[Boomer]

While we were sleeping.......The original Secure Act was signed into tax law in 2019, taking away the stretch IRA for non-spouse heirs and replacing it with a 10-year requirement to get all the money out of an IRA inherited by anyone other than a spouse. Meanwhile, the market has increased a lot of IRAs, even after RMDs have been taken, repeatedly.

So? After RMDs and QCDs, and still growing IRAs, and heirs all grown up and into their careers which could mean an inherited IRA could all or mostly go to taxes, is anyone else still thinking about Roth Conversions and all that could entail?

NOW! Before the usual unhelpful types crawl out of the woodwork and tell me not to ask for advice on the internet, save it! I am not an idiot. I have our appointments with the professionals all lined up to find out how to best play this game of Roth Conversion Whack-A-Mole or if we should even bother.

Anyway, the damned Secure Act sneaked up on me and made me think about this. Anybody else?

Boomer

[manaboutown]

"The SECURE Act changed the most popular retirement plans used in the United States and was the first major retirement-related legislation enacted since the 2006 Pension Protection Act.[2][3] Major elements of the bill include: raising the minimum age for required minimum distributions from 70.5 years of age to 72 years of age; allowing workers to contribute to traditional IRAs after turning 70.5 years of age; allowing individuals to use 529 plan money to repay student loans; eliminating the so-called stretch IRA by requiring non-spouse beneficiaries of inherited IRAs to withdraw and pay taxes on all distributions from inherited accounts within 10 years; and making it easier for 401(k) plan administrators to offer annuities."

SECURE Act - Wikipedia

The good news is the act raised the RMD 18 months, from age 70.5 to age 72. It also allowed workers to contribute to their IRAs after age 70.5 and broadened 529 plan uses.

Updated to age 73: Retirement plan and IRA required minimum distributions FAQs | Internal Revenue Service

Nice to read the OP is wisely running her proposed IRA conversion by some financial professionals. Many if not most of them have software which can optimize how best to proceed.

I try to bear in mind that tax laws and regulations change over time, usually not for the better. My father who was born in 1898 told me how the income tax was promoted as a "temporary" tax when it was enacted. lol. The government is greedy. The OBRA-93 changed my life. I did a spreadsheet and determined I was only keeping 31.5% of my gross salary so I quit my job and retired except for managing my investments. Omnibus Budget Reconciliation Act of 1993 - Wikipedia

During the dot com crash the stock market was of course down and I had a very low tax year for totally unrelated reasons so jumped at the chance to convert my IRA to a Roth. Glad I did! Minimizing one's tax burden at every opportunity pays off.

[retiredguy123]

I have no equities in my IRA. Never did. Only bonds. If you buy stocks in an IRA, you lose the advantage of a lower capital gains tax rate. Thankfully, I had plenty of non-IRA money to invest in stocks.

Every time I have considered a Roth conversion, I have decided against it. Financial advisors may have a program to optimize Roth conversions, but, in my opinion, there are too many variables and unknowns involved to make the any such program effective. I think the best approach is to delay paying taxes for as long as possible. If I ever go into a nursing home, I will use the IRA funds to pay for it tax free.
The best reason I have ever heard for Roth conversions was a retired teacher who wanted to convert all of his traditional IRA to a Roth to save his children the hassle of dealing with a CPA to manage the tax laws and income taxes.

[jimbomaybe]

Originally Posted by retiredguy123

I have no equities in my IRA. Never did. Only bonds. If you buy stocks in an IRA, you lose the advantage of a lower capital gains tax rate. Thankfully, I had plenty of non-IRA money to invest in stocks.

Every time I have considered a Roth conversion, I have decided against it. Financial advisors may have a program to optimize Roth conversions, but, in my opinion, there are too many variables and unknowns involved to make the any such program effective. I think the best approach is to delay paying taxes for as long as possible. If I ever go into a nursing home, I will use the IRA funds to pay for it tax free.
The best reason I have ever heard for Roth conversions was a retired teacher who wanted to convert all of his traditional IRA to a Roth to save his children the hassle of dealing with a CPA to manage the tax laws and income taxes.

The estate planning aspect can make the difference for some, if you are comfortable that you will not need the money and want your beneficiaries save on taxes it could be an option

[retiredguy123]

Originally Posted by jimbomaybe

The estate planning aspect can make the difference for some, if you are comfortable that you will not need the money and want your beneficiaries save on taxes it could be an option

I don't have any beneficiaries. But, even if I did, the only savings I can think of is if the beneficiaries were in a higher income tax bracket than myself. That is usually not the case. You can pay the tax now and reduce your estate, or let the beneficiaries pay the taxes after you die. Either way, the taxes are due.

[Stu from NYC]

Originally Posted by retiredguy123

I have no equities in my IRA. Never did. Only bonds. If you buy stocks in an IRA, you lose the advantage of a lower capital gains tax rate. Thankfully, I had plenty of non-IRA money to invest in stocks.

