To Convert To Roth IRA Or Not

DaveJ | Feb 10, 2018 | 40 posts since 2016

We are 65 and have been drawing down our taxable IRA's.(Don't need the cash, just maximize lower brackets) Trying to decide if it pays to convert to Roth's as we draw down. Currently have 36% of assets in Roth's(IRA and 401k). It seems that many more opportunity's for higher rates and much easier to rate chase with non IRA funds. Or situation is we will not go over the 12% tax bracket unless rates go WAY up, and then I would not mind paying more. We have about 200k more to withdraw over the next many years. I converted a bunch in our 50's. Did early retirement in late 40's. Leaning to not converting any more and hopefully earn enough extra to pay the taxes. Thought? I have been 100% fixed rate, non stock for maybe 15 years and plan to stay that way.

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Bozo | Feb 11, 2018 | 1,375 posts since 2011

As I noted in another thread some time back, I passed on converting. The marginal tax rate we would have paid at the time was higher (actually, much higher) than what we are now paying in retirement. This was even before the recent TCJA. In addition, we would have lost the growth in the assets lopped off to pay the tax at the time. Roth IRAs make sense (I guess) for "early earners", i.e., folks just starting out who are reasonably confident their marginal tax rates will go in only one direction: UP.

By all means, run this by a financial professional. My tummy tells me your "leaning to not converting any more" is wise.

Ally6770 | Feb 11, 2018 | 4,294 posts since 2010

Another take on converting is I have been retired for 10 years. I have all the things I want. I have enough to live on each year. I plan leaving the Roth's to my children. Because they are professionals and in a much higher tax bracket than I am I convert enough each year to stay within my tax bracket and to keep the higher Medicare premiums from going up. I also gift to the children every Jan 1 so I don't have to pay as much income tax on my interest.

alan1 | Feb 11, 2018 | 877 posts since 2015

Following up on Ally6770's comment re what happens after death of an IRA owner --

DaveJ wrote about "we" and "our" -- IF the "we" are legally married, and file joint income tax returns, and you want the IRA money to go to the surviving spouse, THEN you might want to consider what happens when there is no longer a "we." The surviving spouse will have a tax filing status of single, unless that person remarries. And, depending on the survivor's income, the marginal federal income tax rate may rise significantly.

Ally6770 | Feb 11, 2018 | 4,294 posts since 2010

That is a BIG consideration. I disclaimed all of my husband's traditional IRA's and annuities etc so that the children could have them and I kept the Roth's so that they would continue to grow. If they had his Roth's they would have had to take a RMD every year. This way it will be much bigger for them when I pass. I also was able to put the money from when we sold our other house and 58 acres in his name with the children as beneficiaries so if I passed first he would have enough for more than 10 years in a nursing home. So the children were able to inherit a large sum of money with no tax consequences. Things happen so fast and sometimes people do not have enough time to think things through. I had 5 days.

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