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Before Doing a Roth Conversion, Evaluate These Three Thresholds

MULTIZ321

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Timeshare Von

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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.
 

sue1947

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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

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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

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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.
 
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