Why I must convert to Roth

[livingalmostlarge]

I can answer for my mom. when i helped them I converted up to the top of the 22% until my dad died. But they had a lot less since they literally didn't invest their money. Now I'm investing their money aggressively and yes she could convert but i'm hoping my kids will be a lower income bracket when they inherit.

As for us, I'm hoping that by retiring early we did all pretax so that we can convert for 20 years from 55-75 up to the 22% bracket. We've been in a marginally high bracket for a long time so converting will work for us.

 

[SevenUp]

Fred and Wilma have just one child who is the 32% bracket.

To Koolau's point, let's assume that Fred and Wilma are in the 22% marginal tax bracket.

Fred & Wilma converting at 22% or 24% will be very favorable for that child.

Converting at 22% (and perhaps at 24%) will also be favorable for Fred & Wilma if they pay the conversion tax from cash flow, based on how "Traditional plus taxable" vs. Roth works, even if they stay at a 22% marginal rate.

 

[Koolau]

Fred & Wilma converting at 22% or 24% will be very favorable for that child.

Converting at 22% (and perhaps at 24%) will also be favorable for Fred & Wilma if they pay the conversion tax from cash flow, based on how "Traditional plus taxable" vs. Roth works, even if they stay at a 22% marginal rate.

Indeed, paying the conversion tax from cash flow is a powerful but somewhat subtle way to get the most from Roth conversions.

 

[Time2]

Thankfully, I had a 74 yr old breakfast buddy when I was 60, that complained a lot about his RMDs pushing him into a higher tax bracket. The spurred me to start Roth Conversions as soon as we retired. I think I now have them down below the level where they could grow faster than I can get the money out.

 

[ERhoosier]

Late to this thread but recently attended a FA seminar about the whole Roth conversion issue. Two big points raised were:
1- Regular Roth conversions (below top tax rates) are critical for couples with widely disparate life expectancies. Tax rate for conversion while married filing jointly is typically much lower than single rate (for widow or widower). Most conversion calculators assume both spouses live (almost) forever.
2- Tax laws can be VERY unpredictable over many years. Today's 'untouchable' Roth (especially very large Roth) may well be subject to de facto taxation later (e.g. wealth tax, Roth wealth cutting other deductions or Federal benefits, etc.). Never underestimate the Government's power to change tax law in their favor

 

[RetiredHappy]

We just met with our Fidelity FA today and I brought up the topic of Roth conversion and she recommended that we convert to the top of 24%, and suck it up for higher IRMAA bracket (and NIIT). I think we will do that this year and for a few years until we can get my husband's IRA down quite a bit.