[retiredguy123]

Originally Posted by rsmurano

IMO, the best time to do a Roth conversion is when the stock market/your holdings are down 30-50% then you aren’t paying all the capital gains as you would be paying if the market was high. If we enter a deep recession next year and the market tanks, then it might be right to do it.

Remember there are other issues when doing this conversion. You can’t take any money out of it for 5 years. Also, the income you generate on this conversion you will have to be in that tax bracket for 2 years paying higher Medicare premiums, after 2 years they use your current income.

For me, I would only consider this conversion if I was caught in the stock market and it dropped 50%, and I had enough money in my taxable accounts to hold me over until I can withdraw from the Roth.

Also remember they adjusted the age you have to take rmd out now. I think for me it’s 75 years old. In the next 8 years, they might adjust it even higher

I agree that it is better to do a Roth conversion when your account is low because you will pay a lower tax, and hopefully, the money will recover the losses tax free in the Roth. But, you never pay capital gains tax on a traditional IRA. Everything you withdraw is taxed as ordinary income.

[Janie123]

Originally Posted by rsmurano

IMO, the best time to do a Roth conversion is when the stock market/your holdings are down 30-50% then you aren’t paying all the capital gains as you would be paying if the market was high. If we enter a deep recession next year and the market tanks, then it might be right to do it.

Remember there are other issues when doing this conversion. You can’t take any money out of it for 5 years. Also, the income you generate on this conversion you will have to be in that tax bracket for 2 years paying higher Medicare premiums, after 2 years they use your current income.

For me, I would only consider this conversion if I was caught in the stock market and it dropped 50%, and I had enough money in my taxable accounts to hold me over until I can withdraw from the Roth.

Also remember they adjusted the age you have to take rmd out now. I think for me it’s 75 years old. In the next 8 years, they might adjust it even higher

Couple of things… you don’t have to convert ALL of your IRA assets. Keep some in traditional IRAs and pull it out at low tax rates.

You can withdraw any converted dollars if you are over 59.5 and if the Roth IRA has been open for 5 years dated to Jan 1 of the year it was opened. I just opened mine last year and will only be doing a ladder conversion of about 1/3 before I start taking ACA healthcare money, then do more when I am 65+. I feel the 20+ years of zero tax growth will far exceed the higher IRMAA costs.

Plus I am thinking about the wife after I die and she is filing taxes as a single or the other way around with RMDs are coming out with more money than one person can spend in a year.

Also, RMDs are still 72.5, Congress is thinking about increasing to 75 but that has not been put into law yet.

One major gotcha is converting 401k Roth to Roth IRA. You can withdraw the Roth 491k now but when it hits the Roth IRA, the 5 year wait time on account opening kicks in.

[HJBeck]

I agree with you. Don't understand why your saying the Roth Conversion needs to be done prior to the end of the year. We have been doing incremental Roth Conversions every year for the last 6-7 years, always converting no more than an amount that would keep us in the same tax bracket.

[CoachKandSportsguy]

Originally Posted by retiredguy123

hopefully , the money will recover the losses tax free in the Roth.

Hopium is not a good strategy. transferring when the market is low or high makes no difference in the outcome of building wealth because the wealth building outcome depends upon the choice of investments and their returns in the future, not whether the market is high or low at this point in time. If you pick the same investments in the Roth as the IRA, there is no difference in the wealth building outcome whether the market is high or low.

The only advantage to transferring when the market is lower is that you can move a larger proportion of the total from the IRA to a ROTH, that is all.. . .

please don't confuse a tax/cost minimization strategy with a wealth building strategy, the two are not the same. The more successful you are, the more taxes will be paid, with no other changes, the current tax structures remaining the same. Wanting to be less investment successful to pay less taxes is regressive thinking..

[retiredguy123]

One argument often made against doing a Roth conversion is that you can delay paying taxes and keep money invested in a traditional IRA, and, therefore, earn more income on your investments over time. But, any investment income made in a traditional IRA will eventually be taxed at your ordinary income tax rate. If you convert the money into a Roth, you can still have the same amount of money invested (assuming that you use non-IRA money to pay the taxes, which is allowed). However, the Roth investment income, dollar for dollar, is worth more than the traditional IRA investment income because it is never subject to income tax. So, when evaluating whether or not to do a Roth conversion, you need to consider both your tax rate and your potential for investment income over time. It could be that your overall net after-tax return will be higher if you do the Roth conversion. You really need to do the math.

[CoachKandSportsguy]

Originally Posted by retiredguy123

One argument often made against doing a Roth conversion is that you can delay paying taxes and keep money invested in a traditional IRA, and, therefore, earn more income on your investments over time. But, any investment income made in a traditional IRA will eventually be taxed at your ordinary income tax rate. If you convert the money into a Roth, you can still have the same amount of money invested (assuming that you use non-IRA money to pay the taxes, which is allowed). However, the Roth investment income, dollar for dollar, is worth more than the traditional IRA investment income because it is never subject to income tax. So, when evaluating whether or not to do a Roth conversion, you need to consider both your tax rate and your potential for investment income over time. It could be that your overall net after-tax return will be higher if you do the Roth conversion. You really need to do the math.

Fact check, TRUE

The biggest unknown in the future is the tax rates in the future, and future changes in tax laws just like changes to RMD ages. . . what congress giveth, congress can taketh away

[CoachKandSportsguy]

And $4 a week in a lottery ticket per week is a viable strategy over the long term, with an unmatchable ROI. . .

the same difference between the cost and return of a spy and a battleship

finance guy