Retirement – Moving $$ from Traditional IRAs to Roth IRAs – What Makes Sense
Hello Terry,
Happy Holidays!
My wife and I are both 65 years old and retired. We have most of our retirement nestegg, roughly $1.5 million, in tax-deferred IRAs. She is taking her Social Security already and I have not yet filed for SS so most of our income is derived from our IRAs. I will be filing for SS benefits by my FRA, 66 and 8 months, or sooner.
RMDs and SS together would definitely put us in a higher tax bracket. I want to lessen the tax burden at that time and so I’m wondering if it makes sense to draw down the traditional IRAs and move the money into Roth IRAs between now and age 72. We don’t have cash on hand to pay the tax bill for a Roth conversion so we would need to draw down the traditional IRA, pay the taxes out of that, and then move what is left to a Roth IRA. My thought is that in doing so, the current tax bill would still be less than the tax bill at age 72 and later.
Does this strategy makes sense? If not, what might you recommend?
Thank you for your time and interest in our situation. I really do enjoy your no-nonsense, straight forward approach to finanancial well being.
Best Regards,
Dave Scheele
dscheele1@comcast.net
Terry Says
Much of your strategy doesn’t make sense! Let me start with your SS plans. If at all possible DO NOT TAKE SS until age 70, when it is required! You’ll get an additinal 8%in your base check, plus inflation adjustments, for waiting those few extra years! Believe me — and read the recent article on my website.
Conversions do not make sense if you don’t have cash — more than enough cash — outside your plan to pay the taxes. That is a pretty general rule.
AND, you completely forgot about the higher cost of Medicare Part B and D premiums that come along with that big bump in income that happens when you do a Roth conversion.
I don’t know where you are getting your advice, but I suggest meeting with a FIDUCIARY, FEE-ONLY certified financial planner you can trust. Find one at www.Wealthramp.com, where you will be matched with a carefully vetted advisor you can trust!
