Convert IRA to Roth IRA
I need some advice on if I should convert 420k in my rollover IRA to my roth IRA, which currently has 28k of converted money. I was also hoping if you could tell me when you will be discussing my question, so I can tune in because I don’t watch your show every week. I listed all I can think of that would allow you to give me the best answer possible:
* I am 54 years old and was downsized, am in good health, work part-time with a salary of 12,480 before tax or 1,040 a month. I would work full time if I could find a position in my past profession
* S.S. benefit is 1,362 at age 62
* Total income was 47k last year (investments + job)
* Believe taxes will be higher in the future
* Worried about taxation on my S.S. benefits that distributions from my traditional IRA might cause by hiking taxable income
* Worried about conversion causing me to move into a higher bracket
* Reducing future income from traditional IRA distributions may also lessen the impact of income adjusted medicare part b premiums. I read this in an article about conversion
* I have enough non IRA money to cover the taxes to convert
* I have an adequate emergency fund
* I don’t think I will need the money in 5 years
* My Vanguard CFP says I should consult a certified tax professional before doing any conversions, but I have already converted 24k, which grew to 28k.
* I have two pensions: 1. With a S.S. benefit at 62 my annaul income will be $4,896
2. Monthly accured benefit of $200 at 65.
* I would like to convert a small amount each year, so I am not moved into a higher tax bracket, but only if it is the right thing to do because my tax bracket will be lower at retirement.
Hoping you can help me!
Permalink Submitted by Alan - IRA critic on Wed, 2015-07-15 04:43
Conversions are not beneficial if your tax bracket in retirement is expected to be lower than what you will pay for the conversion. Of course, any amount you can convert at a 0 rate is a no brainer. Before you start SS benefits after retirement you might be able to make very small conversions at the 0 or 10% federal rate. You can still recharacterize some or all of your 24k conversion if it was a 2014 or 2015 conversion and you find that your tax rate for any of it exceeds 15%. But since the conversion has a 4k gain, it makes more sense to retain the conversion than it would with no gain or a loss. A good time to convert is when your part time income is very low and prior to starting SS benefits but even then it would be just very small incremental amounts. A 400k TIRA will only have RMDs around 15 to start and probably less because there should be a new mortality (RMD divisors) in force long before you reach 70.5. You will not be anywhere near the income that would result in surcharged Medicare premiums, but you probably will end up with some of your SS benefit being taxable since there are no inflation adjustments on the AGI thresholds. You might also consider pushing back your SS starting date a couple years to enable some added years of little or no income where you can convert for 0. The math and assumptions you make should be re visited every year or do since conditions change and your TIRA balance could either grow or take it hit as we know.
Permalink Submitted by Antonio Ficca on Wed, 2015-07-15 18:57
Thanks for the reply. What does 15 stand for in the following statement:A 400k TIRA will only have RMDs around 15 to start and probably less because there should be a new mortality (RMD divisors) in force long before you reach 70.5.
Permalink Submitted by Alan - IRA critic on Wed, 2015-07-15 20:01
Sorry – should be 15k. First few years of RMDs would be around 15k assuming value remains about the same.