Hi everyone,
I have a tax-deferred retirement account that I intend to leave invested before taking RMDs at age 70.5, but I’m starting to consider converting some or all to a Roth account sooner than later. Here are a few particulars:
*53 years of age, not working
*$500K in tax-deferred rollover IRA account (70/30 AA)
*Non-COLA’d pension covers all current expenses
*24% marginal tax bracket (if current rates expire in 2025, I’ll jump up to 28%)
*Could convert about $50,000 per year to the top of the 24% bracket
*Enough in taxable accounts to pay taxes on $50,000 annual conversions ($12,000 per year—ouch!)
*Past the second “bend point” for SS benefits—plan to delay until age 70, so expect fairly high SS income.
I figure these tax-deferred investments could reasonably be expected to double to $1M before I reach age 70.5 (17 years) and all withdrawals would be taxed at the highest marginal rate (24% now, 28% if not renewed). Likely 85% of my SS benefits will also be taxed and I could possibly end up in a higher bracket with SS and RMDs.
So, I’ve been thinking I would be better off converting up to the top of the 24% tax bracket at least until 2026 when rates could go up. I could convert more than half of the current balance if I start in 2020. I would probably not convert at 28%—just too painful.
If rates don’t go up, I haven’t really lost anything by converting since I’d be paying at least 24% on withdrawals anyway—and I would have the added advantage of some tax-free Roth growth along the way. What’s holding me back is the relatively high tax bracket I’m in now and the tax hit. But with the pension I don’t see it going any lower in the future. It seems to be a case of “pay me now or pay me even more later.”
Another option is to let the tax-deferred account ride until 59.5 and then start pulling $ out over time, paying the taxes, and investing the disbursements in a taxable account to avoid RMDs at age 70.5+. But if I’m going to do that, seems I may as well convert to Roth.
Thoughts?
I have a tax-deferred retirement account that I intend to leave invested before taking RMDs at age 70.5, but I’m starting to consider converting some or all to a Roth account sooner than later. Here are a few particulars:
*53 years of age, not working
*$500K in tax-deferred rollover IRA account (70/30 AA)
*Non-COLA’d pension covers all current expenses
*24% marginal tax bracket (if current rates expire in 2025, I’ll jump up to 28%)
*Could convert about $50,000 per year to the top of the 24% bracket
*Enough in taxable accounts to pay taxes on $50,000 annual conversions ($12,000 per year—ouch!)
*Past the second “bend point” for SS benefits—plan to delay until age 70, so expect fairly high SS income.
I figure these tax-deferred investments could reasonably be expected to double to $1M before I reach age 70.5 (17 years) and all withdrawals would be taxed at the highest marginal rate (24% now, 28% if not renewed). Likely 85% of my SS benefits will also be taxed and I could possibly end up in a higher bracket with SS and RMDs.
So, I’ve been thinking I would be better off converting up to the top of the 24% tax bracket at least until 2026 when rates could go up. I could convert more than half of the current balance if I start in 2020. I would probably not convert at 28%—just too painful.
If rates don’t go up, I haven’t really lost anything by converting since I’d be paying at least 24% on withdrawals anyway—and I would have the added advantage of some tax-free Roth growth along the way. What’s holding me back is the relatively high tax bracket I’m in now and the tax hit. But with the pension I don’t see it going any lower in the future. It seems to be a case of “pay me now or pay me even more later.”
Another option is to let the tax-deferred account ride until 59.5 and then start pulling $ out over time, paying the taxes, and investing the disbursements in a taxable account to avoid RMDs at age 70.5+. But if I’m going to do that, seems I may as well convert to Roth.
Thoughts?