Roth Conversion for 73 Year Old

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athan
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Roth Conversion for 73 Year Old

Post by athan »

Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in? Any other issues that may come into play? Thank you for any and all comments. His goal is to keep his daughters from paying high taxes on the inheritance.
LuckyGuy
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Re: Roth Conversion for 73 Year Old

Post by LuckyGuy »

It sounds like a good plan to me. I would make sure he can pay the taxes.
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Re: Roth Conversion for 73 Year Old

Post by retired@50 »

athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in? Any other issues that may come into play? Thank you for any and all comments. His goal is to keep his daughters from paying high taxes on the inheritance.
Yes, Roth conversions are allowed.

Keep in mind that the converted amount will have to come out of the traditional IRA ** after ** his annual RMD.
In other words, his RMD can't be converted to Roth.

So, if he still has room in the 12% bracket after taking his RMD, then I don't see any reason why he can't pursue this strategy.

See link for details: https://www.bogleheads.org/wiki/Roth_IRA_conversion

Regards,
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Re: Roth Conversion for 73 Year Old

Post by HomeStretch »

Will this be FIL’s first Roth IRA account? If yes, he (or his beneficiaries if inherited before 5 years) will need to meet the 5-year clock on initial Roth IRAs before distributions of earnings are tax free.
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Re: Roth Conversion for 73 Year Old

Post by Wiggums »

Consider the ramification of which funds were available after a Roth conversion in the first five years.
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Re: Roth Conversion for 73 Year Old

Post by delamer »

Assuming you mean “earned income,” it doesn’t matter whether he has any.

Roth conversions can be done at any time.
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athan
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Re: Roth Conversion for 73 Year Old

Post by athan »

HomeStretch wrote: Thu Sep 09, 2021 6:04 pm Will this be FIL’s first Roth IRA account? If yes, he (or his beneficiaries if inherited before 5 years) will need to meet the 5-year clock on initial Roth IRAs before distributions of earnings are tax free.
Yes...will be his first Roth. I was planning to invest in VTI and VXUS. I don't think anyone will need money for 5 years
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athan
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Re: Roth Conversion for 73 Year Old

Post by athan »

retired@50 wrote: Thu Sep 09, 2021 6:02 pm
athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in? Any other issues that may come into play? Thank you for any and all comments. His goal is to keep his daughters from paying high taxes on the inheritance.
Yes, Roth conversions are allowed.

Keep in mind that the converted amount will have to come out of the traditional IRA ** after ** his annual RMD.
In other words, his RMD can't be converted to Roth.

So, if he still has room in the 12% bracket after taking his RMD, then I don't see any reason why he can't pursue this strategy.

See link for details: https://www.bogleheads.org/wiki/Roth_IRA_conversion

Regards,
Thank you! I just had Vanguard process his RMD. Now I just need to do the math to approximate how much space he has left in the 12% bracket.
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Re: Roth Conversion for 73 Year Old

Post by cas »

athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in?
He needs to take his RMD (not eligible for Roth conversion) before he can do Roth conversions. (So he will have "income coming in".)

Is he receiving Social Security? (That would be more "income coming in.")

The "Social Security tax hump", caused by the way that taxation of SS phases in as other income is added, might or might not have replaced some to all of his 12% tax bracket with higher "shadow" rates. It is very situation-dependent, though. The "heat maps" in the wiki article on Taxation of Social Security Benefits are useful for getting a general view of what someone's individual SS tax hump might look like. Find the column for the amount of SS he receives, then read up the column to see the actual marginal tax rates that he will encounter as he adds more income. Here's the Heat Map for someone who files single. If you need the filing MFJ one, it is in the wiki article.

Sounds like he wants to stay under the level of income where IRMAA becomes a factor, but be aware that Medicare premiums are linked to income (called IRMAA), which also causes strange behavior with marginal rates.

In other words ... doing Roth conversions when you are receiving SS and Medicare can be tricky and cause unpleasant tax surprises. It often isn't as simple as "convert to the top of the 12% bracket."
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Re: Roth Conversion for 73 Year Old

Post by athan »

cas wrote: Thu Sep 09, 2021 6:19 pm
athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in?
He needs to take his RMD (not eligible for Roth conversion) before he can do Roth conversions. (So he will have "income coming in".)

