2020 multiple Roth Conversions possibility due to CARES? Withdrawals under 2020 Tax rates?

Submitted by rOGER bERNHARDT on Fri, 2020-12-18 16:29

We both (spouses) converted a modest sum from Pretax 401K to Roth 401K early 2020. Then COVID hit and election is what it is. Taxes are likely to increase a lot due to COVID relief and change in tax rates. We are impacted financially as with COVID risk we both retired so have a serious income reduction except for the Roth conversions appearing as income this year 2020. 2021 our income is going to be much smaller as pensions and my individual social security are much lower.

So, can we claim the benefits of CARES act in either or both of:
1. More Roth conversion?
2. Take a distribution from Pretax 401k and roll it over to Roth IRA external to company plan? Or simply just take it and invest it in the proper retirement age investment with a reasonable risk profile for our age?

We have liquid assets on hand, we are trying to manage our expectation of very high income taxerates s for the foreseeable future starting 1/1/2021 after and if the full change that could occur in politics does happen. Safe rather than sorry.

By the way, we recognize that anyone that wishes to pay more taxes can do so by sending the US government their money. They gladly accept excess payments, right?



Submitted by Alan - IRA critic on Fri, 2020-12-18 18:29

  • If your retirement income will be modest or below average, you probably will have little exposure to higher tax rates. It is not clear whether you would qualify for a CRD. With a forced retirement you would, but if entirely voluntary that would not constitute qualification for a CRD. That said, you cannot use a CRD to convert to a Roth IRA anyway, but you can of course do non CRD conversions if you wish.
  • The case for added conversions still rides on whether you can do them at a rate that is no higher than your expected marginal rate in retirement. This is affected by when your SS benefits start, so the ideal window for incremental conversions are the years before SS and RMDs begin, and lesser so before they both begin. But since you can no longer recharacterize a conversion, be careful not to over convert.

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