Advice on Roth IRA conversions

[psychopengy]

Hello all,
I'm getting different recommendations about doing Roth conversions. I'm using two different retirement websites, Income Lab (through my financial advisor) and Boldin (formerly New Retirement). I've entered the same information into both and I get vastly different results for doing Roth conversions, both in the number of conversions to make, and amounts. A different advisor I've consulted with, about an annuity purchase, questions whether I need to do conversions at all, and recommends just taking RMDs.
My financial advisor says to just follow the recommendation in Income Lab's software, but I'm not sure that I should trust it. Another thing to consider is that Income Lab's "breakeven" for the conversions, as opposed to just an RMD strategy, is 2040. I'll be 85, assuming I live that long. Not sure how I feel about that.
Background on me:
- I'll turn 69 in early December
- I currently have $316,246 in traditional and rollover IRAs, and $134,284 in Roth IRAs
- I'm "mostly" retired, haven't started taking Social Security, and I have a part-time "gig" as an independent contractor, but I'll be in the lowest tax bracket this year. I plan on starting Social Security at the end of next year, when I turn 70.
- My big question at this point is, since the end of the year is fast approaching, would it make sense to do the recommended Roth conversion this year, and then revisit the strategy next year and have more time to consult about it? If I later decided to just do RMDs, will a conversion this year have been a waste of tax dollars?
Many thanks for your thoughts. Please let me know if you need additional information.

[tibbitts]

Hello all,
I'm getting different recommendations about doing Roth conversions. I'm using two different retirement websites, Income Lab (through my financial advisor) and Boldin (formerly New Retirement). I've entered the same information into both and I get vastly different results for doing Roth conversions, both in the number of conversions to make, and amounts. A different advisor I've consulted with, about an annuity purchase, questions whether I need to do conversions at all, and recommends just taking RMDs.
My financial advisor says to just follow the recommendation in Income Lab's software, but I'm not sure that I should trust it. Another thing to consider is that Income Lab's "breakeven" for the conversions, as opposed to just an RMD strategy, is 2040. I'll be 85, assuming I live that long. Not sure how I feel about that.
Background on me:
- I'll turn 69 in early December
- I currently have $316,246 in traditional and rollover IRAs, and $134,284 in Roth IRAs
- I'm "mostly" retired, haven't started taking Social Security, and I have a part-time "gig" as an independent contractor, but I'll be in the lowest tax bracket this year. I plan on starting Social Security at the end of next year, when I turn 70.
- My big question at this point is, since the end of the year is fast approaching, would it make sense to do the recommended Roth conversion this year, and then revisit the strategy next year and have more time to consult about it? If I later decided to just do RMDs, will a conversion this year have been a waste of tax dollars?
Many thanks for your thoughts. Please let me know if you need additional information.

There isn't a clearcut case for Roth conversions with $316k in deferred income unless they're basically free, which might be the case for you. But honestly I'll guess conversions aren't going to matter much in a predictable way in your case. This is usually the point in the thread where the OP says something like "oh incidentally I have $3M in TIAA Traditional... does that matter?"

[Carl53]

What are your plans for the retirement dollars? Needed to live on, trips, bequests, inheritance?

If I assume you are not married and in the 10 or 12% marginal bracket, and have sufficient after tax dollars on hand to pay the conversion tax, if I were you I'd fill up the 12% bracket this year and next with conversions before you have a full year of SS. We don't know your projected SS income, but it is sounds like your other income is low and thus perhaps much of your SS can be untaxed. Doing more conversions while drawing SS might incur more taxes than necessary. When the RMDs kick in at 73, they will also make more of the SS be taxed, but you are only talking about $10-15k per year of extra income and maybe $10k more of SS being taxed. There is a Retiree Portfolio Manager, viewtopic.php?t=97352, that can help you make an in-depth analysis.

[livesoft]

Do you donate to charity? If so, did your analysis take into account bunching deductions into every other year? What about future QCDs?

[Exchme]

So you know that either you've input things incorrectly or there are hidden assumptions/simplifications that you can't address and that at least one of them is wrong.

