My Plan for Roth Conversion in December - Does This Make Sense?

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Small Law Survivor
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My Plan for Roth Conversion in December - Does This Make Sense?

Post by Small Law Survivor » Tue Nov 28, 2017 10:42 am

I'm going to do a Roth IRA conversion in December, but I don't want to go to the time/expense of doing a tax analysis in advance to hit a specific bracket - too complicated. Rather, I'll convert a "safe" amount that I know is more than I will ultimately end up doing. Then, when I prepare my return and see my taxes in February or March I'll recharacterize back to an amount that keeps me within the bracket I've targeted. I'll do the Roth conversion into a new rIRA account, as recommended by Celia and other Roth IRA mavens here. :happy

I want to do a subsequent Roth conversion next year, but my understanding is that as long as I wait 30 days next year, I'll be able to do this with money I've recharacterized.

I don't want to/intend to file an extension next year - I'll just wrap this up completely by April 15, 2018.

I'm basing this on my understanding of the IRA Recharacterization wiki and the James Lange timeline described there.
https://www.bogleheads.org/wiki/IRA_recharacterization

This all seems pretty simple and straightforward. Am I missing anything?
68 yrs, semi-retired lawyer, 50/40/10 s/b/c, 70/30 dom/int'l. Plan: 4% WR until age 70, 3% after social security kicks in. Boglehead since day 1 (and M* Diehard before that) under various other names

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JDCarpenter
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Re: My Plan for Roth Conversion in December - Does This Make Sense?

Post by JDCarpenter » Tue Nov 28, 2017 11:09 am

Small Law Survivor wrote:
Tue Nov 28, 2017 10:42 am
I'm going to do a Roth IRA conversion in December, but I don't want to go to the time/expense of doing a tax analysis in advance to hit a specific bracket - too complicated. Rather, I'll convert a "safe" amount that I know is more than I will ultimately end up doing. Then, when I prepare my return and see my taxes in February or March I'll recharacterize back to an amount that keeps me within the bracket I've targeted. I'll do the Roth conversion into a new rIRA account, as recommended by Celia and other Roth IRA mavens here. :happy

I want to do a subsequent Roth conversion next year, but my understanding is that as long as I wait 30 days next year, I'll be able to do this with money I've recharacterized.

I don't want to/intend to file an extension next year - I'll just wrap this up completely by April 15, 2018.

I'm basing this on my understanding of the IRA Recharacterization wiki and the James Lange timeline described there.
https://www.bogleheads.org/wiki/IRA_recharacterization

This all seems pretty simple and straightforward. Am I missing anything?
Be careful on the 30 day rule. It is the LATER of 30 days or the next calendar year:

if you recharacterize all or part of a rollover or conversion to a Roth IRA, you cannot reconvert the amount recharacterized to the same or another Roth IRA until the later of:
30 days after the recharacterization, or
the year following the year of the rollover or conversion.
The waiting period to convert applies only to amounts you recharacterized. For example, you can convert amounts from a different traditional IRA to a Roth IRA immediately.
https://www.irs.gov/retirement-plans/re ... onversions (4th FAQ)

We are going to take the same approach. Just converted 2017 after getting ballpark, but will convert 2018 in Jan--before recharacterizing part of 2017.
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Small Law Survivor
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Re: My Plan for Roth Conversion in December - Does This Make Sense?

Post by Small Law Survivor » Tue Nov 28, 2017 11:38 am

Yes, will be careful re 30 day rule ("later of ...")

You said that "We are going to take the same approach. Just converted 2017 after getting ballpark, but will convert 2018 in Jan--before recharacterizing part of 2017."

What is your thinking behind this order of events. Does converting before you recharacterize lift any restrictions on that money?
68 yrs, semi-retired lawyer, 50/40/10 s/b/c, 70/30 dom/int'l. Plan: 4% WR until age 70, 3% after social security kicks in. Boglehead since day 1 (and M* Diehard before that) under various other names

TravelforFun
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Re: My Plan for Roth Conversion in December - Does This Make Sense?