Is he receiving Social Security? (That would be more "income coming in.")

The "Social Security tax hump", caused by the way that taxation of SS phases in as other income is added, might or might not have replaced some to all of his 12% tax bracket with higher "shadow" rates. It is very situation-dependent, though. The "heat maps" in the wiki article on Taxation of Social Security Benefits are useful for getting a general view of what someone's individual SS tax hump might look like. Find the column for the amount of SS he receives, then read up the column to see the actual marginal tax rates that he will encounter as he adds more income. Here's the Heat Map for someone who files single. If you need the filing MFJ one, it is in the wiki article.

Sounds like he wants to stay under the level of income where IRMAA becomes a factor, but be aware that Medicare premiums are linked to income (called IRMAA), which also causes strange behavior with marginal rates.

In other words ... doing Roth conversions when you are receiving SS and Medicare can be tricky and cause unpleasant tax surprises. It often isn't as simple as "convert to the top of the 12% bracket."
Wow...now I am scared. Had no idea it would be this complicated. Thank you for the links.
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Re: Roth Conversion for 73 Year Old

Post by Artsdoctor »

^ He's very unlikely to run into problems with Medicare surcharges if he stays within the 12% bracket. However, the taxation of his social security benefits can be surprising (you'll benefit from a software program to play around if you want to learn more). This "surprise" is sometimes referred to as the "tax torpedo" and lots of information is out there.

Don't be too scared. What he's doing is very nice for his heirs. Especially if they're in particularly high federal and state tax brackets.
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Re: Roth Conversion for 73 Year Old

Post by Jon Luskin »

athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in? Any other issues that may come into play? Thank you for any and all comments. His goal is to keep his daughters from paying high taxes on the inheritance.
Eventually, the 12% bracket will revert back to the 15% tax bracket once the TCJA tax cuts expires in 2026. So, it does appear that there may be an opportunity for some tax rate arbitrage.

Good luck! :beer
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Re: Roth Conversion for 73 Year Old

Post by JoinToday »

athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in? Any other issues that may come into play? Thank you for any and all comments. His goal is to keep his daughters from paying high taxes on the inheritance.
If he has any qualified dividends, the marginal tax rate becomes 27% as it enters the 15% qualified dividend rate: = 12% for the Roth conversion amount + 15% for the qualified dividends. So if this is of concern, make sure total income (qualified dividends + long term capital gains + ordinary income) is less than the top of the 12% bracket.
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Re: Roth Conversion for 73 Year Old

Post by Artsdoctor »

HomeStretch wrote: Thu Sep 09, 2021 6:04 pm Will this be FIL’s first Roth IRA account? If yes, he (or his beneficiaries if inherited before 5 years) will need to meet the 5-year clock on initial Roth IRAs before distributions of earnings are tax free.
His FIL is over 59-1/2 and won't be subject to tax or penalties when making distributions from the Roth IRA.

This is a very confusing topic. Michael Kitces does a nice description of the 5-year rules (there are at least two separate rules and you can Google his column). However, Ed Slott has the clearest explanation of the question pertaining to this thread:

https://www.irahelp.com/slottreport/onc ... rt-mailbag

The example is a good one and the answer is "Distributions of Roth conversions are never subject to the 10% early distribution penalty if the individual has attained age 59 ½."
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Re: Roth Conversion for 73 Year Old

Post by HomeStretch »

Artsdoctor wrote: Sat Sep 11, 2021 5:59 pm
HomeStretch wrote: Thu Sep 09, 2021 6:04 pm Will this be FIL’s first Roth IRA account? If yes, he (or his beneficiaries if inherited before 5 years) will need to meet the 5-year clock on initial Roth IRAs before distributions of earnings are tax free.
His FIL is over 59-1/2 and won't be subject to tax or penalties when making distributions from the Roth IRA. ..,
I believe you are perhaps conflating the 5-year clock on Roth conversions (which I agree doesn’t impact FIL as he is > age 59-1/2) with the 5-year clock on initial Roth IRAs (which FIL does need to satisfy regardless of age before earnings on his Roth conversions are tax free; no penalty on earnings as he is > age 59-1/2).

