Novice on Roth conversion could use some insight

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
dano257
Posts: 6
Joined: Thu Mar 16, 2023 5:36 pm

Novice on Roth conversion could use some insight

Post by dano257 »

I am not sure if I should convert my Rollover IRA to my Roth IRA. I retired 3 years ago and converted my 457 plan to a rollover IRA at Fidelity. I opened a Roth IRA 8 years ago but never had enough extra to contribute other than the initial $5k I opened it with. The Rollover IRA has $383k in it. My wife and I receive pensions. They total $9500/mo after taxes. We are both 60 years old and our medical insurance is paid for through our previous jobs. I owe about $280k on my house with a value of about $600k. No other debt. The rollover is invested as follows;

ITOT total market ETF 37%
FTHRX Intermediate bond fund 27%
FDVV High dividend ETF 23%
IXUS International ETF 13%

Roth IRA
FDRXX Money market $5k

I don't need to take any money from the Rollover IRA at the moment. Our pensions do not have COLA increases. We both can collect SS when we get to 62, but I haven't figured out if we should take It at that time or not.

Is it worth it for me to start to convert the rollover to the Roth? If so, any suggestions on how? I'm not sure what else is relevant, but I can answer any questions. Thanks in advance.
rkhusky
Posts: 18259
Joined: Thu Aug 18, 2011 8:09 pm

Re: Novice on Roth conversion could use some insight

Post by rkhusky »

I would only convert to the top of the 12% bracket with $380K in a tIRA, which is $123,500 with the standard deduction. Your $9500/mo gives you $114,000 + whatever other income you have.
Last edited by rkhusky on Mon May 13, 2024 6:30 pm, edited 1 time in total.
User avatar
retired@50
Posts: 13429
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Novice on Roth conversion could use some insight

Post by retired@50 »

rkhusky wrote: Mon May 13, 2024 6:27 pm I would only convert to the top of the 12% bracket with $380K in a tIRA.
Agreed.

OP, You don't seem like a prime candidate for Roth conversions.

For more details on Roth conversions, you could read the wiki page, especially the section "Whether, when, and how much to convert".

See link: https://www.bogleheads.org/wiki/Roth_conversion

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
Topic Author
dano257
Posts: 6
Joined: Thu Mar 16, 2023 5:36 pm

Re: Novice on Roth conversion could use some insight

Post by dano257 »

I will read that, thanks!
User avatar
FiveK
Posts: 16029
Joined: Sun Mar 16, 2014 2:43 pm

Re: Novice on Roth conversion could use some insight

Post by FiveK »

dano257 wrote: Mon May 13, 2024 6:23 pm My wife and I receive pensions. They total $9500/mo after taxes. We are both 60 years old and our medical insurance is paid for through our previous jobs.
Assuming no state taxes, that's $125,233/yr before tax for the pensions. Add to that whatever interest, dividends, etc.

That puts you in the 22% federal bracket.

When you start taking SS, you might still be in the 22% bracket.

If you can pay the conversion tax from cash on hand (e.g., withhold more from your pension payments) then "tie goes to the Roth" due to the way "Traditional plus taxable" vs. Roth math works. In other words, converting to Roth would be favorable.

If you plan to give all excess to charity via QCDs and inheritance, then the tax on those will be 0% so not converting to Roth would be favorable.

If you are concerned about significant uncovered medical expenses, you may be able to deduct those, decreasing your taxable income and again not converting to Roth would be favorable.

If you are concerned about tax rate increase, due either to general law changes or what the "surviving spouse" between you would pay, now converting to Roth would be favorable.

Polish up your crystal balls, and good luck!
We both can collect SS when we get to 62, but I haven't figured out if we should take It at that time or not.
Open Social Security: Free, Open-Source Social Security Calculator will give some suggestions. When you get its results, scroll down to see the colored grid that will probably show that a wide variety of choices will give about the same predicted results.
Last edited by FiveK on Mon May 13, 2024 7:31 pm, edited 1 time in total.
rkhusky
Posts: 18259
Joined: Thu Aug 18, 2011 8:09 pm

Re: Novice on Roth conversion could use some insight

Post by rkhusky »

Your projected annual expenses also plays a role in the decision.

