Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Unless you have
Over $10m in pre tax accounts it doesn’t make sense to do a Roth conversion. Your RMDs will never push you into the highest bracket.
If you want to use Roth accounts as inheritance vehicles just convert a moderate amount each year or even a sizable amount in a low income year. Just make sure you have the money to cover the taxes.

This is incorrect. We have combined 2.5M in pre tax accounts. If we do nothing, our RMDs would knock us into top tax bracket. We’re retiring early to start Roth conversions.

Validated with Projections Lab software and a CFP.

Interesting because we have more than that (and some other income) and our projections don’t show us in the top bracket. Could be you also have other income or else the difference is some combination of what returns you are projecting and how much you plan to spend.

An interesting question I could try to figure out is what is the future rate of return where a Roth conversion would turn out to make sense but it’s enough for me to know the answer falls in a range of uncertainty, especially because I’d rather pay more taxes when returns are better than expected vs when they are worse than expected.

We’re mid 50s and our pretax accounts currently total almost 3M. If we did nothing but let the money grow (we assumed 6%), at 75 our first RMDs would put us a shade into top tax bracket. We’d rather start conversions now (filling 22% bracket) and not get RMDs taxed at up to 37%. For us it’s not really about returns but minimizing taxes. Our thought is that the tax brackets are low and they might go up later. Ideally we’d get all our investments into a Roth for tax savings as well as being easy for our heirs. From what we’ve projected, we will have plenty of yearly spending and our portfolio will still grow.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:
Unless you have
Over $10m in pre tax accounts it doesn’t make sense to do a Roth conversion. Your RMDs will never push you into the highest bracket.
If you want to use Roth accounts as inheritance vehicles just convert a moderate amount each year or even a sizable amount in a low income year. Just make sure you have the money to cover the taxes.


I’d just leave the kids stocks and they can get a step up in basis when they inherit so it’s effectively tax free.

Withdrawals from a traditional 401(k) are fully taxable and treated as ordinary income at your current income tax rate in the year you receive them. They are not subject to lower capital gains tax rates, even if the funds were invested in stocks within the account. If you have a beneficiary named on the 401(k) that person is also subject to income tax on the stocks in the account (and with no stepped up basis). This is because the stocks were bought with pretax income. The tax has to be paid when the money comes out of the 401(k) no matter how it is invested while it is there.

The OP is talking about converting to a Roth so that they can pay the tax now and either not pay it later or let it be inherited and not taxed later.

Yes— either way you have to withdraw money from the IRA and pay the exact same tax on it.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Unless you have
Over $10m in pre tax accounts it doesn’t make sense to do a Roth conversion. Your RMDs will never push you into the highest bracket.
If you want to use Roth accounts as inheritance vehicles just convert a moderate amount each year or even a sizable amount in a low income year. Just make sure you have the money to cover the taxes.

This is incorrect. We have combined 2.5M in pre tax accounts. If we do nothing, our RMDs would knock us into top tax bracket. We’re retiring early to start Roth conversions.

Validated with Projections Lab software and a CFP.

Interesting because we have more than that (and some other income) and our projections don’t show us in the top bracket. Could be you also have other income or else the difference is some combination of what returns you are projecting and how much you plan to spend.

An interesting question I could try to figure out is what is the future rate of return where a Roth conversion would turn out to make sense but it’s enough for me to know the answer falls in a range of uncertainty, especially because I’d rather pay more taxes when returns are better than expected vs when they are worse than expected.

Anonymous wrote:You don’t need a CPA for this. Mathematically it doesn’t really make sense for most people, unless you are in the highest tax brackets already have non-retirement assets (ie brokerage) to pay for the taxes.

Anonymous wrote:

Anonymous wrote:Unless you have
Over $10m in pre tax accounts it doesn’t make sense to do a Roth conversion. Your RMDs will never push you into the highest bracket.
If you want to use Roth accounts as inheritance vehicles just convert a moderate amount each year or even a sizable amount in a low income year. Just make sure you have the money to cover the taxes.

I’d just leave the kids stocks and they can get a step up in basis when they inherit so it’s effectively tax free.

Anonymous wrote:

Anonymous wrote:Unless you have
Over $10m in pre tax accounts it doesn’t make sense to do a Roth conversion. Your RMDs will never push you into the highest bracket.
If you want to use Roth accounts as inheritance vehicles just convert a moderate amount each year or even a sizable amount in a low income year. Just make sure you have the money to cover the taxes.

This is incorrect. We have combined 2.5M in pre tax accounts. If we do nothing, our RMDs would knock us into top tax bracket. We’re retiring early to start Roth conversions.

Validated with Projections Lab software and a CFP.

Anonymous wrote:

Anonymous wrote:
Unless you have
Over $10m in pre tax accounts it doesn’t make sense to do a Roth conversion. Your RMDs will never push you into the highest bracket.
If you want to use Roth accounts as inheritance vehicles just convert a moderate amount each year or even a sizable amount in a low income year. Just make sure you have the money to cover the taxes.


I’d just leave the kids stocks and they can get a step up in basis when they inherit so it’s effectively tax free.

Withdrawals from a traditional 401(k) are fully taxable and treated as ordinary income at your current income tax rate in the year you receive them. They are not subject to lower capital gains tax rates, even if the funds were invested in stocks within the account. If you have a beneficiary named on the 401(k) that person is also subject to income tax on the stocks in the account (and with no stepped up basis). This is because the stocks were bought with pretax income. The tax has to be paid when the money comes out of the 401(k) no matter how it is invested while it is there.

The OP is talking about converting to a Roth so that they can pay the tax now and either not pay it later or let it be inherited and not taxed later.