You didn't give us much to go on, so I will not feel bad about not running any numbers. I think you could do small conversions this year and next, perhaps up to the start of the LTCG phase-in (essentially the top of the 12% bracket minus any qualified dividends/LTCGs). Starting in 2026, you will have full years of SS benefits and the "tax torpedo" of the phase-in of SS taxes is your barrier to conversions. I would check with a tax calculator and only make conversions to around the top of the 10% bracket (which will actually be a 15% marginal cost on the last dollars converted as taxes on SS benefits will be phasing in). Once RMDs start, probably no more conversions.

Remember that having some $ in an IRA is very handy if you need long term care as those expenses will largely be deductible, so you can get the money out with minimal tax cost.

If your tools are recommending conversions much larger than those, I'd be skeptical about the validity of the answer you are getting from the tool. All tools have limitations but there are some that are truly awful and give completely wrong answers in certain situations. Can you give us an idea of the plans the tools are recommending?

[psychopengy]

Thank you all for your time and your answers. Here's more information that may clarify my situation:
- I am unmarried, with no dependents.
- I have zero debt, I own my home which is paid off.
- I don't have an annuity (such as TIAA Traditional, although I'm strongly considering one, in fact that one in particular)
- Besides the IRAs, I have $125,000 in a liquid cash account with which to pay taxes on the conversions.
- As of now, the Social Security website calculator has me receiving a $2,163 monthly benefit, so about $26K/yr.
- My independent contractor work will pay $9,000 this year, and probably the same amount next year.
- Social Security plus the work would probably cover all of my baseline expenses (assuming my health holds out), but not leave much for enjoyment.
- I don't give to charity, and I don't plan to unless there's a very strong case that it would be a net tax saving.
- My goal is to reduce total taxes paid and funding as comfortable a retirement as possible, doing some travel and pursuing modest hobbies and interests. I'm not interested in leaving an inheritance to anyone.

There isn't a clearcut case for Roth conversions with $316k in deferred income unless they're basically free, which might be the case for you.

- Could you please explain how the conversions could be free?

Can you give us an idea of the plans the tools are recommending?

Would you like the details of the overall retirement plans, or just the Roth conversions?
Many thanks again.

[tibbitts]

There isn't a clearcut case for Roth conversions with $316k in deferred income unless they're basically free, which might be the case for you.

- Could you please explain how the conversions could be free?

Conversions at a 0% tax rate, due to a year of sufficiently low income, would be basically free (not accounting for any possible state tax liability or other impacts on tax credits, etc.)

[retiredjg]

Welcome to the forum.

Ordinarily $316k in tax-deferral does not trigger a need to do Roth conversions. But if your total income this year will be about $9k, a Roth conversion is essentially a no brainer.

The $9k does not even overcome the standard deduction - so you have no taxable income (although I assume there is a small amount of interest income from your $125k in cash.) Some money would be converted with no tax at all. The rest at a very low tax rate.

Can you confirm your total income from all sources in 2024?

How much are the calculators suggesting that you convert?

An annuity might make some sense for you, but I'm not sure the one you are looking at is a good choice (not sure it isn't either). That is a question for someone else (probably Stinky).

One thing that does concern me is that you apparently have a financial advisor. If this is someone you are paying 1% or 1.35% a year, the best thing you can do for your portfolio is probably to stop using the advisor.

[heyyou]

I would do the conversion this year, since one conversion is relatively so small that the tax cost isn't onerous. Then you have a year to choose about doing the next one.

These days, deep in my RMD years, I am so pleased with the tax-free growth in my all-stock RIRA, with the additional tax cost of each annual conversion being a faded memory.

If your tIRA only has a five digit balance, maybe your future RMDs are not a problem, but that does not describe the account size of retired Bogleheads' tIRAs.

[psychopengy]

Thank you for your replies.

Can you confirm your total income from all sources in 2024?

A rough calculation of my total income this year is $14,628.00

One thing that does concern me is that you apparently have a financial advisor. If this is someone you are paying 1% or 1.35% a year, the best thing you can do for your portfolio is probably to stop using the advisor.

I hired the advisor for a one-time financial plan. I'm not paying any ongoing fees.

How much are the calculators suggesting that you convert?

The Boldin (formerly New Retirement) "Roth conversion explorer" essentially suggests no conversions, since I would end up with a greater lifetime tax liability than just taking RMDs, but when I modeled conversions using different parameters, the conversion amounts were about $22,000 a year. The Income Lab calculator suggests a 2024 conversion of $94,232, all the way up to my IRMAA bracket. The next several years' conversions are similarly huge. I've tried as best I can to enter the same income, expense, and other data into each program as close to the same as possible.

