At what point did you stop doing Roth conversions?

[wearefinishedworking]

I am retired since Sept and DH will be retired by end of this year. 2021 gross income $220k. 2022 gross income will be only a $60K conversion to Roth so that we can get ACA coverage at reasonable rates. We will live off cash saved for the next year or 2. About 3 years to get to Medicare. Will do conversions or DH will take SS for income high enough to not be Medicaid eligible.

[Exchme]

Quote:

Originally Posted by COcheesehead I had a few years when I had to pay the additional 3.8% ACA tax when I was working. So getting a premium credit now is just sorta getting my money back.

Yep, NIIT is one of the nasty bits of the tax code that is not inflation adjusted, so it can come back and bite in later years, particularly if the inflation monster isn't tamed soon. It's one of the ugly surprises waiting in store for married folks after one spouse passes as the exempt amount is only $125K per person.

[RunningBum]

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Originally Posted by Exchme Yep, NIIT is one of the nasty bits of the tax code that is not inflation adjusted, so it can come back and bite in later years, particularly if the inflation monster isn't tamed soon. It's one of the ugly surprises waiting in store for married folks after one spouse passes as the exempt amount is only $125K per person.

$125K is for married filing separately. It's $200K for singles.

[sengsational]

It was pretty easy for me before... I'd enter estimates into the tax software in December and keep increasing until I got the ACA cliff, then back off a bit.

This year, for the first time, there's a ramp, so we'll see what that does.

Also, I'm not sure if the hits one takes on Medicare costs with increased MAGI will show in the tax software; DW will only have 2 months of ACA, and then Medicare. So it's becoming more complicated. One thing that's been consistent is that I-ORP has been recommending mega amounts, so I know I need to go as high as I can possibly stomach.

[FREE866]

This board is so helpful. Great points and information.


I'm 55. Started doing conversions in 2020. My plan is to do them every year up to the top of the 12% bracket. Like others have noted, when I start taking SS at 70 and RMD's at 72 I will get hit pretty hard with taxes so this will mitigate that somewhat.



Hope I'm doing this right; if I'm not please comment. Thank you

[Austin704]

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Originally Posted by Sunset OP - I would leave $250K in my IRA in today's dollars, unless I could do conversions for 0% tax. I would view this as medical insurance money, because many folks end up having high medical costs or nursing home costs. At that point, one can withdraw from the IRA and offset the taxes by the medical deduction that would otherwise go unused.

That's an interesting perspective and one I had not considered. Thanks!

[SecondCor521]

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Originally Posted by sengsational Also, I'm not sure if the hits one takes on Medicare costs with increased MAGI will show in the tax software; DW will only have 2 months of ACA, and then Medicare. So it's becoming more complicated. One thing that's been consistent is that I-ORP has been recommending mega amounts, so I know I need to go as high as I can possibly stomach.

It probably won't show in the tax software.

Tax software typically handles only federal and state income taxes.

I think the IRMAA Medicare surcharges would show up on your Medicare bill (if you're not on SS yet) or on your SS update statement (if you are on SS).

My Dad is on SS and subject to IRMAA, and I think on his annual SS update statement there's some verbiage about how there is a surcharge and what it's based on. I don't recall if it's shown as a base amount plus the surcharge, or just the total amount.

[mebden]

Hey Free I see we same age just curious what amount in retirement accounts had you pull the plug? If you will share or do you have pension money coming from where you worked at? As I'm trying to figure out my finances to pull the plug either when 56 or 57

Quote:

Originally Posted by FREE866 This board is so helpful. Great points and information. I'm 55. Started doing conversions in 2020. My plan is to do them every year up to the top of the 12% bracket. Like others have noted, when I start taking SS at 70 and RMD's at 72 I will get hit pretty hard with taxes so this will mitigate that somewhat. Hope I'm doing this right; if I'm not please comment. Thank you

[Sunset]

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Originally Posted by SecondCor521 This idea works mostly, but with the caveat that the medical deduction is subject to a 7.5% of AGI floor (at least this week ;-) ), and only to the extent that itemizing exceeds the (currently relatively high) standard deduction.

True, but when looking at nursing homes for DFIL, the average quality places, which are far from deluxe were $125K per year. Add in his Medicare and gap insurance and we were looking at over $130K before any medicine or extra costs.

That is a pretty large deduction allowing a large withdrawal from the IRA to be offset or more than offset.

[SecondCor521]

Quote:

Originally Posted by Sunset True, but when looking at nursing homes for DFIL, the average quality places, which are far from deluxe were $125K per year. Add in his Medicare and gap insurance and we were looking at over $130K before any medicine or extra costs. That is a pretty large deduction allowing a large withdrawal from the IRA to be offset or more than offset.

