Roth or not to Roth

[old medic]

So it makes sense to take your Roth conversions before starting SS benefits.

Well that is/was our plan, but a quick second changed that. Collecting FRA benefits at 60 is way better than DW collecting my pension and filing as a widow.
My point is to keep in mind and try to plan for the what ifs... they happen everyday.

 

[ransil]

I seem to be the only person who had never seen the dinkytown calculators site. Thank you for pointing this out!

I have tried a bunch of calculators and like the Dinkytown one the best.

 

[Livefree]

Not sure about all of that.

A married couple with one person 65+ would have a standard deduction of $33,100 in 2025, not the $31,500 listed.

As it didn't do that right ... I stopped there.

When i put in married couple with one over 65, I'm getting $39,100...which is $33,100 plus $6000

 

[GravitySucks]

We didn’t use Roths in accumulation as we figured we would be in a lower bracket after retirement.

Surprise! Being widowed is an easy way to get into higher tax brackets.

95% of the stash is tIRA and 5% in Roth. Doing conversions to the top of the 22% bracket. I’ll keep converting to that level but don’t see it making a huge difference by RMD time.

With my luck I’ll convert and pay the taxes and the government will decide to move to a consumption based tax system. (Wasn’t long ago that consumption taxes as a primary source of income was a long shot bet. Seems to have been gaining traction lately. )

 

[junkanoo]

When i put in married couple with one over 65, I'm getting $39,100...which is $33,100 plus $6000

Just so you can see what I saw. However, when I did a screen refresh I then saw the numbers you see. That never happens using Dinkytown.

 

[pb4uski]

...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

None of the above. In December I do an estimate of our tax liability for the year and do a tIRA withdrawal with 99% federal tax withholding (no state tax for us and 99% is the most that Schwab allows). So if I estimate that I will owe $7,000 in tax, I'll do a $7071.00 tIRA withdrawal. That would result in $7,000.29 of federal withholding and $70.71 deposit to my taxable brokerage account or checking account.

It's like doing a single estimated tax payment in December, but because it is withheld the IRS considers it as having been made evenly through out the year. BTW, most of my Roth conversion is done in January or February with no taxes withheld, with a top up in December to get to the top of the 12% tax bracket (actually top of 0% preferenced tax bracket, which is $250 less for a couple).

 

[N02L84ER]

We pay the majority of our Fed taxes from a final withdrawal of a beneficiary IRA in December.

 

[Koolau]

I seem to be the only person who had never seen the dinkytown calculators site. Thank you for pointing this out!

Nope! I never heard of dinkytown until here. Looks "thorough."

 

[L-5Player]

In December I do an estimate of our tax liability for the year and do a tIRA withdrawal with 99% federal tax withholding

It's like doing a single estimated tax payment in December, but because it is withheld the IRS considers it as having been made evenly through out the year.

I'll be 59.5 in 2026, and in all of my seemingly endless prep for next year's finances, I've not seen this technique before.

If one is trying to reduce a trad IRA balance via conversions, but wants the full conversion to reach Roth without having taxes withheld, and also doesn't want to sell taxable assets (with their own CG tax) to pay for the conversion, it's a real win. At least psychologically. It also eliminates the need to produce more cashflow during the year to make estimated payments.

Brilliant - thank you for sharing.

 

[Dtail]

I'll be 59.5 in 2026, and in all of my seemingly endless prep for next year's finances, I've not seen this technique before.

If one is trying to reduce a trad IRA balance via conversions, but wants the full conversion to reach Roth without having taxes withheld, and also doesn't want to sell taxable assets (with their own CG tax) to pay for the conversion, it's a real win. At least psychologically. It also eliminates the need to produce more cashflow during the year to make estimated payments.

Brilliant - thank you for sharing.

Yes many of us do this technique and I learned about it from this site.

 

[pb4uski]

I'll be 59.5 in 2026, and in all of my seemingly endless prep for next year's finances, I've not seen this technique before.

If one is trying to reduce a trad IRA balance via conversions, but wants the full conversion to reach Roth without having taxes withheld, and also doesn't want to sell taxable assets (with their own CG tax) to pay for the conversion, it's a real win. At least psychologically. It also eliminates the need to produce more cashflow during the year to make estimated payments.

Brilliant - thank you for sharing.

The only downside, and I consider it minor, is that using the tIRA to "pay" your tax bill by a withdrawal with 99% federal withholding reduces the headroom Roth conversion that one can do if you are converting to a target (like the top of the 0% preferenced tax bracket in my case). However, given the amounts involved it is a flaw that I am willing to live with.

 

[Jeffman52]

My wife and I are doing our first ROTH conversions and have converted up to the top of the 22% bracket. Neither of us are taking SS yet and we will convert over the next few years and reevaluate when we start taking SS.. We figure you are better off doing these early so it has time to grow back after the tax hit.

 

[imjustawarrior]

We figure you are better off doing these early so it has time to grow back after the tax hit.

Doing the conversion is mainly tax arbitrage. What you mention is only psychological.

