RMDs vs Roth Conversions

[The Heretic]

My wife and I have been converting our traditional IRA's to our Roth IRA's for years, while trying to stay within the 12% tax bracket. The new additional $6k deduction each for 2025 enabled us to each convert 25k this year. My RMD's will start in 2028, and my plan is for a portion of those to be qualified charitable deductions, which go directly from my traditional IRA to our church, which count towards RMD, but do not count as income, thereby avoiding income tax on that amount. Until the RMD's start we will continue to convert as much as possible while keeping our adjusted gross income within the 12% tax rate.
Once we start taking the RMD's, we plan to pay the taxes owed and gift the remaining funds to max out our 3 boys Roth IRA's. That way, the government will only get one bite of our apple!

For the past few years I tried to stay within the 12% bracket too.

But then I did the math for the long term (w/RMDs, etc.) and decided that for my situation, it was worth the temporary pain of paying some 22% taxes (effective rate is about 17-18%) now, so that I pay less later, and so that my kids won't inherit the taxes of the ten year RMDs on an inherited IRA (tax deferred) or the other issues (IRMAA, etc.).

 

[ZR-1]

Giving estate planning advice is pretty far removed from my wheelhouse but, given the apparent size of your holdings and estate, what you want to accomplish with it, both while living and after, some form of a family trust might help solve your dilemma. I'm not sure if you should speak with a certified financial planner or an attorney specializing in estate planning, but either may be a better place to begin than winging it.

 

[The Heretic]

Giving estate planning advice is pretty far removed from my wheelhouse but, given the apparent size of your holdings and estate, what you want to accomplish with it, both while living and after, some form of a family trust might help solve your dilemma. I'm not sure if you should speak with a certified financial planner or an attorney specializing in estate planning, but either may be a better place to begin than winging it.

My IRAs list my daughter as the beneficiary, so that is not an issue.

However, I do need to see an attorney about a trust for everything else - especially the real estate.

 

[The Heretic]

View: https://youtu.be/Wjbf9KVSG7s?si=XhRYIewJfYVTREF3


One thing he points out, that I had not thoroughly considered is that the longer you have the funds in the Roth, the longer they appreciate. So sooner is better.

 

[ma96782]

Individual situations vary. So, this is not meant to be universal advice. See your own individual tax/financial advisor to help YOU decide if it's right for you.

View: https://youtu.be/qlh1a_nxh5M?si=fNmERlr4Kr4nQHXN


Aloha, Mark

PS..........

Are You Making this RMD Mistake? 84% Of Retirees Are!

View: https://youtu.be/c8lrEYkD2Qs?si=RNeCxhHH_JFcqLH8

 

[The Heretic]

Moved ~11% of my regular IRA to my Roth IRA today (should have done it back in September) and paid about 18% tax on that amount (in addition to the rollover) from the funds in my regular IRA (so I will pay taxes on the taxes).

Once I get my 2025 taxes filed/paid next year, I will do the same again when the stock market goes up, probably before mid year (hopefully it will go up), instead of waiting for it to peak like it did in September this year. TBD.

My timing sucks.

 

[The Heretic]

Finished my taxes this week, filed the forms and sent the payments.

Severely underestimated how much this would increase my AGI and how much I would owe, by over 50%. Had to pull more $ from my IRA to pay what I owed (both federal and state) - which was painful because of the current stock market is in "correction".

I did start having taxes taken out of my monthly withdrawals, but I am going to have to double the percentage so I owe less at the end of the year.

My effective federal tax rate was about 19%, state was about 10% (but my state AGI was about half my federal).

I am also going to reduce how much I rollover in 2026 - I think. We'll see what happens this year in the market - right now it sucks due to Iran war.