Roth Conversion not for us?

Rianne said:
Had the Zoom call. Very helpful. Rich was the FA, 25 yrs. of experience, 18 years with Fidelity. He had frustration with Fidelity because they could not give tax guidance. We asked specific tax related questions and he answered them in detail with follow up videos that he sent after the call. Did not try to sell us. He told us what they do but understood we are DIY, many people they talk to are, but do not understand how to approach WD and managing taxes. He showed us charts and examples of how taxes are structured. Ordinary income then stacked other income and how it's taxed. I gave him my exact plan for 2025. Our LTCG would be taxed at $0. We could Roth convert, stay in the 12% marginal bracket with dividends, interest, SS, STCG (which we have no control since mutual funds trade) which are taxed at ordinary rates. The standard deduction would cover most of the Roth conversion. Then stack income from there. We're selling stock (not mutual fund stock). So look at lots. It matters if leaving to beneficiaries getting a stepped up. He explained DAF (Donor Advised
Funds) for charitable giving which was interesting and we didn't know about.

No charge for the call and all our questions answered. We were not hurried and he was willing to talk as long as we asked.
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Rianne,

thank you for the update. I have always enjoyed my talks with my local Fidelity guy.

I recommend that you put your numbers into tax software when you do Roth conversions to make sure you really understand the tax impact. For example, for each $1 of LTCG you push out of the 0% bracket has an effective marginal tax of 27%.

DAF are very useful if one normally makes charitable contributions. If you do it, donate the shares with the most LTCG. If your donations are not enough to overcome the standard deduction, then you may want to look into bunching. This is where one year you take the standard deduction and the next year you try to take all of your deductions (DAF contributions, property taxes for 2 years, ...).
 
Rianne said:
Had the Zoom call. Very helpful. Rich was the FA, 25 yrs. of experience, 18 years with Fidelity. He had frustration with Fidelity because they could not give tax guidance. We asked specific tax related questions and he answered them in detail with follow up videos that he sent after the call. Did not try to sell us. He told us what they do but understood we are DIY, many people they talk to are, but do not understand how to approach WD and managing taxes. He showed us charts and examples of how taxes are structured. Ordinary income then stacked other income and how it's taxed. I gave him my exact plan for 2025. Our LTCG would be taxed at $0. We could Roth convert, stay in the 12% marginal bracket with dividends, interest, SS, STCG (which we have no control since mutual funds trade) which are taxed at ordinary rates. The standard deduction would cover most of the Roth conversion. Then stack income from there. We're selling stock (not mutual fund stock). So look at lots. It matters if leaving to beneficiaries getting a stepped up. He explained DAF (Donor Advised
Funds) for charitable giving which was interesting and we didn't know about.

No charge for the call and all our questions answered. We were not hurried and he was willing to talk as long as we asked.
Click to expand...
Just make sure he doesn't charge assets-under-management fees, that will ultimately cost you 10X more than paying several thousand dollars for an analysis by a paid by the hour type of advisor.

In case the one you are talking to is AUM, Here is a list of some hourly type of advisors that appeared recently over at Bogleheads.
 
imjustawarrior said:
Rianne,

thank you for the update. I have always enjoyed my talks with my local Fidelity guy.

I recommend that you put your numbers into tax software when you do Roth conversions to make sure you really understand the tax impact. For example, for each $1 of LTCG you push out of the 0% bracket has an effective marginal tax of 27%.

DAF are very useful if one normally makes charitable contributions. If you do it, donate the shares with the most LTCG. If your donations are not enough to overcome the standard deduction, then you may want to look into bunching. This is where one year you take the standard deduction and the next year you try to take all of your deductions (DAF contributions, property taxes for 2 years, ...).
Click to expand...
My bold to your response. Yes! He went into detail about that.

I have 2024 Taxslayer software as AARP consultant. I'm new, just started doing AARP last year. It seems easy as I'm entering numbers. Rich, I forgot to mention said pay attention to the worksheets in detail on the tax return. Most of the time you enter #s and get results. I wanted to know what parts of income are taxed at what rates. I always see on our broker statements at the end of the year these STCG. I thought, we didn't sell any mutual funds what's this? Now I get it.
 
Depending on your charitable giving intentions and age, QCDs might work better than, or be a useful addition to, a DAF.

The key advantage to a QCD over a DAF is that you don't have to have enough to overcome the standard deduction. The key disadvantage is that you have to be 70.5 to do a QCD, whereas a DAF can be done at any age. There are other differences.
 
Exchme said:
Just make sure he doesn't charge assets-under-management fees, that will ultimately cost you 10X more than paying several thousand dollars for an analysis by a paid by the hour type of advisor.

