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Maximum Annual Roth conversion amount ?
Old 10-15-2019, 07:37 PM   #1
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Maximum Annual Roth conversion amount ?

Saw a couple recommendations to do substantial Roth conversions now because "top tax brackets are lowest ever and sure to go up a lot over next couple decades".

If you're in a high/top bracket now, and you expect to be in same high/top bracket through retirement - does it make sense to do large scale Roth conversion now ?

Is there a conversion annual limit ? (conversion, not contribution).

With the current top bracket at 35% (for below $500k), top brackets could easily go to 45% (or higher) - especially true given federal deficit and a "Bernie like" President possibility.

Anybody doing large conversions to take advantage of this ? Thanks in advance.
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Old 10-15-2019, 08:22 PM   #2
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No limit on conversions.
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Old 10-15-2019, 08:25 PM   #3
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And no, I'm not doing large conversions this year. I'm keeping my income low to get an ACA subsidy. In a couple of the years that I've skipped the subsidy, I made larger conversions, but not huge. Top brackets could go higher, but I don't see middle income brackets going too much higher, not enough to convert at the top rate today.
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Old 10-15-2019, 09:16 PM   #4
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Guessing future tax rates is a gamble. Maybe you'll guess right, maybe you won't. When making tax guesses I prefer to assume things will stay much as they are presently.

Usually there is benefit from delaying taxes as long as possible, which in general argues against conversions to Roth, at least at high tax brackets. I never pay more than an effective 5% tax or so on a conversion to Roth. As you age and medical expenses go up, you'll have deductions against later tIRA withdrawals that might make the effective tax rate on those withdrawals quite low.
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Old 10-15-2019, 09:40 PM   #5
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......................... I never pay more than an effective 5% tax or so on a conversion to Roth. As you age and medical expenses go up, you'll have deductions against later tIRA withdrawals that might make the effective tax rate on those withdrawals quite low.
Perhaps..............if you have Medicare and a good supplement (like Plan G),
you might not have enough medical expenses to deduct (not necessarily a bad thing)............just the Medicare and Medigap premiums and the small Medigap deductible.
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Old 10-15-2019, 09:47 PM   #6
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Originally Posted by GrayHare View Post
...........................
Usually there is benefit from delaying taxes as long as possible, which in general argues against conversions to Roth, at least at high tax brackets. ................................................
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.
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Old 10-16-2019, 12:37 AM   #7
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No limit on conversions.
True, but depending upon age there is a danger of dramatically increasing medicare expense if 62 or older.

Also there is (was?) an extra 3.8% net investment income tax when a couples income jumps over some number approximately $250K
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Old 10-16-2019, 12:44 AM   #8
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Originally Posted by Delawaredave5 View Post
Saw a couple recommendations to do substantial Roth conversions now because "top tax brackets are lowest ever and sure to go up a lot over next couple decades".

If you're in a high/top bracket now, and you expect to be in same high/top bracket through retirement - does it make sense to do large scale Roth conversion now ?

Is there a conversion annual limit ? (conversion, not contribution).

With the current top bracket at 35% (for below $500k), top brackets could easily go to 45% (or higher) - especially true given federal deficit and a "Bernie like" President possibility.

Anybody doing large conversions to take advantage of this ? Thanks in advance.
I am just doing my standard IRA draw / Roth conversion this year (of my IRA dividends), but I might be doing a large conversion in December 2020 depending on the election results in anticipation of a large jump in tax rates.
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Old 10-16-2019, 05:39 AM   #9
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Thanks, great input, I guess this is where the phrase "tax diversification" comes into play.

Federal rates have been substantially higher, as recent as 70s.

https://bradfordtaxinstitute.com/Fre...Tax-Rates.aspx
https://www.thebalance.com/tax-diver...esting-2466705
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Old 10-16-2019, 09:20 AM   #10
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For a couple, Roth conversions *might* make sense, since upon death of one the tax rate will jump up for the other on the renaming RMDs. This is something I consider in the small amount of Roth conversion I have done.
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Old 10-16-2019, 10:16 AM   #11
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Originally Posted by kaneohe View Post
Originally Posted by GrayHare
...........................
Usually there is benefit from delaying taxes as long as possible, which in general argues against conversions to Roth, at least at high tax brackets. ................................................



