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Those Who don't/didn't do Roth Conversions
Old 10-13-2023, 08:49 PM   #1
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Those Who don't/didn't do Roth Conversions

I and DW have significant amounts of T-IRA/401K funds. Pension meets our day-to-day needs, and we have not done any Roth conversions.

At this stage in life, we really don't want to be bothered with doing the conversions. I'm interested in hearing from others who have NOT done Roth conversions and do NOT plan to do so. Why did you make that choice, and do you lose sleep worrying about potential or current RMD issues?
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Old 10-13-2023, 09:20 PM   #2
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I haven’t. My priority in my first decade of ER is maximizing spending. Not worried about inheritance tax issues. Will have to pay more in taxes in the mid-60s onward, but according to Bernicke, our spending will decrease and SS will kick in.
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Old 10-13-2023, 09:23 PM   #3
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I am in a disagreement with my CPA about conversions. He strongly feels against them, refuses to consider them for himself, simply put, he would prefer to accumulate more wealth with tax deferrals and letting the government contribute to that. He is 68 and still deferring.

His words, "I don't care about the tax after I'm dead, my kids can deal with it." He isn't worried about RMD's.

That's his view as recently as August of this year.
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Old 10-13-2023, 09:24 PM   #4
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I haven’t.
Why?
High tax bracket
No heirs
Removing assets to pay the tax from portfolio that could continue to grow - reducing asset base.
RMDs aren’t required until we hit 75
It’s prepaying a tax you may never owe.
It’s an educated guess at best about paying a tax now that we would not owe for almost 20 years.
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Old 10-13-2023, 10:11 PM   #5
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I am a conversion advocate, trying to use all the tools at my disposal.

That having been said, it is a small lever! In most cases, it won't make a great deal of difference. Don't want to use it? Don't use it! Don't worry, be happy.
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Old 10-13-2023, 10:15 PM   #6
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If you are already taking pensions that meet your spending, you probably aren't really in a position to benefit from Roth conversions. So don't. It's not one-size-fits-all.

I'm taking them for the next few years as I'm delaying my pension and SS, so I can convert to the top of the 12% bracket, and my taxes will clearly be much higher rate with SS, pension and RMD.

But that's my situation, and it doesn't sound like yours.

-ERD50
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Those Who don't/didn't do Roth Conversions
Old 10-13-2023, 11:09 PM   #7
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Those Who don't/didn't do Roth Conversions

The only reason why I perform Roth Conversions is to “generate taxable income”. The only reason I have to generate income is to keep above Medicaid limits and hit an ACA sweet spot where I hardly pay for health insurance thanks to subsidies.

Additionally, I’m 51 and a majority of my NW is in a taxable brokerage account. During bear markets, I perform TLH so I seldom incur capital gains (because I have years worth of losses I carry forward) so enjoying hardly paying a dime in taxes even when performing Roth Conversion (although the amount is usually only around $30-$40k a year - again just enough to be above Medicaid limits).
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Old 10-13-2023, 11:18 PM   #8
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OP - Do you do long term capital gains harvesting to get tax free money or are your pensions too high ?
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Old 10-13-2023, 11:22 PM   #9
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Originally Posted by RetiredAt49 View Post
The only reason why I perform Roth Conversions is to “generate taxable income”. The only reason I have to generate income is to keep above Medicaid limits and hit an ACA sweet spot where I hardly pay for health insurance thanks to subsidies.
We are 67 and 62. We do the same, very small amount of Roth Conversion just to allow DW to reach ACA income lower limit.

When she reaches 65 and start Medicare, we will re-evaluate if we need to increase conversion or not.
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Old 10-13-2023, 11:27 PM   #10
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Originally Posted by RetiredAt49 View Post
The only reason why I perform Roth Conversions is to “generate taxable income”. The only reason I have to generate income is to keep above Medicaid limits and hit an ACA sweet spot where I hardly pay for health insurance thanks to subsidies.

Additionally, I’m 51 and a majority of my NW is in a taxable brokerage account. During bear markets, I perform TLH so I seldom incur capital gains (because I have years worth of losses I carry forward) so enjoying hardly paying a dime in taxes even when performing Roth Conversion (although the amount is usually only around $30-$40k a year - again just enough to be above Medicaid limits).
Income vs capital gain tax? You can only shelter $3000 of income above capital loss vs gain.
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Those Who don't/didn't do Roth Conversions
Old 10-13-2023, 11:59 PM   #11
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Those Who don't/didn't do Roth Conversions

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Originally Posted by COcheesehead View Post
Income vs capital gain tax? You can only shelter $3000 of income above capital loss vs gain.

Capital losses can be carried forward for any number of years to offset future capital gains. $3k of those capital losses can also be applied to offset any earned income annually.

For example, during the bear last year I performed a lot of tax loss harvesting (roughly $400k). I had minor capital gains last year (say $10k) so I get to carry forward $390k in capital losses to offset future capital gains.
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Old 10-14-2023, 12:20 AM   #12
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Originally Posted by RetiredAt49 View Post
Capital losses can be carried forward for any number of years to offset future capital gains. $3k of those capital losses can also be applied to offset any earned income annually.

For example, during the bear last year I performed a lot of tax loss harvesting (roughly $400k). I had minor capital gains last year (say $10k) so I get to carry forward $390k in capital losses to offset future capital gains.
I get that, but it’s only $3000 per year against income which is how withdrawals are taxed - how conversions are taxed.
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Old 10-14-2023, 02:35 AM   #13
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Well, wife and I pay zero fed. tax. Someone said above: to convert T-IRA to Roth is paying a tax we may never owe. Many years in age between us. She will retire to the old country after I'm gone. Much lower cost of living. She'll continue to get 50% of my traditional pension, plus she can use dividends and capital gains to do whatever she wants. She'll be the one to worry about who gets the rest of the portfolio, before it's her turn to die. There is already a brand-new house on her family's land she had built. Well, I certainly helped with the cost, too. So she DOES have a place to go. Her brother inhabits it already.

