I've been reading about Roth conversions and am trying to figure out if waiting for a window during the transition from working to retiring early is the best time to convert a standard IRA to a Roth. In my case, my wife will receive a generous DB pension when she turns 55, but if we decide to retire early a few years before she can begin collecting her pension, we will have basically zero income and would be living off of post-tax account withdrawals until the pension kicks in.
If you took advantage of this period of zero income, you could theoretically convert substantial amounts (up to the 15% income upper bracket) of regular IRA money to a Roth and still stay in the 15% tax bracket. Am I missing something here? It's probably better if she remained working until full retirement age as the pension would increase and this would offset any gains of converting to a Roth, but then again, she'd be working longer. I wonder if there's an easy way to compare scenarios to see what would be better. I like having a huge sum in a Roth later on because you never know what the tax rates will be like in another 20 or 30 years. Her pension alone will most likely put us into the 25% tax bracket, so once we retire, any withdrawals from regular IRAs would be at a high tax rate.
If you took advantage of this period of zero income, you could theoretically convert substantial amounts (up to the 15% income upper bracket) of regular IRA money to a Roth and still stay in the 15% tax bracket. Am I missing something here? It's probably better if she remained working until full retirement age as the pension would increase and this would offset any gains of converting to a Roth, but then again, she'd be working longer. I wonder if there's an easy way to compare scenarios to see what would be better. I like having a huge sum in a Roth later on because you never know what the tax rates will be like in another 20 or 30 years. Her pension alone will most likely put us into the 25% tax bracket, so once we retire, any withdrawals from regular IRAs would be at a high tax rate.