New Conversion Strategy
I’m wanting to maximize my conversions in my early 60’s before social security to reduce the RMD’s. Thus even though I can undo a conversion if investments decline I could end up loosing a year for converting.
My objective is to convert approximately $150k for 2-3 years then less in subsequent years. (Note my taxable income is negative until I start SS).
I’m thinking of converting the whole $150K this month (ROTH A). If the investment declines by December 2010 I would convert an additional $150K (ROTH B) and then re characterize the first $150K (ROTH A). The net result would be converting $150K in 2010 and be able to convert 2011 amounts in Feb 2011 or later. Obviously if investments continued to decline I could still undo 2010 in Oct 2011, but at least my chances improve.
I know that if I did the re characterization of ROTH A before opening ROTH B I would loose 2010 as a year to do a conversion.
Anything wrong with my logic.
Permalink Submitted by Alan Spross on Thu, 2010-02-18 20:51
Your last statement is not necessarily correct. You could recharacterize A to a new TIRA account (not back to the old one), and still do the second conversion to Roth B right away. Since your first recharacterization never went back into the original TIRA which continued to hold other funds, your second conversion would NOT be a disallowed reconversion. So you have more flexibility there than you thought.
With no other income, you probably want to use your 2010 tax bracket and would therefore opt out of the two year deferral. You could then approach each new year on it’s own without carryover conversion income spilling into 2011 and 2012. The two conversions with the intent to recharacterize the worst one works fine in this scenario. And if both of them had good gains, you might want to recharacterize less to avoid sending tax free earnings back to a TIRA.
And you still have until 10/17/2011 to recharacterize any 2010 conversions and to make your final decision to either defer taxes or opt out and report it in 2010.