Who has not/will NOT do Roth Conversions?

[Qs Laptop]

it required every dollar over $20 million to be immediate withdrawn. Guess what happens if you aren't already 59.5?

But you said:

We were within a few votes just 6 months ago of our first Roth tax.

Which is misleading. People withdrawing from Roth's prior to age 59.5 could have been subject to taxation; no new vote was necessary to invoke that tax. I was looking for that "new" Roth tax you were alluding to.

 

[Magus]

But you said:



Which is misleading. People withdrawing from Roth's prior to age 59.5 could have been subject to taxation; no new vote was necessary to invoke that tax. I was looking for that "new" Roth tax you were alluding to.

How is it miss-leading? The new bill would force any amount over $20 million to be withdrawn and if not 59.5 years old would be taxed plus penalty. What would you call this if not a new tax? It's entire point was to tax

 

[Qs Laptop]

How is it miss-leading? The new bill would force any amount over $20 million to be withdrawn and if not 59.5 years old would be taxed plus penalty. What would you call this if not a new tax? It's entire point was to tax

I would call it a new regulation on withdrawals from Roth IRAs.

The application of a tax on withdrawals from Roth IRA's for those under age 59.5 years old didn't require a vote six months ago to implement it. It was already policy.

Look at what you asserted:

We were within a few votes just 6 months ago of our first Roth tax.

1. We were not "within a few votes" of our first Roth tax. The bill was a proposal in committee. For all I know, it never made it out of committee.

2. Taxing Roth withdrawals before age 59.5 is done under current law. Thiel's taxation on his Roth withdrawals would not be a "first Roth tax."

 

[pacergal]

We don't have Lots, however our Tax deferred is 2/3 of our savings, taxable 1/3. And Roths were not an option when I was working. I check calculators every couple of years, still doesn't pan out to do them.
Don't plan on doing any Roths conversions. We are currently in a higher tax bracket with our pensions and SS than we were when we were working, don't want to pay even more taxes.
Our hope is to pass on our retirement savings or use them for medical care if needed. And my understanding is that the money would be deductible if used for medical, so why pay taxes on it now?
Plan to use RMDs for gifting to kids and charities.
We are blessed with what we have. If I have the income that puts me in a higher tax bracket, that means I have a higher income. Very First World problem. I don't spend much time thinking about it.
Again, I feel very blessed to be where I am at this point in my life. I have more than Enough.

 

[Gumby]

....
1. We were not "within a few votes" of our first Roth tax. The bill was a proposal in committee. For all I know, it never made it out of committee.
...

MODERATOR NOTE

Most legislative proposals never do make it out of committee. In fact, less than about 4% of all proposed legislation becomes law. And this is why the moderator team disallows most discussion of legislative proposals before they are reported out of committee, because it just generates dissension here over something that likely will not happen.

It is also equally unhelpful to point out "what might have happened". It didn't happen. If another bill along the same lines actually gets reported out of committee and affects more than 818 people who are almost certainly not members of this board, then it might be useful to discuss here. But not before then.

 

[Crewer]

I'm still doing as much Roth conversion as we can and keep below a Medicare charge level even if it bumps us into the 24% from 22% bracket. Essentially I do it because it will be easier for my kids to inherit the Roth but I also see our RMDs increasing as we get older and we are close to the top of the 22% bracket now. It's more complicated than that, of course, especially since DH still has some consulting income and we have 25+ year of savings bonds that we'll have to cash in one of these years, and RMD percentages going up, and bracket and deduction adjustments, and possible tax increases. Let's just say the conversions are just for my kids.

 

[steelyman]

I have only done two small conversions, in 1998 and 2015.

I now try to maintain an even split in tIRA/rIRA through withdrawals. Some years that results in a taxable withdrawal which has pluses and minuses.

I don’t plan on doing any more conversions.

 

[pb4uski]

How is it miss-leading? The new bill would force any amount over $20 million to be withdrawn and if not 59.5 years old would be taxed plus penalty. What would you call this if not a new tax? It's entire point was to tax

What was misleading was to claim that we were within 6 votes of a tax on Roths... totally wrong... the bill never even made it out of committee, not to mention the floor.

 

[Qs Laptop]

I haven't done any Roth conversions yet.

However, about 5 years ago we changed my wife's 401k contribution at work from a trad 401k to a Roth 401k and two years ago I did the same.

 

[RunningBum]

I've already made my bet with my own money that my Roth will never be taxed, with over 80% of my tIRA converted to Roth. No need to make a long-term bet with someone I haven't met. I'll continue to remind people that it doesn't even take a bill passing for tax rates for most people to go up in 2026.

 

[Midpack]

I've already made my bet with my own money that my Roth will never be taxed, with over 80% of my tIRA converted to Roth. No need to make a long-term bet with someone I haven't met. I'll continue to remind people that it doesn't even take a bill passing for tax rates for most people to go up in 2026.

+1.

