Reply to Roth Conversion later in life, near retirement

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[quote=Anonymous][quote=Anonymous]Optimizing conversions is no easy task for many.  Bogleheads has a number of active threads on this.

From what I have read there, it is usually not worth it if your 401k/IR is $1 million or less.  For many, the sweet spot is after retirement and before taking social security.  But then, you have to factor in if the conversion subjects you to the net invest tax (NIT) and, if you are taking Medicare, whether it subjects you to IRMAA on Medicare part B. Is it possible that RMDs will go to medical care that puts you over 7.5% of income, qualifying you for a medical deduction for taxes?

What is the source of funds for the conversion? Conversion proceeds makes the benefits less attractive, but if you can use proceeds from sales of holdings in your taxable account it is more attractive as they are taxed at lower long term capital gains tax rates.

I really big consideration, of course, is whether RMDs will catapult you into a higher tax bracket once you are 73. Add in the possibility that in retirement, one spouse may die and the other then will be subject to higher, single tax rates.  Consider your views about the possibility of the current lower brackets expiring and not be renewed after 2026.

You also have to factor in what your objectives are for the Roth: Is it something you wish to draw on during retirement, or a pot of money you wish to pass on to your heirs.  If the latter, you have to factor in whether a conversion will benefit your heirs from a state (or federal if your estate is large enough) estate tax perspective.

Personally, I am strictly a DIY investor, but taking in all of the above is very tricky, so I am considering getting professional advice.  I understand there is financial management software out there that could help (Pralana, New Retirement) but haven't tried it.[/quote][/quote]

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