Ask Terry Questions Roth Conversion

Roth Conversion

By Terry Savage on January 03, 2024 | Financial Planning / Retirement

Hi Terry
I’ve followed u forever, & I thank you for sharing all of your understanding & knowledge.
I’m 70 yrs old, taking SS. I understand that I can’t have over $88,000 in taxable money in 1 year. I live in Illinois. I believe I’m not taxed on my SS for me =$18,000 a year. Does that mean I can do a Roth conversion on $70,000 of stocks from my regular brokerage account. I understand that I would be taxed on $70,000. I know that the stocks would need to be in my brokerage account for 5 years, before the conversion. Could u tell me how much my taxes would be on that $70,000 conversion to my Roth?
Thank you again
Happy, Healthy, Joyous New Year.

Terry Says

Wait — you have so much wrong I don’t know where to begin.
First, are the stocks inside a traditional IRA at the brokerage firm? If they are inside an IRA, then there is no possibility of capital gains. You can sell them and LEAVE THE MONEY IN THE TRADITIONAL IRA in order to make your portfolio a bit more conservative, perhaps putting some in a money market fund inside the traditional IRA.

There is no reason for you to do a Roth conversion if your only other income is Social Security, and very little other income. Why pay the taxes now? You will have to start taking RMDs (minimum withdrawals) in three years. At that point, any money taken out will be considered ordinary income.

A Roth Conversion would not only create a big tax hit in one year, but would also impact your Medicare Part B and D premiums going forward. Don’t do this!!

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