....I traditionally remove a few thousand in Jan. and aim to grow the taxable investment account. The amount removed never is big enough to change our tax situation. But 2023 has not been a great year. We'll see what the portfolio looks like on 31 December.
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Old 10-14-2023, 03:01 AM   #14
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Originally Posted by Out-to-Lunch View Post
I am a conversion advocate, trying to use all the tools at my disposal.

That having been said, it is a small lever! In most cases, it won't make a great deal of difference. Don't want to use it? Don't use it! Don't worry, be happy.
Thanks OtL!
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Old 10-14-2023, 03:05 AM   #15
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If you are already taking pensions that meet your spending, you probably aren't really in a position to benefit from Roth conversions. So don't. It's not one-size-fits-all.



I'm taking them for the next few years as I'm delaying my pension and SS, so I can convert to the top of the 12% bracket, and my taxes will clearly be much higher rate with SS, pension and RMD.



But that's my situation, and it doesn't sound like yours.



-ERD50
Correct. We're already in the 22% bracket.
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Old 10-14-2023, 03:07 AM   #16
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OP - Do you do long term capital gains harvesting to get tax free money or are your pensions too high ?
Too high.[emoji849] But is that really a bad thing?
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Old 10-14-2023, 04:56 AM   #17
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Originally Posted by Kings over Queens View Post
I am in a disagreement with my CPA about conversions. He strongly feels against them, refuses to consider them for himself, simply put, he would prefer to accumulate more wealth with tax deferrals and letting the government contribute to that. He is 68 and still deferring.

His words, "I don't care about the tax after I'm dead, my kids can deal with it." He isn't worried about RMD's.

That's his view as recently as August of this year.
A retired CPA here. If your CPA lives to be 100 then he might care more. In my experience, few CPAs are really knowledgable about personal financial planning and retirement planning unless they are one of the few who specialize in that niche practice area. Most CPAs are audit or tax focused and are clueless about when Roth conversions are beneficial and when they are not.

He might not yet have done the math and thinks that deferral is always better which is a popular misconception. If you do the math, Roth conversions are really just a tax arbitrage game... voluntarily paying some now to avoid paying more later. Me and other retired CPAs and financial professionals on this forum who have studied Roth conversions think that it makes a lot of sense in many, but not all, circumstances.

In fairness, it is also situational... a tradeoff between what one would pay in tax today vs later. If unstarted pensions and SS will push you from 12% to 22%, then there are substantial savings to be had to at least convert to the top of the 12% bracket. OTOH, if unstarted pensions and SS will push you from 22% to 24% then it isn't very lucrative. So while if may not be lucrative for him, it might be worthwhile for you or vice versa.

For us, the benefits are substantial so we are doing them. For a more modest income friend, he can make measured withdrawals in the first decade and never pay federal taxes again as long as he lives unless he sells his rental property so I recommended that he just do withdrawals from tax-deferred to his brokerage account rather than Roth conversions.

For many people in ER living off of taxable savings until pensions and SS start will have headroom to do 0%, 10% or 12% Roth conversions vs paying 22% once pensions and SS start so it is a no brainer.
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Old 10-14-2023, 05:05 AM   #18
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Originally Posted by GhostofTomJoad View Post
Well, wife and I pay zero fed. tax. Someone said above: to convert T-IRA to Roth is paying a tax we may never owe. Many years in age between us. She will retire to the old country after I'm gone. Much lower cost of living. She'll continue to get 50% of my traditional pension, plus she can use dividends and capital gains to do whatever she wants. She'll be the one to worry about who gets the rest of the portfolio, before it's her turn to die. There is already a brand-new house on her family's land she had built. Well, I certainly helped with the cost, too. So she DOES have a place to go. Her brother inhabits it already.

....I traditionally remove a few thousand in Jan. and aim to grow the taxable investment account. The amount removed never is big enough to change our tax situation. But 2023 has not been a great year. We'll see what the portfolio looks like on 31 December.
If you pay zero federal tax then you likely have some headroom to do Roth conversions and still pay no tax at all. In that case, that amount is a no-brainer to do at least that amount rather than let that headroom go wasted.

Absent Roth conversions we would pay no tax so we have an amount of headroom that we could convert and our tax bill would still be zero so that is a nobrainer.
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Old 10-14-2023, 05:08 AM   #19
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Originally Posted by RetiredAt49 View Post
Capital losses can be carried forward for any number of years to offset future capital gains. $3k of those capital losses can also be applied to offset any earned income annually.

For example, during the bear last year I performed a lot of tax loss harvesting (roughly $400k). I had minor capital gains last year (say $10k) so I get to carry forward $390k in capital losses to offset future capital gains.
Plus you can use up to $3,000 annually to offset ordinary income.
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Old 10-14-2023, 06:33 AM   #20
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Just retired this past summer but still looking at the possibility of conversions, perhaps starting next year. I've looked at it a number of different ways so far and I always come back to the same results: the benefit for our spending is marginal at best. Because the decision/analysis for Roth conversions always require some sort of prediction about the future, I'm worried that it wouldn't take much of a change to move the needle from "marginal" to "worse" when reality doesn't match predictions. Legacy/heirs are not a consideration for this for us.

Still, however, I'm not done looking at it.

Cheers.
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