Roth conversion - make sense for rest of this year?

[retiredunder50]

One of the main arguments for converting was that one should take advantage of current 'lower' tax brackets because they surely will go up in the future. I suspect many of us converted up to some tier, perhaps the 15% or higher bracket. Now that we seem to be on a path, at least for some of us, where our tax bracket rate may actually be lowered. Is anyone factoring paying conversion tax on say 12% versus 15% and the loss of investment income on overpaying? That needs to be balanced against tax free gains made since conversion. I know there are many reasons why having traditional, roth, or a mix of both made sense, but it seems that the argument to convert may have gotten a little weaker (at least for conversions for the rest of this year). It would be nice if the final plan details were available as the devil is in the details.

[Sunset]

Nope, because many folks like myself are doing conversions before being hit by the tax TORPEDO.

[zinger1457]

Quote:

Originally Posted by retiredunder50 One of the main arguments for converting was that one should take advantage of current 'lower' tax brackets because they surely will go up in the future.

I think some of us (myself included) do ROTH conversions not because we expected the rates for the tax brackets to go up but because we expect our income to go up in future years bringing us into a higher tax bracket. I don't see that changing much with both of the proposals that are currently out.

[UnrealizedPotential]

I really do think it's because of higher expected income in future years thus increasing the tax burden. For myself I expect to get a pension and SS which will certainly increase income. So IMO it makes sense to convert whatever is possible to a Roth IRA to counteract that.

[braumeister]

Having a good pension, I bit the bullet and converted a lot of Trad to Roth, to the point where I now have well over 40% of the total portfolio in Roth. Glad I did.

[Sunset]

Quote:

Originally Posted by Sunset Nope, because many folks like myself are doing conversions before being hit by the tax TORPEDO.

Perhaps I was too cryptic;
The tax torpedo is when a person turns 70.5. Suddenly they find they are (usually) getting SS and now they have to take out RMD's from their IRA/401K. So suddenly their income jumps quite a bit and they are in higher tax brackets.

And the income increases every year as SS goes up, and the RMD's increase even faster.

[pb4uski]

Quote:

Originally Posted by zinger1457 I think some of us (myself included) do ROTH conversions not because we expected the rates for the tax brackets to go up but because we expect our income to go up in future years bringing us into a higher tax bracket. I don't see that changing much with both of the proposals that are currently out.

+1....... 2017 will be the 5th year that we have done Roth conversions to the top of the 15% tax bracket because once SS starts we expect to be in the 25% tax bracket (under current and House proposed brackets.... 22.5% under the Senate proposal).

Please note... just because I'm converting to the top of the 15% tax bracket does not mean that we are paying 15% in tax on the conversions... over the 5 years our tax on the conversion has ranged from 2% to 11% and averaged about 8% because some is 0% because it is sheltered by deductions and exemptions and some is at 10%... with the remainder at 15%.

While we have been able to convert about $275k over the 5 years, because of good investment results our tax-deferred balances as a % of the total is about the same as when I retired.... but our Roth % has increased 20% with a corresponding 20% reduction in taxable as a percent of the total (from 44% to 24%).