Roth or not to Roth

[Time2]

I'm doing tax planning, my plan as always is to withdraw to the top of the 12% tax bracket. I ran by all the usual's in Dinkytown.
With SS and dividends, I can still withdraw $109,000 from IRAs and stay in the 12% tax bracket. Some have said having some money in IRAs is useful, I don't have a full understanding, but I think it comes down to having taxable income to write off against. After a discussion with Chatgpt, and concern about RMDs pushing us into the 22% tax bracket, it first said I could stop our Roth conversions, then I threw in the scenario of me dying in 7 years. Then she would fill single and have RMDs on all of our tax deferred money, plus my SS. In that case Chat suggested I want less than $450,000 in IRAs, 7 years from now and at a 9% projected growth, there would be $770,000. So, chat said continue converting until you can keep the level below $450,000 at the 7 year mark. There was some standard deduction and tax bracket creep thrown into the mix. Any discussion?

 

[Al18]

Continuing to convert to RothIRA to the top of the 12% bracket sounds reasonable, until you are both on SS.

 

[pb4uski]

^^^ I would amend that to include even after you are both on SS. The big difference between the 12% bracket and the 22% bracket make 12% conversions an easy decision IMO. Now in our case, after I start SS Roth conversions to the top of the 12% tax bracket will be small, but I'll still do them.

 

[Time2]

Continuing to convert to RothIRA to the top of the 12% bracket sounds reasonable, until you are both on SS.

We are already both on SS, but we didn't start until April/May of this year.

 

[Dtail]

^^^ I would amend that to include even after you are both on SS. The big difference between the 12% bracket and the 22% bracket make 12% conversions an easy decision IMO. Now in our case, after I start SS conversions to the top of the 12% tax bracket will be small, but I'll still do them.

Wouldn't there be some marginal rate creep over the 12% bracket on the SS taxes when converting to Roth if the SS is not fully taxed yet at 85%?

 

[Time2]

I don't know, Dinkytown does seem to show how the SS is taxed.

 

[junkanoo]

I don't know, Dinkytown does seem to show how the SS is taxed.

If you mean what percent of SS is taxed, Dinkytown does show Taxable Security Benefits (the percentage can simply be calculated by dividing that by Total SS.

It is near the bottom of the section called:

Income all other sources:​

 

[junkanoo]

^^^ I would amend that to include even after you are both on SS. The big difference between the 12% bracket and the 22% bracket make 12% conversions an easy decision IMO. Now in our case, after I start SS conversions to the top of the 12% tax bracket will be small, but I'll still do them.

Obviously he meant to say Roth Conversions not SS conversions.

 

[SecondCor521]

Will the new $12K senior bonus deduction help give you more Roth conversion window? I would think so. I don't use it but I think the Dinkytown calculator already includes it. I'm not sure if ChatGPT knows about OBBBA yet though.

 

[pb4uski]

Wouldn't there be some marginal rate creep over the 12% bracket on the SS taxes when converting to Roth if the SS is not fully taxed yet at 85%?

Yes, there would be.

 

[pb4uski]

Will the new $12K senior bonus deduction help give you more Roth conversion window? ...

Yes, but if before considering the 65+ deduction your SS is less than 85% taxed then the window for Roth conversions will be narrower than $12k because each $1 of Roth conversions adds more than $1 of income.

 

[old medic]

Obviously he meant to say Roth Conversions not SS conversions.

Or add a comma
after I start SS, conversions to the top of the 12% tax bracket will be small, but I'll still do them.

This is the main reason when DW will start her SS... after everything is moved to Roth.

 

[PhrugalPhan]

In that case Chat suggested I want less than $450,000 in IRAs, 7 years from now and at a 9% projected growth, there would be $770,000. So, chat said continue converting until you can keep the level below $450,000 at the 7 year mark. There was some standard deduction and tax bracket creep thrown into the mix. Any discussion?

Everyone's situation is unique, but this is encouraging for me. I'm single and my goal is to get my traditional balance below $400,000, so it looks like Chat pretty much agrees with my assessment. At around that level I feel I can keep RMDs from growing too fast without major pain, and still have traditional to use for medical expenses if needed.

 

[Out-to-Lunch]

Everyone's situation is unique, but this is encouraging for me. I'm single and my goal is to get my traditional balance below $400,000, so it looks like Chat pretty much agrees with my assessment. At around that level I feel I can keep RMDs from growing too fast without major pain, and still have traditional to use for medical expenses if needed.