If your tIRA only has a five digit balance, maybe your future RMDs are not a problem, but that does not describe the account size of retired Bogleheads' tIRAs.

I actually have a 6 figure balance in my tIRA - $316,000

Thank you all again for your time and feedback.

[heyyou]

I am pleased with having done my previous Roth conversions, now with only stock index funds stored in that account for the long term, since my small pension and delayed-to-70 SS cover my daily expenses. I too did the to-the-top-of-the-tax-bracket amount on each annual conversion. No, I don't have the math to state whether to continue or not, I'm just happy with the results, and wishing that I had done a little more every year prior to my age 70.

[retiredjg]

Thank you for your replies.

Can you confirm your total income from all sources in 2024?

A rough calculation of my total income this year is $14,628.00

Is any of this long term capital gain or qualified dividends?

I hired the advisor for a one-time financial plan. I'm not paying any ongoing fees.

This is good news.

The Boldin (formerly New Retirement) "Roth conversion explorer" essentially suggests no conversions, since I would end up with a greater lifetime tax liability than just taking RMDs, but when I modeled conversions using different parameters, the conversion amounts were about $22,000 a year.

No conversions makes no sense because you have unused space in the "income that won't trigger any tax" category.

"Greater lifetime tax liability" is not what you should be paying attention to. Believe it or not, that is irrelevant . What is important is the number of dollars you end up with in the end....and paying less tax does not necessarily mean more money in the end.

In short, it is the tax rate, not the tax amount that matters.


Edit: Psychopenegy, applolgies. I looked at the standard deduction for a married couple instead of for a single person.

With a total income of $14,628, you have at least $16,122 worth of a liitle space that would not be taxed. Your standard deduction for 2024 is $30,750 $16.550 minus $14,628. It could be more if some of your income is LTCG or QDs. That is why it is important to know exactly where all your income dollars come from.

The Income Lab calculator suggests a 2024 conversion of $94,232, all the way up to my IRMAA bracket. The next several years' conversions are similarly huge.

The goal of this calculator seems to be to convert all of your IRA at the best possible cost. I do not think that is a worthy goal. You have no financial need to convert the entire account.

Unless I''m overlooking something, it is clear that a conversion in 2024 is a good idea.. Whether a conversion is a good idea or not depends on how much of your income is long term capital gains or qualified dividends. And whether you wish to convert to the top of the 10% bracket (which I think is probably a good idea).

When you start SS next year, things will be different because of how SS is taxed.

[chrisdds98]

Unless I''m overlooking something, it is clear that a conversion in 2024 is a good idea.

if he's on an ACA plan, doing a conversion will reduce his subsidy thus increasing his effective taxes paid. with a tIRA with a balance around 300k I don't see a ton of benefit for doing conversions. RMDs would be in a fairly low bracket and they keep moving back the RMD age.

if the tIRA is mostly bonds (with a low expected return) that would be an additional reason to not convert.

[Cah]

Doing a conversion will trigger a tax event. I wouldn't do anything and simply continue to let the Iras grow tax deffered. Pay the tax as you withdraw it. Your only going to lose earnings on your tax payment along with bet worth.

[Cah]

Your conversion will trigger some type of tax payment. All you will do is lose the earnings on your payment and lose net worth as well. Let the ira balances continue to grow tax-deferred.

[retiredjg]

Unless I''m overlooking something, it is clear that a conversion in 2024 is a good idea.

if he's on an ACA plan, doing a conversion will reduce his subsidy thus increasing his effective taxes paid. with a tIRA with a balance around 300k I don't see a ton of benefit for doing conversions. RMDs would be in a fairly low bracket and they keep moving back the RMD age.

if the tIRA is mostly bonds (with a low expected return) that would be an additional reason to not convert.

Could be true for someone else, but this poster is 69...probably on Medicare.

[retiredjg]

Your conversion will trigger some type of tax payment. All you will do is lose the earnings on your payment and lose net worth as well. Let the ira balances continue to grow tax-deferred.

If income is less than standard deduction? Am I overlooking something?

[FiveK]

Your conversion will trigger some type of tax payment. All you will do is lose the earnings on your payment and lose net worth as well. Let the ira balances continue to grow tax-deferred.

