Total nonsense as this ignores the time value of money, an old time whole life insurance salesman's trick. A dollar 20-50 years ago invested is not the same as a dollar received today.

Google
 

Googling your cryptic comment yielded this near the top of the list. https://www.youtube.com/watch?v=4a7Ge_sy7Zw

I would certainly like to see universal health care. Every other industrialized democracy in the world has done it, and we should, too. The system of tying your health insurance to your job is antiquated and works less efficiently in the modern economy. The biggest criticism of the Canadian system has always been there are some delays getting appointments, but there are plenty of delays in our system, too. We already have a very popular universal system in this country for those 65+, and we rarely hear anyone scream “socialism!” That system can be extended to everyone, and funded with the same money employers are currently spending to provide it and they would be happy to unload that responsibility and the administrative costs that go with it.

Suppose the 65-year-old has $3 million in non Roth IRA/401K accounts. Can the maximum annual Roth conversions be determined based on the "best" current tax/ IRMMA rates. This would also assume that side issues like inheritance concerns are not important.

Would this just be a total guess since items like future tax rates, investment returns and life expectancy are unknowns to certain degrees?

What is considered a large ira? IMO, $20M in an ira is a large ira. $3M is just an ok size

I found this to be an interesting math calculation. Assume that you make 10 percent per year on your investments and you have an income tax rate of 30 percent. You convert $100 of your traditional IRA to a Roth, leaving $70 to invest tax free. A year later, you will have $77 in tax free money. But, suppose you do not convert to a Roth and keep the $100 in the traditional IRA. A year later, you have $110 in taxable money. At that time, you convert the $110 to a Roth and pay taxes of $33, leaving $77 in tax free money. So, in both cases, you have the same amount of tax free money. So, what is the point of converting to a Roth?

This is exactly correct. I don't have a major issue with the OPs original analysis, but it was narrowly defined for one scenario while there are other factors and scenarios where Roth conversions make perfect sense. One common error I see often is analysis is done for a couple but the ramifications when one passes is never considered.

To @Boilerman comment about tax rates being higher, we know this is a certainty if the TCJA isn't extended at the end of 2025. In my case, my top tax rate will rise by 9% in 2026. Not taking that into consideration in considering Roth conversions is crazy.

Now do the math for the 2nd year after the conversion....5 years after...10 years after.

Another factor is many folks do not pay for the taxes associated with the conversion from the converted amount, so that $100 converted to a Roth is still $100.I totally understand that tax payment for the conversion has to come from elsewhere, but paying it from another source allows the Roth to grow without that initial detriment.

Calculate the tax paid on the conversion as a married couple and then when spent from the IRA as a single widow(er).

One advantage to keeping your money in a traditional IRA is that, if you move into an assisted living facility or a nursing home, you can spend the IRA money and take advantage of huge medical tax deductions. In the case of a nursing home, 100 percent of the cost is tax deductible. With an assisted living facility, the tax deductible percentage can be as much as about 60 percent.

Yes, there are many good reasons to convert to a ROTH, but fear of IRMAA should not be one of them, especially if you are paying lots more in taxes to avoid the penalty than you have to pay in IRMAA, unless you have an IRA say $4M or more when the penalty starts early and continues for the rest of your life. And yes, being single in this case transitioning from a married couple, is a valid point to consider moving some money out of an IRA, but that is the same model with a different scenario, which I haven't finished as the workbook is almost perfected.

Paying $50,000 in additional taxes prior to paying IRMAA at $14,000 per year for two years in the future makes no financial sense whatsoever. One can't grow wealth with a tax / penalty avoidance approach. Taxes are a by-product of success, not the same as tax minimization strategy, which a ROTH conversion is a potential option.

However as on my other post, there is a little advantage to a ROTH versus a TAXABLE account, other than tax free for annual gains which some people might expect are guaranteed, especially in FL with no state tax , but gains are in fact not guaranteed. And if you convert to a ROTH and don't have gains or lose money, unfortunately poor timing, there is not offset, its permanently gone.

The difficulty is that there are a lot of unknowns for sure, the future is always uncertain. The calculations are with the current knowns and relationships, which is the best one can do. . as well as be genetically lucky and live a healthy and long life, same with your spouse. Remember, you might not live long enough but you might. . .

after typing out the prior post, i realized that the best strategy for minimizing IRMAA for a married couple is to view the penalty from a single point of view, and plan as if one spouse is going to pass tomorrow and inherit the IRA. I didn't look at size from a single point of view, but its lower, and that is the proper planning strategy for penalty avoidance. . . which i wouldn't have come to unless actually seeing the modeled data.

I will update with that view. .

again, the purpose is to evaluate planning strategy within the current known constraints to maximize wealth, which includes the effect of taxes, but is not tax avoidance.

I did have a response from a very nice poster who volunteered to review the model, though I won't blow his cover. .

He is a CPA, a CFA and a PhD in Finance, and that man has overdosed on finance!

:BigApplause:

:bigbow:

:boom:

I agree with you in general but one other consideration.

Down the road either your or your heirs will have to liquidate your portfolio. What will take rates look like than? If taxes go up the roth makes some sense otherwise I would stay and invest all money into IRA.

liquidation for your heirs, its all unplanned money, or it should be, therefore its all gravy to them, with out without taxes.

With an IRA, its taxed at income rates,
with a Roth its tax free,
with a taxable account, its very low tax or no tax at all,

but remember, all of the accounts are subject to the federal and some states' estate taxes, prior to distribution. . if there isn't enough taxable assets to pay for the estate tax, then the IRA will have to be liquidated to a certain degree. . so a balance between illiquid assets, ie houses, IRAs and taxable accounts is also a planning consideration for the wealthy, especially with a state estate tax

fortunately, not a headache i have to worry about.

True. And the other benefit of having money in a traditional IRA is to take advantage of QCDs (qualified charitable deductions). Everyone’s situation is different, but for us, the advantages of a Roth far outweigh these 2 advantages of a traditional IRA. We are doing Roth conversions.