Started down the Roth path this week and it was much easier than I thought.

[Ole Red 29]

I retired last year and was planning on converting funds from my IRA to a Roth IRA at the end of this year (shooting to stay in the 24% bracket). From reading in this forum, I decided to move those funds now while the market is down (equal lots over the next 5 months). My IRA is with Vanguard. Opening a Roth on the Vanguard site was much easier than I expected. And then moving the funds over was just as easy. It was really a relief for me to be able to put this in place so easily. My next step is setting up a system to track "income" and make quarterly tax payments (now due in July).

 

[Midpack]

Agreed. I just opened a Roth IRA acct with Vanguard and made my first conversion last Dec. I'm doing quarterly this year, at the same time as estimated taxes, so I've completed two exchanges this year, two to go. It has been pretty easy.

My only VERY minor gripe is I have to specify number of shares where I'd rather specify dollars (some VG transactions will allow $, not Roth conversions that I can tell). My conversion in early April was 105% of the $ I had in mind. Not a big deal, it'll only matter with the last one in Dec to hit close to the top of the 22% bracket. Cheers.

 

[pb4uski]

.... My only VERY minor gripe is I have to specify number of shares where I'd rather specify dollars (some VG transactions will allow $, not Roth conversions that I can tell). My conversion in early April was 105% of the $ I had in mind. Not a big deal, it'll only matter with the last one in Dec to hit close to the top of the 22% bracket. Cheers.

That issue is easily avoided. If you have a brokerage tIRA then you can define Roth conversions from your settlement account in dollars rather than shares. If you mave a mutual fund account just exchange the amount you want to convert into your favorite Vanguard MM fund and then convert from the MM fund.

 

[Midpack]

That issue is easily avoided. If you have a brokerage tIRA then you can define Roth conversions from your settlement account in dollars rather than shares. If you mave a mutual fund account just exchange the amount you want to convert into your favorite Vanguard MM fund and then convert from the MM fund.

Hadn't thought of that, thanks. Seems odd I have to exchange to a MMF, convert, and exchange back to original MF - but that will be helpful for me in Dec when I'm dialing in total $ for the year. Thanks again.

 

[Ole Red 29]

I was able to move funds directly from a MF in my IRA to a MF in my Roth. I just opened my IRA MF and chose "exchange" (I think). It took me to another screen and one of my first choices was to sell shares or sell dollars.

 

[pb4uski]

Once I am clear of state income taxes in 2021, my plan is to convert 90% or so of my annual target in January so it can grow tax free... then I'll do Roth withdrawals rather than tIRA withdrawals for living expenses during the year as needed... then top off the Roth to my Roth conversions target for the year (top of 0% preferred income bracket) in December.

So net, what will remain in the Roth is conversions to my target less withdrawals for spending.

 

[gauss]

^ The downside to doing it too early in the year, is that it may cost you things like qualifying for a stimulus check

 

[pb4uski]

^ The downside to doing it too early in the year, is that it may cost you things like qualifying for a stimulus check

I don't see how... elaborate.

If I did that this year then my early 2020 conversion wouldn't be income until my 2020 tax return is filed. If I did it last year then it is too late because i would have topped up in Dec 2019. So I don't see how it could possible impact my stimulus check.

 

[gauss]

I converted enough in Roth conversions in 2018 and 2019, near the end of each year, to place me out of Stimulus Payment consideration based on those tax years.

I also did 100K of Roth conversion this year given the drop in equities before the C19 mainstream news, instead of waiting until the end of the year.

This combined with DW pension will likely place us out of contention for a Stimulus Credit for the 2020 return or at least a reduced amount from the maximum.

Bottom line is that on my reading, there were multiple paths to qualifying for a stimulus check either mid-year 2020 or based on 2020 tax return filed in 2021 as credit.

I believe if you didn't qualify based on 2019, but you do qualify based on 2020 income then that is how this would work.

-gauss
#FirstWorldProblem

 

[gauss]

I don't see how... elaborate.

If I did that this year then my early 2020 conversion wouldn't be income until my 2020 tax return is filed. If I did it last year then it is too late because i would have topped up in Dec 2019. So I don't see how it could possible impact my stimulus check.

Here is a 2nd example of early in the year Roth conversions can wreck havoc that unfortunately I am also dealing with this year.

DMIL passed away and there is a 401k to be inherited by DW. Rules allow for the direct rollover of an inherited 401k to a Roth IRA, although all taxes would be due in the year of conversion as usual.

I already performed a 6 figure Roth conversion earlier in the year (which is no longer undoable) that I now wish that I had not done.

Again #FirstWorldproblems but performing Roth conversions early in the year, I see now for multiple reasons, as a risky strategy now that re-characterizations of conversions are no longer allowed.

-gauss

 

[pb4uski]

.... DMIL passed away and there is a 401k to be inherited by DW. Rules allow for the direct rollover of an inherited 401k to a Roth IRA, although all taxes would be due in the year of conversion as usual.

I already performed a 6 figure Roth conversion earlier in the year (which is no longer undoable) that I now wish that I had not done. ...

I don't see the problem... assuming the Roth conversion amount was the same what does it matter whether it was from your DW's inherited 401k or tIRA or from your tIRA? Wouldn't you end up with the same amounts in Roth and in tax-deferred after all is said and done but just in different tax-deferred accounts?

 

[gauss]

Perhaps the hidden assumption is that the 401k would need to be full-distributed (ie no partial distributions in this case, I believe).

That along with only so much room in each tax bracket would bump us up a tax bracket or two by doing all the conversions in a single year.

Does that help?