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ROTH Conversion Plan - Opinions?
Old 10-26-2016, 07:12 PM   #1
Recycles dryer sheets
Join Date: Apr 2007
Posts: 318
ROTH Conversion Plan - Opinions?

Here is my first crack back of the napkin attempt to plan for Roth conversion and RMD.
The numbers are rough and there might be some rounding or math errors.
2017 will be my first low income year and first conversion.

Please take a look at the numbers, more for background for my following questions and a little to see if my logic seems reasonable. As I said, this is a rough summary to give background.

TIRA Total, $613,000
TIRA Basis, $82,000
TIRA Taxable (total - basis), $531,000

Non IRA Gain $81,000

current Age 60, single

Annual SS starting at 70, approx. $30,000, est. current dollars

Annual Taxable Div/Int income, $12,000, est. current dollars

Estimated annual growth of TIRA Total, 5%

Roth Conversion low for ACA (15% limit - divs), $26,000, est. age 60-65 current dollars

Roth Conversion (15% limit - divs + std ded. and exemption), $36,000, est. age 65-70 current dollars

Assume some fine tuning to reduct taxable divs going forward

Assume subtracting IRA basis from total to get taxable IRA is reasonable

I suppose this ignores any taxable gain that might come from trading stocks that would
lower the possible conversion amount.

Taxable RMD first year (
TIRA Taxable / 24), $19,350

Income First RMD Year
Divs $12,000
SS $30,000
RMD $19,350
AGI for 1040 = $31,350
AGI for SS Taxing = $31,350 + ($30,000/2) = $46,350, guessing low enough to avoid tax on SS

I currently am on COBRA that costs about $5,500 per year and is HSA.
The ACA Silver plan that covers my doctor is not HSA, with Anthem, and if I keep my MAGI to
$37,000 or so (trying to be under 15% tax and low for ACA) it is about $1650 less.
If I make my MAGI to be $30,000 or so it seems to lower ACA by $1200/yr, but I lose some
ROTH conversion.

There is one ACA HSA with UHC that costs more and does not cover my doctor. I figure the
value of the HSA is about $650 tax savings in 2017, so am guessing not worth doing UHC or COBRA for.

The ACA decsion is for another thread, but for this model I assumed keeping conversions
lower until Medicare.

So, assuming that it looks like I have a little room to spare on how much I convert each
year and still keeping my RMD-time income in the 15% bracket, I guess these are my questions.

Should I maximize the ROTH conversions and limit any capital gain harvesting to only gains that occurred due to rebalancing? That is, do the conversions first, possibly up to some point where I know the RMD is ok, and then do tax harvesting in later years?

Assuming that I might have some slack at age 70, should I try to do some capital gain harvesting?

Should I play with my MAGI during the ACA years to try to increase my tax credit, even though it will be reducing my ROTH conversions?

Any thoughts on the political risks of losing the long term capital gain exclusion compared to some sort of increased taxation or limit changes on SS income or general tax rate increases? That is, would these affect any of the answers to the previous questions?

Thanks for the help. I look forward to the interesting discussion.


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Old 10-26-2016, 08:15 PM   #2
Recycles dryer sheets
Join Date: Apr 2007
Posts: 318
Just after I posted this, I noticed the thread on Multivariable Tax Optimization, which covered a lot of this stuff. I think I will read it a second time so that it sinks in. From the comments there it seems I should spend some time crunching the ACA numbers, pushing just over the medicaid threshold and see how much tax credit I can get.

After posting I noticed that I had forgotten about $140K in Series I Savings Bond interest that will have to be taxed sooner or later.

As far as I can tell, that will be simple taxable interest with no preferential treatment. Are there any tricks to deal with that, as there are for capital gain harvesting, or am I just stuck paying tax as if it were ordinary income?

At this point is seems that I probably should be trying to get my RMD as low as possible, subject to any ACA manipulations. That seems like it would give me the most flexibility keeping the total income low after 70.
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