Roth Conversions and Rebalancing

[Coaster4Now]

What category was the money that was sold int the tIRA and are now in money market funds in the TIRA? Did you sell stocks or bonds?

I sold some of 2 index funds that contained the Mag 7.
Varying amounts, dates, that added to my MM fund if that matters.
Those funds were getting uncomfortably high and I didn't like the concentration.

 

[imjustawarrior]

Selling in taxable would reduce my space for Roth, to keep under IRMAA.
Just curious are you retired? If not...my situation may not apply to you.
My taxable, now that not reinvesting, supplies dividend income.
Sure not perfect setup, but it works.
It gets complicated when you are retired and have what you have

Yes, we are retired, but we are under 59.5. We live off of our portfolio and do Roth conversions.

You do what works for you. I don't understand the "selling in taxable would reduce my space for Roth." Your dividends in taxable is income. Selling in taxable is income. They are both taxed at the same rate for LTCG and qualified dividends. I was suggesting that you get rid of the non-equities from your taxable account.

 

[Coaster4Now]

It's a crap shoot when your old

Yes, we are retired, but we are under 59.5. We live off of our portfolio and do Roth conversions.

You do what works for you. I don't understand the "selling in taxable would reduce my space for Roth." Your dividends in taxable is income. Selling in taxable is income. They are both taxed at the same rate for LTCG and qualified dividends. I was suggesting that you get rid of the non-equities from your taxable account.

Sorry, I didn't post that I have sizeable gains.
It would reduce my Roth space to stay under the IRMAA thresholds.
It would be taxed less, yes, but up my MAGI for IRMAA
But thank you for your take on this!
Single space is much smaller than MFJ - trying to stay under 109k for this year as IMRAA is a moving target.
EDIT sounds like you are much better set up than I am

 

[TheWizard]

Everyone has a different situation.
I've been single again since the late 90s and in the mid level IRMAA tier for the last decade and going forward.

I haven't rebalanced for the past decade. Or rather, I've moved to 95% stock index funds a while back and will stay there.

Not everyone has the same background and guts as I do, so be careful...

 

[Exchme]

Read the bogleheads wiki about tax efficient asset placement:

Tax-efficient fund placement - Bogleheads

Basically, your bonds belong in your t-IRA so that their return of ordinary dividends is taxed the same way as the account that they are held in. Depending on your account sizes and asset allocation, you may need to spillover bonds into either taxable or Roth. In our case, I tested both ways and it works better for us to spill bonds over into Roth. Tax drag on bond dividends in taxable is really painful for returns as the $ you pay in taxes stop compounding.

 

[pb4uski]

If you are comfortable with 45% equities and your Roth is less than 45% of your total nestegg then you could change your Roth to be all equities tomorrow. Just sell the non-equities in the Roth and buy equities in the Roth and then sell equities in your tax deferred account and buy fixed income for the same amount.

3% is a pretty low bar. You could easily achieve that with a 10 year ladder of Treasury and Corporate target maturity bond ETFs. Sprinkle in some preferred stock funds and some other stuff and you should be over 5% easily.

 

[Coaster4Now]

If you are comfortable with 45% equities and your Roth is less than 45% of your total nestegg then you could change your Roth to be all equities tomorrow. Just sell the non-equities in the Roth and buy equities in the Roth and then sell equities in your tax deferred account and buy fixed income for the same amount.

3% is a pretty low bar. You could easily achieve that with a 10 year ladder of Treasury and Corporate target maturity bond ETFs. Sprinkle in some preferred stock funds and some other stuff and you should be over 5% easily.

Thanks,
I guess I'm not getting it.
If I buy into equities in my roth tomorrow, I am paying a high price. Which I feel is overvalued.
It kind of negates me selling out of tIRA to take profits I wanted, and converting those dollars in Jan. into my Roth.
Basically, It would be the same as just moving the shares and paying taxes on something I think will go down. (just for the sake of rebalancing)?
I'm very sorry, I guess I just don't get the math.

I was trying to ask how do others rebalance things out. Perhaps rebalancing isn't for me or important in my situation. Or Perhaps slow as another poster said. Thanks everyone for your help, I really do appreciate it. I'll figure something out, I do have a FA who I'll consult.

 

[TheWizard]

Stock funds hit all-time highs frequently.
Don't be fazed by it.

Initially, buying more in either type of IRA might seem intimidating. You can always use limit orders to buy low!

But once you have $500,000 in your Roth IRA, then putting an additional $2500 in this month isn't that big of a deal.
So just do it...

 

[TheWizard]

Stock funds hit all-time highs frequently.
Don't be fazed by it.

Initially, buying more in either type of IRA might seem intimidating. You can always use limit orders to buy low!

But once you have $500,000 in your Roth IRA, then putting an additional $2500 in this month isn't that big of a deal.
So just do it...