My comment to OP was about the latter 5-year clock on initial Roth IRAs which is still applicable to FIL. It sounds like FIL’s intention is to hold the Roth IRA. But if this is FIL’s first Roth IRA, it’s good for FIL (or beneficiaries) to be aware of the 5-year clock.
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Re: Roth Conversion for 73 Year Old

Post by tj »

athan wrote: Thu Sep 09, 2021 6:12 pm
HomeStretch wrote: Thu Sep 09, 2021 6:04 pm Will this be FIL’s first Roth IRA account? If yes, he (or his beneficiaries if inherited before 5 years) will need to meet the 5-year clock on initial Roth IRAs before distributions of earnings are tax free.
Yes...will be his first Roth. I was planning to invest in VTI and VXUS. I don't think anyone will need money for 5 years
Should you really be making investment decisions for your in-laws? Yikes.
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Re: Roth Conversion for 73 Year Old

Post by RetiredAL »

tj wrote: Sat Sep 11, 2021 8:02 pm
Should you really be making investment decisions for your in-laws? Yikes.
I make all the investment decisions for my Dad.
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Re: Roth Conversion for 73 Year Old

Post by spdoublebass »

HomeStretch wrote: Sat Sep 11, 2021 6:23 pm
Artsdoctor wrote: Sat Sep 11, 2021 5:59 pm
HomeStretch wrote: Thu Sep 09, 2021 6:04 pm Will this be FIL’s first Roth IRA account? If yes, he (or his beneficiaries if inherited before 5 years) will need to meet the 5-year clock on initial Roth IRAs before distributions of earnings are tax free.
His FIL is over 59-1/2 and won't be subject to tax or penalties when making distributions from the Roth IRA. ..,
I believe you are perhaps conflating the 5-year clock on Roth conversions (which I agree doesn’t impact FIL as he is > age 59-1/2) with the 5-year clock on initial Roth IRAs (which FIL does need to satisfy regardless of age before earnings on his Roth conversions are tax free; no penalty on earnings as he is > age 59-1/2).

My comment to OP was about the latter 5-year clock on initial Roth IRAs which is still applicable to FIL. It sounds like FIL’s intention is to hold the Roth IRA. But if this is FIL’s first Roth IRA, it’s good for FIL (or beneficiaries) to be aware of the 5-year clock.
Homestretch I believe you are accurate in your statement here.

the FIL would have access to the amount he converts because he is over 59.5, but any gains would be subject to penalty until the 5 year mark is met.
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Re: Roth Conversion for 73 Year Old

Post by spdoublebass »

athan wrote: Thu Sep 09, 2021 6:37 pm
cas wrote: Thu Sep 09, 2021 6:19 pm
athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in?
He needs to take his RMD (not eligible for Roth conversion) before he can do Roth conversions. (So he will have "income coming in".)

Is he receiving Social Security? (That would be more "income coming in.")

The "Social Security tax hump", caused by the way that taxation of SS phases in as other income is added, might or might not have replaced some to all of his 12% tax bracket with higher "shadow" rates. It is very situation-dependent, though. The "heat maps" in the wiki article on Taxation of Social Security Benefits are useful for getting a general view of what someone's individual SS tax hump might look like. Find the column for the amount of SS he receives, then read up the column to see the actual marginal tax rates that he will encounter as he adds more income. Here's the Heat Map for someone who files single. If you need the filing MFJ one, it is in the wiki article.

Sounds like he wants to stay under the level of income where IRMAA becomes a factor, but be aware that Medicare premiums are linked to income (called IRMAA), which also causes strange behavior with marginal rates.

In other words ... doing Roth conversions when you are receiving SS and Medicare can be tricky and cause unpleasant tax surprises. It often isn't as simple as "convert to the top of the 12% bracket."
Wow...now I am scared. Had no idea it would be this complicated. Thank you for the links.
Regarding IRMAA, do not be afraid. Google it and look into it. My father is converting from his rollover to his roth right now as well. I looked into IRMAA just to be on the safe side. From what I could gather you have to go out of the 12% bracket for this to be an issue.

The SS tax is a pain to figure out. It's worth it though, just take it slow. Do a few calculations and see what tax would be due.
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Re: Roth Conversion for 73 Year Old

Post by RetiredCSProf »

I am 73, retired, with no earned income, and making Roth conversions. Yes, it is allowed. That is, conversions are allowed, but not contributions because he has no earned income.

