It's a major theme here, we've had several recent threads on it. Do a search for "Roth Conversion" for more info. The problem is accentuated when one spouse dies and the remaining spouse is still subject to the same RMDs but reduced standard deduction/reduced personal exemption, and the much lower brackets of Single vs MFJ.So how many discovered that the tIRA and more so the 401k is a trap for people who are big savers-investors and need to convert to Roth inorder to control later tax consequences?![]()
I've heard a couple people complaining that they will be in a higher bracket withdrawing from their 401K/IRA than while earning, but I'm guessing not too many people maxed out their 401K while in the 15% bracket.
I do not see it as a 'trap'... I am well aware of the future tax liability and plan for it accordingly....
In the end, I will save many 10s of thousands of dollars in taxes... so I do not see how it can be a trap....
I would say that the only people who get trapped are the ones who do not plan...
Something tells me that the OP has a product to sell that is a "solution" to this problem.
Uncle Sam says, "You can pay me now, or you can pay me later."
I do not see it as a 'trap'... I am well aware of the future tax liability and plan for it accordingly....
In the end, I will save many 10s of thousands of dollars in taxes... so I do not see how it can be a trap....
I would say that the only people who get trapped are the ones who do not plan...
Something to consider, and a possible reason to convert some money to a Roth: Take a quick look to see what the situation would be like for you (or your spouse) if the other were to pass away after age 70. Look at the RMDs, SS, pensions, etc, then at the tax brackets, standard deduction, etc for a single person. If the couple is MFJ and near the top of the 15% bracket, a single surviving souse can find herself well into the 25% bracket--paying 10% more taxes on the RMDs and also losing all the zero-tax CG and dividends--it can be a big hit. This can be one reason to pay taxes now to convert tIRA funds to a Roth IRA, even at the same tax rate--to lower the RMDs for the surviving spouse and provide a pot of taxes-already-paid money if that person would be in a higher bracket.But I don't see the value of converting to Roth in my situation, unless I am missing something?
Something tells me that the OP has a product to sell that is a "solution" to this problem.
............travelover, can you please sell a free idea or one that I can beat the system.![]()
Something to consider, and a possible reason to convert some money to a Roth: Take a quick look to see what the situation would be like for you (or your spouse) if the other were to pass away after age 70. Look at the RMDs, SS, pensions, etc, then at the tax brackets, standard deduction, etc for a single person. If the couple is MFJ and near the top of the 15% bracket, a single surviving souse can find herself well into the 25% bracket--paying 10% more taxes on the RMDs and also losing all the zero-tax CG and dividends--it can be a big hit. This can be one reason to pay taxes now to convert tIRA funds to a Roth IRA, even at the same tax rate--to lower the RMDs for the surviving spouse and provide a pot of taxes-already-paid money if that person would be in a higher bracket.
I will save six figures easily by jumping into this so-called "trap."
But I don't see the value of converting to Roth in my situation, unless I am missing something?
I could see it being a trap... being caught in something you weren't expecting with no easy way out. ...
Yes, in your case the biggest change would probably be the tax tables. Also, taking one personal exemption rather than two will mean a further increase in taxable income of $3,950, and if you are taking the standard deduction (rather than itemizing) the change from MFJ to single will mean the loss of $6200 in deductions (all figures for 2014).So... the main change in the event of one of us passing with respect to this discussion is the switch from MFJ tax tables to single tax tables, correct?