Since the conversion will be made this year 2024 in a few weeks, and I want to pay the taxes on the conversion amount. now from cash on hand. How do make it known to IRS and State on the check that I will send? The Lind 4a and 4b entry will be for year 2024 not 2023 tax returns.
Great thanks!
Since the IRA is my wifeâs IRA does her name go on the 1040ES and if it both does it matter what order? We typically file jointly.
Thank you.
With all you have going on there, you should have a sit down with a Fee Only money manager. Many of them also work with CPAs and lawyers. My sonâs firm does. You should only keep enough liquid funds for 6 months or so of living expenses. The rest can be put in CDâs ladder style. Fixed rate annuities can be good too. With respect to the Roth Conversions, the current tax rate isnât your problem, it future tax rates, which will have to increase due to the insane national debt. Iâve been converting mine when my tax status allowed. Itâs not that the tax on the conversion hurts, itâs the tax on the growth that is a killer. Growth of a Roth is also tax free. Had you converted a 401k 10 years ago and paid the tax on that amount, youâd owe nothing on the total amount that it has grown to. Any monies you donât need for 10 years s/d be in a Roth in the stock market. Spend a dime and have that visit with a money manager, but not a broker who sells stuff. A Fee Only advisor. But I wouldnât spend a dime paying off a mortgage if it has a rate at 4% or less. That money can easily make more being invested. Youâve done well! Good Luck.
Thanks for the suggestions.
For me, financial advisors seem to concentrate on the tax differences, future tax rates, and so on, between various taxable and tax-free accounts. The big reason that I converted everything possible to Roth IRAs was those rotten Required Minimum Distributions. This is where you are forced to remove money from your tax-deferred accounts each year, when you probably donât need it and would rather save it for future years when you may need lots of extra money to pay for a low-maintenance apartment, extensive medical care, a home health nurse, an assisted living facility, or a nursing home. The IRS forces you to take those RMD distributions so that you will exhaust your tax-deferred accounts by the time you die. That is NOT what most of us old codgers need. We need to keep all the extra retirement money until we need it for catastrophic care, probably in the last 5 years, near the end of our lives. Roth IRAs allow you to do that. Other types donât, instead forcing you to take most of the money out before you need it. That, and only that, it the big reason to convert to Roth accounts. The tax benefits are only a nice side benefit.
If more people knew exactly how much that RMDs grow each year after age 73, more would consider converting to Roths. Here is a worksheet, once provided by the IRS, to calculate your RMD after age 72. Notice that from 73 to age 88, the RMD doubles. If you have $100,000 in your untaxed retirement account, your REQUIRED minimum withdrawal at age 73 will be $3,774
The tax issue is a long way from being a side effect. Say your IRA doubles in value and your Roth doubles as well. You could be paying nearly 40% tax on the Traditional IRA and Zero on the Roth. Unless there is some divine intervention, income taxes are going up. They have to. What worries me is the government taking over all retirement accounts. Sounds far fetched, but when politicians get this far behind in debt payments, anything can happen, and they have been working on this for 40+ years.
First, I was talking about all retirement accounts, not just Traditional IRAs. If they get to that point, nothing will be safe, including savings account. Retirement accounts, investments and savings are something of âprivilege.â
Yes, you do pay taxes on the initial amount, but not the growth. Had you put that $10k bonus in a Roth 30 years ago and left it there. Youâd have about $150k total but only paid taxes on the initial $10k and none on the $140k returns. Thatâs a low average tax rate to me. The tax impact is in the growth. The longer you hold it the less the taxes impact you. But even if I paid taxes relatively late in the process itâs still not going to be worse than the taxes youâll pay when withdrawn. The Traditional IRA was based on the fact your tax rate will be lower when you retire, but I donât think that will be the case for many of us.
OK if you want to use $7500 after taxes and you would only have about $110k to not pay taxes on. I donât know how an effective tax rate could be much lower, but Iâm no mathematician and I havenât worked it out. Thatâs where the money advisors and CPAs come in. And, If one is banking on taxes going down anytime soon, thatâs a risky chance to take. We already know that they are going up in '25, and the current administration is signalling that they need more. When you are running a deficit and a total debt of >$32 Trillion dollars, something has to give. And, to those that think the Billionaires should pay it, I say why, and even if they all dissolved their wealth, they could barely pay one years interest on the total debt. I hope you are right!
Iâve been converting my 403b and IRA over to Roth gradually, for 2 years.
The federal tax is straightforward b/c none of the money was taxed.
But donât forget to look at the state income tax, too!
In my state, contributions to IRAs and 403b plans are not pre-tax. So when I withdraw/convert the IRA/403b, only part of the withdrawal is state-taxable â just the gains. Luckily I kept track of my contributions (which were already state-taxed), so the calculation isnât too bad.
Also, my state offers a pension/retirement income exclusion if you are within certain income limits. So I have planned my withdrawals/conversions to keep my total income under this amount. I pay ZERO state income tax, which is great.
I donât know what your state does with taxing IRAs, but it may be partially taxable.
I did not mean that taxes were only a side effect. For me taxes were NOT the main benefit of conversion, but I certainly did not REJECT the tax benefit! The key point is now that I am ALL-Roth, I have NO pesky RMDs to make, ever again! I get to keep all of the money until I need it (unless the IRS changes the rules yet again.)
I was moving toward doing some Roth conversion in 2024⌠but when I tallied my Modified Adjusted Gross Income (MAGI), I found that doing so would put my wife and I over the Medicare IRMAA penalty MAGI cliff in 2026, which would cost us about $70 per person per month, so I am going to hold off until next year, when our income will be much lower.
There is a lookback period for IRMAA. They base the penalty based on your last tax filing. Example: 2024 tax will be filed in 2025, the IRMAA ding letters go out late 2025 and apply to 2026 Medicare.
If anyone gets such an IRMAA ding letter, you might be able to appeal it using Form SSA-44.
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