teen persuasion
Senior Member
Joined: Dec 20, 2010 21:58:49 GMT -5
Posts: 4,037
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Post by teen persuasion on Jun 20, 2020 11:56:01 GMT -5
You can convert from traditional to Roth at any time, you just need to pay the tax bill. If you are considering withdrawing from traditional, the tax bill is the same as converting. Right, so why bother both converting to Roth and then withdraw from the Roth each year as you said you would do? Just withdraw from the traditional IRA rather than complicate things more. Also, you don't have to convert everything to Roth unless you have other sources of income. You will be able to withdraw a certain amount each year tax-free anyway (because it will be offset by either the standard or itemized deductions) so paying the tax on a 100% conversion, even over time, is unnecessary. Just get it down low enough by the time RMDs hit. Convert the rest, sure, if it ends up lowering your taxes in the long run. You will have to be aware of the effect on making Social Security taxable when you start taking those payments though. If I'm only withdrawing enough for spending and I'm over 59.5 (so no penalties), yes, you are right. I need to start a Roth conversion ladder to get me access to the tIRA money before 59.5 w/o penalty. I'm also considering converting slightly more each year than I plan to spend (at minimal tax cost, possibly zero). So my two amounts are based on 2 different thresholds: convert as much as I can cheaply, spend as I need to from already converted/contributed Roth balances. Rukh had mentioned withdrawals from tIRA, spending some, putting the rest in taxable. That's where I start to think convert instead of withdraw, because taxable has a tax drag, and Roth withdrawals will not. Plus, spending taxable increases AGI, which can make more SS taxable, even if the LTCG are taxed at zero themselves. Withdrawals from Roth won't. I probably won't end up converting all tIRA to Roth, it's just a possibility. But as you said, Roth is better to inherit than traditional due to the tax hit over 10 years, without the stretch IRA option now. There's also the eventual shift from 2 of us filing MFJ to the survivor having to file S, with reduced brackets and standard deduction.
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teen persuasion
Senior Member
Joined: Dec 20, 2010 21:58:49 GMT -5
Posts: 4,037
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Post by teen persuasion on Jun 21, 2020 9:49:18 GMT -5
Remembered a few more reasons I have for favoring Roth conversions in our plans: AGI manipulation for ACA eligibility and FAFSA auto EFC = 0.
For both, we can target exactly the AGI we want to hit thru Roth conversions (prior to age 59.5, to avoid the penalty for tIRA withdrawals).
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Post by The Walk of the Penguin Mich on Jun 21, 2020 12:00:18 GMT -5
Remembered a few more reasons I have for favoring Roth conversions in our plans: AGI manipulation for ACA eligibility and FAFSA auto EFC = 0. For both, we can target exactly the AGI we want to hit thru Roth conversions (prior to age 59.5, to avoid the penalty for tIRA withdrawals). Also, RMDs can affect what you pay for Medicare via IIRMA. This is the problem we are likely going to run into, which is why we are trying to convert as much as possible.
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Rukh O'Rorke
Senior Associate
Joined: Jul 4, 2016 13:31:15 GMT -5
Posts: 10,018
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Post by Rukh O'Rorke on Jun 22, 2020 12:32:36 GMT -5
Right, so why bother both converting to Roth and then withdraw from the Roth each year as you said you would do? Just withdraw from the traditional IRA rather than complicate things more. Also, you don't have to convert everything to Roth unless you have other sources of income. You will be able to withdraw a certain amount each year tax-free anyway (because it will be offset by either the standard or itemized deductions) so paying the tax on a 100% conversion, even over time, is unnecessary. Just get it down low enough by the time RMDs hit. Convert the rest, sure, if it ends up lowering your taxes in the long run. You will have to be aware of the effect on making Social Security taxable when you start taking those payments though. If I'm only withdrawing enough for spending and I'm over 59.5 (so no penalties), yes, you are right. I need to start a Roth conversion ladder to get me access to the tIRA money before 59.5 w/o penalty. I'm also considering converting slightly more each year than I plan to spend (at minimal tax cost, possibly zero). So my two amounts are based on 2 different thresholds: convert as much as I can cheaply, spend as I need to from already converted/contributed Roth balances. Rukh had mentioned withdrawals from tIRA, spending some, putting the rest in taxable. That's where I start to think convert instead of withdraw, because taxable has a tax drag, and Roth withdrawals will not. Plus, spending taxable increases AGI, which can make more SS taxable, even if the LTCG are taxed at zero themselves. Withdrawals from Roth won't. I probably won't end up converting all tIRA to Roth, it's just a possibility. But as you said, Roth is better to inherit than traditional due to the tax hit over 10 years, without the stretch IRA option now. There's also the eventual shift from 2 of us filing MFJ to the survivor having to file S, with reduced brackets and standard deduction. Thanks for this, really helping me clarify my own strategy.
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CCL
Junior Associate
Joined: Jan 4, 2011 19:34:47 GMT -5
Posts: 7,588
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Post by CCL on Jun 22, 2020 20:09:48 GMT -5
Right, so why bother both converting to Roth and then withdraw from the Roth each year as you said you would do? Just withdraw from the traditional IRA rather than complicate things more. Also, you don't have to convert everything to Roth unless you have other sources of income. You will be able to withdraw a certain amount each year tax-free anyway (because it will be offset by either the standard or itemized deductions) so paying the tax on a 100% conversion, even over time, is unnecessary. Just get it down low enough by the time RMDs hit. Convert the rest, sure, if it ends up lowering your taxes in the long run. You will have to be aware of the effect on making Social Security taxable when you start taking those payments though. If I'm only withdrawing enough for spending and I'm over 59.5 (so no penalties), yes, you are right. I need to start a Roth conversion ladder to get me access to the tIRA money before 59.5 w/o penalty. I'm also considering converting slightly more each year than I plan to spend (at minimal tax cost, possibly zero). So my two amounts are based on 2 different thresholds: convert as much as I can cheaply, spend as I need to from already converted/contributed Roth balances. Rukh had mentioned withdrawals from tIRA, spending some, putting the rest in taxable. That's where I start to think convert instead of withdraw, because taxable has a tax drag, and Roth withdrawals will not. Plus, spending taxable increases AGI, which can make more SS taxable, even if the LTCG are taxed at zero themselves. Withdrawals from Roth won't. I probably won't end up converting all tIRA to Roth, it's just a possibility. But as you said, Roth is better to inherit than traditional due to the tax hit over 10 years, without the stretch IRA option now. There's also the eventual shift from 2 of us filing MFJ to the survivor having to file S, with reduced brackets and standard deduction. You explained that well. Thank you.
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