If income is less than standard deduction? Am I overlooking something?

Perhaps that some people are virulently anti-conversion, regardless of how the complete math actually works.

psychopengy, see the Roth conversion wiki article. If you can use Excel, see in particular the Using a spreadsheet section of that article.

If you do that and generate your own marginal tax rate chart, what does it suggest to you?

[teen persuasion]

Your conversion will trigger some type of tax payment. All you will do is lose the earnings on your payment and lose net worth as well. Let the ira balances continue to grow tax-deferred.

If income is less than standard deduction? Am I overlooking something?

I believe OP is filing Single, not MFJ. Income is barely below standard deduction.

In our situation, I'm planning Roth conversions to the top of the 10% bracket prior to SS and later RMDs. I started guestimating by looking at where unavoidable income like SS and RMDs would push my tax level. I should Roth convert to that level, too, to keep the tIRAs from growing even more in the years before RMDs kick in. We've got 12 years to SS and 17 to RMDs, so a more fuzzy picture of future balances and tax brackets than for OP looking at SS next year.

[suemarkp]

With a total income of $14,628, you have at least $16,122 worth of space that would not be taxed. Your standard deduction for 2024 is $30,750 minus $14,628. It could be more if some of your income is LTCG or QDs. That is why it is important to know exactly where all your income dollars come from.

He is not married, so his standard deduction should be $16,550 if he is single and over 65 in 2024 . So not a lot of headroom in the 0% tax bracket. He could maybe convert through the 10% bracket which lets him do $11,000 more. But he may never be above the 12% tax bracket even with SS and RMDs if he stops working.

If he has extra money and since he's working, he could make up to an $8000 Roth contribution too if the money is laying around in a taxable account. No break even calculation required for that one.

[teen persuasion]

With a total income of $14,628, you have at least $16,122 worth of space that would not be taxed. Your standard deduction for 2024 is $30,750 minus $14,628. It could be more if some of your income is LTCG or QDs. That is why it is important to know exactly where all your income dollars come from.

He is not married, so his standard deduction should be $16,550 if he is single and over 65 in 2024 . So not a lot of headroom in the 0% tax bracket. He could maybe convert through the 10% bracket which lets him do $11,000 more. But he may never be above the 12% tax bracket even with SS and RMDs if he stops working.

If he has extra money and since he's working, he could make up to an $8000 Roth contribution too if the money is laying around in a taxable account. No break even calculation required for that one.

He could make a $2k IRA contribution (trad or Roth) to be eligible for the saver's credit, which could offset the tax of some of a Roth conversion. Just needs to limit the total AGI to stay in range for the credit, and manage which tier he is eligible for.

[retiredjg]

I believe OP is filing Single, not MFJ. Income is barely below standard deduction.

Thanks. You are right. I looked at the wrong section of the chart. Corrected above.

[Mullins]

Your conversion will trigger some type of tax payment. All you will do is lose the earnings on your payment and lose net worth as well. Let the ira balances continue to grow tax-deferred.

But he wrote he'd pay the tax from taxable. So that means 100% of the conversion stays invested rather than a portion of it going to taxes. So let's say he converts 50,000 and pays 10,000 in tax. Then 50,000 grows tax free. And when he withdraws it, it's tax free. But had he not paid tax from taxable but from out of the conversion, 40,000 would be in the Roth growing tax free, and that 10,000 in taxable would grow subject to having its dividends taxed, and when sold, being subject to cap gains tax. Which would make the total return of that 10,000 less than if it had remained in the Roth. That's my understanding, am I wrong about that?

[FiveK]

But he wrote he'd pay the tax from taxable. So that means 100% of the conversion stays invested rather than a portion of it going to taxes. So let's say he converts 50,000 and pays 10,000 in tax. Then 50,000 grows tax free. And when he withdraws it, it's tax free. But had he not paid tax from taxable but from out of the conversion, 40,000 would be in the Roth growing tax free, and that 10,000 in taxable would grow subject to having its dividends taxed, and when sold, being subject to cap gains tax. Which would make the total return of that 10,000 less than if it had remained in the Roth. That's my understanding, am I wrong about that?

Not wrong.

You are describing the difference between the Simplest situation and "Traditional plus taxable" vs. Roth.

The effect of tax drag is something that may not be obvious at first glance. And sometimes people forget the commutative property of multiplication they learned in third(?) grade.

