With a Roth conversion you are guaranteeing that you will pay a lot of tax with the hopes you stay alive long enough to make up the difference. What about conversions that cost 10's or 100's of thousands from your portfolio followed by three very bad years. That could cost more than the portfolio can withstand. Any money left to heirs is "found" money for them and if they have to pay tax they are still better off than before. Every time I do the math I have to be mid to late 80's before RMDs make conversions worthwhile. So no I won't be doing any.
I plan to retire at 50 and there will be 5 bridge years until I start receiving a pension. During the bridge years I plan to live exclusively off savings/money in taxable brokerage. All income will be just interest/dividends which should be under standard deviation amount for a single. I thought this might be an ideal window to ladder roth conversions annually right up to the edge of the 15% tax bracket (these are happening post tax cuts expiration) - totaling some $250K over the five years. If all goes well I hope not to touch the roth until my 70s (16 years after my last conversion). Debating whether it's better to pay the taxes on the conversions from brokerage money or by pulling out past contributions (not gains) out of current roth. As I understand it there are no age penalties for simply taking back your regular contributions; e.g. $6K in 2022, $6.5K in 2023, etc.
You are one of the few advisors I’ve seen that looks at the sunsetting of DJT’s tax cuts! Kudos
Thank you!
282k in taxed paid vs 295k in taxes paid. Not a huge difference, but there is a difference. You indicated there was no difference.
Agreed! Easy to mis-speak when the camera is recording!
So answer to first question is YES, not NO. Better during lifetime. Thanks for correction.
With a Roth conversion you are guaranteeing that you will pay a lot of tax with the hopes you stay alive long enough to make up the difference. What about conversions that cost 10's or 100's of thousands from your portfolio followed by three very bad years. That could cost more than the portfolio can withstand. Any money left to heirs is "found" money for them and if they have to pay tax they are still better off than before. Every time I do the math I have to be mid to late 80's before RMDs make conversions worthwhile. So no I won't be doing any.
Thanks for contributing to the conversation!
And you need to have cash to pay for the Roth conversion
That's a best case scenario but not a deal breaker for those who can't.
I plan to retire at 50 and there will be 5 bridge years until I start receiving a pension. During the bridge years I plan to live exclusively off savings/money in taxable brokerage. All income will be just interest/dividends which should be under standard deviation amount for a single. I thought this might be an ideal window to ladder roth conversions annually right up to the edge of the 15% tax bracket (these are happening post tax cuts expiration) - totaling some $250K over the five years. If all goes well I hope not to touch the roth until my 70s (16 years after my last conversion). Debating whether it's better to pay the taxes on the conversions from brokerage money or by pulling out past contributions (not gains) out of current roth. As I understand it there are no age penalties for simply taking back your regular contributions; e.g. $6K in 2022, $6.5K in 2023, etc.
I believe that is correct. Good luck with that!