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More on Roths and Taxes
Old 12-30-2020, 01:46 PM   #1
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More on Roths and Taxes

We did well saving and investing to accumulate a comfortable amount in our IRAs and after tax savings. But we have been taking RMD for about 3 years now and I am starting to realize that if I was to go first my wife would have a terrible tax bill from the combined RMDs and being single. For a number of years I have been moving money from tIRA to Roth IRAs but should probably have done more.

In order to try and reduce a potential tax increase for her I would like to at least move more into the Roth but not go over the max 22% bracket ($171,050).
1. Can I still do this?

2. If there were no changes from my 2019 tax return and my Taxable Income remained the same can I simply increase a backdoor Roth contribution (after my RMD withdrawls) to the upper limit of the 22% bracket? Example: Maximum limit at 22% is $171,050 - Taxable Income of $100,000 = $71,050 for backdoor Roth.

Is there a limit to how much you can move from tIRA to Roth?


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Old 12-30-2020, 01:57 PM   #2
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I think you are really talking about Roth conversions, right? You aren't working, so you aren't making contributions to a tIRA that you want to move to Roth via backdoor?

There's no limit on conversions.

If you have a lot to convert, I would consider converting to the top of 24%. The rate isn't much higher, and it gives you a lot more to convert. It might affect IRMAA though.
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Old 12-30-2020, 02:03 PM   #3
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If you have a lot to convert, I would consider converting to the top of 24%. The rate isn't much higher, and it gives you a lot more to convert. It might affect IRMAA though.
Assuming the standard deduction, by the time you reach the top of the 24% bracket ($329,850 taxable = $354,950 AGI), you are in IRMAA level level 4 ($330,000 AGI). You will also have triggered the NIIT 3.8% surcharge ($250,000 AGI).
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Old 12-30-2020, 04:22 PM   #4
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You can do Roth conversions above and beyond your RMD if you want. So if your RMD is $80K, you can take $80K out of your traditional IRA then Roth convert an additional whatever you want.

Any Roth conversion cannot / does not count towards your RMD.

If you want it to count for tax year 2020 you'd have to do it today or tomorrow. Check with your custodian to see if they can execute the transaction in time.

There is no limit on how much you can Roth convert. Well, it's limited by your willingness and ability to pay the resulting tax bill, and the amount of money in your traditional IRA.

Others have already mentioned IRMAA and NIIT. The only other thing I know to consider at those income levels is the effect on the QBI deduction (which may or may not even be something you take).
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Old 12-30-2020, 04:28 PM   #5
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Would she alone need all of the income from your tIRA? If not, why have her the beneficiary of all of it but instead have some go to the beneficiary next in line? Will keep her tax bill down.
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Old 12-30-2020, 04:33 PM   #6
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Levelize your AGI, folks, with an eye to the next higher IRMAA tier threshold.
Don't pay excess income taxes before you need to.
If married, train the surviving spouse to make Qualified Charitable Distributions to dispose of excess income efficiently and keep taxes modest...
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Old 12-30-2020, 04:38 PM   #7
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Would she alone need all of the income from your tIRA? If not, why have her the beneficiary of all of it but instead have some go to the beneficiary next in line? Will keep her tax bill down.
That is actually something we are considering. DW's tIRA is all converted. Mine is substantial. We are Roth converting into the 22% bracket starting this year, but that does not even cover the gains.

One thought is to leave 1/3(+/-) to DS if I should depart first. It will help with her tax bill, and his (with the new 10 year rule).

Clearly a first world problem.
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Old 12-31-2020, 03:59 PM   #8
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Ditto on the first world problem. As someone with the majority of my funds tax deferred and limited years to FRA, it is hard to convert enough to meaningfully reduce the tax deferred funds.

By deferring SS to create more room to convert and pay tax, you may just be leaving money on the table there.

Unless you just want to volunteer to prepay a lot of tax.

While I am converting some, my personal analysis is that it is a mixed bag.
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Assistance with the Acronyms
Old 01-02-2021, 01:02 PM   #9
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Assistance with the Acronyms

Hello, being new to this site, planning on early retirement in next 12-24 months. Is there a place that I can reference the very frequently used Acronyms? I am finding it difficult to fully understand the responses, although would consider myself mildly financially savvy. Thanks in advance for help.
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Old 01-02-2021, 01:05 PM   #10
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Originally Posted by tsthomas68 View Post
Hello, being new to this site, planning on early retirement in next 12-24 months. Is there a place that I can reference the very frequently used Acronyms? I am finding it difficult to fully understand the responses, although would consider myself mildly financially savvy. Thanks in advance for help.
This will be helpful: https://www.early-retirement.org/for...rum-34884.html
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