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Old 02-26-2021, 08:44 AM   #41
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Originally Posted by REWahoo View Post
A new conspiracy theory is born.

Up next: Roth conversions were created by the govt to trick investors into giving up tax dollars years in advance of when they are actually due.
That is in fact what they more or less are. And if you were to die soon after such a conversion - and before your RMDs kick in - you would in fact "lose".

In all seriousness though, I would not go as far as calling conversions gimmicky. It's a financial tool. Some may find it useful others not so much.
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Old 02-26-2021, 09:35 AM   #42
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I'm in a similar situation: single, no heirs, 60 yrs old, NJ resident. I'm on the fence about Roth conversions, but have been doing small ones for a few years (< $20k/year). IORP tells me that if I do massive conversions over the next 5 years, I'll have a few more thousand in disposable income each year, but even without that extra money, I still have more than I can spend each year. First World problem, I know.

One thing I'm really looking at now is IRMAA. IORP tells me that if I do the big ROTH conversions it suggests, my Medicare costs will be somewhere around $2k/year, as opposed to $6k/year if I do no ROTH conversions. So even though I'm single with no heirs, I don't need additional income, I still don't see any harm in doing ROTH conversions. And I think I'd feel angry paying $6k Medicare costs knowing that I could have knocked that down to $2k. (I know that doesn't really make sense). So I might be doing some big ROTH conversions, just not as big as IORP suggests. I don't feel I need to totally empty out my tIRA, and I like the idea of having some tax diversity by moving more from tIRA to ROTH.

FYI, in the year you turn 62, you might be able to exclude up to $75,000 income from your NJ state taxes:
https://www.state.nj.us/treasury/taxation/njit7.shtml
Thanks for that. It would seem that starting at 62 ROTH conversions up to 75k in NJ would avoid state income taxes. Good to know. As to Medicare - right now I'm in a lower tax bracket than you are so that wouldn't be an issue. But who knows what the future brings? Perhaps my investments will explode uncontrollably
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Old 02-26-2021, 10:02 AM   #43
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I wouldn't be moving for financial reasons - mostly for the weather, lifestyle and a different political climate (no place is perfect but I'm a bit tired of northern US).
As to the general thrust of the post: I tried to make it clear that I was discussing my personal take on conversions and why I think they don't work for me. And lastly, I care about the money of course - just not about the amount that exceeds my needs or gets left behind when I die.
Every one of my comments was directly related to your situation as you presented it, not a general take. Is there a specific response of mine to your 5 points that you disagree with?
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That is in fact what they more or less are. And if you were to die soon after such a conversion - and before your RMDs kick in - you would in fact "lose".
No, you don't "lose" by any stretch of the imagination. You either die with more money available to you because you did a conversion, or you died with more money in an account that you can't touch without paying taxes.

I don't care, do what you want. But to present conversions as a bad idea because you don't care about excess money seems very misleading.
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Old 02-26-2021, 10:17 AM   #44
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Every one of my comments was directly related to your situation as you presented it, not a general take. Is there a specific response of mine to your 5 points that you disagree with?
No, you don't "lose" by any stretch of the imagination. You either die with more money available to you because you did a conversion, or you died with more money in an account that you can't touch without paying taxes.

I don't care, do what you want. But to present conversions as a bad idea because you don't care about excess money seems very misleading.
Perhaps I should have titled this post: "Why I don't care about ROTH conversions".
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Old 02-26-2021, 10:35 AM   #45
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Perhaps I should have titled this post: "Why I don't care about ROTH conversions".
That sounds like what it is to me.
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Old 02-26-2021, 11:02 AM   #46
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Perhaps I should have titled this post: "Why I don't care about ROTH conversions".
+1
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Old 03-02-2021, 04:54 PM   #47
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"1. I'm single and I have no heirs so estate planning is not part of my financial plan (I don't even have a will because I can't come up with any ideas)"

I have an idea, good buddy, ole pal o' mine!
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Old 03-02-2021, 06:49 PM   #48
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In lieu of making Roth conversions, we're just making withdrawals. I've run countless calculators and nothing is convincing. Final portfolio is maybe 2% more, taxes up 10%more. Maybe we'll knock Robbie of as king of the BTD! Kids will still end up with sizeable estate.
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Old 03-02-2021, 07:40 PM   #49
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I think the diversification into tIRA and Roth accounts may be useful. It will be for me.