In case the one you are talking to is AUM, Here is a list of some hourly type of advisors that appeared recently over at Bogleheads.
Click to expand...
We're not hiring them as advisors. This was totally free. In response to a follow up email, he told us exactly how the fees are charged if we decide to go with Capita. But we're not. Again, he totally gets DIY investors. I was surprised at how much information he shared with us.
 
SecondCor521 said:
Depending on your charitable giving intentions and age, QCDs might work better than, or be a useful addition to, a DAF.

The key advantage to a QCD over a DAF is that you don't have to have enough to overcome the standard deduction. The key disadvantage is that you have to be 70.5 to do a QCD, whereas a DAF can be done at any age. There are other differences.
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Right, we're 67.
 
Perhaps you are already doing this, but what I would suggest is to develop a spreadsheet or us the What-If worksheet if Taxslayer has one or even IRS & State Tax Calculator | 2005 -- 2025 if your taxes are simple (mine are but I do it in Excel) and model your 2024 income taxes and compare to your 2024 return as filed. It should align withn a couple bucks.

Then enter your 2025 numbers before any Roth conversions. Then add Roth conversions to get to your target.

Back when we were able to recharacterize conversions I would overconvert a little, do my tax return in February, recharacterize to reduce my income down to my target and for a few years in a row my taxable income was spot on with the top of the 12% tax bracket and since I made federal withholdings and/or estimated payments based on that plan my tax due was $0 and my refund was $0.
 
Rianne said:
Had the Zoom call. Very helpful. Rich was the FA, 25 yrs. of experience, 18 years with Fidelity. He had frustration with Fidelity because they could not give tax guidance. We asked specific tax related questions and he answered them in detail with follow up videos that he sent after the call. Did not try to sell us. He told us what they do but understood we are DIY, many people they talk to are, but do not understand how to approach WD and managing taxes. He showed us charts and examples of how taxes are structured. Ordinary income then stacked other income and how it's taxed. I gave him my exact plan for 2025. Our LTCG would be taxed at $0. We could Roth convert, stay in the 12% marginal bracket with dividends, interest, SS, STCG (which we have no control since mutual funds trade) which are taxed at ordinary rates. The standard deduction would cover most of the Roth conversion. Then stack income from there. We're selling stock (not mutual fund stock). So look at lots. It matters if leaving to beneficiaries getting a stepped up. He explained DAF (Donor Advised
Funds) for charitable giving which was interesting and we didn't know about.

No charge for the call and all our questions answered. We were not hurried and he was willing to talk as long as we asked.
Click to expand...
We use a DAF. It’s a big part of our estate plan.
 
I had decided to not do anymore conversions, having a Roth of about $400k but not having anyone special enough to leave it to to pay taxes on more conversions. :) But in reading this thread it just occurred to me that next year (when I'll turn 60) I will have almost no earned income, and will not have to go on the ACA until early 2027 thanks to COBRA payments being covered in a buyout package, so it might be a pretty good window to do at least up to the top of the 22% bracket. (I have a year's worth of expenses in my taxable MM fund, so I'd be less concerned about ending up moving out of the 0% CG range. Off to the spreadsheet!
 
MarieIG said:
More info might be factored into your, such current tax bracket vs. future tax brackets, did you start SS yet (current income vs future income), tax bracket of survivor, etc.

And remember - it does not have to be all or nothing.
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Also your $1.4 in IRA earning 5% means it will be $1.85 in 6 years with correspondingly larger RMDs than you’ve planned for..Converting some of that $1.85 into a Roth might give you a little more flexibility in the future.
 
For me at age 58, performing small yearly Roth conversions is to provide flexibility to control my tax bracket until I have to take RMDs when I'm 75.

My wife and I are on the ACA, so we just try and keep our MAGI around $35-40K to maximize the subsidies. If those subsidies go away, then we'll bump up the Roth conversion to the top of the 12% tax bracket.

One thing to consider with Roth accounts is that you can use this money to invest in higher risk/higher return stocks/funds/ETFs without having to worry about capital gains. For me, I got lucky and bought NVDA shares over 5 years ago in my Roth, and they're up over 2000%.
 
InsertCleverHandle said:
You can use Boldin.com (formerly NewRetirement) to model the conversions. Two week trial is free, and then $120 a year. I did not find it that helpful with weighing ACA subsidies vs. Roth conversions, but that will likely change with whatever tax changes come in 2026 anyway.
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I subscribed to Boldin and then found out about Pralana Online and subscribed to it as well. The Pralana Roth Optimizer is the most complete and most transparent that I have seen, and supports (among other things) optimizing around ACA premium tax credits, IRMAA, and other factors all while also dynamically adjusting asset allocation across taxable, tax-deferred and Roth accounts. I recommend it.
 