Every time I have considered a Roth conversion, I have decided against it. Financial advisors may have a program to optimize Roth conversions, but, in my opinion, there are too many variables and unknowns involved to make the any such program effective. I think the best approach is to delay paying taxes for as long as possible. If I ever go into a nursing home, I will use the IRA funds to pay for it tax free.
The best reason I have ever heard for Roth conversions was a retired teacher who wanted to convert all of his traditional IRA to a Roth to save his children the hassle of dealing with a CPA to manage the tax laws and income taxes.

I have mostly mutual funds investing in stocks and over the years have done much better than with bonds with the stocks growing at a higher rate than bonds.

[manaboutown]

Originally Posted by Stu from NYC

I have mostly mutual funds investing in stocks and over the years have done much better than with bonds with the stocks growing at a higher rate than bonds.

I just did a calculation for the IRR on my Roth since I converted it @ 2002 and it is just short of 10% per annum, about what the S&P 500 did. I never paid much attention to it, just bought some blue chips and forgot about them except to buy some more when the dividends accumulated sufficiently to make an additional purchase. I never put any BRK into the IRA or Roth. All of that is in taxable accounts.

[retiredguy123]

Originally Posted by Stu from NYC

I have mostly mutual funds investing in stocks and over the years have done much better than with bonds with the stocks growing at a higher rate than bonds.

Currently, I have about 45 percent of my portfolio in stocks and the rest in bonds and cash. I have always maintained a balanced mix of stocks and bonds. But, I never used my IRA for stocks because of the capital gains tax advantage of stocks, which you don't get by using an IRA for stocks.

[Stu from NYC]

Originally Posted by retiredguy123

Currently, I have about 45 percent of my portfolio in stocks and the rest in bonds and cash. I have always maintained a balanced mix of stocks and bonds. But, I never used my IRA for stocks because of the capital gains tax advantage of stocks, which you don't get by using an IRA for stocks.

I understand but in my case never had a pension so the majority of our assets are in our IRA's which to me should be heavily in stocks.

[CoachKandSportsguy]

deleted a very, very wrong, incorrect, stupid answer as i was tired from programming all week, and not getting everything to work properly. . .

tired finance and market pythonista

[manaboutown]

Withdrawals of contributions from an inherited Roth are tax free. Most withdrawals of earnings from an inherited Roth IRA account are also tax-free. However, withdrawals of earnings may be subject to income tax if the Roth account is less than 5-years old at the time of the withdrawal.

From: Retirement topics - Beneficiary | Internal Revenue Service

[CoachKandSportsguy]

Originally Posted by manaboutown

Withdrawals of contributions from an inherited Roth are tax free. Most withdrawals of earnings from an inherited Roth IRA account are also tax-free. However, withdrawals of earnings may be subject to income tax if the Roth account is less than 5-years old at the time of the withdrawal.

From: Retirement topics - Beneficiary | Internal Revenue Service

yep, my bad, I am going to delete that answer as I was tired at the end of a Friday of straight programming all week on a new financial statements database for stock market timing. .

[jimbomaybe]

Originally Posted by retiredguy123

I don't have any beneficiaries. But, even if I did, the only savings I can think of is if the beneficiaries were in a higher income tax bracket than myself. That is usually not the case. You can pay the tax now and reduce your estate, or let the beneficiaries pay the taxes after you die. Either way, the taxes are due.

The 10 year rule will require all the money to be taken out of the Roth at the end of 10 years, 10 years of tax free growth in the Roth, when the money comes out of the Roth there is no tax on that

[retiredguy123]

Originally Posted by jimbomaybe

The 10 year rule will require all the money to be taken out of the Roth at the end of 10 years, 10 years of tax free growth in the Roth, when the money comes out of the Roth there is no tax on that

Yes, but in order to convert traditional IRA funds to a Roth, you must pay income taxes on that money. If you have $100K in a traditional IRA, with a tax rate of 30 percent, the Roth conversion will only be worth $70K, assuming that you use the IRA funds to pay the taxes. So, the beneficiary will either inherit a $100K traditional IRA that is taxable, or a $70K Roth IRA that is not taxable. Note that an inherited traditional IRA that has stocks does not get a "stepped up" basis like inherited stocks in a taxable account would.

[RoboVil]

Originally Posted by retiredguy123

Currently, I have about 45 percent of my portfolio in stocks and the rest in bonds and cash. I have always maintained a balanced mix of stocks and bonds. But, I never used my IRA for stocks because of the capital gains tax advantage of stocks, which you don't get by using an IRA for stocks.

You can sell your stocks and take the profit in an IRA and not pay any taxes on the capital gains. Then reinvest those profits into anything you want. Sell if you think the market is going to tank.