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Old 10-17-2019, 01:01 AM   #21
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WADR staying in the 12% bracket is a no brainer for almost anyone. It's become clear we can better preserve our nest egg by converting more aggressively (to 22% or 24%) even if tax rates stay as is (seems highly unlikely to me). The software I am using clearly shows limiting ourselves to 12% would cost us dearly in the long run. Yes our taxes will be higher over the next 6 years, but lower in the aggregate over the next 30. And yes, it's a first world problem, we're grateful for if not a little ashamed about...
Exact same decision here but I doubt it will be a 30year aggregate of savings for us, that would put us at 93 & 99! As mentioned, the real killer is for increased taxes for the survivor. Really only saving maybe $15k in taxes total for converting in the 22 vs 25 after 2025. Going from MFJ to Single is far worse.
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Old 10-17-2019, 05:41 AM   #22
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Who does a person need to visit with about if a roth conversion is BEST for you? I am 66 just retired in July drawing SS and wife is still working with a good job and we are probably in 20% tax bracket.

Thanks in advance...
There is no 20% tax bracket. You should be able to figure out which tax bracket you'll actually be in this year. What's trickier is forecasting which tax bracket you'll be in when you start RMDs, and both of you are drawing SS, and presumably neither is working. If it's the same bracket or higher, I'd probably convert to the top of that bracket, but as others have said, there are other factors. You might try using i-orp.
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Old 10-17-2019, 06:10 AM   #23
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Who does a person need to visit with about if a roth conversion is BEST for you? I am 66 just retired in July drawing SS and wife is still working with a good job and we are probably in 20% tax bracket.

Thanks in advance...
It’s not enough to me, but start with iORP for free, it might be all you need. From there it costs from $20 to no limit. There are thousands of sources, some great and some useless. I’m working with an online firm that’ll end up costing me $145. The more financially savvy you are, the less it could cost - IOW it’ll probably cost a lot (e.g. $1500) to get good advice if you’re not a hands on investor.

But you probably realize “the answer” is unknowable as there are several unknowns, future tax rates, future Soc Sec, sequence of returns, actual spending needs, longevity (widows), heirs, etc. Even the best advice depends on all your assumptions coming true...
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Old 10-17-2019, 08:34 AM   #24
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I've just started doing conversions this year. I'll add another $70K in December or before if we get a drop in the market. My plan is to convert now up to top of 22% and then about $35K in 24% federal bracket, careful to keep taxable below $214K to avoid higher IRMAA for Medicare. This will get most of TIRA converted to Roth by 2025 when current rates are scheduled to revert back to previous levels. I will be able to afford the taxes from after tax accounts so for me it is taking care of the hit now while I know I can afford. Then when I need the Roth money I can take without having to worry about the tax implications. I did run the plan by my Fido advisor who has been very helpful and she only suggested I could get more aggressive with slightly higher conversions each year. I'll have a small amount left and I'm OK with that come 2026.



There are 2 other threads I've been following on the topic that should be of interest for those thinking of conversions or devising a plan for how much and when to convert.

http://www.early-retirement.org/foru...ion-99854.html

http://www.early-retirement.org/foru...ns-100021.html
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Old 10-17-2019, 12:42 PM   #25
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There is no 20% tax bracket. You should be able to figure out which tax bracket you'll actually be in this year. What's trickier is forecasting which tax bracket you'll be in when you start RMDs, and both of you are drawing SS, and presumably neither is working. If it's the same bracket or higher, I'd probably convert to the top of that bracket, but as others have said, there are other factors. You might try using i-orp.
What is the significance of the bold text?
I'm assuming you are looking for the top bracket.

death of a spouse often creates a notable increase in tax rate.


If someone uses a longevity annuity then the max tax rate may bump may be about be 10 years or so later than the typical RMD time.

Maybe you have another reason for identifying that time.

There are many things that can jump your tax rate...
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Old 10-17-2019, 02:00 PM   #26
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What my personal calculations have shown me is that it was worth it (more yearly spending possible) to Roth convert even a few percent beyond the estimated RMD tax rate if you are far enough away from Roth withdrawals (maybe more than 8 or so, everyone will be different). The benefit of essentially moving money from a taxable account to a Roth account exceeds the added tax.

Then we have a few years of Roth converting to the top of the same RMD tax bracket. Then we have five or so years of Roth converting just to the top of lower tax brackets and taking 0% capital gains. We'll have more than enough gains by then, and the benefit of moving taxable money to the Roth account for only a few years is small. We'll probably start Roth withdrawals about the same time as RMD's start (10 more years since all remaining tIRA's are in DW's name).

