Mechanics of Roth conversion

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Topic Author
Seoulseeker
Posts: 44
Joined: Mon Jun 10, 2013 2:03 am

Mechanics of Roth conversion

Post by Seoulseeker »

Thanks in advance for any help with this. I am looking to do my first conversion from TIRA to Roth and I don't want to mess it up. My present situation is this:
Under my name:
TIRA-rollover from 401K employer 1 (at Broker 1) $77,000
TIRA-rollover from 401K employer 2 (at Broker 2) $1,014,000
Inherited IRA at TIAA/CREFF $3,000
Inherited IRA at Lincoln Financial $20,000
Current Roth (rollover from 401K employer 2, at Broker2) $74,000

Under DW's name:
TIRA-rollover from 401K from employer (at Broker 1) $205,000
TIRA- Spousal IRA $9,000

My age is 62, spouse 61. We plan to rollover up to the top of the 24% bracket and this year will have about $80,000 in room for the conversion. We have cash outside the IRA's to cover any tax consequence. The preference is to convert from my IRA's first (I doubt we will ever get to the spousal IRA's due to limits based on staying under the 24% self imposed limit. Based on projections though if I convert to this limit I will be able to stay at or close to the top of the current 24% tax rate even after RMDs kick in (assuming current tax law stays in place...yes I know, but I have to work with something).

My understanding is that I cannot convert the inherited IRA's, so my preference would be to convert the TIRA from broker 1 in my name into the Roth at Broker 2, then top up to the 24% limit from the TIRA at Broker 2. Am I doing this right? If I do this are there tax consequences related to the other IRA's? My recollection is that there is a pro rata allocation of tax liability across other IRA's. If this is the case is there an impact on the spousal IRAs?

I would greatly appreciate any advice on this!
FrankLUSMC
Posts: 228
Joined: Tue Nov 28, 2017 1:43 pm

Re: Mechanics of Roth conversion

Post by FrankLUSMC »

I would keep it simple and convert the $77k at broker 1 to Roth leaving it at broker 1, then convert remaining necessary amount at broker 2 into the Roth at broker 2. Then at a later date move the Roth from broker 1 to broker 2 if desired.

Pro rata only comes into play if you had funds that were not deductible in your TIRAs.
retiredjg
Posts: 42270
Joined: Thu Jan 10, 2008 12:56 pm

Re: Mechanics of Roth conversion

Post by retiredjg »

That's what I would likely do as well, just to keep it simple and get it done by the end of the year. There may not be enough time to roll/convert from one broker to another if there is any kind of delay.

Note that next year (age 63) you need to consider if IRMAA will change how much you want to convert.
Topic Author
Seoulseeker
Posts: 44
Joined: Mon Jun 10, 2013 2:03 am

Re: Mechanics of Roth conversion

Post by Seoulseeker »

Thank you. This does sound simpler than transferring to broker 2, which I guess I can do at my leisure. With respect to IRMAA, my pension and other income put me in the same bracket and this level of rollover does not change the bracket, but this is a good call out. And I do not have any after tax monies in any of the TIRAs, so thank you for the confirmation, I wasn't quite sure how that worked.
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Wiggums
Posts: 2960
Joined: Thu Jan 31, 2019 8:02 am

Re: Mechanics of Roth conversion

Post by Wiggums »

FrankLUSMC wrote: Sun Nov 22, 2020 9:09 am I would keep it simple and convert the $77k at broker 1 to Roth leaving it at broker 1, then convert remaining necessary amount at broker 2 into the Roth at broker 2. Then at a later date move the Roth from broker 1 to broker 2 if desired.

Pro rata only comes into play if you had funds that were not deductible in your TIRAs.
I agree. Simple is better and less frustrating too
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Eagle33
Posts: 1001
Joined: Wed Aug 30, 2017 3:20 pm

Re: Mechanics of Roth conversion

Post by Eagle33 »

You should consider somehow funding a Roth IRA in DW name asap. Need to eliminate her Roth 5-year clock on earnings sooner rather than later.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
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