I am 58 years old and 2018 will be my first complete calendar year of retirement.
My financial overview is:
Total savings = $2.2 Million
Annual Expenses = $50K
Some of my savings include:
- Taxable in IVV (S&P 500) = $953,000
- Traditional IRA in BND (Total Bond) = $387,000
- Roth IRA in BND = $145,000
- Ally Savings Account = $100,000
At the start of 2018 I decided that I had too much in my Ally savings so I decided to spend down $50K (1 years living expenses) which leaves me with virtually no taxable income for the year. (I will receive approximately $12K dividends from the S&P 500 in taxable).
So my initial thought was that at the end of the year I would total all my taxable income and then do a Roth conversion up to the max of the 15% tax rate.
But now I question that logic.
If I do a conversion I will pay 15% tax and I will lose the gains that I would have made on that money for the next 12 years. I did some rough math as such (I've used round numbers for simplicity):
Let's say I convert $10K, at 15% tax, I will pay $1,500.
I used an online compound interest calculator and plugged in $1,500 at 2.5% for 12 years and that returned $2017.33 - Money that I would not make.
However, if I leave the $10K in my traditional IRA until 70 and have to take it out as an RMD @ 25% I will pay $2,500 in taxes.
So we are talking about less than $500. Yeah, I would love to stumble on $500 free tomorrow, but in the big picture, it doesn't seem to be a big deal.
Am I missing something here ?
Thanks as always !!