samsdad wrote: ↑
Thu Oct 11, 2018 5:35 am
Now that I have had my shower,
I thought you said this was legal, ethical and sensible!
All kidding aside, yes, I think that's what I'm looking for. I typed up my original post last night after a long day. So let me try it a different way, though, just to make sure.
I'm looking for a way to convert my tIRA to Roth without a tax hit.
There's a way to do this if you don't have any earned income or rental income, etc. up to whatever year's deductions, tax credits you might have. For example, this year you get a 24k standard deduction. In terms of federal taxes, if you earn 24k you don't pay any federal taxes. (Indeed, you could earn 24k and have 77.2k in long-term capital gains and still not owe a dime in federal taxes.) So, absent other earned income, if you convert 24k of tIRA to Roth, you don't have a tax drag--at least that's my understanding regarding how Roth conversions are counted as income.
If I converted before the big drop, I'd have to pay 22% of my conversion in taxes (let's simplify everything and forget about other deductions/tax credits I may or may not have). If I wanted to recoup that tax-loss/tax-drag--whatever you want to call it--I could bet
that the market would go back up eventually, pay the taxes this year on that income, and have the market pay me back, without having to wait till I find myself in the position in life of not having earned income, rental income, etc. that incurs a tax drag before doing the conversion.
So, you think I'd have to wait for a 18% drop to do this if I'm at the 22% bracket?
Well, you've changed the discussion a little bit. But here goes.
Given that it is a good idea for you to do a Roth conversion at marginal rate M, you will definitely pay less taxes if you convert when the balance is lower. Even if your balance never recovers, you will still pay less taxes on the conversion if you wait until such time as the balance is lower.
Given that your balance recovers to where it was before in your lifetime
, we have calculated that if you convert when the pullback is m/(m+1), about 18% in your case, you'll make up the tax payment.
But you have introduced elements of whether a conversion at marginal rate m is a good idea when you say
without having to wait till I find myself in the position in life of not having earned income, rental income, etc. that incurs a tax drag before doing the conversion.
So let's talk about that. There are many threads discussing whether it is a good idea to convert at marginal rate M, so we won't rehash that here unless you want to. However, if you wait for a low bracket to occur, you might find it never happens -- a high quality problem!
Or if it does, you may find there's not enough space in the lower bracket to convert as much as you'd like to convert.
This is my situation. Maybe it's hubris; maybe God is giggling as I type this, but I don't expect my marginal rate ever to be lower than 22%, and I don't have enough time to convert as much of my tax deferred account below my MRMD
marginal rate as I'd like.
Of course, we may both find that tax law changes so drastically, Roth conversions were the worst possible strategy. That's the trouble with the future; it's unpredictable! You can only hedge your bets.
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity. Ecclesiastes 1:8