mountainsoft
Thinks s/he gets paid by the post
I am considering converting a portion of my traditional IRA to a Roth IRA, but I'm curious if there are any negatives to doing so. We're planning to retire in 5 years.
To stay within my current 12% tax bracket, I could only convert about 15K per year. If I convert 15K for the next four or five years, I should be able to avoid RMD's by the time I'm 70 (spending down the remainder of my traditional IRA first). I would pay the conversion taxes from my regular savings account.
Is there a best time of year to make the conversion? I was thinking of finishing out this year with my traditional IRA so we could deduct the contributions on our next tax return. Then at the start of next year convert the first 15K, pay my estimated tax, and switch our contributions to the new Roth IRA. Does that sound reasonable?
Honestly, at our income level (55K now, 40K retired), I didn't see a huge incentive to convert to a Roth. We should stay well within the 12% tax bracket through retirement. However, if one of us dies the survivor could end up in the next tax bracket as an individual. So the Roth would help avoid that.
The Roth would also be easier for my daughter to inherit, though I'm not too worried about that. We're hoping to spend it before we die, and she can't complain if she inherits free money.
Since taxes are likely to increase over time, a Roth would help with that too.
I was going to wait until we retired to convert, but thought it might cause issues qualifying for healthcare subsidies. Better to do it now while we still have medical coverage and income to pay the taxes.
I assume I can have both a traditional and Roth IRA at Vanguard and invest in the same funds, as long as my total contributions are under the $6500 limit (for 50+ folks)? Specifically with Vanguard, is it difficult to work with the two different IRA types on their web site?
Anyway, I would love to hear from folks who have made Roth conversions to know what issues you encountered. Do you feel it was worth the trouble?
To stay within my current 12% tax bracket, I could only convert about 15K per year. If I convert 15K for the next four or five years, I should be able to avoid RMD's by the time I'm 70 (spending down the remainder of my traditional IRA first). I would pay the conversion taxes from my regular savings account.
Is there a best time of year to make the conversion? I was thinking of finishing out this year with my traditional IRA so we could deduct the contributions on our next tax return. Then at the start of next year convert the first 15K, pay my estimated tax, and switch our contributions to the new Roth IRA. Does that sound reasonable?
Honestly, at our income level (55K now, 40K retired), I didn't see a huge incentive to convert to a Roth. We should stay well within the 12% tax bracket through retirement. However, if one of us dies the survivor could end up in the next tax bracket as an individual. So the Roth would help avoid that.
The Roth would also be easier for my daughter to inherit, though I'm not too worried about that. We're hoping to spend it before we die, and she can't complain if she inherits free money.
Since taxes are likely to increase over time, a Roth would help with that too.
I was going to wait until we retired to convert, but thought it might cause issues qualifying for healthcare subsidies. Better to do it now while we still have medical coverage and income to pay the taxes.
I assume I can have both a traditional and Roth IRA at Vanguard and invest in the same funds, as long as my total contributions are under the $6500 limit (for 50+ folks)? Specifically with Vanguard, is it difficult to work with the two different IRA types on their web site?
Anyway, I would love to hear from folks who have made Roth conversions to know what issues you encountered. Do you feel it was worth the trouble?