If his intention is to leave the Roth investment for legacy, then the 5-year clock is a non-issue. He is required to pay taxes on the conversion, either as withholding (for example, from the tax-deferred account) or with quarterly estimated tax payments.

No Roth conversions can be made until he satisfies his RMD requirement for the year. My approach is to withhold "extra" taxes to from my pension, SS, and RMD distributions to meet "safe harbor" on income taxes (including "income" from the Roth conversion), to avoid having to make quarterly estimated tax payments.
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Re: Roth Conversion for 73 Year Old

Post by smectym »

Interesting thread. No doubt we have much to learn, but we just did our first Roth conversion. Yes, it’s a legacy vehicle, so 5 year rule is presumably irrelevant to us. Not required to make RMD except on the Inherited IRA’s, and that’s been done. Can’t keep income to the 12% tax table breakpoint, but targeting not to trespass 22%. The Vanguard Roth conversion process had a few hoops, but pretty straightforward and it was all done online, with no physical paperwork and no phone calls or interface with Vanguard reps.
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Re: Roth Conversion for 73 Year Old

Post by Artsdoctor »

Artsdoctor wrote: Sat Sep 11, 2021 5:59 pm
HomeStretch wrote: Thu Sep 09, 2021 6:04 pm Will this be FIL’s first Roth IRA account? If yes, he (or his beneficiaries if inherited before 5 years) will need to meet the 5-year clock on initial Roth IRAs before distributions of earnings are tax free.
His FIL is over 59-1/2 and won't be subject to tax or penalties when making distributions from the Roth IRA.

This is a very confusing topic. Michael Kitces does a nice description of the 5-year rules (there are at least two separate rules and you can Google his column). However, Ed Slott has the clearest explanation of the question pertaining to this thread:

https://www.irahelp.com/slottreport/onc ... rt-mailbag

The example is a good one and the answer is "Distributions of Roth conversions are never subject to the 10% early distribution penalty if the individual has attained age 59 ½."
Yes, you're right. Since he's over 59-1/2, he can take a distribution equal to his conversion amount at any time without penalty. The earnings, however, would be subject to tax but not the 10% penalty if held less than 5 years.
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Re: Roth Conversion for 73 Year Old

Post by Eagle33 »

Artsdoctor wrote: Sun Sep 12, 2021 9:50 am
Artsdoctor wrote: Sat Sep 11, 2021 5:59 pm
HomeStretch wrote: Thu Sep 09, 2021 6:04 pm Will this be FIL’s first Roth IRA account? If yes, he (or his beneficiaries if inherited before 5 years) will need to meet the 5-year clock on initial Roth IRAs before distributions of earnings are tax free.
His FIL is over 59-1/2 and won't be subject to tax or penalties when making distributions from the Roth IRA.

This is a very confusing topic. Michael Kitces does a nice description of the 5-year rules (there are at least two separate rules and you can Google his column). However, Ed Slott has the clearest explanation of the question pertaining to this thread:

https://www.irahelp.com/slottreport/onc ... rt-mailbag

The example is a good one and the answer is "Distributions of Roth conversions are never subject to the 10% early distribution penalty if the individual has attained age 59 ½."
Yes, you're right. Since he's over 59-1/2, he can take a distribution equal to his conversion amount at any time without penalty. The earnings, however, would be subject to tax but not the 10% penalty if held less than 5 years.
My understanding agrees about no 10% penalty on the earnings, isn't there no tax on earnings after the Roth IRA account is 5 years old, not 5-yr from the year of conversion unless the conversion was the first funding of the Roth IRA.
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Re: Roth Conversion for 73 Year Old

Post by Opibus »

What if in my dad's scenario, he has a traditional IRA at Vanguard and an older Roth IRA in Fidelity.

Would it matter if the conversion was from vanguard traditional IRA to new vanguard Roth IRA or should he just do the conversion to the old Fidelity Roth IRA?