I was going to argue my previous point that the 7.5% floor and standard deduction mean it wouldn't be completely offset.

Ignoring other tax items and assuming $130K medical expenses, $130K traditional IRA withdrawal, $130K AGI, MFJ, then I think the person would have a $120,250 of itemized deductions. They'd end up with $9,750 of taxable income, which would all fit in the 10% bracket. So they'd have a tax bill of $975. (There'd probably also be a few hundred in state taxes.)

So on the one hand, I'm pretty sure I'm right in that it wouldn't be completely offset. On the other hand, that's mostly a technicality as most people would be pretty happy to pay $130K in medical expenses and only have a federal income tax bill of $975 and a few hundred in state taxes.

[FREE866]

Quote:

Originally Posted by mebden Hey Free I see we same age just curious what amount in retirement accounts had you pull the plug? If you will share or do you have pension money coming from where you worked at? As I'm trying to figure out my finances to pull the plug either when 56 or 57

Once my combined accounts hit ~ 25 x my annual expenses I was done. I do not have a pension. FIRECALC success rate was 100%. Have you plugged your numbers into that site?

[mebden]

Yes Free I have put my numbers in and thats why I'm looking probably at 57 as the age to fire as of now I'm at 80 to 85 percent success rate right now. So I'm just going to play it by how my funds grow.

Quote:

Originally Posted by FREE866 Once my combined accounts hit ~ 25 x my annual expenses I was done. I do not have a pension. FIRECALC success rate was 100%. Have you plugged your numbers into that site?

[misanman]

So, are ltc expenses 100% deductible as medical expenses?

[Brat]

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Originally Posted by RetiredHappy Payment from LTC policy should be tax-free, unless you mean something else.

I thought it is treated just like any other insurance, it is tax-free only to the extent that you incur the insured expense. If LTC cost (example only) $50,000 and the policy paid $70,000 wouldn't the $20,000 be included in income?

[SecondCor521]

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Originally Posted by misanman So, are ltc expenses 100% deductible as medical expenses?

I would think generally yes.

IRS Pub 502 discusses what qualifies as medical expenses. I don't recall the exact wording, but it's basically anything that helps treat any medical condition, whether physical or psychological.

If it's OK by Pub 502, then it is deductible.

ETA: Note that there are some very minor differences between "deductible on Schedule A" and "qualifying expense for HSA reimbursement" and maybe even "reimbursed by health insurance".

[misanman]

I guess it wasn't clear to me that care in a ltc facility was considered 100% medical, and thus deductible as such. Are in home assisted living expenses deductible? Are on site assisted living expenses deductible. Is there a housing or meals portion that is not deductible? I can imagine that custodial care in a skilled nursing facility could be completely deductible but not sure where the line is drawn for other situations.

[SecondCor521]

Quote:

Originally Posted by misanman I guess it wasn't clear to me that care in a ltc facility was considered 100% medical, and thus deductible as such. Are in home assisted living expenses deductible? Are on site assisted living expenses deductible. Is there a housing or meals portion that is not deductible? I can imagine that custodial care in a skilled nursing facility could be completely deductible but not sure where the line is drawn for other situations.

https://www.irs.gov/pub/irs-pdf/p502.pdf

[SAinMinn]

I'm in almost exactly the same boat. Age 54.5. Converted to the top of the 24% bracket this year, top of the 22% last year. Figure I'll keep it up through 2026. If all goes well, I'll have about 1M in each pre-tax and Roth, after drawing down my taxable brokerage account to pay the taxes. We shall see.

[RetireBy90]

Quote:

Originally Posted by SAinMinn I'm in almost exactly the same boat. Age 54.5. Converted to the top of the 24% bracket this year, top of the 22% last year. Figure I'll keep it up through 2026. If all goes well, I'll have about 1M in each pre-tax and Roth, after drawing down my taxable brokerage account to pay the taxes. We shall see.

I’ve been converting for 2 years now, trying to stay under IRMAA limit do $228K I think it is. Hope to continue for at. Least 2 more years at this level, then at a lower rate. My problem is all the booze I have to drink when I write those quarterly checks. Makes me cry every time.

[Koolau]

I stopped converting when every one of my tIRAs had been converted to Roth. At that point (and currently) my only non-Roth money in qualified plans is my one 401(K) plan. IF I ever choose to do more conversions (unlikely) I would need to transfer 401(k) money to new tIRAs and then convert. Now, I have exactly one RMD. It simplifies things. And, yes, I did convert some 401(k) money to tIRAs in the past, followed by Roth conversion. YMMV