At what point did you stop doing Roth conversions?

[RunningBum]

I have just looked back at my 2016 MFJ return. AGI was $158,942 with taxable income at $118,938. This is squarely in the middle of the 25% tax bracket. Total FIT paid was $0. Yes, zero.

You must've had some great tax credits to offset the tax calculated on line 44.

 

[RunningBum]

We have never qualified for ACA subsidy - nor should we IMHO with our level of assets

Yes, thanks I realized that we would start to qualify for ACA premium subsidy, and I have just applied through Healthcare.gov for 2022 and will receive an estimated $390/month PTC. First time ever!

Funny how perceptions about getting the ACA subsidy can abruptly change when you find yourself eligible!

I get the subsidy most years too, even with what most would consider a pretty high level of assets. Maybe I'd have felt the other way had I not received a subsidy from the start.

 

[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.

 

[SecondCor521]

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.

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.

 

[Brat]

We are well into RMD age. I am considering taking more $ from our rIRAs beyond our RMDs up to close the 12% bracket and move that to our RothIRAs.

I just looked at our LTC policy. It pays more than I anticipate the cost of LTC so, should one or the other of us become incapacitated our taxable income could increase substantially.

 

[RunningBum]

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.

Plus it's unlikely you'll need this kind of care at 72. You could easily have a decade of RMDs before you meet the medical requirements to be able to deduct nursing home care.

My mother (now 85) is in her first full year of memory care, and I've spent this week planning out the best strategy for tIRA withdrawals this year and for their remaining years until their money runs out in 4-6 years, depending on how long my father lasts with his terminal cancer. I could get them to $0 taxes for at least a couple years but I think it works better to take a little more out of their IRA and taxable income in the 10% bracket each year. I think they had pretty much everything in their tIRA until they sold their smallish house. It probably worked out ok. In hindsight delaying SS would've been a lot better but I don't think either of them figured to be around 25 years after retirement.

For my own case, I'm hoping to fully convert my tIRA before 70 and if I need memory care or assisted living I can sell appreciated stock for some income that could be written off, along with the dividends they throw now, and SS. I wonder if I'll be able to do all of the calculations in 25 years.

 

[RetiredHappy]

We are well into RMD age. I am considering taking more $ from our rIRAs beyond our RMDs up to close the 12% bracket and move that to our RothIRAs.

I just looked at our LTC policy. It pays more than I anticipate the cost of LTC so, should one or the other of us become incapacitated our taxable income could increase substantially.

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

 

[Alan]

I finished my last Roth conversion in 2019 and have no other tIRA money.

My wife will finish her conversions next year.

 

[Dtail]

Funny how perceptions about getting the ACA subsidy can abruptly change when you find yourself eligible!

I get the subsidy most years too, even with what most would consider a pretty high level of assets. Maybe I'd have felt the other way had I not received a subsidy from the start.

Good catch. lol
Been saying it for a long time. Most of the folks who are against the subsidies just can't qualify for them.

 

[Dtail]

DGF doing Roth conversions currently and I intend to do them at age 66 until RMD's.

 

[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]

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]

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]

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]

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

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]

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]

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]

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.

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]

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]

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".