Before Doing a Roth Conversion, Evaluate These Three Thresholds

[MULTIZ321]

Before Doing a Roth Conversion, Evaluate These Three Thresholds

Before Doing a Roth Conversion, Evaluate These Three Thresholds

To avoid getting flattened by higher taxes or Medicare premiums related to Roth conversions, make sure you look both ways on your tax rates.

www.kiplinger.com

Richard

 

[Timeshare Von]

Thanks for sharing this article. I had many people "advise" that I/we needed to start moving money over from our traditional IRA(s) to a Roth. It makes no sense in our scenarios, because currently (since 2022) our medical insurance through the ACA Exchange was subsidized. (For both of us in 2022 until I went on Medicare . . . and now just my DH until 2026)

The extra reportable income by moving to a Roth would kill us in insurance premiums . . . so it's a no brainer to not do it.

 

[pedro47]

Thanks for sharing this article .

 

[sue1947]

Thanks for sharing this article. I had many people "advise" that I/we needed to start moving money over from our traditional IRA(s) to a Roth. It makes no sense in our scenarios, because currently (since 2022) our medical insurance through the ACA Exchange was subsidized. (For both of us in 2022 until I went on Medicare . . . and now just my DH until 2026)

The extra reportable income by moving to a Roth would kill us in insurance premiums . . . so it's a no brainer to not do it.

I run a 'what if' scenario in the latest tax prep to see how much I can convert. I can switch the amount to see how it impacts the final tax owed. For me, it's a balance between insurance costs and income tax bracket. As a result, I've reduced my expected RMD to a reasonable level and I like the tax free earnings on the Roth so it's worth the extra effort for me.

 

[jorcus]

Factor number 4 is time frame. The longer the time frame the more logical the conversion. If you are near or past the 59.5 age for penalty free withdrawal you might consider doing withdrawals then investing the money in dividend paying stocks which also have favorable tax benefits. If you are on a short time frame there is a chance your investments go down when you are pulling money out of the Roth negating the advantage you might gain by a conversion.

 

[GetawaysRus]

I feel like I'm damned if I do, and I'm damned if I don't. Uncle Sam's got me either way.

One thing that the article doesn't adequately point out: once your money is in a Roth, any future appreciation is tax free. So if you have a fair number of years until you think you may withdraw the funds, that can save quite a bit on taxes.

Also, Roth IRAs don't have an RMD (that is, unless my favorite Federal government decides to change the rules of the game). With no RMD, you could utilize other retirement funds first and allow the Roth to (hopefully) appreciate tax free.

 

[Brett]

Your 529 College-Savings Plan Can Now Fund a Roth IRA
Parents with leftover money in college funds can now move them to retirement accounts—maybe even their own. But should they?

https://www.wsj.com/personal-finance/taxes/529-roth-ira-rollover-3e4850aa


"A law that took effect this year allows unused 529 funds to be transferred to Roth IRAs tax-free, up to certain limits. Often this move will cost less than simply withdrawing extra funds, which could bring taxes and a penalty. Roth IRA sponsors, including Fidelity Investments, Vanguard Group and Charles Schwab, are ready for these rollovers

 

[Big Matt]

The other factor to consider is what tax rates will be in the future. Everyone always thinks that when they retire that they won't be paying much in taxes, but that could change big time depending on how broke the country becomes.

 

[Sandy VDH]

also the current tax rate rollback are set to expire in 2026.

 

[WinniWoman]

After I got off the ACA plan and onto Medicare we started doing some small Roth conversions since we weren’t collecting SS yet.

My husband started SS this May and we actually did a slightly larger conversion and next year we will be back to the smaller one.

But after that in 2026 I start collecting SS, so we won’t be doing any more conversions.

 

[jacknsara]

I rarely find an article like this that highlights one of my most important factors: the difference in tax brackets between married filing jointly and a widow's (or widower's) tax bracket as a single person. We're more fortunate than average. I'm not going to illustrate with our personal numbers. But we have paid some extra taxes (including the medicare hit) related to conversions to Roth to position our future tax bracket as a single person at a middling rate.

 

[Ralph Sir Edward]

As I have pointed out earlier, if you want to Rothify your IRA/401Ks, you have to start well before your retirement.

 

[WinniWoman]

I rarely find an article like this that highlights one of my most important factors: the difference in tax brackets between married filing jointly and a widow's (or widower's) tax bracket as a single person. We're more fortunate than average. I'm not going to illustrate with our personal numbers. But we have paid some extra taxes (including the medicare hit) related to conversions to Roth to position our future tax bracket as a single person at a middling rate.

We are able to stay in the 12 percent tax bracket which is why we decided to convert some of the money. This year it’s possible with the slightly larger conversion a portion of it might end up in the 22% bracket, but no big deal.

We also decided to pay the taxes out of the money we were converting since we wanted to keep our after tax money for some living expenses and emergencies or possibly a large purchase or expenditure.

Plus we aren’t going touch the Roths as long as we can help it.