I also look at how conversions may help my tax situation later. Every $ I put in Roth will never be taxed again, nor the interest or gains on it. If I take it as an RMD and don’t spend it I will be subject to tax on any interest or gains. Also my personal belief is that tax rates will eventually rise due to the high US debt.
 
Tax rates rates for the last 80 + years have generally declined. Will that trend continue? Who knows.
RMD ages have gotten pushed out. I don’t have to take mine until 75
Standard deductions continue to rise.
Tax brackets get adjusted upward every year.

If you are making a conversion for flexibility or other reasons, it could make sense.
If it’s to avoid taxes when you are old, that’s a guess, but you pay for that guess in today’s dollars.

IMG_0786.jpeg
 
I think you'd have to look at the actual effective tax rates in those high years. Weren't there tons of loopholes back then? Did anyone really pay 90% on much or any of their income?

Besides, the question is now vs the future.
 
If you expect to pay nothing in taxes for the next few years, I would be tempted to do a lifetime look at filling one bracket and see what the difference is between filling the lowest tax bracket with taxes from conversions and doing nothing. If the total amount of money does not seem worth it, then do nothing.

Might consider baking in the coming cut in FICA too.
 
RunningBum said:
Factual, yes. Meaningful? Not so much except for the last 40 years, where they have increased some, with some small rollbacks
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LOL, ok. So what happens if that trend continues?
I have no idea what will happen to taxes, which is one of the many reasons I don’t see conversions as a given. A maybe, or it depends, for sure.
Forking over money today to pay taxes I may or may not owe in future dollars? I just can’t get super motivated to do it.
 
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COcheesehead said:
LOL, ok. So what happens if that trend continues?
I have no idea what will happen to taxes, which is one of the many reasons I don’t see conversions as a given. A maybe, or it depends, for sure.
Forking over money today to pay taxes I may or may not owe in future dollars? I just can’t get super motivated to do it.
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I don't know either, but I can't find fault with what geezee said about it. Some will disagree but in the end all you can do is make your own informed decision.
 
I did a lot of calculations, and my conclusions were
I'm only converting + other incomes up to IRMAA. That way I pay about 13% total effective tax, and my Medicare premiums are the lowest.
There is no way to shrink my TIRA too much, even after conversions, because I keep making money.
By mid-80s, it will be above IRMAA. That's a good thing; it means I have a big portfolio. I'm not willing to be in a much higher effective tax bracket in the next 15-18 years.
My numbers show that my portfolio will be 10% bigger if I live to my 90s. Either way, not a big deal.

Smaller portfolios don't have a problem. From memory, the median retiree has about a portfolio worth $300K; no need to do anything. In the $500K to a million range, a conversion could be much more effective...if your portfolio is making 8+% average annually. It's all unique to each person, and the future is unknown.
 
my personal calc's show that my total portfolio value may be 9.5% lower at age 90 with scheduled Roth conversions at current tax rates. However, I still can't resist partial conversions whenever there is a market dip and find this plays into the end game and is very hard to factor in.
 
According to Fidelity’s Retirement planner, my RMDs do not go above my current withdrawal percentage (2% ish) until 2053. Based on average market returns. I likely won’t need the money. I’ll be 90. I could be dead too. Maybe by then I’ll just brag and complain to my McDonald's coffee buddies about how much taxes I pay.
I have options because I don’t need any of the money in deferred accounts. I can QCD it or a chunk of it. I can take withdrawals currently for taxes using the end of the year method to reduce it. I can go into more conservative investments. I can switch off income from taxable and live on the RMD when the time comes. I have options and I can exercise them when more is known vs now when it’s all still pretty much a guess and I would pay to make that guess.
 
Sonoma_steve said:
Also your $1.4 in IRA earning 5% means it will be $1.85 in 6 years with correspondingly larger RMDs than you’ve planned for..Converting some of that $1.85 into a Roth might give you a little more flexibility in the future.
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Right, if we make $40-$50K conversions over the next 6 years...our RMDs will probably be $60K or so. That's doable.
Per current tax table:
$40K conversion = $0 CG tax
$50K conversion = $0 CG tax
$60K conversion = $1218 CG tax...but still at 12% marginal
So we have room and would take all dividends as income rather than reinvest. Probably sell more LTCG.
 
While working, my mantra was never pay taxes before you need to. I had a very high marginal rate.

Now in retirement, I'm considering Roth conversions, which goes against my working mantra. Under average returns the Fidelity retirement calculator shows RMDs maxing around $500k/yr. That gives me pause. I'll probably stick with my plan to convert up to where NIIT begins. I think I will stop once I have my 401k/IRA just holding bonds. The bonds should slow growth enough to prevent crazy large RMDs.
 
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