 

[Cobra9777]

We initially converted to the top of the 15% (now 12%) bracket for several years after ER at 52. But, due to two small pensions, those were really small amounts compared to our overall tax-deferred balances. Yet I was reluctant to convert more at 25%. Projections at that time had RMDs taxed mainly at 25%, with a chance of slipping partially into the 28% bracket, based on various growth scenarios.

Since then, our tIRAs have nearly doubled. So it's much more likely that we'll pay 28% on RMDs, and possibly 33%... again depending on various growth scenarios. So when the TCJA came along with it's 22% rate, I saw that as an opportunity. We now convert to the top of the 22% bracket and the tIRA is shrinking fast. When the rate reverts to 25%, we'll reevaluate.

I agree with RunningBum's sentiment... I like the idea of locking in today's low rates rather than risking future uncertainty. Even if it ends up being a wash vs future rates, it's still a significant gain vs the rates I would have paid during all those working years when I deferred that income. So again, I see it as locking in my gain at an unusually low current rate. If you think about it from that perspective, it's really the non-converters who are riding the wave of uncertainty.

And of course, there's also the impact of single rates on a survivor that greatly favors conversions in most cases. ACA is a giant wrinkle for some people as well. It's a very situation-specific decision.

 

[pb4uski]

I've already made my bet with my own money that my Roth will never be taxed, with over 80% of my tIRA converted to Roth. No need to make a long-term bet with someone I haven't met. I'll continue to remind people that it doesn't even take a bill passing for tax rates for most people to go up in 2026.

Not only that, while I don't see it ever happening, even if Roths were to be taxed the legislative process is such that you'll see it coming and just withdraw everything without paying any tax and put it into taxable.

 

[Montecfo]

I have a very large tax deferred balance. I have made 1-2 very small conversions. I'm in the up to 12 pct camp.

It doesn't look like we can make much of a dent in the deferred balance to affect RMDs much. And I'm not someone who sees the opportunity to pay tax now at lower rates than heirs will in the future. Just hard to know but I'm certain my heirs will be delighted to pay tax on unexpected money.

We have decent diversity as it is as we did Roth conversions in a low income year (1998) and those funds were aggressively invested so it's a pretty good nut now.

For us I think the bigger potential issue is one of paying tax as a single taxpayer in the future.

But of course that is somewhat mitigated since it is one more reason for DW to marry her personal trainer or whatever.



I see no need to plan around that.

 

[Out-to-Lunch]

From reading the forums, Roth conversions are pretty popular. We are preparing to do our first set of them, but I get the impression our retirement company advisor doesn’t think they make much difference (and/ or no guarantee the rules won’t change, etc.).

Before we move forward…Curious who out there (with lots in tax-deferred) has decided to NOT do conversions, and why?

We have LOTS in tax deferred. (Well, we had lots more in tax deferred before the last couple of months! My account alone has taken a $250K hit since Dec 31. Ouch!)

Well, the way that you structured your question, I am not supposed to respond. However, I think such a limited discussion would be of little use. Feel free to ignore this if you truly only wanted to hear from people who have decided not to convert.

I am doing Roth conversions until the scheduled expiration of the TCJA rates to the top of the 22% bracket. We are MFJ and have decent pensions.
My goals are:
-limit RMDs, of course, but especially with an eye towards if either I or my wife passes away, and the survivor is filing single.
-IRMAA brackets
-a chance for a small amount of tax-rate arbitrage between 22% and 25%.
-flexibility for possible large lump-sum distribution (i.e., for a house).

 

[pb4uski]

How is it miss-leading? The new bill would force any amount over $20 million to be withdrawn and if not 59.5 years old would be taxed plus penalty. What would you call this if not a new tax? It's entire point was to tax

Wrong. No tax was intended... the entre point was to eliminate tax-free status for amount over $10 million in a Roth. From the ProPublica article:

Should the bill pass, it could have profound implications for PayPal founder Thiel, whose gargantuan Roth stunned lawmakers, spurring Neal to vow a crackdown. Thiel wouldn’t owe any tax up front and no early withdrawal penalties would apply, but he’d be required to move billions out of the tax-advantaged account. And any gains on investments made with that money would no longer be sheltered from taxes

 

[HealthyFuture]

HealthyFuture:





Some considerations that push to higher conversions

+Estate planning to optimize value to heirs

+Age differences or health issues that would increase the years where the surviving spouse files single.

+Projections that your tax bracket will increase (such as with expiration of TCJA after 2025)

+Enough NW that estate taxes would be a concern

+Projecting high future returns



Some considerations that push to lower conversions

-Maximizing gifts to charity rather than heirs

-Reserving funds for Long Term Care

-Holding your bonds preferentially in your tax deferred



In a given year, there are tactical considerations such as obtaining an ACA premium credit, staying under an IRMAA tier, avoiding various effective high marginal rate humps in the tax code, moving to a different tax jurisdiction, etc. In spite of tactical considerations, the lifetime optimum is largely determined by the big picture assumptions.

This was very helpful to me. RE reserving funds for Long Term Care — why does this push to lower conversions?

