Roth Conversion Assistance

I am in need of a CPA or tax professional who can assist with a Roth conversion. Just want to get it done before I retire in a few years.

What makes you think you need to do a Roth conversion? If you’re working now, it’s most likely a bad idea.

I would like to pay taxes on it now and not have to worry about it in retirement.

You can do that, but it’s likely to cost a very large amount of money to save that worry. I’d suggest you have someone run some numbers for you to see what you’d end up with in both scenarios. If you feel like posting general numbers here (approximate balances, current income, age, married or not), we can help. If not, make sure that whoever helps you doesn’t make more money if you choose one option over the other.

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Husband 60 yrs old $183000.00 Roth IRA in Wellington Fund
Wife 55 yrs old $ 78,000.00 in Roth IRA Star Fund

Wife also has 165,000.00 in Traditional IRA Target 2035 Fund (This was the result of a 401K that was rolled over in 2011. The initial amount rolled over was around $66,000.00 no other monies were added to this account. From that point on all monies went to the other Roths. Our total investments are around $427,000.00

Husband salary is 94,000.00 a year
Wife salary is 40,000.00

We currently have about $80,000.00 savings.

Our house will be paid for in a few months. That will free up another $2000.00 a month. We currently save around $2500.00 a month. So with the house payment coming to end that will increase to $4500.00 a month in savings.

I plan on retire in 2 to 5 years. I will have State of Georgia TRS pension, and some Social Security. My wife plans on retiring in 10 years. She will have Social Security. Our hope is to live off mainly our pensions and social security.

I would like to over a period of three 2 to 3 years convert the Traditional IRA over to a Roth, pay the tax out of savings with each conversion.

I’m not clear on how to complete the 8660 Form and I am not sure if Pro Rata rule apply since we only have that one Traditional IRA.

Any suggestion would be greatly appreciated.

Thank you.

It isn’t true that while-working conversions are always bad. They are often bad. But do these conditions apply @ManUfan ?

Roth conversions could be useful if you have a very large IRA (usually over $1,000,000) and are going to fall off the the Medicare IRMAA cliffs and you’d rather not (ME), if you did a great job of saving and investing and your income in retirement isn’t going to be lower than it is now, or you have a lot of pensions, so “your tax rate will be lower in retirement” isn’t ever going to happen (ME), your marriage is ending due to death or divorce and you will lose the ability to file Married Filing Jointly then you get whacked by IRMAA and tax bracket creep (ME), you might want to move from a State with no income tax to a State with income tax and you want to cash in the IRA while not paying State taxes (maybe ME, not sure), you believe we’re in the lowest tax rates we’ll ever see due to the outrageous US debt (and the States, too) which will have to be serviced, and you want to pre-pay the taxes now, especially before 12/31/2025 when we go back to the pre-Trump tax regime for individuals (MY beliefs).

I have listened to the podcasts of this guy below, and corresponded with him, and I believe he has a seriously good grasp of the tax implications of Roth conversion. I think it would be reasonable to engage him for a flat fee in cash to consult on your tax management issue.

Chris Stein M.S., CFP®
Certified Financial Planner™
506 East Mulberry Street, Fort Collins, CO, 80524
(P) 970-530-0556

Another resource would be:

Ed Slott and Company, LLC

I find that CPAs don’t really know how to do full lifetime tax minimization planning. You ask for help with that and you get the deer in the headlights look. Maybe I just haven’t met the right ones, but that has been my experience.

Pro-rata rule only applies if you’re converting non-deductible contributions, which you would have made if you were trying to do “backdoor” Roth contributions. Since you’re below the income limit for direct Roth contributions, you shouldn’t have to worry about that.

When you say “save,” do you mean in your savings account or into retirement accounts?

@ManUfan run the AARP RMD calculator to detect if you have a potential IRMAA or tax bracket creep problem in your future…

Just cash savings of $80,000.00 We will continue to add $4500.00 to it monthly. We also will continue to fund the Roths yearly for another 10 years.

A possibility: you quit working at say 62, but delay SS and your pension by 2-3 years, thereby creating a gap of low income years, during which you convert to a Roth.

Whoa, sorry I didn’t see this earlier. You honestly don’t have a large enough IRA to worry about.

Have you ever run a retirement planner to see what your retirement income will be? Just based on scanning your assets, it does not seem you will be high income in retirement, but I have no idea how big that State of GA TRs will be.

As I stated before, Roth conversion is for high net worth (>$1,000,000), high MAGI income in retirement people who are going to crack their (our) skulls on the IRMAA cliffs and also on obnoxious higher tax brackets both State and Federal. And it’s worsened by the divorcee’s / widow(er)'s tax.

Only worry about Roth conversion if your Modified AGI in retirement is getting close to $200k annually for a couple / $100k annually for a single person.

Now… you can certainly do the following… defer Social Security until 70 to maximize your lifetime benefit, and fill in the gap with IRA money. That would be a very nice way to shed IRA money in a tax-friendly way, during low-income “gap years”, while also maxxing out the Social Security retirement benefit for the rest of your lives. Also take capital gains during those gap years, your long term capital gains tax rate might be zero.

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Husband’s Pension: $4500.00 a month plus $1000.00 social security a month. Total $5500.00

Wife Social Security: $1500.00 a month

$427000.00 IRAs invested in mutual funds. Will continue to invest the max into it for the next 10 years. Hopefully it will continue to grow.

And wait to start this after the wife is 59.5 to avoid early withdrawl penalty. Conversions to Roth are not subject to early penalty.

Yes. My wife is planning on working another 10 years. I plan on working another 2 to 5 years. My plan does take into account delaying Social Security.

Do consider getting a retirement planner. You will input all your numbers (ages, expenses, projected expenses like buying an RV, current amounts for trad IRA, Roth IRA, SS PIA, pension, savings, etc.), when you & wife quit working, start taking SS, etc., and then using some assumptions which you can adjust, it will project your income & taxes into the future and show you how your money will last. We use The Complete Retirement Planner, but there are others.

I am curious about the amount that you are adding to your cash. You currently have about 16% of your savings in cash and are planning, while you both are working, for most of your annual additional savings ($54,000) to be in cash. Do you have short term goals for the cash?

The obvious finally occurred to me. Some of your cash savings will be used to pay taxes on your Roth conversions.

Consider putting new contributions into a Roth.

That’s absolutely true unless he calculates how much he would have paid in taxes to not do the conversion. Then it’s not so clear he won’t regret it. You don’t say what other income you have, but if you’ve converted everything, and only have Social Security as your taxable income, you paid a lot more in taxes than you needed to. If you have a large pension or a lot of other income in addition to SS, then maybe you’re better off the way you did it.

Why is “the same tax bracket” a goal? Shouldn’t the goal be to stay in a lower tax bracket than you will be in when you would otherwise take the withdrawal?

Only if the investment goes up in that period. If the investment goes down, you’re better off waiting until later in the year.

I have been following all threads about Roth’s with great interest. I have considered converting for years, but my circumstances are apparently different.

At 84 and not in the best of health, my goal is to provide for my children. I have been taking larger than required RMD’s for years, so my IRA’s are now mid six digits.

When I’m gone, they will have to take the funds over ten years, and split between the children, that will not become an overwhelming tax burden.

Obviously, I have discussed this with them.