I retired partially at 62 and totally (except for minor consulting) at 65. I am 70 this month and In my case, 1/4 of my retirement funds is in Traditional IRAs and 3/4 is in taxed brokerage and equity accounts. After running extensive calculations, I determined that 1/2 my monthly income requirements can be met by Social Security and the other 1/2 by IRA distributions and my IRA (at projected return) will last until I'm 100. (My dad is 94 and still driving... so 100 is not unreasonable for me.) At no time during my distributions will they be below the RMDs or cause my income to exceed the IRRMA penalty limit. I will stay comfortably in the 12% bracket even with the taxes on Social Security. This will allow me to utilize my Traditional IRA as it was originally designed. In fact, converting to a Roth right now would deplete my principle and cause a surge in tax and other penalties that I could never recover from. That's my story and I'm sticking to it. Your mileage will vary.
Even if you're not working, you can open a Roth IRA account. Although you can't make a direct contribution to a Roth without earned income, you can convert a traditional IRA, 401 (k) or similar retirement account into a Roth.
Short answer: Yes, conversions are simple. Long answer: It may or may not make sense for your particular financial situation. As I told my last 3 ex-wives, you need professional help.
I've already done my RMD. I started my QCD. When I know what the fund distributions in my taxable account are, I may do a Roth conversion. I'll be in the 12% bracket no matter what. BTW, my state doesn't tax my IRA distributions up to a certain amount. I expect my net tax cost to be about 6% of this conversion. My IRA isn't that large, so this conversion would be used to save my rich relatives taxes.
If I convert some of my traditional IRA, it will make my yearly income higher, therefore I have to pay a higher premium for my Medicare. If I wait until I am 73, I have to withdraw 4% RMD, it will make my income very high and my tax bracket will be higher, then my Medicare premium will be higher. What do you think?
I am pretty much in the same position except we are now both retired as of 2024. This year we will be in a lower tax bracket. IRMMA.has forced us to.pay extra for Medicare this year. Will not be a factor in 2025. I am considering a Roth conversion. My wife will be 70 in two more years then her SSA will kick in. At that point my RMD's also kick in..I am concerned about jumping up to IRMMA levels again. I guess it is a balance, pay now or pay later? I do know I will be okay whatever I do. We currently have no debt and no mortgage.
Looks like the retiree already won the investing game. No reason to lock up the traditional funds for a minimum 5 years on Roth growth through roth conversion at 70. Pay the tax, take the profit, and spend it or reinvest into a taxable brokerage where it then becomes totally liquid and you can take a tax loss if need be, whereas in a Roth, the losses are not deductible.
Converting in your 70's not only do you have to worry about Irma, but you could put your social security to be taxed at 50 to 85%. My plan is to convert everything before 63, which is when Irma is judged before you get on medicare. Plus if your prvisional income and 1/2 your social security = less then $25k a year , and your single, you pay no tax. You could have millions inside your roth, it doesn't count towards your income. That's my plan. The power of zero!
As a CPA, I am not a fan of the Roth conversions, to buy into a Roth you have to assume your marginal tax rate will be going up when you are retired from what it is when you are still working. This is backwards most all the time, If you convert to a Roth then you are paying tax for the year of conversion. Most affluent people die with a good portion of their IRA balance and the thought of converting so your kids don’t have to pay tax on an inherited IRA is Foolish!
Tax professional for over 35 years. You can’t make a blanket statement like you do - You can only do this by running the numbers and seeing what will happen in every individual case considering their health, Traditional IRA balances and their individual RMD amounts, and how kids may be taxed among other things, their age when they are converting, and other factors. The video has good ideas of what to think about. You are giving bad advice about this being Foolish because you can’t have all the scenarios run out.
That was pretty fast. Maybe too fast I didn't hear you mention that the recovery of the new Roth IRA to previous 401K IRA levels takes years. And if you are 70 now, it's unlikely that you will gain back the tax cost until a ~decade later. There needs to be a more realistic past of this rushed talk. A lot of people don't have 1.5 / 2M dollars in a 401K and can afford to live off of the reduced 401K after the conversion.
The Roth does not have to return to pre- conversion levels because the Trad IRA has a co- owner, the IRS. You need to compare the tax adjusted Trad IRA balance to the Roth balance. Also keep in mind that the growth in the ROTH is tax free, whereas every dollar of growth in a Trad IRA must be split between you and the IRS.
Conversion doesn't make sense. First of all they said they don't really need the money so leaving it earning tax free growth makes sense. He keeps talking about a 25 or 28% tax bracket. The tax brackets go from 22 to 24 to 32%. There is no 25 or 28% bracket. He forgets to mention one important item and that is the 5 year waiting period on roth conversions. You have to wait 5 years before you can withdraw any growth moeny from your Roth conversion. The simple asnwer is 70 is too late. All the more reason to avoid financial planners.
There is no 5 year waiting period for Roth conversions after age 59 1/2 assuming you had a Roth account more than 5 years (conversion and initial Roth account 5 year rules are different). See Figure 2-1 in IRS Publication 590-B www.irs.gov/publications/p590b You are correct in 2024 there is no 25% tax bracket (10, 12, 25, 24, 32, 35, 36). But unless something happens for tax year 2026 it is untrue (10, 15, 25, 28, 33, 35, 39.6).
