Roth Conversion & Impending RMD

Submitted by Pidgesmom on Fri, 2022-12-02 19:43

My Dad has a Number of IRA’s at age 71 & will turn 72 in 2022. Because TAX rates will be going up he was thinking of converting all regular IRA’s to a small Roth he has had for over 5 years. It is estimated that he has about 900K in regular IRA’s . The thought is he’ll take the large hit when doing 2022 taxes and after that the money taken out will no longer be taxed. He knows that puts him in a much higher tax bracket & will affect the cost of healthcare in the next year & 2 years for Medicare costs but with his RMD coming anyway he thinks it might be better to take the hit now & be done with it. He’s in good health & wants to make sure he can pass his wealth on to his children. Thank you in advance for your insights.



Submitted by Alan - IRA critic on Fri, 2022-12-02 20:22

  • It is not a good plan to trigger a much higher marginal rate this year than he would incur each year if not converting. He should endeavor to even out his taxable income each year from here on. A modest conversion this year would help to do that. Of course, his other income needs to be considered including the RMDs on what he does not convert. His marital status is also a factor. His IRA balance is not particularly large, but to the extent he wants to consider the children, he should also consider their marginal rates about 15 years out. If they are expected to be high, inheriting a Roth would be better for them than if they are expected to be low.
  • The major change in tax rates for a senior depends more on income patterns and investment results, or if married when the spouse passes, than it does on tax law changes. If he has high income, he might be concerned about future tax rate increases, but not so much if his taxable income will be moderate.

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