Roth conversions

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dave1054
Posts: 176
Joined: Wed Apr 01, 2009 7:50 am

Roth conversions

Post by dave1054 »

Sorry to all the Bogleheads for another Roth question. I know I can read multiple other threads but trying to simplify my life and not spend so many hours on this frustrating topic.

I am 65 and recently retired. I have 7 figure pension and profit sharing plan with maybe 10% in Roth and rest in deferred account.

Is there a simple calculator I can use that will tell me if I should do conversions now and in future years before RMD.

Is there any recommended articles/books that would educate me and help with this decision?
retired@50
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Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Roth conversions

Post by retired@50 »

dave1054 wrote: Sun Aug 23, 2020 9:15 am Is there any recommended articles/books that would educate me and help with this decision?
See link: https://www.bogleheads.org/wiki/Roth_IRA_conversion

Regards,
This is one person's opinion. Nothing more.
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Rob5TCP
Posts: 3508
Joined: Tue Jun 05, 2007 7:34 pm
Location: New York, NY

Re: Roth conversions

Post by Rob5TCP »

You should use more than one calculator
here are a couple:

https://www.schwab.com/ira/understand-i ... conversion
https://www.fidelity.com/calculators-to ... dex.html#/
https://www.calculators.org/retirement/ ... ersion.php
https://www.bankrate.com/retirement/cal ... alculator/

A lot will depend on your current tax rate and your expected tax rate in retirement.
Plus state tax may be an issue depending on where you live (NY you can take 20k
per year out of an IRA - w/o taxes due).
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chickadee
Posts: 252
Joined: Thu Jul 10, 2014 2:13 pm

Re: Roth conversions

Post by chickadee »

Also, I-Orp, but you need to study up a bit to use it well.

https://www.i-orp.com/Inflate/extended.html

Just make sure to set the return rate of deferred and Roth accounts to the same number. If you set Roth to a higher rate, it will have you converting more to get that higher rate.
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FiveK
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Re: Roth conversions

Post by FiveK »

dave1054 wrote: Sun Aug 23, 2020 9:15 am Is there a simple calculator I can use that will tell me if I should do conversions now and in future years before RMD.
Do you know what your marginal tax rate will be on conversions now, and what you expect the RMDs' future marginal tax rate will be?
friar1610
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Location: MA South Shore

Re: Roth conversions

Post by friar1610 »

You probably know this, but to Roth or not to Roth is not just a simple math calculation; there are qualitative considerations. Are you married? Are you concerned about your spouse being in a higher tax bracket (as a single person) if you go first? Do you have kids? Do you want to prepay the taxes on (some of) their inheritance or let them pay? Do you plan to leave money to charities in your will? These and other considerations play into the equation. Although not in a pre-RMD situation, I'm wrestling with some of these questions because looking at it strictly mathematically results in something very close to a wash for me.
Friar1610
JBTX
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Joined: Wed Jul 26, 2017 12:46 pm

Re: Roth conversions

Post by JBTX »

friar1610 wrote: Sun Aug 23, 2020 5:48 pm You probably know this, but to Roth or not to Roth is not just a simple math calculation; there are qualitative considerations. Are you married? Are you concerned about your spouse being in a higher tax bracket (as a single person) if you go first? Do you have kids? Do you want to prepay the taxes on (some of) their inheritance or let them pay? Do you plan to leave money to charities in your will? These and other considerations play into the equation. Although not in a pre-RMD situation, I'm wrestling with some of these questions because looking at it strictly mathematically results in something very close to a wash for me.

It may not be the usual situation, but for those looking to leave IRAS to heirs in a trust there are significant advantages to Roth, especially given the recent secure act.
BigJohn
Posts: 1895
Joined: Wed Apr 02, 2014 11:27 pm

Re: Roth conversions

Post by BigJohn »

Unfortunately this is an extremely complex issue and so there are no simple calculations. Friar listed some of them but there's also IRMAA premiums and some non-linear breakpoints in the tax code that can have you paying a lot more tax than the apparent tax bracket you are in. I spent a long time with detailed spreadsheets and ultimately concluded that the accuracy I was looking for was swamped by the uncertainty in all the assumptions. As a result, I just opted for an approach were my conversion each year is about the same as my expected RMDs plus taxable SS at age 70. This should keep my taxable income fairly flat so I won't be way off either way. However, the recent loss of the stretch IRA for my kids has me rethinking this and I may decided to go higher in conversions. That's still a work in progress and so far for 2020 I've kept to my prior approach.
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