(And I missed the after-tax aspect of the pension amount in the above)
User avatar
Wiggums
Posts: 7167
Joined: Thu Jan 31, 2019 7:02 am

Re: Novice on Roth conversion could use some insight

Post by Wiggums »

Our Roth IRAs have all stock - Vanguard total stock market. All equities that will grow tax free!
"I started with nothing and I still have most of it left."
User avatar
CAsage
Posts: 3710
Joined: Sun Mar 27, 2016 6:25 pm

Re: Novice on Roth conversion could use some insight

Post by CAsage »

Check out this tool to model your SS options (it can accept a lot of options).

https://www.bogleheads.org/blog/portfol ... -security/
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
retireIn2020
Posts: 808
Joined: Sat Jan 04, 2020 5:13 pm

Re: Novice on Roth conversion could use some insight

Post by retireIn2020 »

dano257 wrote: Mon May 13, 2024 6:23 pm I am not sure if I should convert my Rollover IRA to my Roth IRA. I retired 3 years ago and converted my 457 plan to a rollover IRA at Fidelity. I opened a Roth IRA 8 years ago but never had enough extra to contribute other than the initial $5k I opened it with. The Rollover IRA has $383k in it. My wife and I receive pensions. They total $9500/mo after taxes. We are both 60 years old and our medical insurance is paid for through our previous jobs. I owe about $280k on my house with a value of about $600k. No other debt. The rollover is invested as follows;

ITOT total market ETF 37%
FTHRX Intermediate bond fund 27%
FDVV High dividend ETF 23%
IXUS International ETF 13%

Roth IRA
FDRXX Money market $5k

I don't need to take any money from the Rollover IRA at the moment. Our pensions do not have COLA increases. We both can collect SS when we get to 62, but I haven't figured out if we should take It at that time or not.

Is it worth it for me to start to convert the rollover to the Roth? If so, any suggestions on how? I'm not sure what else is relevant, but I can answer any questions. Thanks in advance.
Very nice pensions for the both of you, congrats.

You mentioned it's your house, and you owe $280k, and not our house and we owe $280k.
If this is the case, you may have some additional planning concerns.
https://www.merriam-webster.com/dictionary/abide
Topic Author
dano257
Posts: 6
Joined: Thu Mar 16, 2023 5:36 pm

Re: Novice on Roth conversion could use some insight

Post by dano257 »

Wow! Thanks for all the information! I have a lot of reading to do. Really appreciate taking the time to reply. It is "our" house, sorry for the confusion. I thought converting was a no-brainer, but after looking at this info it isn't so simple! Thanks again! I will put in the work to figure this out.
Topic Author
dano257
Posts: 6
Joined: Thu Mar 16, 2023 5:36 pm

Re: Novice on Roth conversion could use some insight

Post by dano257 »

CAsage wrote: Mon May 13, 2024 7:55 pm Check out this tool to model your SS options (it can accept a lot of options).

https://www.bogleheads.org/blog/portfol ... -security/
Thanks!
Topic Author
dano257
Posts: 6
Joined: Thu Mar 16, 2023 5:36 pm

Re: Novice on Roth conversion could use some insight

Post by dano257 »

retired@50 wrote: Mon May 13, 2024 6:30 pm
rkhusky wrote: Mon May 13, 2024 6:27 pm I would only convert to the top of the 12% bracket with $380K in a tIRA.
Agreed.

OP, You don't seem like a prime candidate for Roth conversions.

For more details on Roth conversions, you could read the wiki page, especially the section "Whether, when, and how much to convert".

See link: https://www.bogleheads.org/wiki/Roth_conversion

Regards,
Thanks for the info!
Post Reply