Roth Conversion vs Capital Gains Harvesting

[JG in Hangzhou]

Hi all, looking for help.
Situation:
Married with Joint taxable savings about 700K (Long Term Gains 267K)
One child under 13
About 33K in Dividends annually.
My IRA total 406K
Wife IRA total 443K
Both stopped working before age 45
Expected SS of 1900/mo each starting age 67 (based on SSA.gov calculator)
No pensions
Currently living abroad with no reportable US income (foreign income is taxed and qualifies for exclusion)
No US income, no US expenses, likely for 5 more years.
We expect to start withdrawing money in about 5 years at about 70K/year.

Dilemma:
I originally thought to harvest the LTG by selling off current investments then buying total market index funds at around 55K a year to stay in the 0% rate for capital gains. (I figured 12700+75900 -33000 = 88900 -33000 = 55,000)

However, after reading some of the forums, I am concerned about MRDs after age 70, affecting not just our tax bracket but impact on Social Security tax rate and Medicare qualification.

So now I wonder if instead I should be starting a Roth conversion Ladder to convert the 850 in IRA to ROTH accounts at about 55K a year. If the IRA's grow at 7% a year I can't ever convert it all, but it will at least mitigate its growing. (average annual returns seem to be more like 10%).

Does this mean even if I do this, at age 71 we would have to withdraw about 50K per year and if I don't it could be over $100K/yr ranging up to over 300K/year if the account continues to grow?

Should I convert more than 60K a year and take a slight tax hit now? I expected to try to stay inside the 15% tax bracket to keep capital gains taxes at 0%, but now I can't be sure there isn't more serious concerns lurking.

Feel free to pick apart my logic and set me straight. No punch pulling necessary.

 

[Animorph]

It's kind of looking like we might end up doing both. We're at zero normal income now.

Very large Roth conversions at the start (to the top of the 25% bracket) should get us out of the 25% tax bracket at age 70. 25% now versus 25% later is still in the beneficial Roth conversion zone because you get more of your after-tax value into your retirement accounts.

After most of the tIRA's are gone we'll be moving down to the top of the 15% tax bracket with mostly 0% capital gains. We'll have minimal tIRA withdrawals/conversions just to fill in the 10% or 15% brackets as needed. At least that's what my calculations are telling me to do now.

Since it is always driven by taxes and we're all different there is no one size fits all scheme that you can follow. I suspect our situations are similar, but you'll have to balance out your results. But do something while you have no other income.

You may not want to convert all of your tIRA if that just leads to very low taxes late in retirement. Make sure you have enough income or tIRA to fill in the 10% or maybe 15% tax brackets for the foreseeable future. No need to convert at 25% tax rate now just to miss out on 10% tax rate later.

 

[Sunset]

You certainly should consider converting some IRA into a ROTH, and yes there is no way to avoid the RMD's that I know of.

For medicare part B, you don't pay extra as a couple unless your income is over $170K per year.

 

[JG in Hangzhou]

Very large Roth conversions at the start (to the top of the 25% bracket) should get us out of the 25% tax bracket at age 70. 25% now versus 25% later is still in the beneficial Roth conversion zone because you get more of your after-tax value into your retirement accounts.

So it may benefit to convert at the higher rate now if the result is ensuring that tax bracket in the future is lowered below the 25% rate.
Hmm also the current tax reform agenda seems to be lowering corporate and upper range taxes while possibly adding to the middle class by removing credits or deductions, which also says, pay now before the rates go up.