We have a 9-year age difference. No heirs. Net worth $~4M+ between the two of us, and nearly all of it in tax deferred. It seems unlikely we would qualify for ACA credit. No desire in the near term to move tax jurisdictions. I am just now learning about how to plan a strategy for withdrawing money — it seems that our situation would benefit from conversions for tax savings. I do get that ultimately it is a math decision, but since some people have said at the 22 vs 24% tax rate it may not be much of a benefit (not worth the hassle I think someone said), I was curious if there were other perspectives like that before I go dig in to the math (once I find the right planning spreadsheet).

 

[RetMD21]

From reading the forums, Roth conversions are pretty popular. We are preparing to do our first set of them, but I get the impression our retirement company advisor doesn’t think they make much difference (and/ or no guarantee the rules won’t change, etc.).

Before we move forward…Curious who out there (with lots in tax-deferred) has decided to NOT do conversions, and why?

We have LOTS in tax deferred. (Well, we had lots more in tax deferred before the last couple of months! My account alone has taken a $250K hit since Dec 31. Ouch!)

Doesn't the benefit depend on the individual situation? Have you run any numbers?

 

[RunningBum]

RE reserving funds for Long Term Care — why does this push to lower conversions?

LTC, assuming qualifying conditions, is tax deductible, so you can use tIRA withdrawals to have enough income to be able to use the deductions.

Drawbacks are that you usually don't need LTC at 72 when RMDs start, so you likely have a few years of RMDs before you start having deductible LTC expenses. Maybe many years. Maybe you'll never have them.

One alternative to funding LTC include having a large HSA, if you can. Some are rightfully worried about not being able to fully use an HSA and those are not very heir-friendly if you die with a large balance.

Another is taking LTCGs from taxable, if you have them. That's my plan, along with whatever might be left of my tIRA and HSA. If I don't use my LTCGs, my heirs get stepped up basis if rules don't change. That seems like a more flexible plan than counting on LTC to use up tax deferred savings, but truthfully I never really considered the LTC possibility before I had converted most of my tIRA.

Run your own numbers with your own assumptions.

 

[old medic]

the controlling of MAGI for medical tax subsidies is worth more than the Roth conversions currently. .

Im in the same boat as Dtail. We started Roths last year and plan on doing some conversions, but will wait till years end to see how much we can move.. if any. Will be playing this game another 6.5 years...

 

[Dtail]

This was very helpful to me. RE reserving funds for Long Term Care — why does this push to lower conversions?

We have a 9-year age difference. No heirs. Net worth $~4M+ between the two of us, and nearly all of it in tax deferred. It seems unlikely we would qualify for ACA credit. No desire in the near term to move tax jurisdictions. I am just now learning about how to plan a strategy for withdrawing money — it seems that our situation would benefit from conversions for tax savings. I do get that ultimately it is a math decision, but since some people have said at the 22 vs 24% tax rate it may not be much of a benefit (not worth the hassle I think someone said), I was curious if there were other perspectives like that before I go dig in to the math (once I find the right planning spreadsheet).

Bolded by me - my dad just passed last month, but even though he had 2 LTC plans, the net OOP was 130k last year.
So I took out much more than the RMD needed from his IRA in order to take advantage of this RMD being taxed at lower rates.

 

[punkinhead]

I don't plan to do any conversions because my projected RMDs don't push me into a higher tax bracket plus I want to control my income for ACA subsidies and eventually IRMMA. That may change after this year when the ACA subsidy cap drops back to 4X poverty because then I won't qualify for anything and it won't be part of my conversion equation. Even then Roth conversions don't really move the needle much for me as far as tax savings. The one thing that might make me do it is a huge market drop, but it would have to be a 40-50% drop for me to bother.

 

[DrRoy]

I do, but like others, only in the 12% bracket.

 

[TheWizard]

I'm NO LONGER planning to do significant Roth conversions, having reached age 72 this year and just starting my modest RMD of around $3000 per month.

My plan for the previous nine years was to do Roth conversions, in the 24% Federal tax bracket most recently, to boost my AGI up close to what it will be this year with both SS and RMDs active.
Last year, for example, my Roth conversion amount was very close to what my RMD is for this year.

By converting what I did, I may have kept my age 72+ AGI from getting into the next higher IRMAA tier.
But for sure, this gives me a lot more flexibility in my finances going forward...

 

[Midpack]

I'm NO LONGER planning to do significant Roth conversions, having reached age 72 this year and just starting my modest RMD of around $3000 per month.

My plan for the previous nine years was to do Roth conversions, in the 24% Federal tax bracket most recently, to boost my AGI up close to what it will be this year with both SS and RMDs active.
Last year, for example, my Roth conversion amount was very close to what my RMD is for this year.

By converting what I did, I may have kept my age 72+ AGI from getting into the next higher IRMAA tier.
But for sure, this gives me a lot more flexibility in my finances going forward...

Which is why anyone would do Roth conversions. Congrats, I'm well on my way to leveling off my taxes before and after RMD/Soc Sec.