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I retired partially at 62 and totally (except for minor consulting) at 65. I am 70 this month and In my case, 1/4 of my retirement funds is in Traditional IRAs and 3/4 is in taxed brokerage and equity accounts. After running extensive calculations, I determined that 1/2 my monthly income requirements can be met by Social Security and the other 1/2 by IRA distributions and my IRA (at projected return) will last until I'm 100. (My dad is 94 and still driving... so 100 is not unreasonable for me.) At no time during my distributions will they be below the RMDs or cause my income to exceed the IRRMA penalty limit. I will stay comfortably in the 12% bracket even with the taxes on Social Security. This will allow me to utilize my Traditional IRA as it was originally designed. In fact, converting to a Roth right now would deplete my principle and cause a surge in tax and other penalties that I could never recover from. That's my story and I'm sticking to it. Your mileage will vary.
What if someone is retired-no Roth account-but an IRA-can they open a Roth and do conversions?
My question as well.
Even if you're not working, you can open a Roth IRA account. Although you can't make a direct contribution to a Roth without earned income, you can convert a traditional IRA, 401 (k) or similar retirement account into a Roth.
Short answer: Yes, conversions are simple. Long answer: It may or may not make sense for your particular financial situation. As I told my last 3 ex-wives, you need professional help.
I've already done my RMD. I started my QCD. When I know what the fund distributions in my taxable account are, I may do a Roth conversion. I'll be in the 12% bracket no matter what. BTW, my state doesn't tax my IRA distributions up to a certain amount. I expect my net tax cost to be about 6% of this conversion.
My IRA isn't that large, so this conversion would be used to save my rich relatives taxes.
If I convert some of my traditional IRA, it will make my yearly income higher, therefore I have to pay a higher premium for my Medicare. If I wait until I am 73, I have to withdraw 4% RMD, it will make my income very high and my tax bracket will be higher, then my Medicare premium will be higher. What do you think?
I am pretty much in the same position except we are now both retired as of 2024. This year we will be in a lower tax bracket. IRMMA.has forced us to.pay extra for Medicare this year. Will not be a factor in 2025. I am considering a Roth conversion. My wife will be 70 in two more years then her SSA will kick in. At that point my RMD's also kick in..I am concerned about jumping up to IRMMA levels again. I guess it is a balance, pay now or pay later? I do know I will be okay whatever I do. We currently have no debt and no mortgage.
Looks like the retiree already won the investing game. No reason to lock up the traditional funds for a minimum 5 years on Roth growth through roth conversion at 70. Pay the tax, take the profit, and spend it or reinvest into a taxable brokerage where it then becomes totally liquid and you can take a tax loss if need be, whereas in a Roth, the losses are not deductible.
Converting in your 70's not only do you have to worry about Irma, but you could put your social security to be taxed at 50 to 85%. My plan is to convert everything before 63, which is when Irma is judged before you get on medicare. Plus if your prvisional income and 1/2 your social security = less then $25k a year , and your single, you pay no tax. You could have millions inside your roth, it doesn't count towards your income. That's my plan. The power of zero!
As a CPA, I am not a fan of the Roth conversions, to buy into a Roth you have to assume your marginal tax rate will be going up when you are retired from what it is when you are still working. This is backwards most all the time, If you convert to a Roth then you are paying tax for the year of conversion. Most affluent people die with a good portion of their IRA balance and the thought of converting so your kids don’t have to pay tax on an inherited IRA is Foolish!
Tax professional for over 35 years. You can’t make a blanket statement like you do - You can only do this by running the numbers and seeing what will happen in every individual case considering their health, Traditional IRA balances and their individual RMD amounts, and how kids may be taxed among other things, their age when they are converting, and other factors. The video has good ideas of what to think about. You are giving bad advice about this being Foolish because you can’t have all the scenarios run out.
That was pretty fast. Maybe too fast
I didn't hear you mention that the recovery of the new Roth IRA to previous 401K IRA levels takes years. And if you are 70 now, it's unlikely that you will gain back the tax cost until a ~decade later. There needs to be a more realistic past of this rushed talk. A lot of people don't have 1.5 / 2M dollars in a 401K and can afford to live off of the reduced 401K after the conversion.
The Roth does not have to return to pre- conversion levels because the Trad IRA has a co- owner, the IRS. You need to compare the tax adjusted Trad IRA balance to the Roth balance. Also keep in mind that the growth in the ROTH is tax free, whereas every dollar of growth in a Trad IRA must be split between you and the IRS.
Conversion doesn't make sense. First of all they said they don't really need the money so leaving it earning tax free growth makes sense. He keeps talking about a 25 or 28% tax bracket. The tax brackets go from 22 to 24 to 32%. There is no 25 or 28% bracket. He forgets to mention one important item and that is the 5 year waiting period on roth conversions. You have to wait 5 years before you can withdraw any growth moeny from your Roth conversion. The simple asnwer is 70 is too late. All the more reason to avoid financial planners.
There is no 5 year waiting period for Roth conversions after age 59 1/2 assuming you had a Roth account more than 5 years (conversion and initial Roth account 5 year rules are different). See Figure 2-1 in IRS Publication 590-B www.irs.gov/publications/p590b You are correct in 2024 there is no 25% tax bracket (10, 12, 25, 24, 32, 35, 36). But unless something happens for tax year 2026 it is untrue (10, 15, 25, 28, 33, 35, 39.6).