA conversions. So I did a $250K conversion in January 2020, and spent the whole rest of the year kinda regretting it, but unable to recharacterize the conversion due to new laws preventing that. I knew it would put me in a higher tax bracket, but it also caused me to return the ACA premium subsidy at tax time, and we no longer qualified for the stimulus money. Also, DH is facing IRMAA Medicare premium increases since he begins Medicare this month. So overall, I wish I had waited till December to make the decision instead of January. I would have made the amount much smaller, I think.

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/faq...m-subsidy-is-too-big-will-i-have-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.

 

[qwerty3656]

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]

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]

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]

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?!