It's different in your taxable account because you can do Tax Loss Harvesting.
But that's a different topic...

 

[engineernerd]

Thanks,
I guess I'm not getting it.
If I buy into equities in my roth tomorrow, I am paying a high price. Which I feel is overvalued.
It kind of negates me selling out of tIRA to take profits I wanted, and converting those dollars in Jan. into my Roth.
Basically, It would be the same as just moving the shares and paying taxes on something I think will go down. (just for the sake of rebalancing)?
I'm very sorry, I guess I just don't get the math.

I was trying to ask how do others rebalance things out. Perhaps rebalancing isn't for me or important in my situation. Or Perhaps slow as another poster said. Thanks everyone for your help, I really do appreciate it. I'll figure something out, I do have a FA who I'll consult.

Some disjointed comments...

One, don't let IRMAA loom too large in your imagination. There is only one of you, so the dollars involved are only half what they are for a married couple on Medicare. And the first tier doesn't really cost that much, $1148.40 total in 2026 and an estimated $1234 in 2027 assuming 2.25% inflation. Even the second tier is only $2884.80 in 2026 (totaled for all 12 months for Parts B and D).

Second, shifting stocks from tIRA to Roth is not "paying a high price." While I'm pretty sure you can't literally transfer holdings between the accounts, you CAN buy and sell on the same day. If what you hold is traditional mutual funds then you will buy and sell at the same price. If what you hold is ETFs or individual stocks, you could use limit orders set at approximately the current price, if you are worried about your orders executing unfavorably.

You seem to have a lot of cash but if you need to liquidate bonds to have enough in your settlement funds for the stock transactions, since bonds are less volatile than stocks I would recommend selling what you need to in each account (and letting the trades settle) before doing the stock transactions.

I think the benefit of long-term tax-free growth in a Roth outweighs its value in managing IRMAA. If there is no market crash, then you can reap both benefits if your growth investments are in the Roth. If there is a crash, then you might want to give up the IRMAA management benefit (maybe even increase your taxable income to just under the next IRMAA tier via tIRA distributions/Roth conversions or recognition of capital gains in taxable) to allow the Roth time to recover.

Sorry for the long post.

 

[Jimq]

Here is what I do, not suggesting to anyone. 5 years expenses in MM or safe funds like sgov etc and let the rest ride in stocks. so far so good. If Market does not come back in 5 years then we are in trouble lol

 

[N02L84ER]

I am sorry - but the advice I was reading was to have stocks in Roth, fixed safe in tIRA and was wondering about a way to get there. Not to change overall.
IRA is 49stk/36bond/15cash
Roth 25stk/26bond/49cash
Broker50/50

When you sell the stocks in the IRA, you are locking in the gains. When you buy them in the Roth, just remember that you already locked in the gains in the IRA. If at a later time you need to sell from the Roth, you could sell say 5% of stocks in the Roth and buy 5% of stocks in the brokerage on the same day making the gain/loss cancel. So, for instance, right now you could
IRA - sell 49 stk, buy 26 bond, buy 23 cash
Roth - buy 49 stk, sell 26 bond, sell 23 cash
Broker unchanged.
The end result is that the IRA and Roth still have the same total stk, bond, and cash but they are placed more tax efficiently and there are no current tax or ACA or IRMAA consequences.
IRA - 62 bond, 38 cash
Roth - 74 stk, 26 cash
hope this helps.

 

[TheWizard]

... While I'm pretty sure you can't literally transfer holdings between the accounts, you CAN buy and sell on the same day...

With ETFs, it's entirely possible to do an in-kind Roth conversion in one day at Vanguard.
I just did one back in December...

 

[RetiredHappy]

Some disjointed comments...

One, don't let IRMAA loom too large in your imagination. There is only one of you, so the dollars involved are only half what they are for a married couple on Medicare. And the first tier doesn't really cost that much, $1148.40 total in 2026 and an estimated $1234 in 2027 assuming 2.25% inflation. Even the second tier is only $2884.80 in 2026 (totaled for all 12 months for Parts B and D).

Second, shifting stocks from tIRA to Roth is not "paying a high price." While I'm pretty sure you can't literally transfer holdings between the accounts, you CAN buy and sell on the same day. If what you hold is traditional mutual funds then you will buy and sell at the same price. If what you hold is ETFs or individual stocks, you could use limit orders set at approximately the current price, if you are worried about your orders executing unfavorably.

You seem to have a lot of cash but if you need to liquidate bonds to have enough in your settlement funds for the stock transactions, since bonds are less volatile than stocks I would recommend selling what you need to in each account (and letting the trades settle) before doing the stock transactions.