[psychopengy]

Thank you all again. Lots of info! I'll get around to reading the articles you linked to as soon as possible.

That is why it is important to know exactly where all your income dollars come from.

All of my $14,628 2024 income comes from my independent contractor job and interest on savings accounts. None of it is from long term capital gain or qualified dividends.

Could be true for someone else, but this poster is 69...probably on Medicare.

Yes, I'm on Medicare, and my tax filing status is single.

He could make a $2k IRA contribution (trad or Roth) to be eligible for the saver's credit, which could offset the tax of some of a Roth conversion. Just needs to limit the total AGI to stay in range for the credit, and manage which tier he is eligible for.

I asked Fidelity and Vanguard, the two firms I have assets with, whether they offer Roth accounts for independent contractors, but neither of them do. Does anyone know of a firm that offers that, or does that option simply not exist?
Many thanks.

[retiredjg]

Thank you all again. Lots of info! I'll get around to reading the articles you linked to as soon as possible.

That is why it is important to know exactly where all your income dollars come from.

All of my $14,628 2024 income comes from my independent contractor job and interest on savings accounts. None of it is from long term capital gain or qualified dividends.

In that case, you can convert very little without triggering any tax.

It could still be wise to consider converting to the top of the 10% bracket or near the top of the 12% bracket. You could convert about $11,600 at only 10% tax. And about another $35k at 12%. These are very low tax brackets for a single person with assets.

Once you start SS, you may not be able to convert much of anything at low rates. That does not mean that you "need" to do conversions though. Some people actually need to do conversions to avoid high tax rates once RMDs start, but your RMDs should not be all that large.

I asked Fidelity and Vanguard, the two firms I have assets with, whether they offer Roth accounts for independent contractors, but neither of them do. Does anyone know of a firm that offers that, or does that option simply not exist?
Many thanks.

They both certainly offer Roth IRAs which you could use. If you are looking for Roth Solo 401k, Fido does not offer Roth (yet - coming soon did I hear somewhere?) and Vanguard has gotten out of the Solo 401k business. Schwab might.

[FiveK]

I asked Fidelity and Vanguard, the two firms I have assets with, whether they offer Roth accounts for independent contractors, but neither of them do. Does anyone know of a firm that offers that, or does that option simply not exist?

Fidelity, Schwab, Vanguard, etc., all offer Roth IRAs.

Whether they offer Designated Roth accounts within a solo 401k is a different question. See that wiki and references therein for what brokerages do and don't offer for a solo 401k.

[teen persuasion]

He could make a $2k IRA contribution (trad or Roth) to be eligible for the saver's credit, which could offset the tax of some of a Roth conversion. Just needs to limit the total AGI to stay in range for the credit, and manage which tier he is eligible for.

I asked Fidelity and Vanguard, the two firms I have assets with, whether they offer Roth accounts for independent contractors, but neither of them do. Does anyone know of a firm that offers that, or does that option simply not exist?
Many thanks.

I'm speaking of a Roth IRA here. Vanguard, Fidelity, Schwab, etc., all offer Roth IRAs. Mine and my DH's are at Vanguard. You are certainly not over the income limitation for contributing to a Roth IRA, and have earned income, so you should be eligible to open a Roth IRA if you do not already have one.

[tibbitts]

I asked Fidelity and Vanguard, the two firms I have assets with, whether they offer Roth accounts for independent contractors, but neither of them do. Does anyone know of a firm that offers that, or does that option simply not exist?
Many thanks.

A Roth IRA isn't an employer retirement plan; it doesn't matter for contribution purposes if you're an independent contractor or an employee. You confused the reps by specifying "independent contractor."

[Cah]

Your conversion will trigger some type of tax payment. All you will do is lose the earnings on your payment and lose net worth as well. Let the ira balances continue to grow tax-deferred.

But he wrote he'd pay the tax from taxable. So that means 100% of the conversion stays invested rather than a portion of it going to taxes. So let's say he converts 50,000 and pays 10,000 in tax. Then 50,000 grows tax free. And when he withdraws it, it's tax free. But had he not paid tax from taxable but from out of the conversion, 40,000 would be in the Roth growing tax free, and that 10,000 in taxable would grow subject to having its dividends taxed, and when sold, being subject to cap gains tax. Which would make the total return of that 10,000 less than if it had remained in the Roth. That's my understanding, am I wrong about that?

