There seems to be an advantage to Roth conversion now until 12/31/2025

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pugchief
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by pugchief » Sun May 13, 2018 9:06 am

sophie wrote:
Sun May 13, 2018 7:33 am
Don't be too sure the tax rates will go up in 2026. Congress passing extensions on various spending/tax bills are nothing new, and I'm sure they'll be aware that letting the tax cuts lapse would make them the nation's most-hated group ever. In fact, it's hard to think of an action that would alienate more people.
Pelosi has been all over the news this week, claiming if the Dems take control of the House in the mid-terms, they will repeal the Tax Reform. Someone forgot to tell her she needs the Senate, too, but regardless, it is already on their radar even if they can't make it happen right away.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by barrett » Sun May 13, 2018 10:18 am

InsuranceGuy wrote:
Sat May 12, 2018 8:25 pm
I'm not excited about trading a future effective tax rate for today's marginal rate. This guy explains it better than I could, worth a read https://www.gocurrycracker.com/roth-sucks/.
Thanks for posting that, IG. That gocurrycracker article is really well done.

Crap, this tIRA/Roth debate is complicated, especially when one factors in that a younger spouse may continue to work after one turns 59.5 (my case). Most of my decisions about what to put where have already been made due to the fact that I'm pretty much retired.

When figuring out whether or not to do conversions and what one's longterm overall tax hit will be, cost basis in taxable accounts also comes into play, right? In my case that cost basis, apart from my big whack of savings bonds, is very high. So, I wonder if I might not be better off just taking some withdrawals from my tIRAs for now and not doing Roth conversions. Hmm.

I'm curious to know if anyone has used this i-orp calculator:

https://i-orp.com/GOPtax/extended.html

When I have plugged our numbers in, the tIRA to Roth conversions seem to be overly aggressive but overall it's a terrific tool.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by hardlawjockey » Sun May 13, 2018 12:24 pm

ochotona wrote:
Sun May 13, 2018 6:51 am
As I am getting reasonably close to retirement, I have visibility as to what my future tax brackets might be. Based on the certain return to the old brackets on 1-1-26 just months before my 65th birthday, I am highly likely to benefit from Roth conversion. All of the reasons you state are fine, but in my individual case, I still see a benefit in spite of your list. Everyone else's conclusion will vary.

I have a pension, and I'm going to take SS at 70. Together they will be $75k. That means my possibly $100k IRA distribution on top of that (fingers crossed, c'mon GEM) is going to land into brackets which on 1-1-26 are firmly higher than my current "last dollar" conversion brackets.

I just took a swipe at the Schwab RMD calc, and at age 80 assuming only 5% CAGR my RMD will be $86k if I keep all of my Traditional IRA space. Ugh.

This is an affluenza problem, yes. Not everyone is a candidate for Roth conversion.
I'm delaying SS until 70 also (next year) so I guess my "bird in the hand philosophy" isn't entirely consistent. I'll be getting pretty close to the maximum which is somewhere > $40k/year. I also had a pension but it was discontinued and I received a lump sum distribution which I rolled into my IRA at the time.

I do already have Roth accounts for both me and my wife and we have been contributing the max each year ever since we became eligible. I also have accumulated a considerable amount in taxable and taken together those accounts are pretty much equal to my IRA. Checking into my RMD to start next year I was surprised that it was only $14k. If your wife is > 15 years younger than you, which mine is, different tables are used and the percentage is smaller.

Best I can figure, that $14k will pay the tax on the SS benefit with possibly some even left over. I suspect that situation will continue until my wife also retires and I'm comfortable enough with it for the time being.

