Roth Conversion for 70+ Client
I have a client who is going to be 73 this year. He is married (his spouse will be 76 this year and they have 2 children). He has a good portion of his net worth invested in Traditional IRA’s. His withdrawals from these accounts are basically only the RMD’s. With medical expenses & interest deductions, he is able to withdraw up to $20,000 from his IRA’s without paying taxes. Do you recommend that he rollover all or part of his Trad IRA assets to a Roth IRA?
Permalink Submitted by Alan Spross on Mon, 2010-06-14 20:09
Your post appears to indicate that after the RMDs and any other taxable income sources, their taxable income is minus 20k. In that case a conversion of at least that amount should be completed. And since 2010 has special conversion rules, they should opt out of the two year conversion income deferral in order to use their 2010 bracket to the extent it is zero. If both spouses have TIRAs to convert, one spouse could convert 20k and opt out of the deferral and the other spouse could also convert and use the two year deferral for that income. It may be wise to fill up the 10% bracket as well.
With respect to conversion of additional amounts, a thorough analysis of their financial situation needs to be completed to determine how much they should plan to convert in current and future years.
And for the 20k figure this year, note that a conversion could result in more SS income being taxable and this income along with the conversion income itself will reduce the medical deduction since more AGI will be subject to the 7.5% floor for medical deductions. This would reduce the 20k figure somewhat unless that has already been factored in.