My guess is it doesn't matter, but wanted to verify.
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Re: Roth Conversion for 73 Year Old

Post by RyeBourbon »

Artsdoctor wrote: Sun Sep 12, 2021 9:50 am
Artsdoctor wrote: Sat Sep 11, 2021 5:59 pm
HomeStretch wrote: Thu Sep 09, 2021 6:04 pm Will this be FIL’s first Roth IRA account? If yes, he (or his beneficiaries if inherited before 5 years) will need to meet the 5-year clock on initial Roth IRAs before distributions of earnings are tax free.
His FIL is over 59-1/2 and won't be subject to tax or penalties when making distributions from the Roth IRA.

This is a very confusing topic. Michael Kitces does a nice description of the 5-year rules (there are at least two separate rules and you can Google his column). However, Ed Slott has the clearest explanation of the question pertaining to this thread:

https://www.irahelp.com/slottreport/onc ... rt-mailbag

The example is a good one and the answer is "Distributions of Roth conversions are never subject to the 10% early distribution penalty if the individual has attained age 59 ½."
Yes, you're right. Since he's over 59-1/2, he can take a distribution equal to his conversion amount at any time without penalty. The earnings, however, would be subject to tax but not the 10% penalty if held less than 5 years.
If he has had a Roth account for 5+ years and is older then 59.5 years, ALL distributions are qualified (tax & penalty free).

In this particular case, it looks like the Roth will need to be open for 5 years. This is a good reason to get the Roth open as early as possible.
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Re: Roth Conversion for 73 Year Old

Post by Eagle33 »

Opibus wrote: Sun Sep 12, 2021 3:48 pm What if in my dad's scenario, he has a traditional IRA at Vanguard and an older Roth IRA in Fidelity.

Would it matter if the conversion was from vanguard traditional IRA to new vanguard Roth IRA or should he just do the conversion to the old Fidelity Roth IRA?

My guess is it doesn't matter, but wanted to verify.
Just as the IRS sees all traditional IRAs as one big IRA, they also look at all of an individual's Roth IRAs as one big Roth IRA. So your dad's Fidelity Roth IRA initial funding date is the start of the 5-year account clock for all his personal Roth IRA accounts.
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Re: Roth Conversion for 73 Year Old

Post by RetiredCSProf »

Eagle33 wrote: Sun Sep 12, 2021 7:29 pm
Just as the IRS sees all traditional IRAs as one big IRA, they also look at all of an individual's Roth IRAs as one big Roth IRA. So your dad's Fidelity Roth IRA initial funding date is the start of the 5-year account clock for all his personal Roth IRA accounts.
Can you show a reference for this? I thought this was true for Roth contributions only, and that each year of Roth conversions starts a new 5-year clock.
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Re: Roth Conversion for 73 Year Old

Post by smectym »

Eagle33 wrote: Sun Sep 12, 2021 7:29 pm
Opibus wrote: Sun Sep 12, 2021 3:48 pm What if in my dad's scenario, he has a traditional IRA at Vanguard and an older Roth IRA in Fidelity.

Would it matter if the conversion was from vanguard traditional IRA to new vanguard Roth IRA or should he just do the conversion to the old Fidelity Roth IRA?

My guess is it doesn't matter, but wanted to verify.
>>>Just as the IRS sees all traditional IRAs as one big IRA, they also look at all of an individual's Roth IRAs as one big Roth IRA. So >>> your dad's Fidelity Roth IRA initial funding date is the start of the 5-year account clock for all his personal Roth IRA accounts.
If filing jointly, does IRS view all household IRA’s pertinent to the joint return as “one big IRA” also? I reviewed IRS FAQ’s on IRA’s but couldn’t find the answer to this one
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Re: Roth Conversion for 73 Year Old

Post by HomeStretch »

smectym wrote: Sun Sep 12, 2021 7:55 pm
Eagle33 wrote: Sun Sep 12, 2021 7:29 pm
Opibus wrote: Sun Sep 12, 2021 3:48 pm What if in my dad's scenario, he has a traditional IRA at Vanguard and an older Roth IRA in Fidelity.

Would it matter if the conversion was from vanguard traditional IRA to new vanguard Roth IRA or should he just do the conversion to the old Fidelity Roth IRA?