So three different Roth conversion modes for us, and that doesn't even include ACA limits, or tIRA inheritance, or paying taxes later at the single rates. The good thing is that just getting somewhat close to your optimum strategy gets you nearly all the benefits. At the optimum there's lots of trade-offs, like ACA subsidies vs. Roth conversion. Both can result in a substantial benefit, and there may be only a small difference between choosing one or the other. Especially considering the level of uncertainties involved.
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Old 10-17-2019, 02:14 PM   #27
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Originally Posted by RunningBum
There is no 20% tax bracket. You should be able to figure out which tax bracket you'll actually be in this year. What's trickier is forecasting which tax bracket you'll be in when you start RMDs, and both of you are drawing SS, and presumably neither is working. If it's the same bracket or higher, I'd probably convert to the top of that bracket, but as others have said, there are other factors. You might try using i-orp.

What is the significance of the bold text?
I'm assuming you are looking for the top bracket.

death of a spouse often creates a notable increase in tax rate.


If someone uses a longevity annuity then the max tax rate may bump may be about be 10 years or so later than the typical RMD time.

Maybe you have another reason for identifying that time.

There are many things that can jump your tax rate...
The main thing is, you don't even know what tax rates will be in a few years. The latest tax cuts are set to expire after (in?) 2025. Will the cuts be extended, will they revert to the old brackets, or will they become something else?

Death of a spouse is certainly a major factor as you point out.

Will stocks continue surging up, taking taxable dividends with them? Will you have a need to take more capital gains for some reason, causing them to be taxed?

The future is always going to be harder to predict than the present.

I identify that particular time, mainly the start of RMDs, which certainly means that SS is being collected, under present rules; end of working was an assumption on my part. That's when the conversion opportunity often goes away, and it's when retirement income is usually at it's highest. And it's the meaningful time to compare rates: the rate I'm at now vs. and the rate I'd be at if I have to take RMDs. This tells me whether it's beneficial to convert or not.
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Old 10-17-2019, 04:21 PM   #28
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The main thing is, you don't even know what tax rates will be in a few years. The latest tax cuts are set to expire after (in?) 2025. Will the cuts be extended, will they revert to the old brackets, or will they become something else?

Death of a spouse is certainly a major factor as you point out.

Will stocks continue surging up, taking taxable dividends with them? Will you have a need to take more capital gains for some reason, causing them to be taxed?

The future is always going to be harder to predict than the present.

I identify that particular time, mainly the start of RMDs, which certainly means that SS is being collected, under present rules; end of working was an assumption on my part. That's when the conversion opportunity often goes away, and it's when retirement income is usually at it's highest. And it's the meaningful time to compare rates: the rate I'm at now vs. and the rate I'd be at if I have to take RMDs. This tells me whether it's beneficial to convert or not.
I agree that many think that RMD time ends the opportunity to convert. I shouldn't at least for a married couple if they have not planned for death of a spouse. At that point you may still have the ability to save some $.

As I noted earlier that RMDs can effectively be moved later with longevity annuities (QLAC). This could move RMD taxes well above 70.5 yo. But then I guess you could use 80 yo or higher.

Personally I'm dealing with an aging relative that is getting killed by the taxes after the death of a spouse. So my target to deal with is taxes after one spouse is gone. Not the start of RMDs. This relative was widowed a decade ago. When we see her at the facility she lives in we notice there are many females and very few men. I have not looked at the stats, but I'll bet that most couples will have significant time being single after the death of a spouse...
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Old 10-17-2019, 04:33 PM   #29
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^^
All valid points. I was just using RMD time as a typical time to evaluate against, but not the only time. I'm planning to get fully converted by then.
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Old 10-17-2019, 04:46 PM   #30
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I agree that many think that RMD time ends the opportunity to convert. I shouldn't at least for a married couple if they have not planned for death of a spouse. At that point you may still have the ability to save some $.
My plan, should we both live long enough, as to take my RMD, and then convert to the top of the bracket we are in (or the next one if it is still 22/24).

In reality, my tIRA will all go to DS, minus what we take or convert. Same goes for the Roth. So, We are simply pre-paying taxes for DS. If tax laws change, this might change.
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Forecasting Taxable Amount
Old 10-19-2019, 08:10 AM   #31
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Forecasting Taxable Amount

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Originally Posted by kaneohe View Post
The basic question about conversions asks about the rate at conversion vs
rate if you don't convert. If you convert now at rate X vs not converting and
then withdrawing at rate X, the math suggests that the result is the same.
I originally asked a dumb question and I edited it out.
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Old 10-19-2019, 09:02 AM   #32
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There is no 20% tax bracket. You might try using i-orp.
Sorry, I don't usually have my income tax beside me when I am posting. I had been in the 28% but last year was in the 24%. Thanks for the answer about looking into i-corp.
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Old 10-19-2019, 09:25 AM   #33
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As mentioned, the real killer is for increased taxes for the survivor. Really only saving maybe $15k in taxes total for converting in the 22 vs 25 after 2025. Going from MFJ to Single is far worse.
+1

In similar situation, we convert at today's 22% marginal rate up to the first IRMAA limit of $170,000 MFJ. Savings due to possible 25% marginal rate in the future are minimal. But, potential savings based on one spouse surviving the other become significant depending on length of survivor period.

