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

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

Post by sophie » 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.
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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 technovelist » 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 technovelist » 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.

Technovelist, 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 technovelist » 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.

Technovelist, 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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