Partial Roth conversions?

[engr]

I am 67 years old and retired. I have approx 800k in traditional Ira accounts along with some monies in after tax and Roth accounts. Everything I read says to withdraw from investment accounts first followed by traditional iras and lastly Roth accounts. Seems to make sense as the idea is to let the tax deferred account continue to grow tax free and the tax rates for capital gains is lower. However, if I leave my traditional Ira account untouched when I get to age 72 I will be forced to take a large Rmd withdrawal. Since my wife and I are lucky to have pensions this rmd will position me above the threshold for having to pay Medicare IRMAA surcharges (approx 174K). This year I used the traditional Ira account for withdrawals to try to reduce my total amount. I know this seems to go against the usual order of taking withdrawals but I don’t want to get stuck with having a large AGI which triggers the Medicare surcharges. Also, when I turn 70 my social security will just make matters worst. Does anyone have suggestions to minimize/eliminate the surcharges. Thanks for any ideas.

[gauss]

The strategy that some of us around here are using is to convert enough of one's traditional IRA each year to max out the 22 or 24% tax bracket. The idea is to get enough of this done while the current low rates are in effect and before the tax torpedo of starting social security at age 70 and RMDs hit.

I am personally planning to complete the bulk of my conversions by filling the 24% tax bracket prior to when the current tax rates expire in 2025 or so.

-gauss

[davebarnes]

You will have to pay the Medicare premium surcharges.
You have "too much" money.

Some good news.
1. Start your Roth conversions this year. Pay your taxes and ignore the impact on the Medicare premiums.
2. When you are 72, you can make QCDs that count towards your RMDs. So, you can feel good and deprive Uncle Sam of his cut.

We are ages 72/63 and have $1.3M in tIRAs. We will be paying the increased Medicare premiums for 15 years.

Hopefully, someone will provide a better answer than mine.

[pb4uski]

Quote:

Originally Posted by engr I am 67 years old and retired. I have approx 800k in traditional Ira accounts along with some monies in after tax and Roth accounts. Everything I read says to withdraw from investment accounts first followed by traditional iras and lastly Roth accounts. Seems to make sense as the idea is to let the tax deferred account continue to grow tax free and the tax rates for capital gains is lower. However, if I leave my traditional Ira account untouched when I get to age 72 I will be forced to take a large Rmd withdrawal. Since my wife and I are lucky to have pensions this rmd will position me above the threshold for having to pay Medicare IRMAA surcharges (approx 174K). This year I used the traditional Ira account for withdrawals to try to reduce my total amount. I know this seems to go against the usual order of taking withdrawals but I don’t want to get stuck with having a large AGI which triggers the Medicare surcharges. Also, when I turn 70 my social security will just make matters worst. Does anyone have suggestions to minimize/eliminate the surcharges. Thanks for any ideas.

So reading between the lines, it sounds like you are already in the 22% tax bracket before any RMDs. I would consider being aggressive with Roth conversions from now until you are 72... at least to just below the IRMAA base tier maximum or perhaps to the top of the 22% tax bracket, or maybe even to the top of the 24% tax bracket.... and in all cases pay the tax with taxable account money.

It will be expensive... 22-24% of the amount converted plus the IRMAA Part A and Part D if you go beyond the IRMAA base tier level.

These conversions will be costly, but many think that tax rates will be higher later and if one of you pass on then the survivor will have a very high marginal tax rate on RMDs.

[Dash man]

We can’t avoid the higher Medicare premiums starting for us next August. We’re going to the top of the 24% bracket and maybe a bit more. We’ve got $2.6M in 401k/tIRA accounts. We’ve just decided to do it believing tax rates will be higher in the future. Paying the taxes now may also help our heirs if/when the Estate Tax rolls back to $5M or is changed even lower.