That's about where I came down (although hopefully we are still MFJ at that time). I chose $500k (in today's dollars) left in tIRA. This seemed like a good amount left for possible medical expenses, but the RMD on that amount would not push our forced income significantly above our likely expenditures. If one of us passes, the RMD would push the survivor from the 22% bracket into the 24%, but not into the 32% (under current tax structure).

 

[RetireBy90]

I haven’t seen a comment yet on having some Trad IRAand some Roth, so here is mine. As always, everyone has unique situations.
We have converted so that about 70% is in Roth and we have only about 2% in after tax. We plan to take RMDs with QCDs and any remaining when last of us leave (die) any remaining TIRA will go charity. In our case there is no reason to convert more as it will never be taxed in our plan.
YMMV

 

[Time2]

If you mean what percent of SS is taxed, Dinkytown does show Taxable Security Benefits (the percentage can simply be calculated by dividing that by Total SS.

It is near the bottom of the section called:

Income all other sources:​

Thanks, I found it. 85%, with the numbers I have now.

 

[Time2]

Will the new $12K senior bonus deduction help give you more Roth conversion window? I would think so. I don't use it but I think the Dinkytown calculator already includes it. I'm not sure if ChatGPT knows about OBBBA yet though.

I didn't think it did, so I contacted the company, they responded quickly and the $6,000 per person deduction is in the Dinkytown calculator. It's is under the "Taxable Income" section. "Enhanced deduction for seniors".

 

[pb4uski]

Or add a comma
after I start SS, conversions to the top of the 12% tax bracket will be small, but I'll still do them.

This is the main reason when DW will start her SS... after everything is moved to Roth.

Nailed it.

 

[G POP]

That's about where I came down (although hopefully we are still MFJ at that time). I chose $500k (in today's dollars) left in tIRA. This seemed like a good amount left for possible medical expenses, but the RMD on that amount would not push our forced income significantly above our likely expenditures. If one of us passes, the RMD would push the survivor from the 22% bracket into the 24%, but not into the 32% (under current tax structure).

^This is our goal. I'll gladly pay 22 and/or 24%. All of my planning revolves around NOT paying into the 32% bracket. So far it looks doable. First ROTH conversions starting in January.

 

[imjustawarrior]

What is your IRA asset allocation (AA)? If you keep converting, what will be the new AA? Is 9% IRA growth realistic? Is the 9% real or nominal?

If I keep converting, someday my IRA will be 100% bonds. My real return will be somewhere in the 0-5% range.

 

[Out-to-Lunch]

What is your IRA asset allocation (AA)? If you keep converting, what will be the new AA? Is 9% IRA growth realistic? Is the 9% real or nominal?

If I keep converting, someday my IRA will be 100% bonds. My real return will be somewhere in the 0-5% range.

Exactly! After this year's Roth conversion, I am very close to getting all equities out of deferred. Only about 2.5% of our equities are still in deferred.

 

[Ronstar]

Great thread - I'm going through this analysis now. I've done a few Roth conversions - all in late December. I haven't made any IRA withdrawals yet and don't expect to until RMD's

Question - Assuming some folks take withdrawals throughout the year - When do folks pay their fed tax on IRA withdrawals - either RMD's or Roth conversions?

1. When the RMD is taken or Roth conversion is made
2. Pay as part of estimated quarterly taxes
3. Wait until April 15th

I've seen a lot of folks here mention that they pay the tax when they take their RMD.

Seems to me that it would be best to take RMD and/ or Roth conversions at
the end of the year and just pay in April?

 

[old medic]

Question - Assuming some folks take withdrawals throughout the year - When do folks pay their fed tax on IRA withdrawals - either RMD's or Roth conversions?

We just did our 1st conversion, had nothing withheld and will pay the tax with our 2025 filing. Changed my withholding on pension and SS to cover the withdraw tax during next year. Not sure if we will take quarterly withdraws or wait till the end of the year, still learning about safe harbor.

 

[big-papa]

We did DW's small Roth conversion yesterday. Mine, the larger conversion, is coming up either on Friday next week or Monday week after. We're converting up to just below best guess IRMAA for 2027, with some margin. Plan to get all stock converted, just before RMDs start +/-, which will leave only our TIPS ladders in our IRAs.

We use the annualization method to pay taxes as we go through the year, assuming no Roth conversions. Then for the last payment period of the year, I calculate taxes without the conversion and again with the conversion. If needed, any incremental amount for the Roth conversion will come from a stock fund sale. Doesn't appear that a stock fund sale will be needed for the 2025 tax year.

Will pay this period's taxes in January, before the deadline.

Cheers

 

[ransil]

Did mine to top of 24% today, sent the IRS the estimated ( ouch...that should go in BTD thread)