Consider a kicker - Future means testing of SS benefits similar to the IRMAA method is a possibility that will make past conversions beneficial.
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Old 10-22-2019, 04:22 PM   #34
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Midpack,
Please let us know what your adviser recommends. I am converting every year to fill the 24% bracket per i-orp model, rightcapital software. and videos from Heritage Wealth Planning
https://www.youtube.com/channel/UCSE...rKPoaU9z0_XbmA
Roth helps avoid the widow's tax trap, keeps medicare premiums low, avoids potentially higher future fed tax brackets, provides tax free growth, avoids RMDs, and provides tax free inheritance.
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Old 10-22-2019, 10:40 PM   #35
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We have been converting $100k-125k per year from age 62 on. The goal is to have 100% converted by age 70. We will hopefully start to draw our max of Social Security then. Between two small pensions and Social Security, we should be around $100k, not counting investment income.

This is getting to a top number for relatively cheap tax rates for a couple. If RMDs get added too, we would be paying big tax bills. Our draw from our combined nest egg is around 3%.

I ran the numbers for us. IRA to Roth gets taxes at high rates, so we convert IRA money while drawing from compounded regular investments to pay the taxes and to carry us untill Social security starts.being drawn.
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Old 10-22-2019, 10:56 PM   #36
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We have been converting $100k-125k per year from age 62 on. The goal is to have 100% converted by age 70. We will hopefully start to draw our max of Social Security then. Between two small pensions and Social Security, we should be around $100k, not counting investment income.

This is getting to a top number for relatively cheap tax rates for a couple. If RMDs get added too, we would be paying big tax bills. Our draw from our combined nest egg is around 3%.

I ran the numbers for us. IRA to Roth gets taxes at high rates, so we convert IRA money while drawing from compounded regular investments to pay the taxes and to carry us untill Social security starts.being drawn.
Converting 100% could be a mistake.
Later in life you many have giant medical bills, and then could take a withdrawal from the IRA and offset the income with the medical expense.

Leaving $100K -> $200K in the IRA would make you more flexible, mean your conversions would be less taxing, and the RMD on $200K is only about $5,400 income.
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Old 10-23-2019, 05:34 AM   #37
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Converting 100% could be a mistake.
Later in life you many have giant medical bills, and then could take a withdrawal from the IRA and offset the income with the medical expense.

Leaving $100K -> $200K in the IRA would make you more flexible, mean your conversions would be less taxing, and the RMD on $200K is only about $5,400 income.
I've seen this a couple times recently (maybe both from you?) and I'm trying to understand it better.

What giant medical bills will there be that aren't covered by Medicare? Nursing home costs?

Couldn't you use the medical expense deduction to offset the income from SS and pensions? It doesn't have to come from an IRA, does it?
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Old 10-23-2019, 05:52 AM   #38
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I occasionally run some spreadsheets and have trouble convincing myself that it makes a that much of a difference. There seems to be more mileage in reducing LT cap gains income thrown off by a few inefficient taxable mutual funds. Fortunately our IRAs are only 13% of our retirement investments, so it’s not like we have an outsized torpedo. Nevertheless, some of it plus SS will be taxed at higher brackets. Still have a few years to work through our options.
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Old 10-23-2019, 07:10 AM   #39
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I occasionally run some spreadsheets and have trouble convincing myself that it makes a that much of a difference. There seems to be more mileage in reducing LT cap gains income thrown off by a few inefficient taxable mutual funds. Fortunately our IRAs are only 13% of our retirement investments, so it’s not like we have an outsized torpedo. Nevertheless, some of it plus SS will be taxed at higher brackets. Still have a few years to work through our options.
Look at this thread

Is mass roth conversions for everyone? likely not.

For me it it seems to make sense. I'm converting to the top of the of the 24% bracket.

Things to consider

Death of a spouse -- the tax torpedo


The break even point can be long

you may be right that the benefit may be limited based on amount of TIRA, but then it could take short time to convert also.

etc?
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Old 10-23-2019, 07:48 AM   #40
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For me it it seems to make sense. I'm converting to the top of the of the 24% bracket.

Things to consider

Death of a spouse -- the tax torpedo


The break even point can be long.
+1. I was shocked to see I could reduce taxes by 31% by converting to 24% vs no conversions, and yet the portfolio ending balance was less than 6% higher. I don't mind legally paying less taxes, but the goal is maximizing the portfolio. So death of a spouse, tax torpedo and taxes transferred to heirs become significant considerations for many (as I've learned from others on this thread - thanks).
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