I really don't feel like giving more to the IRS than I have to. I'd probably be doing the same Roth conversions even if I was single with no heirs. And you never know if that extra money may come in handy.

If you don't have significant taxable and tIRA assets, and your tax bracket never dips below the marginal rate your RMD's will be taxed at, then Roth conversions are most likely not a big deal.
I agree. Having both a tIRA and Roth allow us to game the system as follows: My wife and I withdraw from a tIRA up to the taxible threashold for a married couple of $24,800 which is your standard deduction 2020. After $24,800, I withdraw from my Roth. Hence $24,800 of tIRA income is tax free due to the standard deduction. Having 100% Roth does not allow you to game the system this way.

I do have to take into account other income such as SS...but you get the idea. I use Turbo tax from the previous year to determine the maximum tIRA income before I enter the next tax bracket. People who rollover to 100% Roth may not be taking advantage of the $24,800 standard deduction for a married couple. For single people the standard deduction is $12,400 which is still a lot of money that is not taxible.
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Old 03-02-2021, 08:37 PM   #50
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I agree. Having both a tIRA and Roth allow us to game the system as follows: My wife and I withdraw from a tIRA up to the taxible threashold for a married couple of $24,800 which is your standard deduction 2020. After $24,800, I withdraw from my Roth. Hence $24,800 of tIRA income is tax free due to the standard deduction. Having 100% Roth does not allow you to game the system this way.

I do have to take into account other income such as SS...but you get the idea. I use Turbo tax from the previous year to determine the maximum tIRA income before I enter the next tax bracket. People who rollover to 100% Roth may not be taking advantage of the $24,800 standard deduction for a married couple. For single people the standard deduction is $12,400 which is still a lot of money that is not taxible.
The basic rule of Roth conversions is to convert if you can do so at the same or lower rate than you'd have when taking RMDs. None of us are converting at > 0% if we're going to be in the 0% tax bracket later.
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Old 03-02-2021, 08:56 PM   #51
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Not doing any conversions. Pulling before I have to.

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Old 03-02-2021, 09:01 PM   #52
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I'm in a similar situation: single, no heirs, 60 yrs old, NJ resident. I'm on the fence about Roth conversions, but have been doing small ones for a few years (< $20k/year). IORP tells me that if I do massive conversions over the next 5 years, I'll have a few more thousand in disposable income each year, but even without that extra money, I still have more than I can spend each year. First World problem, I know.

One thing I'm really looking at now is IRMAA. IORP tells me that if I do the big ROTH conversions it suggests, my Medicare costs will be somewhere around $2k/year, as opposed to $6k/year if I do no ROTH conversions. So even though I'm single with no heirs, I don't need additional income, I still don't see any harm in doing ROTH conversions. And I think I'd feel angry paying $6k Medicare costs knowing that I could have knocked that down to $2k. (I know that doesn't really make sense). So I might be doing some big ROTH conversions, just not as big as IORP suggests. I don't feel I need to totally empty out my tIRA, and I like the idea of having some tax diversity by moving more from tIRA to ROTH.
I had a similar result from i-orp. For me it suggested 3 or 4 jumbo conversions. I ran another scenario where I raised my age by 2, and updated the balances for the accounts after 2 years of conversions. Turns out that the first 2 big conversions did all the heavy work to get the tIRA down enough. From that point it could be trickled out over time or converted at lower brackets with little to no difference in disposable income.

Once the big chunk is done, then you can even cherry pick for good conversion opportunities in future years. One or 2 holdings have a bad year or quarter? Convert at a discount.

