ROTH IRA conversion approaches for Over-saved T-IRA

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Topic Author
DSBH
Posts: 214
Joined: Tue Jul 21, 2020 3:31 pm
Location: Texas

Re: ROTH IRA conversion approaches for Over-saved T-IRA

Post by DSBH »

The Stone Wall wrote: Tue Jun 01, 2021 4:19 pm I like the idea of more uniform conversions over time rather than waiting to the end. Given your assets, I would not try to maintain/model a 50:50 allocation. You will never run out of money for any of your needs. Bonds should be in the IRA, but once money is transferred out, it should be in stocks. A model of this scenario will likely show a significant difference in your final totals (for heirs and charities).
Thank you for your recommendations. I will think hard about the idea of relaxing the desired 50/50 portfolio AA requirement, perhaps by trying to maintain a 50/50 AA for a [Taxable + T-IRA] portfolio only, and treating the ROTH IRA conversion account as a separate long-term stock portfolio for heirs.
John C. Bogle: "Never confuse genius with luck and a bull market".
is50xenough
Posts: 228
Joined: Sat Jul 28, 2018 1:37 pm

Re: ROTH IRA conversion approaches for Over-saved T-IRA

Post by is50xenough »

Just curious. You mentioned a large Roth conversion in same year if the gift limit is decreased. Do you have a potential approach that involves gifting as opposed to the discussed Roth conversions? I know that Klangfool offered his $30k a year suggestion and not central part of the topic but could potentially shift large $ to heirs.
Topic Author
DSBH
Posts: 214
Joined: Tue Jul 21, 2020 3:31 pm
Location: Texas

Re: ROTH IRA conversion approaches for Over-saved T-IRA

Post by DSBH »

is50xenough wrote: Tue Jun 01, 2021 5:46 pm Just curious. You mentioned a large Roth conversion in same year if the gift limit is decreased. Do you have a potential approach that involves gifting as opposed to the discussed Roth conversions? I know that Klangfool offered his $30k a year suggestion and not central part of the topic but could potentially shift large $ to heirs.
No I don’t have any, other than the normal 529, UTMA/UGMA and the likes for minor, and 30k/yr already mentioned. The world of Trusts (e.g. GRAT) is something else that I am ignorant about.
John C. Bogle: "Never confuse genius with luck and a bull market".
J295
Posts: 2939
Joined: Sun Jan 01, 2012 11:40 pm

Re: ROTH IRA conversion approaches for Over-saved T-IRA

Post by J295 »

Thank you DSBH and Lee_WSP
Topic Author
DSBH
Posts: 214
Joined: Tue Jul 21, 2020 3:31 pm
Location: Texas

Re: ROTH IRA conversion approaches for Over-saved T-IRA

Post by DSBH »

DSBH wrote: Sat May 29, 2021 1:25 pm Hello Bogleheads - I am looking for comments/advices on the ROTH IRA conversion approaches that I am modelling - as I learned from many ROTH IRA Conversion threads such as viewtopic.php?t=285584, viewtopic.php?p=5351376, viewtopic.php?t=194462, and viewtopic.php?f=1&t=319359 among others.
...
1) Use option 3B - 18 years (63-80) - convert 1/4 of the planned amount around estimated tax-prepaid last days (mid Jan/Apr/Jun/Sep), and

2) If stock market is doing real well (or real bad ... yes it's subjective) compared to assumptions in year X, consider converting more up to 3C amount and sell stocks (or bonds) to pay for additional taxes,
...
My key concern right now with portfolio AA is the realistic cost of maintaining a portfolio AA throughout the study period. In case 3A, the AA for the Taxable account moves from 100% stock to 100% bond in order to maintain a 50/50 AA for the portfolio throughout the study period. I
...
Well we have arrived at a workable 4-point plan, at least from a RPM modelling perspective for now:

1) Convert to ROTH IRA annually for the next 18 years (63-80), which is option 3B in the original post:
---------- The conversion amount will be calculated to keep the MFJ AGI approximately constant during those years (in ~35% bracket),
---------- With MFJ AGI = Distributions from Taxable + ROTH conversion Amount + RMD + pension + 0.85*SS,
---------- The model shows decent T-IRA balance when we're in our late 70's in case of LTC needs.

2) To keep the potential cost of rebalancing in the (mostly stock index) Taxable account manageable, set the desired (Taxable + T-IRA) portfolio AA to 60/40, and invest ROTH conversion dollars in a 60/40 fund (e.g. VG LifeStrategy Moderate Growth or VG Balanced Index).

3) Convert 1/4 of the planned amount around estimated tax-prepaid last days (mid Jan/Apr/Jun/Sep) and pay proper estimated tax, and be ready to deviate from plan if market conditions change in significant ways.

4) Review the plan periodically or upon significant changes with laws, market, situations etc., and start our education on estate planning.

