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Roth conversion now?

By Terry Savage on January 21, 2020 | Financial Planning / Retirement

Terry, my wife and I will be 73 this year and our RMD’s are over $80K on a balance over $2MM (I know we are fortunate, but we scrimped and saved to get here!) On top of Social Security and part time consulting income we are going to be close to $200K income. We have family we want to benefit and are not in need of all this money so hope to leave a lot to the kids and charity. My question is this: with our RMD’s increasing as we age, should we bite the bullet and convert, say, $1MM (or even more) to Roth IRA, pay the tax now, so as to shelter further growh, and so our heirs don’t have to? We’re in Illinois, so no state income tax—-yet—but I worry that will change one of these days, and we don’t want to leave Illinois, our granddaughter is close by! I know our Medicare premiums would jump for a time, and of course we would pay at the top marginal rate, but that might go up with a new President. We would be able to pay the taxes from other non-IRA funds.

Terry Says

You’ve laid out the case absolutely correctly. But let me throw in one more consideration. You don’t want to do a conversion and pay the taxes at the “TOP” of the market. Think how horrible you’d feel if your account dropped 20 percent in a bear market –and you could convert later, and pay less taxes! (In the “olden days” you could reverse that decision and “recharacterize” the Roth conversion — but no longer.)
So now were must be coming to the end of an 11 year historic bull market. Don’t you want to wait a bit to do the conversion perhaps at a lower value for your account? Just throw that into the mix when you make your decision!

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