Post by TravelforFun » Tue Nov 28, 2017 11:43 am

It's not complicated to run tax scenarios on a tax software. Just import last year return and make changes to specific line items. This could be simpler than recharacterization of a Roth

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pshonore
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Re: My Plan for Roth Conversion in December - Does This Make Sense?

Post by pshonore » Tue Nov 28, 2017 11:56 am

Unless you're converting large amounts (like more than 50% of your TIRAs), my understanding is the 30 day rule, etc is not applicable.

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JDCarpenter
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Re: My Plan for Roth Conversion in December - Does This Make Sense?

Post by JDCarpenter » Tue Nov 28, 2017 12:08 pm

Small Law Survivor wrote:
Tue Nov 28, 2017 11:38 am
Yes, will be careful re 30 day rule ("later of ...")

You said that "We are going to take the same approach. Just converted 2017 after getting ballpark, but will convert 2018 in Jan--before recharacterizing part of 2017."

What is your thinking behind this order of events. Does converting before you recharacterize lift any restrictions on that money?
If markets I'm invested in go up, more appreciation is inside the roth if convert early. If markets go down, I can (under current tax law) put the same dollar amount in later and recharacterize the losing "bet." See "leapfrog" discussions on this forum (A subset of the "horse race" discussions.)
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Small Law Survivor
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Re: My Plan for Roth Conversion in December - Does This Make Sense?

Post by Small Law Survivor » Tue Nov 28, 2017 12:36 pm

I'm really not interested in doing all the "leapfrog" stuff - too complicated. I want to keep it simple.

I think recharacterizing an over-conversion before 4/15/18 is pretty simple. I did a recharacterization a few yrs. ago and it wasn't a problem. I really can't "model" last year's taxes to determine this year - too much changed year-to-year. Last year I had partnership K1 income, for example. This year I won't - will be simple W2 income.
68 yrs, semi-retired lawyer, 50/40/10 s/b/c, 70/30 dom/int'l. Plan: 4% WR until age 70, 3% after social security kicks in. Boglehead since day 1 (and M* Diehard before that) under various other names

neilpilot
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Re: My Plan for Roth Conversion in December - Does This Make Sense?

Post by neilpilot » Tue Nov 28, 2017 12:40 pm

Small Law Survivor wrote:
Tue Nov 28, 2017 12:36 pm
I'm really not interested in doing all the "leapfrog" stuff - too complicated. I want to keep it simple.

I think recharacterizing an over-conversion before 4/15/18 is pretty simple. I did a recharacterization a few yrs. ago and it wasn't a problem. I really can't "model" last year's taxes to determine this year - too much changed year-to-year. Last year I had partnership K1 income, for example. This year I won't - will be simple W2 income.
Actually, the change to use as an example (lack of last year's K1) should make it much easier to model TY2017.

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pezblanco
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Re: My Plan for Roth Conversion in December - Does This Make Sense?

Post by pezblanco » Sat Dec 16, 2017 11:15 am

Google "Roth recharacterization" "tax bill" and read and be warned there .... As I understand it, no discussion of the new tax bill is allowed currently on the board. I sent a PM to one of the moderators asking that this rule be relaxed given the current timelines ....

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Small Law Survivor
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Re: My Plan for Roth Conversion in December - Does This Make Sense?

Post by Small Law Survivor » Sat Dec 16, 2017 2:39 pm

Agee that this seems quite important to people that may be planning to rechar in 2018. Under this bill they will be unable to do that - they must rechar by end of 2017.
68 yrs, semi-retired lawyer, 50/40/10 s/b/c, 70/30 dom/int'l. Plan: 4% WR until age 70, 3% after social security kicks in. Boglehead since day 1 (and M* Diehard before that) under various other names

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