One piece of economic advice from Keynes that I can definitely agree with when it comes to long range planning is to keep in mind that in the long run we are all dead. That's more true at my age than ever before but the world could be destroyed by an asteroid tomorrow and then the Roth conversion conversation will end once and for all.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Dieter » Sun May 13, 2018 1:45 pm

ochotona wrote:
Sun May 13, 2018 6:51 am
As I am getting reasonably close to retirement, I have visibility as to what my future tax brackets might be. Based on the certain return to the old brackets on 1-1-26 just months before my 65th birthday, I am highly likely to benefit from Roth conversion. All of the reasons you state are fine, but in my individual case, I still see a benefit in spite of your list. Everyone else's conclusion will vary.

I have a pension, and I'm going to take SS at 70. Together they will be $75k. That means my possibly $100k IRA distribution on top of that (fingers crossed, c'mon GEM) is going to land into brackets which on 1-1-26 are firmly higher than my current "last dollar" conversion brackets.

I just took a swipe at the Schwab RMD calc, and at age 80 assuming only 5% CAGR my RMD will be $86k if I keep all of my Traditional IRA space. Ugh.

This is an affluenza problem, yes. Not everyone is a candidate for Roth conversion.
Congrats.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Tue May 15, 2018 6:58 pm

I rushed my GoldStar gold IRA Roth conversion form in today. The gold price dive today will lower my 1099 conversion income. I guess I'll feel remorse if gold goes even lower, but it seemed timely today.
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Re: There seems to be a huge advantage to Roth conversion now until 12/31/2025

Post by Libertarian666 » Tue May 15, 2018 7:31 pm

sophie wrote:
Fri May 11, 2018 7:06 am
Nice, ochotona! However - taxes on 401K withdrawals should be calculated at the average tax rate, not marginal. I estimated my average tax rate in retirement will be no worse than 15%, including state/local taxes. This makes tax deferral a no-brainer for me regardless of what happens in 2026.

A perk for New York residents: if you're over age 59.5, 401K withdrawals are exempt from state/local taxes up to $20,000. Sadly, that amount isn't inflation-indexed, but it still makes a big difference in strategy compared to other states. My average tax rate could be as low as 10% if I arrange withdrawals correctly.
Yes, we really envy you here in Texas. We don't get any state income tax break for 401k withdrawals at all!

(Note: there is no state income tax in Texas. >:D )
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Libertarian666 » Tue May 15, 2018 7:41 pm

I paid 0 income taxes for 2016, and didn't even have to file.
I paid 0 income taxes for 2017, and didn't have to file.
At this rate it looks as though I will pay 0 income taxes for 2018, and won't have to file.
I expect the same to be true in the future if nothing else changes.
That's my idea of tax planning.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Tue May 15, 2018 8:56 pm

Awesome!
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by bedraggled » Mon Jun 04, 2018 12:28 am

So, if I evenly withdrew from my traditional IRA over th next 6 years, emptying the IRA AND staying in the 22% Federal tax bracket, is that a better plan than doing a Roth conversion?

The amount of money involved is not huge. That cash will definitely help with expenses. There will be other good sources of income after this IRA goes to zero.

I am continuing to fund a Roth IRA with residual W-2 money for 2018, 2019 and 2020.

Thanks.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by sophie » Mon Jun 04, 2018 6:23 am

If you're over 59, you could do both couldn't you? Convert from IRA to Roth IRA, and later withdraw from the Roth if needed. Then it gets to stay there if you don't need it.

Libertarian666, go ahead rub it in...we here in Tax and Corrupted Wasteful Government Land will celebrate any break we can get!
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Libertarian666 » Mon Jun 04, 2018 9:35 am

sophie wrote:
Mon Jun 04, 2018 6:23 am
If you're over 59, you could do both couldn't you? Convert from IRA to Roth IRA, and later withdraw from the Roth if needed. Then it gets to stay there if you don't need it.

Libertarian666, go ahead rub it in...we here in Tax and Corrupted Wasteful Government Land will celebrate any break we can get!
You can move down here whenever you want to. There's plenty of room. I'll even throw a "get out of jail" party for you!
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Sun Jul 01, 2018 6:12 pm

I just realized... if I convert my stash to Roth IRA now here in Texas, I can take it to Corrupt and Wasteful States later, and it will be immunized from taxes.