Give it a try. i-orp really likes these next 5 low tax years.
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Old 03-02-2021, 09:07 PM   #53
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Roth conversions seem tailor-made for couples, to reduce the tax torpedo for a surviving spouse. That whole incentive is gone for a single retiree.
We will do it for the reason above, and cruise right at the top of the 12% tax bracket while doing so.
Looking at that info, Roth conversions serve those with modest retirement incomes well.
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Old 03-03-2021, 01:53 AM   #54
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At first, I agreed with Runningburn, while the OP may not CARE about conversions, saying they are bad held no water. Big difference. However, if there is ever a reasonable chance that the OP may marry, then conversions would indeed be bad if prepaying at the Single rate is higher than MFJ later on. I can see that. DW always points out that no matter how many times I or she says we would never remarry when one of us goes first, it always seems that everyone we know of who said the same thing, always ends up remarried. Though, I SWEAR if I ever think of remarrying should I be the last standing, I will pay good money for an intervention....LOL

IRMAA and current low tax rates while delaying SS are the big reasons for us. I don’t see it as gimmicky or even remotely difficult, so I don’t get it. The “don’t want to pay the IRS early” makes no sense to me. Can someone explain it? I certainly understand the good reasons to not convert All tIRA funds if that is your only source of income, with the whole Tax Torpedo thing, but in my case, as it is for many here, it’s the exact opposite. Pensions plus SS put us firmly in the 22/25% bracket. We get no tax free option for any tIRA withdrawals, ever. Before I file for my SS (currently 63), I’m in the lowest I have been in like 30 years. So whether I withdraw to use or convert now, it’s a relative win.

Do heirs ever have to pay taxes on an inherited Roth? I thought not. So tIRA amounts are NEVER all yours. The taxes WILL have to paid at some time (with the exception of filling 0% bracket, which is a relatively a small amount over your lifetime, unless you are young and retired, which most aren’t), so its more a mental thing, then, isn’t it. “I have $2M in tIRA and that is more & earns me more than $1.5M in a Roth”. Obviously wrong, and the earlier one converts to Roth, the longer tax free compounding occurs, as ling as filing status doesn’t go up.
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Old 03-03-2021, 04:53 AM   #55
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Pensions plus SS put us firmly in the 22/25% bracket. We get no tax free option for any tIRA withdrawals, ever. Before I file for my SS (currently 63), I’m in the lowest I have been in like 30 years. So whether I withdraw to use or convert now, it’s a relative win.
This is where we find ourselves. Small pensions, income from rental and SS for DW currently have us well into 22% bracket and I'll start SS in another 5 years. We worried about having enough to get there on so saved but turns out that we have enough with SS and pensions to meet our needs.

I strongly agree that advantages of Roth conversions are unique to each situation and if I could I would never pay taxes on the IRA savings. However it ain't so and I suspect most on this forum have saved and will have to pay taxes on it. There is always an exception to the rule, the poster that can pull up to the top of 0% tax is great and he sounds all set. However if I pulled $24K from my IRA each year I would still have my RMDs much higher than that so not an option for many.

Do the numbers yourself, what will your IRA balance be at 72 and you will need to pull about 4% RMD. Simple.
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Old 03-03-2021, 05:16 AM   #56
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The basic rule of Roth conversions is to convert if you can do so at the same or lower rate than you'd have when taking RMDs. None of us are converting at > 0% if we're going to be in the 0% tax bracket later.
Agree, but one does see an occasional post whereby it is stated that all monies have been converted to a Roth.
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Old 03-03-2021, 06:27 AM   #57
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Agree, but one does see an occasional post whereby it is stated that all monies have been converted to a Roth.
And those would be cases where their tax rate after 70 is > 0% even without RMDs. I'll have social security, a small pension, and interest and non-qualified dividends from my taxable account. I definitely won't be at 9%.
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Old 03-03-2021, 06:29 AM   #58
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At first, I agreed with Runningburn, while the OP may not CARE about conversions, saying they are bad held no water. Big difference. However, if there is ever a reasonable chance that the OP may marry, then conversions would indeed be bad if prepaying at the Single rate is higher than MFJ later on.
Good point.
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Old 03-03-2021, 07:16 AM   #59
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The OP said he thought Roth conversions are a bad idea for him, in the title. I think he is probably right, and appreciate his candor, as well as everyone else's in this discussion. For us, some Roth conversions make sense.

It is about the tax consequences now or later. And about inheritance, frankly.

Everyone's situation is different. I think OP has nailed his situation, spot on.
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Old 03-03-2021, 07:36 AM   #60
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The OP said he thought Roth conversions are a bad idea for him, in the title. I think he is probably right, and appreciate his candor, as well as everyone else's in this discussion. For us, some Roth conversions make sense.
Just so you know, the "for me" part was added later. I took issue with the original title.
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