Maximizing TIRA-To-ROTH Conversion
Trying to time when to do a conversion (low market price) is difficult. I’m thinking about trying a different strategy in 2013 and would like an opinion. First I’m 64 and I’ve determined from now to age of RMD’s, with the current tax rate, that $70k is the optimum amount for 2013. My TIRA is much more than the conversion amount.
I’m planning on a $70k conversion first week of January. If the value of the account drops at least 10% and each subsequent 10% decline I’ll do another $70k conversion (keep in separate ROTH accts). At the end of 2013 I’ll re characterize all but the highest value ROTH. This way I maximize the number of shares converted and pay the same tax.
I believe since each conversion is using different dollars I can do an unlimited number of conversions and re characterizations, but wanted to verify.
Thanks for the Help, Dave
Permalink Submitted by Alan - IRA critic on Mon, 2012-12-31 00:00
You are correct, although you may want to consider having any recharacterizations going to a new TIRA rather than back to the large TIRA. This is useful to illustrate to the IRS that any reconversion you may do is from new money and therefore not subject to the reconversion waiting period.Your plan may also include the possibility of retaining more than one conversion if you have two accounts that have big gains or recharacterizing all of them if all accounts suffer large losses. If you want to reduce the chance of recharacterizing all of them, you might invest these conversions in assets that have minimum correlation to each other. You also have until 10/15/2014 as a recharacterization deadline for 2013 conversions if you want extra time to make the decision. Finally, you might consider partial recharacterizations if you want to avoid spilling over into a higher marginal rate. You will have more conversion head room if you delay filing for SS benefits until after your planned conversions are mostly completed.
Permalink Submitted by Dave Haynie on Mon, 2012-12-31 05:10
Thanks Alan,I’m keeping some of your suggestions in my hip pocket depending on how the year plays out. The dollar amount of my conversion is based on trying to hit a certain tax bracket through age 80 based on 2012 tax rules. Understood some speculation estimating the dollar amount.