Quote:
Originally Posted by Laker14
I'm mulling over the idea of making some substantial Roth conversions from my regular IRA account.
Other than a couple of homes, one in TV and one on a lake in NY, all of my money is in IRAs. I'm 71, and with the amount in my IRAs, and my yearly draw, I am in a comfortable position, UNLESS...where my plan gets shaky is if I or my wife live into our mid-90s (we have some history of long life-spans as well as some history of early demise, so it's a crap shoot), and we have all of our money in IRAs, we could get into some very heavy RMD years, with exorbitant tax rates, and serious depletion of our wealth.
So, it seems to me that Roth conversions over the. next 10 years could be a good hedge against that. From my calculations, somewhere in the 4 or 5 year range would be the break-even point. After that it's a clear win.
From what I've researched, the immediate costs would be obviously, more income tax now, and a bump in our Medicare premiums. Factoring those in, we get the tax back later when we withdraw the Roth money tax-free, and at the pace required of our lifestyles, not at a pace dictated by the IRS.
Furthermore, there is a very good chance that only one of us would survive into such an old age, and the survivor would be taxed at the Single rate, which would be even more of a burden.
As long as I am certain (and I'm as certain as I can be) that we won't need to tap the Roth IRA for 10 years, this seems like a no-brainer.
I'm interested in the opinions of others who may have done this, or are considering doing this, and what their thought processes are.
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This is what Chat GPT says
Your reasoning for considering Roth conversions makes a lot of sense, especially given your situation and the potential future tax implications. Here are some points to think about as you weigh your options:
Tax Bracket Considerations: Converting to Roth IRAs now could help you lock in your current tax rate rather than face potentially higher rates in the future, especially during RMD years. If you anticipate your income will remain steady, it might be beneficial to convert portions of your IRA over several years, ideally staying within lower tax brackets.
Medicare Premiums: As you mentioned, higher income from conversions can lead to increased Medicare premiums (IRMAA). It’s important to factor in these costs when determining how much to convert each year.
Longevity Risk: Given your family's history, planning for a longer life is prudent. A Roth IRA could provide tax-free income in your later years, helping to preserve your wealth and maintain your lifestyle.
Estate Planning: If you plan to leave assets to heirs, Roth IRAs can be advantageous since beneficiaries can take tax-free withdrawals. This could be a strategic move if you have significant IRA balances.
Withdrawal Flexibility: With Roth IRAs, you have more control over your withdrawals. This flexibility can be beneficial in managing your taxable income in retirement.
Gradual Conversions: To minimize tax impacts, consider converting smaller amounts each year rather than a large lump sum. This can help you manage your tax bracket effectively.
Consulting a Professional: Given the complexity of tax implications, it might be beneficial to consult with a financial advisor or tax professional who can help tailor a strategy based on your specific financial situation and long-term goals.
It sounds like you're on the right track with your analysis, and careful planning now could lead to significant benefits later on.