Is this a good strategy

[nun]

Nun and ERBob--
Paying the (15%) taxes with after-tax funds is equivalent to contributing an additional 15% (of the rollover amount) to your Roth IRA. So no wonder this scenario comes out ahead in the end! You're able to roll $100K (eventually) from your TIRA, which is subject to taxes upon withdrawal, directly into your Roth IRA, which is not subject to taxes. Really, though, what you have done is taken an after-tax $15K and indirectly add it to the Roth IRA to make up for the taxed portion.

I've been making RMD's from an IRA I inherited from my dad for the last several years. It's not so tough. You make a spreadsheet one time for the annual % withdrawal for the next XX years and then just paste in your year-end balance each January 1. Or have Vanguard/Fidelity calculate it for you. The difficult part for me is paying the 30+% tax on the RMD that I don't need anyway.

Thanks for the comments. When I have to pay a large tax bill I usually remind myself that I'm lucky to be making enough money to pay a big bill, it helps a bit ;-)

Given a 3% indexing of the 15% tax bracket level and my need to tap the IRA at 60, if I did no ROTH conversions I don't think my eventual IRA RMD and SS payments would push me over the 15% level.

The winning parts of the annual ROTH conversion are paying for it with after tax $$$ and keeping it at a level where you only have to pay 15% tax, if you're really frugal and have a few deductions maybe even 10%.

As an aside, as I'm going to be living in the UK I'll be able to exclude $80k per year of foreign income and get tax credits making my US income 0. So I should be able to convert an amount upto the full 15% level plus any standard US deductions each year. I'm still not sure if the ROTH conversion will be taxable in the UK, although I imagine I'll get a credit there for the 15% tax I pay in the US. This is where I really need a CPA

 

[Nords]

I've been making RMD's from an IRA I inherited from my dad for the last several years. It's not so tough.

Welcome to the board, scrinch.

I agree that many things are "not so hard", but RMDs are such a burden to my FIL that he's an ideal candidate for a Roth conversion just to simplify his life.

His traditional rollover IRA is a three-decade mishmash of employer contributions, employee before-tax contributions, employee after-tax contributions, and a lump-sum incentive to quit. His son is a CPA who has copies of the piles of paperwork needed to calculate the various bases on these different classes of money, but he's a guy who doesn't even have Excel on his computer. Even when he can read the spreadsheet, he can't follow through the RMD calculations without the discussion degenerating to a series of four-letter words about "those bahstids".

I suspect that there are a lot or RMD-required senior citizens who wish they didn't have to do this, no matter how hard it is or isn't.

Or have Vanguard/Fidelity calculate it for you.

I wonder who pays the penalty if Vanguard/Fidelity come up with the wrong RMD...

 

[Jarhead*]

Welcome to the board, scrinch.


I wonder who pays the penalty if Vanguard/Fidelity come up with the wrong RMD...

Nords: Unless you have the bad luck of being the 1% or so each year that is subject to an audit, it would be a non-event. (Under-drawing your RMD).

Your RMD carriers do not send out anything to the IRS regarding what you are required to take out. Their only obligation to the IRS is to report what you have received.

Hell, odds are, your FIL could play "audit roulette" and let you guys sort it out later when you inherited it.

All in all, not a big deal at all.

 

[Nords]

Hell, odds are, your FIL could play "audit roulette" and let you guys sort it out later when you inherited it.

He probably is!

If he hasn't already disinherited us in favor of his much-more-spoiledfavored granddaughter, we should ask him to put a disclaimer clause in his will so that we can ensure that it becomes her problem...

 

[ESRBob]

One other point on Roths -- may not apply to everybody but if you are in a position where you may never actually need to draw down your principal (ie you can let your Norwegian Widow strategy crank out divvies and interest for you year after year) then you could plan to die with your IRA intact, if it is a Roth, and never have to pay the taxes in your lifetime. Being forced into any withdrawal scenario in your IRA could be not only a pain, but unecessary. Again, if you're going to need the IRA moneys for living expenses this isn't such an issue, but if you can leave them in place, Roth wins again.

Nords, good point on the inheritance -- people are living so long that it may become the norm to give funds to grandchildren and skip children, who could be in their 80s before the first generation dies.