You would lose the earnings on the amount you withdrew from taxable account.

[Cah]

Your conversion will trigger some type of tax payment. All you will do is lose the earnings on your payment and lose net worth as well. Let the ira balances continue to grow tax-deferred.

If income is less than standard deduction? Am I overlooking something?

His conversion will get his taxable income above the 0 tax bracket.

[HomeStretch]

All of my $14,628 2024 income comes from my independent contractor job and interest on savings accounts. None of it is from long term capital gain or qualified dividends.

Will you have any business expenses or take any self-employed (s/e) deductions, such as the s/e healthcare deduction, that will reduce s/e income included in AGI?

If yes, you will have more room to make Roth conversions at 0-10-12% marginal tax rate. AGI of $38.250 or less will qualify you for a Tax Savers Credit for eligible retirement contributions.

[Mullins]

But he wrote he'd pay the tax from taxable. So that means 100% of the conversion stays invested rather than a portion of it going to taxes. So let's say he converts 50,000 and pays 10,000 in tax. Then 50,000 grows tax free. And when he withdraws it, it's tax free. But had he not paid tax from taxable but from out of the conversion, 40,000 would be in the Roth growing tax free, and that 10,000 in taxable would grow subject to having its dividends taxed, and when sold, being subject to cap gains tax. Which would make the total return of that 10,000 less than if it had remained in the Roth. That's my understanding, am I wrong about that?

You would lose the earnings on the amount you withdrew from taxable account.

But by not paying the tax out of the conversion, then the entire conversion amount, which includes the portion which would've otherwise been withheld for tax, is invested in the Roth. So that portion continues to earn, but now all tax free.

If the tax is withheld out of the conversion, then yes the taxable account remains as is and earning but then a lesser amount of the conversion went to the Roth.

So it seems to me that paying the tax from taxable in effect swaps the same amount into non-taxable.

[Cah]

You would lose the earnings on the amount you withdrew from taxable account.

But by not paying the tax out of the conversion, then the entire conversion amount, which includes the portion which would've otherwise been withheld for tax, is invested in the Roth. So that portion continues to earn, but now all tax free.

If the tax is withheld out of the conversion, then yes the taxable account remains as is and earning but then a lesser amount of the conversion went to the Roth.

So it seems to me that paying the tax from taxable in effect swaps the same amount into non-taxable.

Maybe I'm not making my point clear. Whatever account you make your tax payment from will reduce your net worth by the amount of the tax payment as well as any future earnings you might make on the tax payment.

[FiveK]

Maybe I'm not making my point clear. Whatever account you make your tax payment from will reduce your net worth by the amount of the tax payment as well as any future earnings you might make on the tax payment.

That is, however, only half the story.

Understanding the commutative property of multiplication description in that wiki section might be helpful to understand why "paying tax now" is only half the story.

Is that point clear?

[RetiredAL]

Maybe I'm not making my point clear. Whatever account you make your tax payment from will reduce your net worth by the amount of the tax payment as well as any future earnings you might make on the tax payment.

That is, however, only half the story.

Understanding the commutative property of multiplication description in that wiki section might be helpful to understand why "paying tax now" is only half the story.

Is that point clear?

+1

[teen persuasion]

Just rereading, trying to get all the bits together.

- I'll turn 69 in early December
- I currently have $316,246 in traditional and rollover IRAs, and $134,284 in Roth IRAs
- I'm "mostly" retired, haven't started taking Social Security, and I have a part-time "gig" as an independent contractor, but I'll be in the lowest tax bracket this year. I plan on starting Social Security at the end of next year, when I turn 70.

Besides the IRAs, I have $125,000 in a liquid cash account with which to pay taxes on the conversions.
- As of now, the Social Security website calculator has me receiving a $2,163 monthly benefit, so about $26K/yr.
- My independent contractor work will pay $9,000 this year, and probably the same amount next year.
- Social Security plus the work would probably cover all of my baseline expenses (assuming my health holds out), but not leave much for enjoyment.

So you ALREADY have a Roth IRA!

OP, how are you funding your expenses now? That is, where are you drawing from, since you say SS + employment income would probably cover baseline expenses? And how much more do you want to withdraw for wants?

How much will your SS + RMDs be in a few years? More or less than your desired spending?