I asked Richard Rosso CFP about whether the Roth exemption is in danger of going away, here's what we wrote me:

RE: What is your assessment of risk to Roths?
Richard Rosso <richardrosso@myclarityfinancial.com>
Today, 1:07 PM

I think they love Roth. Anything to get tax money NOW over later as the government is myopic in focus. If anything I see them attempting to get a hold of tax-deferred money sooner. If they weren’t owned by Wall Street they’d have means tested Social Security a long time ago which would have included sizable balances in traditional IRA accounts.


Richard M. Rosso, MS, CFP®, CIMA©
Director of Financial Planning
Clarity Financial, LLC
11750 Katy Freeway, Suite 840
Energy Tower IV
Houston, TX 77079
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by pugchief » Mon Jul 02, 2018 8:46 am

ochotona wrote:
Sun Jul 01, 2018 6:12 pm
I just realized... if I convert my stash to Roth IRA now here in Texas, I can take it to Corrupt and Wasteful States later, and it will be immunized from taxes.
LOL. But why would you go from a tax friendly place like TX and go somewhere Corrupt and Wasteful? If I wasn't already in IL [they wrote the manual on waste and corruption] no way would I choose to live here. I'd probably be in TX or FL.

ochotona wrote:
Sun Jul 01, 2018 6:12 pm
If they weren’t owned by Wall Street they’d have means tested Social Security a long time ago which would have included sizable balances in traditional IRA accounts.
This is just scary. Very scary. Sure, penalize people who were responsible. Yet again. >:(
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Mon Jul 02, 2018 11:00 am

pugchief wrote:
Mon Jul 02, 2018 8:46 am
LOL. But why would you go from a tax friendly place like TX and go somewhere Corrupt and Wasteful? If I wasn't already in IL [they wrote the manual on waste and corruption] no way would I choose to live here. I'd probably be in TX or FL.
Most States have income taxes, only a few don't. To limit relocation choice only to non-income tax States is limiting. I like Texas, but I might not want to spend all of my days here.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Desert » Mon Jul 02, 2018 12:47 pm

Also, sometimes it's cheaper to retire in a state with income tax and lower property tax.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by pugchief » Mon Jul 02, 2018 12:50 pm

Desert wrote:
Mon Jul 02, 2018 12:47 pm
Also, sometimes it's cheaper to retire in a state with income tax and lower property tax.
I guess that would depend on your income and home size.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Desert » Mon Jul 02, 2018 5:22 pm

pugchief wrote:
Mon Jul 02, 2018 12:50 pm
Desert wrote:
Mon Jul 02, 2018 12:47 pm
Also, sometimes it's cheaper to retire in a state with income tax and lower property tax.
I guess that would depend on your income and home size.
Yeah.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Wed Jul 04, 2018 6:45 am

I'm going to convert up to the TOP of my current 22% tax bracket. In retirement, my income of all sources will put me into the 25% bracket, or maybe in the late 2020s we'll have higher ones.

Also,

Will Congress someday tax Roth IRAs?

https://www.kitces.com/blog/will-congre ... a-promise/
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by eufo » Wed Jul 04, 2018 9:40 am

ochotona wrote:
Wed Jul 04, 2018 6:45 am
Also,

Will Congress someday tax Roth IRAs?
I think it's only a matter of time. Hopefully it's a LONG time.
Don't agree with me too strongly or I'm going to change my mind
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by sophie » Wed Jul 04, 2018 11:42 am

eufo wrote:
Wed Jul 04, 2018 9:40 am
ochotona wrote:
Wed Jul 04, 2018 6:45 am
Also,

Will Congress someday tax Roth IRAs?
I think it's only a matter of time. Hopefully it's a LONG time.
Say not so....

