Adding that if your IRA balance is down at the moment, converting will ‘cost you less’ than if you had converted on Jan 1st.
Generally speaking, the goal does not have to be to convert all of the IRA to Roth–just enough to balance the effect of future RMDs on taxes and IRMAA, unless one is converting for estate planning purposes as @bluebayou pointed out.
Folks, don’t forget you can covert any amount to the Roth. If you are $30k under teh estimated IRMAA limit, do that amount. You can covert some amount each year to fill up a tax bracket. (Another good reason to wait on claiming SS until age 70.)
Essentially, you are just opting to pay tax now in the income instead of later when you have an RMD. Also, recognize that the surviving spouse will have to continue the RMDs but at a much higher tax rate as the bracket $ amounts are cut in half for a single person. (Another reason to consider a conversion.)
How do you begin to guess what your future marginal tax rate will be? How do you know they’re not going to keep raising the age for RMDs?
I’m kind of serious - I really can’t figure out the right values to assign the variables.
I was seriously thinking of converting a fair amount to ROTH, but I can’t “do the math” in a way I feel certain about.
I get a pension, as does my husband, so we won’t have years where our income is pretty low.
Some people think I’m nuts to even consider it. BUT, I am pretty sure I’m going to be paying LOTS of taxes later and be disappointed I let other people convince me not to convert. I’ve consulted a tax accountant and he won’t really advise me, because we just don’t know what future tax law will be.
Any simple advice?
Have you added up the combined income streams from your two pensions, two SS benefits, and RMDs to see if your total inflows in retirement will be greater than when they are now? Dividends, interest, etc also need to be considered, assuming you have after tax accounts.
There may be a window between retirement and start of SS benefits that would allow Roth conversions, but the converted amounts may result in higher Medicare Parts B&D premiums.
Bluebayou’s point is correct about the significant tax impact once the first spouse dies. The RMD amount will be the same for one that it had been for both (assuming surviving spouse is same age as deceased spouse), but the brackets will be halved. Also impossible to predict when that will happen, but it is another argument in favor of Roth conversions, if you have a sizable IRA balance.
Agree completely that you cannot predict future tax rates or brackets. The current rates are scheduled to expire at the end of 2025, returning to levels pre-Trump Tax Act.
Obviously, Congress can change tax laws at any time. But RMD’s move slowly, based on actuarial tables (under current law).
Basically, you just make your best guess: add up pension, SS (if any), investment income, RMD’s, less standard deductions, and consider tax rates in 2026 vs 2022. Definitely not an exact science.
Plus you have to guess if/how much your accounts are going to grow between now and when you have to take RMDS, and how much pension will go up.
I know this is a first world problem, and those of us thinking about it are lucky.
I’ve helped others understand they can and probably should convert. But I am not ready to pay close to or over 30% for conversion, yet.
The likely tax change back to old rates is a major reason I’ve considered doing conversion.
It’s actually better for us, we’re in California. I’ve done some converting already, this year I will do up until I pay zero California tax. I’ll do more in 2025.
I think RMD will be extended to 75.
I’ll bet some cyber money that it won’t; extensions cost money in government-speak. (They just extended to age 72, but that came at the expense of changing the RMDs of inherited IRAs.)
From this link, I’m hopeful.
I’m skeptical, as changing RMDs to 75 costs money in the short term. Under current House rules, they need to find something to offset the short-term tax losses.
But no question, that insurance companies have been drooling to get annuity contracts into these plans, so there is a lot of lobbying to push for that.
2023’s new tax brackets & standard deduction were announced.
It’s behind paywall, but that’s ok.
This should work:
My parents have an east facing kitchen near the water, and three times last summer when I was visiting them, I found that they had left their range on because they didn’t notice that the flame was still on as the sun came in the windows. In some cases the flame had been on for over an hour!!
They had just installed this new range earlier this year, and I wish they had mentioned to me at the time that while they were shopping around because I would have talked to them about choosing an induction range. (In fact a few months later we were all staying at a rental that had a high-end induction range, and after a couple days of getting used to it, they absolutely loved using it.)
Typically the fund fees in 401ks will be high; there’s no need to continue paying those fees when you have the option to rollover to an IRA and switch to different low or no-fee funds.
Depends on teh plan. MegaCorp plans for example, have extremely low fees. And those employers that are using Fidelity as an Adminstator also have low fees. But yes, some plans can have high fees, so always worth a look
Yup. Not all 401(k)s are rip-offs. 
My husband worked for a big co that used Fidelity… the fees were super duper low. His current micro employer uses some brokerage that has poor investment options with very high fees and no match. Needless to say, we decided to invest those extra $$ into home improvements. We can enjoy that money instantly instead of bumping up his RMDs later. I used to work for tiny companies without any retirement plans, so now I fund my 401(k) to to the max because there is a small match plus my RMDs will start a decade after my husband’s.
Fees aside, every 401(k) I’ve been in had at most 30-40 fund choices, and some as few as 8 or 10.
Rolling it into an IRA opens up thousands of mutual fund and ETF options, not to mention individual stocks or bonds, and other alternate investments like RE if you want to go down that path.
I just tried to buy some Treasuries today, some of them require a higher minimum unlike CDs. I’m not sure I want to lock in large amount yet. I’m just nibbling to see how to do it.