Reasons I'm asking these questions :
1. If you are already withdrawing from your tIRA or Roth IRA, you probably won't be eligible for the Saver's credit.
2. Your tIRA balance isn't that large, your RMDs may be manageable, depending on your desired spending.
3. How quickly will you deplete your savings supplementing SS income at your desired spending rate? What happens then?
4. Your earned income plus interest income is near the standard deduction, so there's just a little space to Roth convert for free. Your earned income also makes you eligible to contribute to a Roth IRA now - you could effectively transfer $8k from savings to Roth IRA in working years, to shift those $$ from taxable to tax free forever, reducing your interest income a bit, increasing Roth conversion space a bit, and once you start SS reducing how much of SS is taxable a bit (you are right on the cusp of SS taxation kicking in). But these are all just nibbling around the edges, especially with SS next year and RMDs a few more away.

If there's not much difference once SS + RMDs begin, it's simpler to not bother.

[LikeNumbers]

I do ROTH conversions for the following reasons:
1) they will lower my future RMD amounts
2) right now taxes are likely lower than sometime in the future
3) more dollars inside a ROTH will be beneficial in the future

How much to convert each year? Depends......
I try to stay under the IRMAA threshold.

[DIYtrixie]

That is, however, only half the story.

Understanding the commutative property of multiplication description in that wiki section might be helpful to understand why "paying tax now" is only half the story.

Is that point clear?

+1

+2!

[Cah]

Maybe I'm not making my point clear. Whatever account you make your tax payment from will reduce your net worth by the amount of the tax payment as well as any future earnings you might make on the tax payment.

That is, however, only half the story.

Understanding the commutative property of multiplication description in that wiki section might be helpful to understand why "paying tax now" is only half the story.

Is that point clear?

Absolutely not.

[FiveK]

That is, however, only half the story.

Understanding the commutative property of multiplication description in that wiki section might be helpful to understand why "paying tax now" is only half the story.

Is that point clear?

Absolutely not.

Thus you are saying that you do not believe A * B * C = A * C * B. While there is room for disagreement on some things, basic math is not one of them. Do you understand that?

[Cah]

Absolutely not.

Thus you are saying that you do not believe A * B * C = A * C * B. While there is room for disagreement on some things, basic math is not one of them. Do you understand that?

Sorry nothing i read in the link you attached was basic math. My simple mind didn't understand a bit of it. All over my head. We will have to agree to disagree that if you pay a tax on your conversion no matter whether you pay it out of account A or account B you will lose the net worth immediately and loss of earnings forever on the tax payment.

[FiveK]

Thus you are saying that you do not believe A * B * C = A * C * B. While there is room for disagreement on some things, basic math is not one of them. Do you understand that?

Sorry nothing i read in the link you attached was basic math. My simple mind didn't understand a bit of it. All over my head. We will have to agree to disagree that if you pay a tax on your conversion no matter whether you pay it out of account A or account B you will lose the net worth immediately and loss of earnings forever on the tax payment.

It's difficult to be more basic than A * B * C = A * C * B. If that is over your head, it would be best that you discontinue providing advice in this forum.

If, however, you are legitimately interested to learn so that you can understand it, there are people here who may be willing to engage to that end.

[Workinprogress]

Thus you are saying that you do not believe A * B * C = A * C * B. While there is room for disagreement on some things, basic math is not one of them. Do you understand that?

Sorry nothing i read in the link you attached was basic math. My simple mind didn't understand a bit of it. All over my head. We will have to agree to disagree that if you pay a tax on your conversion no matter whether you pay it out of account A or account B you will lose the net worth immediately and loss of earnings forever on the tax payment.

I am pretty low on the math index myself but...

I think the principal here is that while Yes you do lose those tax dollars in whatever account you pull them from, you also retain an equivalent of those dollars in the Roth account and subsequently gain a return on those dollars. So even though one account is diminishing and losing earning power, the other (Roth) account is gaining both value and earning power.

The next good thing that happens is that I get to put a few more dollars from my taxable checking account into a tax advantaged account.

At least that is what I tell myself every time I make a Roth conversion paying taxes from my W2 withholdings.

[tibbitts]

Thus you are saying that you do not believe A * B * C = A * C * B. While there is room for disagreement on some things, basic math is not one of them. Do you understand that?

