Permalink Submitted by Dave G on Sun, 2024-05-26 22:36
I have a relatively large Traditional IRA. Unfortunately, during my late 50s, I still had some consulting income and was unwilling to fork out the money to pay the tax bill to start my ROTH conversions. Then, after achieving some taxable income flexibility, I chose to keep my AGI under the limits to be able to qualify for the relatively lucrative benefits under the Affordable Care Act. Next, I bristled at paying extra Medicare IRMAA for a few years – losing those conversion years as well.
I started to panic after I turned 68 and realized that stock market gains were making it more and more difficult to keep my account balances going in the right direction (increasing ROTH, decreasing Traditional). Since 2021, I’ve been converting fairly large amounts, but the balance in my Traditional is still double that of my ROTH.
I’m currently in my early 70s. This is wearing me out! I’m thinking that it’s worth bumping into a higher marginal bracket to get this monster under control!! (Yes, I realize that many people wish they could have my problems and that my situation is somewhat self-inflicted). Would you advise “swinging for the fences” or simply trying to setup a disciplined “glide path” to the “end.” Thanks in advance for your advice!!
Permalink Submitted by Alan - IRA critic on Sun, 2024-05-26 23:20
A 2:1 ratio is better than many people. From now on you might convert enough each year to generate the amount of taxable income that will be about equal to what you expect when RMDs begin, because once you reach your first RMD distribution year, you will have to complete your RMD before converting any additional amount. Of course, conversions prior to RMD will reduce your RMDs in proportion. If you have years in which your taxable income drops, you can convert more, and probably less if your other taxable income rises, but for many retirees your taxable income is fairly consistent. If married, keep in mind that the surviving spouse will be filing single and therefore subject to higher tax rates than joint filers.
Permalink Submitted by Dave G on Sun, 2024-05-26 22:36
I have a relatively large Traditional IRA. Unfortunately, during my late 50s, I still had some consulting income and was unwilling to fork out the money to pay the tax bill to start my ROTH conversions. Then, after achieving some taxable income flexibility, I chose to keep my AGI under the limits to be able to qualify for the relatively lucrative benefits under the Affordable Care Act. Next, I bristled at paying extra Medicare IRMAA for a few years – losing those conversion years as well.
I started to panic after I turned 68 and realized that stock market gains were making it more and more difficult to keep my account balances going in the right direction (increasing ROTH, decreasing Traditional). Since 2021, I’ve been converting fairly large amounts, but the balance in my Traditional is still double that of my ROTH.
I’m currently in my early 70s. This is wearing me out! I’m thinking that it’s worth bumping into a higher marginal bracket to get this monster under control!! (Yes, I realize that many people wish they could have my problems and that my situation is somewhat self-inflicted). Would you advise “swinging for the fences” or simply trying to setup a disciplined “glide path” to the “end.” Thanks in advance for your advice!!
Signed, Penny-Wise and Pound-Foolish
Permalink Submitted by Alan - IRA critic on Sun, 2024-05-26 23:20
A 2:1 ratio is better than many people. From now on you might convert enough each year to generate the amount of taxable income that will be about equal to what you expect when RMDs begin, because once you reach your first RMD distribution year, you will have to complete your RMD before converting any additional amount. Of course, conversions prior to RMD will reduce your RMDs in proportion. If you have years in which your taxable income drops, you can convert more, and probably less if your other taxable income rises, but for many retirees your taxable income is fairly consistent. If married, keep in mind that the surviving spouse will be filing single and therefore subject to higher tax rates than joint filers.