I think the benefit of long-term tax-free growth in a Roth outweighs its value in managing IRMAA. If there is no market crash, then you can reap both benefits if your growth investments are in the Roth. If there is a crash, then you might want to give up the IRMAA management benefit (maybe even increase your taxable income to just under the next IRMAA tier via tIRA distributions/Roth conversions or recognition of capital gains in taxable) to allow the Roth time to recover.

Sorry for the long post.

We can move stocks etfs from Rollover IRA to Roth directly without the need to sell.

 

[RetiredHappy]

The older that I grow the more aggressive I have become. I just invested in VGT since the recent dip. I am 100% equities in a somewhat large taxable brokerage account. On the other hand my IRA has all gone to annuities (fixed income). My spouse has gone a little more conservative and has moved back to 65-35 stocks (etfs) to fixed income in his IRA. He started a small Roth last year and has a small taxable account. His taxable account is 100% equities.

 

[pb4uski]

Thanks,
I guess I'm not getting it.
If I buy into equities in my roth tomorrow, I am paying a high price. Which I feel is overvalued.
It kind of negates me selling out of tIRA to take profits I wanted, and converting those dollars in Jan. into my Roth.
Basically, It would be the same as just moving the shares and paying taxes on something I think will go down. (just for the sake of rebalancing)?
I'm very sorry, I guess I just don't get the math.

I was trying to ask how do others rebalance things out. Perhaps rebalancing isn't for me or important in my situation. Or Perhaps slow as another poster said. Thanks everyone for your help, I really do appreciate it. I'll figure something out, I do have a FA who I'll consult.

I'll try another angle. Let's say that you have $200k of fixed income investments in your Roth that yield 5% and $200k of equities in your tIRA that you expect will yield 10%. You already have said that you understand that it is best to have higher yielding assets in your Roth. For discussion purposes, let's say that you are satisfied with your overall AA and don't want to change your AA. Also, let's say your marginal tax rate is 22%.

So in your Roth you sell the $200k of fixed income investments and use the proceeds to buy $200k of equities. Before in your Roth you were earning 5% tax-free and now you are earning 10% tax free.

Meanwhile, in your tIRA, you sell $200k of equities and use the proceeds to buy $200k of fixed income investments. Before your tIRA was earning 10% but you would eventually have to pay 2.2% in taxes so your after-tax yield was 7.8%. Now your tIRA will yield 5% subject to 1.1% in taxes so 3.9% after tax.

You overall portfolio is now more tax efficient. Before you were netting 6.4% after considering taxes (7.8% in tITA and 5% in the Roth). Now you are netting 6.95% (3.9% in the tITA and 10% in the Roth. So with a simple maneuver that takes 15 minutes you have increased your after-tax yield by ~8.6% (6.95% vs 6.4%) and your AA and portfolio risk are unchanged.

Make sense?

 

[JBTX]

I am sorry - but the advice I was reading was to have stocks in Roth, fixed safe in tIRA and was wondering about a way to get there. Not to change overall.
IRA is 49stk/36bond/15cash
Roth 25stk/26bond/49cash
Broker50/50

In Roth, buy enough stocks, with cash, to get to 50/50 - so buy 25 stock with cash and you will have roughly 50 stocks/25 bonds/ 25 cash. Then in your traditional, sell the same dollar amount of stocks as you bought in Roth, and leave that in cash in traditional

Separately You may consider reducing cash a bit and increasing bonds in your traditional and Roth. You could buy a short term TIPS fund with some of your cash, to instance

I wouldn’t get too worked up about the “ stocks in Roth” thing. At the risk of getting abstract, when people say put stocks in Roth, they are actually increasing their “after tax” allocation of stocks. In theory, you could have more stocks in traditional and get to the same place.

$100 stocks in traditional <> $100 stocks in Roth. Perhaps $120 stocks in traditional = $100 in Roth. But that’s getting into the weeds. The point is “must have stocks in Roth” is a bit of an artificial construct, so don’t get too worked up over it.

 

[NomDeER]

And I'm hesitant to buy at 'highs' in my Roth.

If I buy into equities in my roth tomorrow, I am paying a high price. Which I feel is overvalued.

Basically, It would be the same as just moving the shares and paying taxes on something I think will go down. (just for the sake of rebalancing)?

Why is your crystal ball telling you that things will go down? Are you planning on withdrawing from the Roth soon? If not, then the odds are high that you won't be buying high and selling low. A lot of my Roth purchases were made when the market was then at or near a high. The value of those investments has increased substantially.

If you are certain that stocks are going to go down, then why have any stocks in any account?

TIRA% approx 68%
Roth% approx 15% (it is growing with every conversion)
Brokerage approx 17%

Your Roth may be growing in dollar terms with every conversion, but the Roth is likely going to shrink as a percentage of your portfolio if you're keeping most of your cash there. I don't see the point of paying taxes to convert to Roth only to then have half your Roth barely keep up with inflation. You're going to have a much higher percentage of your assets in the tIRA, and the taxable withdrawals from that are what is going to drive your IRMAA.

