Traditional IRA to ROTH Conversion
Hi, I am 59 years old and I currently have both a Traditional IRA and a ROTH IRA account. I am considering converting some of of the Traditional URA funds to my ROTH IRA to take advantage of the fact that the ROTH is not subject to RMD’S at age 72. Is there any other advantage to converting those funds at my age? I will be 59 1/2 in October but not sure if that is a factor. My first ROTH contribution was in 2010 so not sure if that’s a factor either. I do expect to be in a lower tax bracket in a few years as well so maybe that’s a reason not to convert to a ROTH.
Just to be clear, if I do convert to the ROTH I believe that I would have to file the amount converted on my taxes but I would not be subject to a penalty and I would be able to withdraw the converted amount anytime? Would I be able to withdraw earnings without paying taxes if I withdrawal after I reach 59 1/2?
Permalink Submitted by Alan - IRA critic on Tue, 2023-08-22 21:08
Actually, your RMDs from traditional IRAs do not start until age 75 per Secure Act 2.0. All your Roth IRAs will be qualified and totally tax free at 59.5, in just two months. At that time you also will no longer have conversion 5 year holding requirements to avoid the 10% penalty. Therefore, the real question now is determining how much to convert each year based on whether your taxable income for each year is expected to compare to your taxable income at age 75 when RMDs would otherwise begin. The conversion window is also better before your start SS benefits, but whether you are still working and if you will have a pension when you retire are also variables to consider when projecting future year incomes. Most likely, to prevent spiking your marginal tax rate with conversions you would likely convert just an incremental amount each year, more in lower income years than in other years. Finally, note that the first conversions are more helpful than the last conversions because each conversion will lower future RMDs.