Question on Roth Conversion

[Kat07]

Hello! My financial advisor told me I could do a Roth conversion up to $10,000 (this appointment was back in August). He no longer does hourly advice sessions so I can't ask him this question. I have decided to convert $8,000 from my tIRA in Vanguard today. But 66% of this is in a Total Bond Market Index Fund (VBTLX) and 24% is in the 500 Index Fund Admiral Shares. The rest is in a money market. My Roth is 100% in a Vanguard Total Stock Market Index Fund. Since most of my tIRA is in a bond market fund, I am afraid that if I put it in my Roth, since it is 100% stock index, there is going to be a stock market correction soon and I will be kicking myself. But since I plan on not withdrawing from my Roth for a long time, maybe I shouldn't worry about this. Or do you think I should do the conversion after first adding a bond market index fund (VBTLX) to my Roth and see what happens with the stock market over the next 6 months? Thanks in advance!

 

[DayDreaming]

Changing your Asset Allocation is a totally separate issue from doing a Roth Conversion. That is, when doing a conversion, or moving money between accounts, you typically maintain the AA that you've decided on. If you feel you should change your AA, as I said, it's really a whole different question.

 

[RunningBum]

Whatever fund you choose to convert from your tIRA is what shows up in your Roth after the conversion. After the conversion you can exchange it for whatever fund you want. I think it'll be more clear when you actually do the conversion process at Vanguard.

I don't try to time the market so I don't have any advice to give you on that topic.

 

[pb4uski]

Do the Roth conversion today since time is of the essence... in fact, call Vanguard... if you have a brokerage account rather than a mutual fund account it might not be possible to heve it done before midnight.

The asset allocation issues you can address on Jan 2 once it is in the Roth.

 

[Gotadimple]

Leave the issue of whether you should hold bonds in your Roth to when you have more time. Vangard should be able to do an in-kind transfer - that is, move your bond and 500 index funds directly over to your Roth, and then move $ to make up the total of $8,000.

Though the Bond Index fund is a large part of the transfer, when it hits your Roth it may be a small percentage of the total amount of the Roth. In any event you may want some bonds in the Roth just to provide less volatility. So, if stocks go down, your bonds won't. Something to think about in the New Year.

- Rita

 

[Kat07]

Yes, just did the transfer. Had to do some math, because I had to convert number of shares instead of dollars, so had to figure out percentages! It went into my Roth brokerage account, so I will add a bond fund to my Roth in January. Thanks!

 

[Al in Ohio]

Yes, just did the transfer. Had to do some math, because I had to convert number of shares instead of dollars, so had to figure out percentages! It went into my Roth brokerage account, so I will add a bond fund to my Roth in January. Thanks!

I’d say you were over thinking the process. Just move $8000 in kind and let it happen. Move any shares you want in the Roth between funds the day the fund shares move over. Easy peasy.

 

[TheWizard]

Yes, just did the transfer. Had to do some math, because I had to convert number of shares instead of dollars, so had to figure out percentages! It went into my Roth brokerage account, so I will add a bond fund to my Roth in January. Thanks!

Good that you got it done in 2020, I suppose.
A few comments:

I would not hold bond funds in a Roth IRA, only stock funds. Increase bonds in your tIRA to maintain desired AA.

Former advisor was wrong; you can convert any amount from traditional to Roth in a given year. That amount adds to your AGI for the year and becomes financially unwise at some point.

Plus, we don't know if you are still working full-time or are retired. If still working, then seldom makes sense to Roth CONVERT that year. Just do up to $6000 or $7000 Roth CONTRIBUTION instead.

If retired, then Roth conversions make sense to the degree your total income (AGI) is large at age 72 and beyond.

Make sense?

 

[Gotadimple]

Good that you got it done in 2020, I suppose.

Former advisor was wrong; you can convert any amount from traditional to Roth in a given year. That amount adds to your AGI for the year and becomes financially unwise at some point.

You are correct on both points - one can convert any amount of traditional IRA money to a Roth.

I would add an EXCEPT. Except if the OP is trying to manage AGI for tax purposes (and if within 2 years of Medicare to avoid IRMAA).

We're saying the same thing: but neither of us was in on the conversation to hear why she was given a specific number to convert. I suspect for Tax/IRMAA purposes (it is one of my considerations when I do partial conversions).

- Rita