Sorry nothing i read in the link you attached was basic math. My simple mind didn't understand a bit of it. All over my head. We will have to agree to disagree that if you pay a tax on your conversion no matter whether you pay it out of account A or account B you will lose the net worth immediately and loss of earnings forever on the tax payment.

Your point about a drop in your net worth is accurate depending on what has been discussed in some other threads: whether net worth should be calculated taking into consideration likely(?) future tax liability, or not.

[smitcat]

Thus you are saying that you do not believe A * B * C = A * C * B. While there is room for disagreement on some things, basic math is not one of them. Do you understand that?

Sorry nothing i read in the link you attached was basic math. My simple mind didn't understand a bit of it. All over my head. We will have to agree to disagree that if you pay a tax on your conversion no matter whether you pay it out of account A or account B you will lose the net worth immediately and loss of earnings forever on the tax payment.

Yes, lower wealth to start. And then in many cases gain a significant amount of wealth which is 'spendable' and 'useable' after taxes as opposed to wealth which only exists on paper for some specific periods of time.
So if Cah is planning on spending much of their funds for charity you have made the best choice.
If you are not spending much of your funds on charity then you do not have not calculated your situation and have no idea of the results.

[psychopengy]

OP, how are you funding your expenses now? That is, where are you drawing from, since you say SS + employment income would probably cover baseline expenses? And how much more do you want to withdraw for wants?

I'm currently funding expenses with my independent contractor's salary and withdrawing from the cash savings account. I'm not withdrawing anything from my IRAs. I'm very frugal, so that's been working so far, but I'd like to fund some travel and other activities which might be about 10K a year, as a ballpark figure. I think I could live comfortably on about 45K a year.

How much will your SS + RMDs be in a few years? More or less than your desired spending?

The Income Lab retirement website says that my RMDs will be about $12.5K a year in a few years, and I'll just guesstimate that my monthly social security payment with a modest COLA will be $2,200/mo., so in a few years SS + RMDs might be $26,400 + $12,500/yr. = $38,900. A little below my desired spending level. $6,100 is the difference

3. How quickly will you deplete your savings supplementing SS income at your desired spending rate? What happens then?

I currently have $574,594 saved across all accounts - tIRAs, Roths, cash savings. A rough calculation of total RMDs through the probable end of my life is $196,181. $574,594 - $196,181 = $378,413 from which to draw from to reach my desired spending level. Withdrawing $6,100/yr. from $378,413 would take 62 years, so I'd be good there. I know these calculations don't account for inflation and lots of other factors. Feel free to criticize!
Thanks again.

[RetiredAL]

Sorry nothing i read in the link you attached was basic math. My simple mind didn't understand a bit of it. All over my head. We will have to agree to disagree that if you pay a tax on your conversion no matter whether you pay it out of account A or account B you will lose the net worth immediately and loss of earnings forever on the tax payment.

Your point about a drop in your net worth is accurate depending on what has been discussed in some other threads: whether net worth should be calculated taking into consideration likely(?) future tax liability, or not.

Although often skipped over by Bogleheads, true Net Worth should be decreased by known liabilities, such as the 22% tax on those IRA $, assuming 22% is your incremental rate.

[retiredjg]

Your point about a drop in your net worth is accurate depending on what has been discussed in some other threads: whether net worth should be calculated taking into consideration likely(?) future tax liability, or not.

Although often skipped over by Bogleheads, true Net Worth should be decreased by known liabilities, such as the 22% tax on those IRA $, assuming 22% is your incremental rate.

Agree. Paying taxes now is a decrease in the money in your accounts, but it is not a decrease in your net worth. Some of that money is not yours in the first place. Some of your tax-deferred dollars actually belong to Uncle Sam.

[Kosh976]

Although often skipped over by Bogleheads, true Net Worth should be decreased by known liabilities, such as the 22% tax on those IRA $, assuming 22% is your incremental rate.

Agree. Paying taxes now is a decrease in the money in your accounts, but it is not a decrease in your net worth. Some of that money is not yours in the first place. Some of your tax-deferred dollars actually belong to Uncle Sam.

And...the earnings on Uncle Sam's portion also belong to Uncle Sam.

It seems to me the majority of the Roth/no Roth discussions are about how to reduce to Uncle Sam's cut (the tax rate) but unless you give it all to charity, taxes are due sooner or later.