My guess is it doesn't matter, but wanted to verify.
>>>Just as the IRS sees all traditional IRAs as one big IRA, they also look at all of an individual's Roth IRAs as one big Roth IRA. So >>> your dad's Fidelity Roth IRA initial funding date is the start of the 5-year account clock for all his personal Roth IRA accounts.
If filing jointly, does IRS view all household IRA’s pertinent to the joint return as “one big IRA” also? I reviewed IRS FAQ’s on IRA’s but couldn’t find the answer to this one
No, except for things such as maximum IRS income limits for Roth IRA contributions/IRA contribution deductibility which is based on MFJ AGI). IRAs are individual. In OP’s case, his FIL snd MIL would each have to satisfy the 5-year clock on initial Roth IRAs.
Last edited by HomeStretch on Sun Sep 12, 2021 8:32 pm, edited 1 time in total.
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Re: Roth Conversion for 73 Year Old

Post by tj »

RetiredCSProf wrote: Sun Sep 12, 2021 7:53 pm
Eagle33 wrote: Sun Sep 12, 2021 7:29 pm
Just as the IRS sees all traditional IRAs as one big IRA, they also look at all of an individual's Roth IRAs as one big Roth IRA. So your dad's Fidelity Roth IRA initial funding date is the start of the 5-year account clock for all his personal Roth IRA accounts.
Can you show a reference for this? I thought this was true for Roth contributions only, and that each year of Roth conversions starts a new 5-year clock.
The 5 year clock is relevant for conversions only if you're under 59.5
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Re: Roth Conversion for 73 Year Old

Post by Eagle33 »

Treatment of Roth IRA Distributions wiki reference. This table is the best summary I've seen regarding Roth IRA withdrawals.
Last edited by Eagle33 on Thu Sep 16, 2021 3:14 pm, edited 1 time in total.
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Re: Roth Conversion for 73 Year Old

Post by willthrill81 »

athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in? Any other issues that may come into play? Thank you for any and all comments. His goal is to keep his daughters from paying high taxes on the inheritance.
I'm recommending that my parents do exactly this.
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Re: Roth Conversion for 73 Year Old

Post by ResearchMed »

For someone over age 70 (mid/late 70s), does the full RMD need to be taken before a Roth conversion is done?
Of is it satisfactory to have the RMD properly taken any time in the year (as is always the case), even if after a Roth conversion has been completed earlier in the year?

We each just opened Roths last year, and I don't want to screw up the sequencing in future years, as we have RMDs set to be taken automatically at the end of the year.

If so, why?

Thanks.

RM
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Re: Roth Conversion for 73 Year Old

Post by tj »

ResearchMed wrote: Thu Sep 16, 2021 3:30 pm For someone over age 70 (mid/late 70s), does the full RMD need to be taken before a Roth conversion is done?
Of is it satisfactory to have the RMD properly taken any time in the year (as is always the case), even if after a Roth conversion has been completed earlier in the year?

We each just opened Roths last year, and I don't want to screw up the sequencing in future years, as we have RMDs set to be taken automatically at the end of the year.

If so, why?

Thanks.

RM
Why complicate it by taking the RMD at the end of the year?
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Re: Roth Conversion for 73 Year Old

Post by ResearchMed »

tj wrote: Thu Sep 16, 2021 3:32 pm
ResearchMed wrote: Thu Sep 16, 2021 3:30 pm For someone over age 70 (mid/late 70s), does the full RMD need to be taken before a Roth conversion is done?
Of is it satisfactory to have the RMD properly taken any time in the year (as is always the case), even if after a Roth conversion has been completed earlier in the year?

We each just opened Roths last year, and I don't want to screw up the sequencing in future years, as we have RMDs set to be taken automatically at the end of the year.

If so, why?

Thanks.

RM
Why complicate it by taking the RMD at the end of the year?
That doesn't answer my question, either the "whether" or the "why".

