nun
Thinks s/he gets paid by the post
- Joined
- Feb 17, 2006
- Messages
- 4,872
scrinch said:Nun and ERBob--
Paying the (15%) taxes with after-tax funds is equivalent to contributing an additional 15% (of the rollover amount) to your Roth IRA. So no wonder this scenario comes out ahead in the end! You're able to roll $100K (eventually) from your TIRA, which is subject to taxes upon withdrawal, directly into your Roth IRA, which is not subject to taxes. Really, though, what you have done is taken an after-tax $15K and indirectly add it to the Roth IRA to make up for the taxed portion.
I've been making RMD's from an IRA I inherited from my dad for the last several years. It's not so tough. You make a spreadsheet one time for the annual % withdrawal for the next XX years and then just paste in your year-end balance each January 1. Or have Vanguard/Fidelity calculate it for you. The difficult part for me is paying the 30+% tax on the RMD that I don't need anyway.
Thanks for the comments. When I have to pay a large tax bill I usually remind myself that I'm lucky to be making enough money to pay a big bill, it helps a bit ;-)
Given a 3% indexing of the 15% tax bracket level and my need to tap the IRA at 60, if I did no ROTH conversions I don't think my eventual IRA RMD and SS payments would push me over the 15% level.
The winning parts of the annual ROTH conversion are paying for it with after tax $$$ and keeping it at a level where you only have to pay 15% tax, if you're really frugal and have a few deductions maybe even 10%.
As an aside, as I'm going to be living in the UK I'll be able to exclude $80k per year of foreign income and get tax credits making my US income 0. So I should be able to convert an amount upto the full 15% level plus any standard US deductions each year. I'm still not sure if the ROTH conversion will be taxable in the UK, although I imagine I'll get a credit there for the 15% tax I pay in the US. This is where I really need a CPA