Frequency of Traditional IRA to Roth Ira conversions

Submitted by Joseph Biebel on Fri, 2019-12-20 19:07

I recently rolled over the entire balance of my employee sponsored 403b retirement plan to a traditional IRA with the same trustee (Vanguard) because the plan rules did not permit partial withdrawals.
I want to begin converting the money in this new traditional IRA to a Roth IRA. My first question about this is related to the number of conversions you are permitted to do.
The second question concerns the taxes on the converted amounts. My wife still works. My only income is my company pension of about $25,000 per year. Should I convert just enough to stay within the MAGI that will keep us in the 12-15% tax bracket?
Should we file as married filing separately and convert a higher amount of my IRA funds?
I am currently 67, my wife 63, and we are not receiving any social security benefits at this time.



Submitted by Alan - IRA critic on Fri, 2019-12-20 19:27

  • You can do as many conversions as you wish. VG will just add them up at the end of the year and report them on a single 1099R. In fact, because you can no longer recharacterize conversions, you may want to convert at different times of the year and in December make a final decision whether to add any more to the conversions you have done year to date. Be careful not to convert too much. You may wish to avoid spilling into the next higher bracket. You may also be able to make spousal Roth contributions up to 7000 using your wife’s earned income, but not if you file MFS.
  •  Generally, you should convert if you think the marginal rate you will pay is less than you expect it to be in retirement. Once you have reached the top of the 12% bracket you will move into the 22% bracket, and therefore need to more careful. The key is what you expect your taxable income to be when you are both receiving SS benefits and RMDs. Not taking SS yet provides a better window for conversion amounts than you will have after the benefits start. Your taxable income may increase at 4 different time, when you take SS, when you add RMDs, when wife takes SS and when wife starts RMDs. Looks like the start of RMDs will be age 72 starting next year and beyond, so each of you will be taking SS before each spouse adds RMDs. Tax rates are also low now and may increase in 2026 (if not before), so things are falling into place pretty well for you. However, you still should revisit your decision to convert and the amount each year because things can change.
  • Because MFS rates are higher, even though you have not started SS yet, it probably will not be beneficial to file MFS, but you can always crunch the numbers to see. 

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