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.
+1. Just delaying taxes by itself is not a valid reason. If you defer taxes, the tax liability grows as the retirement account grows, so there's no advantage if the tax rate is the same. Defer/delay if you think you'll be paying taxes at a lower rate later, and pay (at least some) taxes now if you think your tax rate is lower now. It's not just the tax bracket, but ACA subsidies, IRMA, death of a spouse, and other such things are also factors.
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Old 10-16-2019, 10:39 AM   #12
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The benefit of delaying taxes comes from new situations that arise. An example is a year in which one has significant medical or other deductions. Another example is what happened in 2010: the tax on conversions could be delayed and split across 2011 and 2012. The more time you have pre age 70, the greater the chance some special situation arises to reduce your conversion tax.
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Old 10-16-2019, 01:20 PM   #13
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We have been converting up to $250k AGI, avoiding the extra taxes that kick in at that point.

If you will have a period of very low income before having to take RMD's that would be a good time to do large Roth conversions. That gets some of it out of the tIRA at the lowest tax rates.

A bear market and/or low current tax rates increase the value of doing Roth conversion now.

If you expect tax rates to remain the same for you, Roth conversion may still have a benefit. At a 35% tax rate, 35% of your tIRA belongs to the IRS regardless of when you pay it. But if you convert now you can put your 65% into a Roth, plus add the 35% tax amount to the Roth from your currently fully taxable account. Now, all of the money in your Roth belongs to you and saves you from paying taxes on money that used to be in your taxable account.

That tax-free benefit lasts until you have to withdraw that money, so it is more valuable the earlier you convert. If you are within a few years of making Roth withdrawals then it might be too small of a benefit to bother with.
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Old 10-16-2019, 05:23 PM   #14
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We are retired with minimal income. Not collecting SS yet. We have substantial assets in t-IRAs that will drive high RMDs at a later date if nothing is converted to Roth now. We see the current low tax environment as a excellent environment for conversions. We don't expect our government will leave taxes at this lower rate for too many years. We are also aware that our tax brackets will be higher if one of us passes.

So yes, we are doing large conversions at this time. We use the I-ORP program each year to estimate amount of conversion that may make sense for our situation. This year, our conversion target will put us at the top of the 24% tax bracket.


No there is no conversion limit though you do pay an extra 3.8% Net Investment Income Tax if your conversions drive your income over 250k.
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Old 10-16-2019, 07:24 PM   #15
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I am currently looking at plans that would have me converting anywhere from $100K/yr to $340K/yr (up to 24% bracket) over the next 6 years before I turn 70. I have a consultation to talk it over next week. Like many here, it's hard to voluntary pay a lot in taxes now, but odds are it'll save us over the long haul. Not an easy decision.
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Old 10-16-2019, 07:34 PM   #16
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I am currently looking at plans that would have me converting anywhere from $100K/yr to $340K/yr (up to 24% bracket) over the next 6 years before I turn 70. I have a consultation to talk it over next week. Like many here, it's hard to voluntary pay a lot in taxes now, but odds are it'll save us over the long haul. Not an easy decision.
I look forward to anything you can share about the consultation. We convert about $70k/year, and stay in the 12% bracket. I, also, have a hard time with paying a big tax bill voluntarily.

When I run the numbers, the incremental taxes for converting another $30k (up to $100k) are crazy. Due to losing cap gains and QD benefits, the tax on that $30k is 25%.
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Old 10-16-2019, 07:47 PM   #17
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I look forward to anything you can share about the consultation. We convert about $70k/year, and stay in the 12% bracket. I, also, have a hard time with paying a big tax bill voluntarily.

When I run the numbers, the incremental taxes for converting another $30k (up to $100k) are crazy. Due to losing cap gains and QD benefits, the tax on that $30k is 25%.
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...
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Old 10-16-2019, 08:02 PM   #18
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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...
I agree with the 12% bracket being a no-brainer. But paying $50k for a $250k conversion just is hard to take. But looking realistically, it is only 20% (We would pay no taxes if we did not convert), and we will be in the 22% bracket, or higher, at RMD time.

FWIW, as a practical matter, aside from RMD's, we expect the full tIRA (and any Roth conversions) will ultimately be inherited by our son. So tax changes, like the SECURE act could push me over the edge.
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Old 10-16-2019, 08:11 PM   #19
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My new strategy (for better or worse) is to contribute/convert to Roth as much as possible while sticking in the 24% marginal rate bracket (single). (I am still working plus drawing a pension.) My first priority is to max out Roth contributions at work, followed by conversions as possible.
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Old 10-16-2019, 09:45 PM   #20
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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...
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