RM
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bradinsky
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Re: Roth Conversion for 73 Year Old

Post by bradinsky »

spdoublebass wrote: Sat Sep 11, 2021 9:57 pm
HomeStretch wrote: Sat Sep 11, 2021 6:23 pm
Artsdoctor wrote: Sat Sep 11, 2021 5:59 pm
HomeStretch wrote: Thu Sep 09, 2021 6:04 pm Will this be FIL’s first Roth IRA account? If yes, he (or his beneficiaries if inherited before 5 years) will need to meet the 5-year clock on initial Roth IRAs before distributions of earnings are tax free.
His FIL is over 59-1/2 and won't be subject to tax or penalties when making distributions from the Roth IRA. ..,
I believe you are perhaps conflating the 5-year clock on Roth conversions (which I agree doesn’t impact FIL as he is > age 59-1/2) with the 5-year clock on initial Roth IRAs (which FIL does need to satisfy regardless of age before earnings on his Roth conversions are tax free; no penalty on earnings as he is > age 59-1/2).

My comment to OP was about the latter 5-year clock on initial Roth IRAs which is still applicable to FIL. It sounds like FIL’s intention is to hold the Roth IRA. But if this is FIL’s first Roth IRA, it’s good for FIL (or beneficiaries) to be aware of the 5-year clock.
Homestretch I believe you are accurate in your statement here.

the FIL would have access to the amount he converts because he is over 59.5, but any gains would be subject to penalty until the 5 year mark is met.
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celia
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Re: Roth Conversion for 73 Year Old

Post by celia »

ResearchMed wrote: Thu Sep 16, 2021 3:30 pm For someone over age 70 (mid/late 70s), does the full RMD need to be taken before a Roth conversion is done?

If so, why?
Yes, because it is tax law. The entire RMD (which can include a QCD) must be removed before any Roth conversions are done.

This is not spelled out in any IRS documents directly but is found in a private letter ruling or such. I spent many hours looking for the answer once to confirm this. Here it is:
viewtopic.php?f=2&t=294328&p=4829378#p4829378
Last edited by celia on Thu Sep 16, 2021 4:27 pm, edited 1 time in total.
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retired@50
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Re: Roth Conversion for 73 Year Old

Post by retired@50 »

celia wrote: Thu Sep 16, 2021 4:08 pm The entire RMD (which can include a QCD) must be removed before any RMDs are taken.
This isn't the clearest of sentences ^^^.

Did you mean the entire RMD must be taken before any conversions to Roth are made?

Regards,
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celia
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Re: Roth Conversion for 73 Year Old

Post by celia »

retired@50 wrote: Thu Sep 16, 2021 4:12 pm
celia wrote: Thu Sep 16, 2021 4:08 pm The entire RMD (which can include a QCD) must be removed before any RMDs are taken.
This isn't the clearest of sentences ^^^.

Did you mean the entire RMD must be taken before any conversions to Roth are made?

Regards,
Yes, thank you. I went to go find my earlier source and became distracted.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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Re: Roth Conversion for 73 Year Old

Post by Artsdoctor »

celia wrote: Thu Sep 16, 2021 4:08 pm
ResearchMed wrote: Thu Sep 16, 2021 3:30 pm For someone over age 70 (mid/late 70s), does the full RMD need to be taken before a Roth conversion is done?

If so, why?
Yes, because it is tax law. The entire RMD (which can include a QCD) must be removed before any Roth conversions are done.

This is not spelled out in any IRS documents directly but is found in a private letter ruling or such. I spent many hours looking for the answer once to confirm this. Here it is:
viewtopic.php?f=2&t=294328&p=4829378#p4829378
I had to laugh. I was about to simply respond "nice job" to your current post here. But I decided to click on your link to read the letter you reference. That was in 2019 and I responded THEN to THAT post that you had done a nice job.
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Re: Roth Conversion for 73 Year Old

Post by RCL »

Lots of good questions in this thread

Since we are talking about Roth accounts, will the beneficiary (spousal) of a Roth have any issues making withdrawals if the account is over 5 years old and the owner and beneficiary were older than 59.5 when they inherit it? Any 5 year restrictions?
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Re: Roth Conversion for 73 Year Old

Post by Silk McCue »

RCL wrote: Thu Sep 16, 2021 6:09 pm Lots of good questions in this thread

Since we are talking about Roth accounts, will the beneficiary (spousal) of a Roth have any issues making withdrawals if the account is over 5 years old and the owner and beneficiary were older than 59.5 when they inherit it? Any 5 year restrictions?
None.

