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- Joined
- Jun 25, 2005
- Messages
- 10,252
It looks like early retirees with children can make out like bandits with their Roth conversions. I saw this on the MSN TaxCorner board. Is this really true?
This suggests that an early retiree with tax-deferred IRAs can convert them to Roth IRA if they have no income and enough cash or other assets around to cover expenses for a few years. Y'all are very astute, so some of you must have done this already, right?
Suppose one retires in 2005 as a 45 year old. They have enough cash in the bank to cover living expenses for a few years. You know, the safe withdrawal rate of 4% per annum, so they have 10% of assets in cash and use some of that for living expenses. They convert some of their tIRA to a Roth IRA. The conversion amounts stay below the threshold where they will owe any taxes, thus they pay no taxes.
Let's say they have two school-age kids living at home, $2K in qualified dividend income, no other income, and take the standard deduction. They convert $41,000 from a traditional IRA to a Roth IRA. How much taxes do they owe
This suggests that an early retiree with tax-deferred IRAs can convert them to Roth IRA if they have no income and enough cash or other assets around to cover expenses for a few years. Y'all are very astute, so some of you must have done this already, right?