I have been reading that I should have More in bonds/fixed in tIRA so was wondering how the heck do I do that and still move Roth into more high flying equities made sense?
Perhaps I read too much. Perhaps that advice is for younger folks and not in retirement.

I'm retired, and this is exactly what I've been doing. It's not just for younger people. I've tried to avoid putting much cash, CDs, and bonds in the Roth. I have bonds and a non-callable CD ladder in my TIRA. I also have some stocks in my traditional. If stocks go up and I'm rebalancing, I do it in my tIRA with no tax consequences. I'm trying to put most of the FI in my traditional. I'm not sure why you would want to draw on your Roth if everything crashed.

If you want the Roth to grow at a faster rate than the tIRA, you have to go with somewhat riskier assets. This doesn't have to be extreme risk. It can be an index fund.

With ETFs, it's entirely possible to do an in-kind Roth conversion in one day at Vanguard.
I just did one back in December...

I've done it many times, directly converting some of my mutual funds from my tIRA to my Roth at Vanguard, It's really easy.

 

[Coaster4Now]

Thank you folks for all the info and patience! Much to digest and get to sink in

 

[Koolau]

Overall, recently...
45%stock/37%bond/18%MM cash
Firecalc gives no failure

And if I have a magic wand, I'd like a 5% return. But less, 3% wouldn't break the bank.
So as for AA in retirement...it's becoming more difficult than in saving mode. I didn't care when we had income. I have no idea what AA I want. How does one predict that?
And the market can swing widely.

This actually sounds quite reasonable. As pointed out by pb4uski, where you are (and higher equity %) rarely makes much difference in the long run.

I'm still trying to figure exactly what your main issue is at this point. Are you concerned about the effects of the (inevitable) next downturn? They come and go and you'll just go on with your retirement, most likely. You have enough cash to weather most storms if you need money and have fears that you'll need to take equities that are under water.

If you have "enough" in your portfolio (total dollar wise) then I think you're probably fine. Of course, an asteroid could change everything, but otherwise, you just have to tough out the down turns and live your life. Enjoy!!

 

[Koolau]

Thank you folks for all the info and patience! Much to digest and get to sink in

No problem. Most of us have been in your shoes in one way or another. I'm happy with my current portfolio but have no idea if it's the "best" way to balance potential gains and protect against losses. I've just emphasized diversity and not worried to much after that. Most here would do it differently than I have - and that's okay.

 

[pb4uski]

...I hope I'm making some sense of my dilemma.
TIRA% approx 68%
Roth% approx 15% (it is growing with every conversion)
Brokerage approx 17%

EDIT: Perhaps I'm just asking a crystal ball question

I had missed this before. At a minimum I would work towards having all of the 15% Roth and most of 17% of the taxable brokerage (less what is needed for liquidity for spending if any) in equities for the best tax efficiency. The Roth is tax efficient because it is tax-free. The taxable account is tax efficient because donestic equities in a taxable account are subject to preferential tax rates and foreign equities in a taxable account can utilize the foreign tax credit. That would result in 32% in equities.

In the traditional IRA, you could have your entire fixed income allocation and additional equities as needed to get to your equity target.

So for example, if your equity target was 40% and you didn't need any cash, you would have the entire taxable account in equities (17%), the entire Roth in equities (15%), and another 8% inequities in the traditional IRA for a total of 40% in equities. The 60% in fixed income would be in the traditional IRA since the IRA at 68% of the total exceeds the 60% fixed income target.

Also remember that changes can be made within the Roth or traditional IRA with no tax cost. It's only in the taxable brokerage account that you need to be cognizant of the tax implications of any moves that you might make..

 

[engineernerd]

We can move stocks etfs from Rollover IRA to Roth directly without the need to sell.

Yes, but this (1) creates taxable income and (2) does not change the cash and bond holdings already in the Roth.

 

[engineernerd]

Many here are understandably reluctant to "sell low," and explicitly keep fixed-income investments to cover their expenses for a chosen number of years so they can avoid it.

But "selling low" isn't necessarily a doomsday scenario.

FIRECalc's built-in assumption is that you will simply sell equally from all your holdings after rebalancing once a year to your target allocations. If FIRECalc shows you high enough odds of success for you to feel good, there is no need to be afraid if now and then you end up selling from a holding that has done poorly recently.

And without a crystal ball you have no way of knowing whether you did sell at the bottom (dang!) or only on the way down a lot more (whew, dodged a bullet by selling when I did!).

 

[pb4uski]

Yes, but this (1) creates taxable income and (2) does not change the cash and bond holdings already in the Roth.

True, but you can move them indirectly through sales and purchases in each account and with zero commissions available these days the change is pretty frictionless.