Quote:
Originally Posted by UteChief
Curious what people think of ROTH conversions, I’m not sure it’s advisable in most situations, but would like to be “convinced” just for discussion.
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I've built a big financial projection model for retirement and it's been very informative. As part of that process, I realized that I'll have a big income drop after my working years (Age 61) through when Social Security and Required Minimum Distributions start (Age 67 when my wife turns 70 and starts getting Social Security). Over the next years after that, my taxable income and tax rate will rise quite a bit as my own SS kicks in and then RMDs start.
That means that I have a six to ten year window when my tax rate will be low, and then it'll rise back to (roughly) the pre-retirement rate. Roth conversions work great in that case, because I can do conversions and pay taxes in these upcoming lower income years at a low rate instead of paying the higher rate when they're RMDs. Plus, then they grow tax-free. As an added bonus, taking the conversions now also lowers the amount of the RMDs in future years, which can also help my tax bill at those later dates.
The tightrope I'm walking is that I want to do conversions that take me up to, but not over certain tax brackets, to maximize the tax benefits. Now I'm learning that I also need to watch the MAGI amount for Medicare payments too, to be sure I don't get a surcharge.