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Re: Roth Conversion for 73 Year Old

Post by celia »

Artsdoctor wrote: Thu Sep 16, 2021 5:53 pm I had to laugh. I was about to simply respond "nice job" to your current post here. But I decided to click on your link to read the letter you reference. That was in 2019 and I responded THEN to THAT post that you had done a nice job.
I'd say you're pretty consistent! (And I noticed the comments there.)
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celia
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Re: Roth Conversion for 73 Year Old

Post by celia »

celia wrote: Thu Sep 16, 2021 4:08 pm
ResearchMed wrote: Thu Sep 16, 2021 3:30 pm For someone over age 70 (mid/late 70s), does the full RMD need to be taken before a Roth conversion is done?

If so, why?
Yes, because it is tax law. The entire RMD (which can include a QCD) must be removed before any Roth conversions are done.
I think it was Alan S. who pointed out a way to get around this, by having more than one IRA. Say you have $25K in a small IRA and $500K in a big IRA before the year starts (to force having RMDs on both accounts). In the small one, you take out the RMD early, then convert the rest whenever you want. Meanwhile you can wait until the end of the year to take the big RMD. Of course, you can then re-fill the small one for the following year.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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Re: Roth Conversion for 73 Year Old

Post by DaveNJ »

I am also 73 and must take my first RMD this year. Here's the kicker. When you take an RMD, it is taxable income. If you then decide to move that money into a Roth, it is taxed a second time.

I wish I had converted my IRA to a Roth before reaching 73. Ideally, you want all of your funds in a Roth.
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Re: Roth Conversion for 73 Year Old

Post by Silk McCue »

DaveNJ wrote: Tue Jul 09, 2024 7:42 pm I am also 73 and must take my first RMD this year. Here's the kicker. When you take an RMD, it is taxable income. If you then decide to move that money into a Roth, it is taxed a second time.

I wish I had converted my IRA to a Roth before reaching 73. Ideally, you want all of your funds in a Roth.
Welcome to the forum. You can’t move the RMD money into the Roth unless you have sufficient earned income in that year to support a Roth contribution subject to annual limits which is $8000 in 2024 for those 50 and over. Putting that $8000 into the Roth is not a taxable event. You also can’t convert any of the RMD to Roth.

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Re: Roth Conversion for 73 Year Old

Post by Cah »

athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in? Any other issues that may come into play? Thank you for any and all comments. His goal is to keep his daughters from paying high taxes on the inheritance.
Sounds like a huge tax bill and loss of earnings on what he sends to Uncle Sam. My guess is the tax will be the same now as the tax will be later at inheritance. And the only sure thing is the tax you will pay on the conversion.
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Re: Roth Conversion for 73 Year Old

Post by BitTooAggressive »

athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in? Any other issues that may come into play? Thank you for any and all comments. His goal is to keep his daughters from paying high taxes on the inheritance.
Conversions and Contributions are totally different, different rules by IRS, even though they both begin with letter C and in plain English both words result in adding money to the account.
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Re: Roth Conversion for 73 Year Old

Post by smitcat »

Cah wrote: Wed Jul 10, 2024 7:56 am
athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in? Any other issues that may come into play? Thank you for any and all comments. His goal is to keep his daughters from paying high taxes on the inheritance.
Sounds like a huge tax bill and loss of earnings on what he sends to Uncle Sam. My guess is the tax will be the same now as the tax will be later at inheritance. And the only sure thing is the tax you will pay on the conversion.
"My guess is the tax will be the same now as the tax will be later at inheritance."
Not sure about your situation but I can assure you that converting now at 12% would be far superior to the taxes owed later at inheritance for us.
Not including the 10 years afterwards which will also yield a positive return.
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Re: Roth Conversion for 73 Year Old

Post by tibbitts »

athan wrote: Thu Sep 09, 2021 5:56 pm Hello, my father-in-law wants to start converting his Traditional IRA into a Roth, and paying taxes up to the 12% tax bracket cut off. Is this allowed even if he is retired and does not have income coming in? Any other issues that may come into play? Thank you for any and all comments. His goal is to keep his daughters from paying high taxes on the inheritance.
Very few Bogleheads will be able to convert at 12% at 73, due to SS and RMDs, but if that's actually possible in this case then I'd do it. Not that I haven't converted at much, much higher rates, but I wouldn't even have to think about 12%.
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