 

[NoiseBoy]

I plan to start doing ROTH conversions next year. One question that I have regarding making the estimate for my taxes is, how do I know in advance what my capital gains will be? I have a decent (taxable) pile in VBAIX and Vanguard seems to make their distributions very late in December. How do I account for that when I estimate how much I can convert and stay within the 22% tax bracket? I think I must be missing something obvious

 

[RetiredHappy]

I plan to start doing ROTH conversions next year. One question that I have regarding making the estimate for my taxes is, how do I know in advance what my capital gains will be? I have a decent (taxable) pile in VBAIX and Vanguard seems to make their distributions very late in December. How do I account for that when I estimate how much I can convert and stay within the 22% tax bracket? I think I must be missing something obvious

You can wait for the distribution to happen before converting.

 

[engineernerd]

I plan to start doing ROTH conversions next year. One question that I have regarding making the estimate for my taxes is, how do I know in advance what my capital gains will be? I have a decent (taxable) pile in VBAIX and Vanguard seems to make their distributions very late in December. How do I account for that when I estimate how much I can convert and stay within the 22% tax bracket? I think I must be missing something obvious

Vanguard published (in the Tax Center, in the Financial advisors part of their website, but I just googled "Vanguard final estimated year-end distributions" to get there) a list of estimated year-end distributions by fund on November 10 and updated it on December 9 (I believe). It doesn't seem to be there anymore, clicking on the link that's supposed to take you there results in a 404 page error. Probably because the actual amounts for a lot of the funds have already been determined. For VBIAX, the Record Date was 12/22, the Ex-Dividend Date was 12/23, and the Payable Date was 12/24.

 

[TheWizard]

Doing the conversion is mainly tax arbitrage. What you mention is only psychological.

Correct, assuming you don't over convert and pay excessive taxes now...

 

[TheWizard]

Vanguard published (in the Tax Center, in the Financial advisors part of their website, but I just googled "Vanguard final estimated year-end distributions" to get there) a list of estimated year-end distributions by fund on November 10 and updated it on December 9 (I believe). It doesn't seem to be there anymore, clicking on the link that's supposed to take you there results in a 404 page error. Probably because the actual amounts for a lot of the funds have already been determined. For VBIAX, the Record Date was 12/22, the Ex-Dividend Date was 12/23, and the Payable Date was 12/24.

Odd that they screwed up and deleted that very useful table.
Add this to the list of Vanguard annoyances...

 

[earlyretirement]

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?

I am doing the same thing, right up to the top of the 12% bracket. I have three years to go before RMD's kick in so I will do whatever I can to reduce them. I do my taxes using Turbotax and it's proving to me what I saw on a spreadsheet 5 or 6 months ago. I will be converting to a ROTH in the next few days.

 

[engineernerd]

My wife and I are doing our first ROTH conversions and have converted up to the top of the 22% bracket. Neither of us are taking SS yet and we will convert over the next few years and reevaluate when we start taking SS.. We figure you are better off doing these early so it has time to grow back after the tax hit.

The investment grows at the same rate whether it is in the tIRA or the Roth, and your conversion is a bet that you will pay a lower effective tax rate (including IRMAA, NIIT, foregone ACA subsidies, everything else) now on the conversion than you will pay later on tIRA distributions.

If you do want to let your investment grow untaxed for about 11 months, you could convert in January without paying the taxes, then have the taxes withheld (from a different income source such as a 60-day tIRA rollover) in December. This does NOT work if you pay quarterly estimated taxes, btw. ADD: also remember that your investment could shrink in those 11 months, too.

 

[engineernerd]

Odd that they screwed up and deleted that very useful table.
Add this to the list of Vanguard annoyances...

I think it's reasonable for them to do that because by now possibly ALL the funds have the actual amounts determined already. It would be better if the link went to an explanation rather than an error page, I will grant that.

 

[TheWizard]

...If you do want to let your investment grow untaxed for about 11 months, you could convert in January without paying the taxes, then have the taxes withheld (from a different income source such as a 60-day tIRA rollover) in December. This does NOT work if you pay quarterly estimated taxes, btw. ADD: also remember that your investment could shrink in those 11 months, too.

What I do is pay taxes out of excess retirement income.
I just converted $17,000 from tIRA to Roth with no withholding, effectively sneaking more $$$ into my tax-free Roth account...

 

[Al18]

I've been converting in the 12% tax bracket for a few years. I usually do my first conversion about April and convert about 80%, then convert the final 20% in October. This allows most of the money to grow throughout the year.

 

[Phroig]

I have an increase in taxable income this year. I therefore did a final conversion in December with just enough withholding to bring my total withholding for the year to 110% of last year's tax - safe harbor. I'll pay the rest in April, which at money market rates for four months will buy me a nice bottle of single malt.

 

[Ronstar]

I told our FA to do the Roth conversion yesterday. They automatically send 10% of the conversion amount to the IRS. That won’t cover what I calculated the tax to be, so I’ll send another check. This conversion will take us up to the top of the 12% bracket. But this conversion is about 1% of my Ira, so it’s not going to help much when the RMDs hit in a couple of years.