I think it would be hard to do. What would you tax? Contributions are already taxed. If they decide to tax the gains then there is no difference between a Roth and a taxable account. Worse yet is if they decide to tax gains as ordinary income, which would make Roths WORSE than a taxable account. Effectively that would abolish them.

More likely they'll limit or even eliminate Roth conversions, which would mostly hit high income people doing back door contributions. However, that's if you think Congress would be happy to trade more taxes now/less later for less taxes now/more later. "Later" is not a concept that plays well in Congress, in general.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by eufo » Wed Jul 04, 2018 12:00 pm

I'm likely too negative on Congress, but it's in their nature to expand and take. Maybe it won't happen.

Perhaps a prelude to it would be reducing the advantages to a traditional IRA, pushing more people into Roths. Herd people together to do the most damage.

Wow... I'm very negative on Independence Day! Seriously, though, I have a lot of hope for the future, but I'm a natural skeptic to the motives of governments and would put NOTHING past them.
Don't agree with me too strongly or I'm going to change my mind
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Sat Sep 08, 2018 10:01 am

If the Trump 2018 tax cuts are made permanent for individuals, then I may stop or slow my Roth IRA conversions, and my Roth 401(k) contributions. This is now being floated out in the press.

But, there's another way to look at it... more tax cuts now maybe means more tax increases later due to a possible future US debt crisis.

Maybe we should all be tax-agnostic. 1/3 Roth IRA / 401k, 1/3 Traditional IRA / 401k, 1/3 taxable gold and brokerage and bank accounts, oh, and as much I-Bond as you can get.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by I Shrugged » Fri Oct 12, 2018 2:04 pm

I am having the same difficulty trying to figure out whether to convert or not. Maybe at least doing it up till a given bracket is filled.

We are already early retired. Income from investments: 200K. Much of which is tax favored in some way or other, so our taxes are usually only 4 figures. In other words, a very low tax bracket.

We have 1.5 million in IRAs, and will have to begin RMD's in 8 & 10 years. And start taking SS. Family histories suggest we could both live another 30 years or more.

The basic question is, do we just continue as is, paying minimal taxes, until we have an explosion of new taxable income at age 70?
Or do we convert to Roth at least up through some tax bracket?

Our CPA is somewhat appalled by that idea. Namely, "Well, you'd be writing a tax check for (big dollars)! That seems like a bad move."

My answer is, "Maybe it is and maybe it isn't. There must be a way to do the math." I mean, it seems like we should at least convert up through a low 20s tax bracket, doesn't it?

I found a website, incomestrategy.com, which purports to do the math. And it seems to, although it is too "black box" for my liking. I have subscribed in order to run the numbers. Their results definitely support ROTH conversion, and deferring SS until age 70. I need to get back on there, then seek some help from them in interpreting the results. They seem to only have (expensive) paid help, not free. But I have a contact at the company, and I think I can ask him in general so I can feel sure that they are considering all of the relevant factors.

Anyway, comments welcome.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by stuper1 » Fri Oct 12, 2018 2:39 pm

Do you ever look at the forum at bogleheads.org? They have many discussions about Roth conversions. If you search past threads, you will find links to many online calculators that can help. I think one of the ones often recommended is at i-orp.com. There are actually two calculators there, one is simple, and one is complicated. You probably need the complicated.

I would definitely max out Roth conversions through the 12% tax bracket. The calculator may well recommend going through the 22% or 24% brackets also.

You also need to consider what would happen if one of you dies early. In that case, the tax hit may be even bigger.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Fri Oct 12, 2018 3:42 pm

If the tax cuts for individuals get made permanent, this whole scheme goes out the window. So I'm holding back.

One thing I did is I make a pie chart of my holdings by what kind of tax treatment they received. For example for tax-deferred, tax-free, and taxable. In the absence of knowing what the heck the government might do, it isn't a bad idea to have one 1/3 in each category. Kind of like a government madness agnostic permanent portfolio of tax.
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