Traditional to Roth Conversions this week?

[Lcountz]

Anyone doing their Traditional to Roth conversions today or this week?

[Gumby]

I do it in December, so I know how much headroom I have.

[RunningBum]

If I could still recharacterize conversions, I would. I don't want to accidentally go over 400%FPL. I don't have that much room so there's very little gain in converting what I'd consider safe now.

[2017ish]

We'll be doing estimated half; the remainder will be in December. Now that we are living off IRA withdrawals, I'm with Gumby in wanting to know our headroom.

[SecondCor521]

I converted about half in March 2020. I liked converting when the market was low, but I didn't like the loss of tax planning flexibility. At the end of the year, there was a tax option that I briefly considered but the March conversion prevented me from exercising that option, so I ruled it out.

I think I'll probably do the same this year - if there is a significant dip, I may convert a conservative fraction of what I'm 99% sure I'd do in December anyway. Otherwise I'll wait for December so I can see the lay of the land tax-wise.

[Time2]

After doing the numbers I converted $75,500 last year in Dec, this was my first Roth conversion, second year fully retired. I expect to continue with them. If by chance the market goes down again this year, I will try to take advantage of it, I wasn't smart last year.

My first year of retirement I withdrew LTCGs up to the 0% tax max. That was fun, but I think the $4,800 in taxes I pay this year is will result in a long term tax savings.

[pb4uski]

I'll do a good portion of mine in the next few days... and then top it up in December 2021.

[Accidental Retiree]

We’re starting conversions this week because we are creating a new “income stream” for purposes of qualifying for a mortgage, should we decide to move this year.

[cat4ever]

Quote:

Originally Posted by Accidental Retiree We’re starting conversions this week because we are creating a new “income stream” for purposes of qualifying for a mortgage, should we decide to move this year.

Does this actually work? Do you have any details about how you go about it in order to satisfy the bank?

[pb4uski]

That is interesting. I've heard of regular automated tIRA withdrawals being viewed by lenders as an income stream but it is interesting that a lender would view regular automated Roth conversions as an income stream even though it does indeed show up as income on your tax return.... in substance it is moving money from your left pocket to your right pocket while simultaneously taking a little money out of your back pocket to pay the taxes.

[Trooper]

Quote:

Originally Posted by pb4uski I'll do a good portion of mine in the next few days... and then top it up in December 2021.

Can you share your rationale for converting most now? With the equity market near all- time highs, I would expect waiting to be a better approach. I agree that there's little benefit in trying to time the market however. Thanks.

[harley]

Quote:

Originally Posted by Accidental Retiree We’re starting conversions this week because we are creating a new “income stream” for purposes of qualifying for a mortgage, should we decide to move this year.

I too am interested in whether this works. Years ago when I had basically no income (living off after-tax cash) I tried to refinance and was rejected. I offered to do a Roth conversion to create the income, and they told me that wouldn't satisfy their requirements. Doing it regularly to create an income stream never entered my mind.

I don't need it anymore, having created income using rental properties and a small business we started. But the question gets asked a lot, here and IRL. Let us know how that works out, if you would. Thanks.

[pb4uski]

Quote:

Originally Posted by Trooper Can you share your rationale for converting most now? With the equity market near all- time highs, I would expect waiting to be a better approach. I agree that there's little benefit in trying to time the market however. Thanks.

I'm converting most now because my tax situation is very predictable and I prefer to get the tax-free benefit of being in the Roth started earlier rather than later.

At least this year, the assets that I am converting are not in equities. But even if they were, I usually convert for the same... equities in tIRA to equities (and usually even the same ticker) in Roth or fixed in tIRA to fixed in Roth.

Why is it that so many people assume that when one does a Roth conversion that it change your AA?

[Sunset]

Quote:

Originally Posted by Accidental Retiree We’re starting conversions this week because we are creating a new “income stream” for purposes of qualifying for a mortgage, should we decide to move this year.

I don't see how this even shows up.

Unless you are thinking about having the IRA send you the money, then do the conversion.
Problem with touching the money, is you are only allowed 1 such conversion per year (My understanding, so correct me if I'm wrong).

[Lawrencewendall]

Sent my paperwork out yesterday for conversions for the year.

[RunningBum]

Quote:

Originally Posted by pb4uski Why is it that so many people assume that when one does a Roth conversion that it change your AA?

I'm not sure that AA is the issue, but rather waiting for depressed prices. Say your IRA has a $10K balance in an equity fund. If the value drops to $8K, you can convert it all and pay taxes on $8K rather than 10K.

A bit of market timing. Most of my tIRA is in short term bonds, so I don't expect much fluctuation.

[pb4uski]

Quote:

Originally Posted by Sunset I don't see how this even shows up. Unless you are thinking about having the IRA send you the money, then do the conversion. Problem with touching the money, is you are only allowed 1 such conversion per year (My understanding, so correct if I'm wrong).

No, I think that they are thinking about doing a $x,xxx conversion from tIRA to Roth IRA on the yyth of each month and since it shows up as income on the Form 1040 that the daft bankers will consider it a steady income for underwriting a loan.

I can see the logic if they were regular tIRA withdrawals that are going to your checking account and that cash flow could be use to pay the loan payments, but where it is Roth conversions rather than tIRA withdrawals it makes no sense to me... but if they will consider them to be income then whatever.

[pb4uski]

Quote:

Originally Posted by RunningBum I'm not sure that AA is the issue, but rather waiting for depressed prices. Say your IRA has a $10K balance in an equity fund. If the value drops to $8K, you can convert it all and pay taxes on $8K rather than 10K. A bit of market timing. Most of my tIRA is in short term bonds, so I don't expect much fluctuation.

Ah, I see... but what if instead of dropping to $8k it goes up to $12k? It seems to be that both a drop or an increase are equally likely... not necessarly right now, but in general.

In any event, since I'm converting fixed then that isn't an issue for me.

[O2Bfree]

I did my first conversion last month. Haven't quite decided how to do this year's. We might be needing some short-term financing to buy a house in a different area before selling our current home, and I need to look into how different methods could affect our finances.

[cat4ever]

RE creating income stream question, A couple quick links provided by Accidental Retiree that I haven't gone over yet...

https://sandiegopurchaseloans.com/ira-distribution/

https://www.ovmfinancial.com/ira-distribution-rules/

https://www.early-retirement.org/for...me-103652.html

Edit: Should we open up a separate thread on this topic?