Roth conversion before there is one spouse left

[Badger]

As my wife and I are getting older (75 and 77) I am concerned about the tax increase when one of us is gone. We are presently taking SS and RMDs. But, a surviving spouse would have 2 RMDs on a single individual tax bracket that will throw them into a 24% (or higher) bracket from a 22% bracket.

1. At our age can either of us (or both of us) still do backdoor Roth conversions into the same MFs that are in the tIRAs? I was thinking of up to the maximum in the 22% bracket for as many years as we can to reduce the RMDs for the remaining spouse.

2. Also would it be advisable to start with the smaller tIRA or take out of both to equal the top end of the 22% bracket?

3. Is there a maximum conversion amount in a year for each tIRA?
We have available cash to use for taxes on the conversions.

 

[Dash man]

1. Yes. You can do Roth conversions after you’ve taken your RMD for the year.

2. It doesn’t matter.

3. No, just depends on how much tax you’re willing to pay in a single year.

 

[cathy63]

1. At our age can either of us (or both of us) still do backdoor Roth conversions into the same MFs that are in the tIRAs? I was thinking of up to the maximum in the 22% bracket for as many years as we can to reduce the RMDs for the remaining spouse.

You can do Roth conversions at any age. A "backdoor" conversion is a strategy used by people who are working but earning too much to do a direct contribution to their Roth. You wouldn't be doing backdoor conversions, just regular conversions.

2. Also would it be advisable to start with the smaller tIRA or take out of both to equal the top end of the 22% bracket?

If you are each the beneficiary on the other's IRA, it doesn't matter. Whatever is left after the first one dies can be treated as the surviving spouse's account, so it doesn't matter whose it was to start with. You do have to take your RMD first before you can do a conversion each year, so if one of you takes the RMD at the beginning of the year and the other waits until the end, then you would probably convert from the tIRA of the spouse who takes their RMD first.

3. Is there a maximum conversion amount in a year for each tIRA?

No. You can convert as much as you are willing to pay taxes on.

 

[Badger]

Thank you for the replies. It looks like I need to prepare for 2024 tax year and make the RMDs in the first half of the year.

I know I missed 2023 but is there a way to make the conversion for 2023 still?

 

[cathy63]

The deadline for Roth conversions is Dec 31, so it's too late to make one for 2023.

 

[MarieIG]

As far as converting into the same fund - I am able to convert shares from my traditional IRA into my Roth IRA. Thus far, if the conversion is done before 4:30 p.m. est. I get the price of the share at market closing for the purpose of establishing the tax amount. (Vanguard even lets me convert portions of one share - of their own MFs.) The share(s) show up in the Roth the following day - at least with regard.

 

[pjm-7]

As I have commented before look into doing Qualified Charitable Distributions (QCD's) from you traditional IRA's. Each of you can donate up to $100,000 directly to a 501(c)(3) organization without having the amount included in your taxable income. This is a convenient way to donate to charitable organizations while reducing your taxable obligation and potentially reducing the amount of future RMD's by reducing the value of the IRA's. Since it is by calendar year you can only do this for 2024 not last year.

 

[RetireBy90]

As far as converting into the same fund - I am able to convert shares from my traditional IRA into my Roth IRA. Thus far, if the conversion is done before 4:30 p.m. est. I get the price of the share at market closing for the purpose of establishing the tax amount. (Vanguard even lets me convert portions of one share - of their own MFs.) The share(s) show up in the Roth the following day - at least with regard.

My experience with Fidelity has been similar. I select the asset or fund to transfer and shares are moved so I can have the same asser(s), same AA.

 

[sengsational]

You have another clock, not just the ones ticking down on each others time above the terra ferma: The Tax Cuts and Jobs Act.

(the act) reduced taxes across the board. In order for it to pass the Senate and their budgeting requirements, it had to have a zero effect on long-term taxes. So, they had to have it sunset after a certain number of years. ... now it’s planned that it will sunset at the end of 2025 and there will be a new tax regime in 2026. But, it’s actually not a new tax regime as it reverts back to the old taxes. A lot of people saved a ton of money on their taxes by having this Tax Cuts and Jobs Act in place, but taxes are going up at the end of 2025. So taxes are low for the next three years, and relatively speaking it’s been one of the lower tax regimes that we’ve had in place. In 2026, someone who earns $94,000 will pay more taxes than someone this year earning $383,000. It’s a huge gap in the tax code that is gonna be filled between $94,000 and $383,000, and you only have three more years to take advantage of it.
This means you have three years to do Roth conversions, which is the primary recommendation, because you get to decide when you want to increase your taxes. You will never get to decide when you want to decrease your taxes. The way that the tax regime works is you postpone all of these taxes by filling up your traditional IRA account, and then later on you find out that it was a terrible mistake because you’re getting taxed for more money than you got a tax deduction for.

Marrotta, a fee-only financial planner that I follow, but to whom I am not a client, says an assumption he makes for his clients is that congress will do nothing when the time comes, and so that's why he thinks the act will end and the former tax code will go back into effect. Thus "three years" (now two years because the quote was from December 2023) to make hay while the sun shines.