Thank you all for your comments/advice.
John C. Bogle: "Never confuse genius with luck and a bull market".
is50xenough
Posts: 228
Joined: Sat Jul 28, 2018 1:37 pm

Re: ROTH IRA conversion approaches for Over-saved T-IRA

Post by is50xenough »

DSBH wrote: Mon Jun 07, 2021 10:19 am
DSBH wrote: Sat May 29, 2021 1:25 pm Hello Bogleheads - I am looking for comments/advices on the ROTH IRA conversion approaches that I am modelling - as I learned from many ROTH IRA Conversion threads such as viewtopic.php?t=285584, viewtopic.php?p=5351376, viewtopic.php?t=194462, and viewtopic.php?f=1&t=319359 among others.
...
1) Use option 3B - 18 years (63-80) - convert 1/4 of the planned amount around estimated tax-prepaid last days (mid Jan/Apr/Jun/Sep), and

2) If stock market is doing real well (or real bad ... yes it's subjective) compared to assumptions in year X, consider converting more up to 3C amount and sell stocks (or bonds) to pay for additional taxes,
...
My key concern right now with portfolio AA is the realistic cost of maintaining a portfolio AA throughout the study period. In case 3A, the AA for the Taxable account moves from 100% stock to 100% bond in order to maintain a 50/50 AA for the portfolio throughout the study period. I
...
Well we have arrived at a workable 4-point plan, at least from a RPM modelling perspective for now:

1) Convert to ROTH IRA annually for the next 18 years (63-80), which is option 3B in the original post:
---------- The conversion amount will be calculated to keep the MFJ AGI approximately constant during those years (in ~35% bracket),
---------- With MFJ AGI = Distributions from Taxable + ROTH conversion Amount + RMD + pension + 0.85*SS,
---------- The model shows decent T-IRA balance when we're in our late 70's in case of LTC needs.

2) To keep the potential cost of rebalancing in the (mostly stock index) Taxable account manageable, set the desired (Taxable + T-IRA) portfolio AA to 60/40, and invest ROTH conversion dollars in a 60/40 fund (e.g. VG LifeStrategy Moderate Growth or VG Balanced Index).

3) Convert 1/4 of the planned amount around estimated tax-prepaid last days (mid Jan/Apr/Jun/Sep) and pay proper estimated tax, and be ready to deviate from plan if market conditions change in significant ways.

4) Review the plan periodically or upon significant changes with laws, market, situations etc., and start our education on estate planning.

Thank you all for your comments/advice.
Just saw a presentation and will put below with some verbiage from email to show that this isn't proprietary so can be shared with others:

"Would the information presented be valuable to your peers? Invite them to stream the presentation online here: https://globalmeet.webcasts.com/starthe ... 57b6cce153"

Not sure I agree with second to die life insurance as a bogleheads approach but the part that caught my attention in relation to your excellent thread is the withdrawal from tax deferred as opposed to taxable for annual expenses. Not sure if this makes much difference but in a situation like yours might this actually leave more posttax (yours and heirs) to your heirs? Don't know if you can force your RPM to use tax deferred but seemed like something worth contemplating. I haven't run this myself but have to think about how to do that with standard programs like iORP and others. I guess thinking is that it leaves heirs with only paying on capital gains versus the income of IRA withdrawals.
Topic Author
DSBH
Posts: 214
Joined: Tue Jul 21, 2020 3:31 pm
Location: Texas

Re: ROTH IRA conversion approaches for Over-saved T-IRA

Post by DSBH »

is50xenough wrote: Thu Jun 10, 2021 12:48 pm Just saw a presentation and will put below with some verbiage from email to show that this isn't proprietary so can be shared with others:

"Would the information presented be valuable to your peers? Invite them to stream the presentation online here: https://globalmeet.webcasts.com/starthe ... 57b6cce153"

Not sure I agree with second to die life insurance as a bogleheads approach but the part that caught my attention in relation to your excellent thread is the withdrawal from tax deferred as opposed to taxable for annual expenses. Not sure if this makes much difference but in a situation like yours might this actually leave more posttax (yours and heirs) to your heirs? Don't know if you can force your RPM to use tax deferred but seemed like something worth contemplating. I haven't run this myself but have to think about how to do that with standard programs like iORP and others. I guess thinking is that it leaves heirs with only paying on capital gains versus the income of IRA withdrawals.
I did not register to listen to that webcast, but I did a test using T-IRA for expenses from 63-71 (let's call it case B) instead of using Taxable for expenses (case A) in a RPM model. The goal remains to convert all T-IRA to Roth IRA in 18 years, so the case B conversion amounts are quite smaller compared to the case A amounts for obvious reasons.

The ending portfolio totals are not much different (case A ~0.5% lower than case B) and case B has higher ending Taxable valuation and lower Roth IRA ending valuation than case A, as you eluded to. So if one wants to withdraw from T-IRA instead of Taxable for expenses, it may be worth paying attention to the step up basis tax treatment.
John C. Bogle: "Never confuse genius with luck and a bull market".
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