Converting IRA to Roth

Make sure you don't convert too much to bump into whatever is the next tax bracket up for you

Many people do it over several years after they've retired and their income drops. They fill up available lower tax brackets to a point and then repeat every year until everything is converted. Having money outside of the IRA to pay the taxes is the preferred method. Otherwise, you're paying for taxes with the IRA which sucks.

Instead of converting a massive traditional IRA all at once, make sure to spread the conversion over multiple years. Look at your current tax bracket and convert just enough to "fill" it to the top line without spilling over into the next bracket.

Years following retirement up to pension and / or social security provide tax table space for efficient conversions. Use them all. Optimize Roth conversion time value of money with lifetime of taxes, incl IRMAA, NIIT, RMDs and passing on to your heirs (widow tax or kids at their future tax brackets). See Boldin as tool to analyze.

Standard deduction is your friend. Other taxable assets (eg, cash / equivalents) that pay interest and dividends are not, unless they are tax exempt (eg, tax exempt municipal bonds, money market).

Have a plan for how you will pay the ordinary tax on the conversions.

1. Cash / equivalents
2. Taxable assets (likely in combo with cash / equivalents
3. SBLOC (MB topic this week)
4. HELOC

In my present mindset, these are least to most risky / costly for our situation (wrt opportunity cost, LTCG if selling taxable assets, wealth transfer of these assets to your heirs).

Still thinking about this myself! 2027 will be first conversion.

Side note, be aware tax exempt municipal bonds count towards MAGI for IRMAA calculation and may impact % of SS taxed as well as ACA subsidies.

You probably already onew this but it may help others. I only stumbled upon this fact a few days ago while exploring withdrawal/conversion strategies and IRMAA impact for an elderly family member. It was a blind spot since I don't hold tax exempt bonds, still years from IRMAA not using ACA.

If it was simple, we wouldn't have the lamest hobby to keep busy in early retirement

If you are still working, convert an amount each month and adjust your state and fed tax withholding at work to pay the taxes on it. A consistently executed plan probably wins this game.

If not working, maybe put off SS for a few years, maybe withdraw a little more from your IRA's some years and a little less the next to leave room for conversions, if you can make the math work.

If you are over 59.5 and still working and have a Roth 401K, maybe max that out and draw down your trad IRA accounts. It's the same math as a conversion.

If still working, the tax rate on all conversion strategies is likely the same except in the case that you contribute to trad 401K, which kind of defeats the purpose.

Math works better if you can live on zero income for a few years after retirement and convert as much as possible then, but sometimes it is reasonable to just have a number in mind for how much Roth you want. It's not always about the best math.