Roth conversion question

[latexman]

Here's where I am at. We file jointly. Age 66. DW 71. Both collecting SSA. 24000 conversion keeps us at 0 taxes. SSA pretty much covers our expenses and if not I take from the Roth.

Have you forecast your and DW's familial longevity to see if one of you may have significant time filing single? That may put one into a non-zero tax bracket when RMD's are required.

My DW and I are the same age. DW's folks outlived my folks by 10+ years. As I forecast her expected situation into the future for that long of a duration, I will probably lean towards converting more.

 

[copyright1997reloaded]

Check the inheritance taxes before choosing PA (or anywhere else, actually, but it seems PA is pretty awful from what I can surmise).

Yes, thank you for pointing this out. I am aware of this, as I was born and raised there and we had to pay the 4.5% when my dad passed. This plus weather are negatives for PA but I would try (as reasonably as possible) to get assets passed down before I exit stage left.

Pennsylvania has an inheritance tax. However, for a spouse, it is zero, and for direct descendants it is 4.5%. For siblings it’s 12% and all others it’s 15%. If 90% of the tax is paid within 3 months of death, there is a discount of 5%. Our state income tax is a flat 3.07% and SS and IRA withdrawals, including Roth conversions after age 59-1/2 are not taxed at all. Farm land and equipment are excluded from our inheritance tax.

To me that does not seem draconian, especially since New York’s lowest tax rate is 4%. Also…you can’t take it with you. It’s free money to your heirs. And a little bit to the state.

I started doing Roth conversions at age 61, and my inherited IRA withdrawals are no longer taxed by the state.

I was unaware of the farm land exclusion. Hmm, perhaps that is another reason my niece and her husband wanted to buy farm land.

 

[pb4uski]

Under what conditions can "a person can convert all of their traditional IRA to their Roth IRA over time without paying any taxes" "
I'm sure not in that, box, boat, container, bracket!

How is that done?

Many modest income people can since once they stop working their income is low enough that their SS is not taxed and they have the standard deduction to shelter conversions from tax. I have a friend who should be able to either withdraw or convert at 0% tax over 3-5 years.

To answer the OPs question, I don't see any reason not to and the benefit would be is if life throws you a curve ball and you need to access that money all at once then there would be zero tax in a Roth whereas if in a tIRA a big withdrawal might be costly in that it would put you in a higher tax bracket AND possibly make some of your SS taxable.

 

[NW-Bound]

Many modest income people can since once they stop working their income is low enough that their SS is not taxed and they have the standard deduction to shelter conversions from tax. I have a friend who should be able to either withdraw or convert at 0% tax over 3-5 years.

To answer the OPs question, I don't see any reason not to and the benefit would be is if life throws you a curve ball and you need to access that money all at once then there would be zero tax in a Roth whereas if in a tIRA a big withdrawal might be costly in that it would put you in a higher tax bracket AND possibly make some of your SS taxable.

By the same reason, after I stopped work and had no earned income I sold stocks in my after-tax accounts to realize the capital gains, then immediately bought them back.

I could have up to $100K of tax-free long-term cap gains each year, and there was no good reason not to claim it (this was pre-ACA and I had private health insurance).

I did that for a few years to wash my stocks of all gains and raise their basis up. Nice!

 

[RunningBum]

To answer the OPs question, I don't see any reason not to and the benefit would be is if life throws you a curve ball and you need to access that money all at once then there would be zero tax in a Roth whereas if in a tIRA a big withdrawal might be costly in that it would put you in a higher tax bracket AND possibly make some of your SS taxable.

+1 and I think this is an often overlooked benefit. This is why I convert if it appears that conversion is otherwise a wash.

And married people should consider what happens when one partner dies and the other is filing single. This probably also favors more aggressive conversion.

 

[pb4uski]

By the same reason, after I stopped work and had no earned income I sold stocks in my after-tax accounts to realize the capital gains, then immediately bought them back.

I could have up to $100K of tax-free long-term cap gains each year, and there was no good reason not to claim it (this was pre-ACA and I had private health insurance).

I did that for a few years to wash my stocks of all gains and raise their basis up. Nice!

Yup. Gains trading in the 0% capital gains tax bracket is a free lunch... if you don't use it you lose it.