I can't pull the trigger on roth conversions because of sequence of returns risk. Spend that $224,000 on taxes then suffer a 40% market downturn that lasts 4 years. The damage to the portfolio might be more than it can sustain. If I live long enough I'll deal with taxes using QCD. My heirs will pay taxes but I look at it this way, if I inherited a quarter million and had to pay the tax I'd still have a lot more money.

I say No, enjoy retirement without trying to figure out how to leave a bunch money to your heirs. If anything just start withdrawing more now in retirement and give a little to the kids to help them out now. They can probably use it now when they are younger as compared to twenty years later when they won't need it. When they inherit it all they can use that 10 year rule to withdraw it, hell they might even be able to quit work then.

Great information. Thanks!

Don't forget to factor in the widow tax on RMD's post the death of one spouse in your scenario analysis.

You should show the expected investment rate of return you use for the models.

Good case study but the other consideration for evaluating doing a roth conversion one should consider is medicare IRMAA charges for part B and D at 65. The threshold for a married couples this year is a 206k AGI. These surcharges can cost a couple an extra $2-500 / month if you run your AGI up to high doing conversations. I didn't notice evaluating this issue on the software you were using. Some of the other software I've seen takes this into account along with the factors you showed.

Won’t RMD’s on the traditional accounts also trigger possible higher tax rates if you don’t convert?

What software are you using?

What about the five year rule in not being able to touch the principal (converted) amount? I don't like having significate amount of money not available if the need arises.

You really should look more at total taxes paid versus some kind of breakeven point. Obviously avoiding paying taxes upfront will defer any kind of breakeven point to later. So I think the focus should be on minimizing lifetime taxes which points towards Roth conversions to optimize usage of those lower brackets.

Good piece. Thanks for sharing. I agree with the 22% MTR. It takes approximately 5 years to restore the basis after both Federal and State taxes with an 8% AROR. I plan on making conversions up until I am required to take RMD's. The structured diversification will provide improved income outcomes at a time when Sequence of Returns Risk could be detrimental during end of years care. It is meaningful to add that I invest in income investments such as discounted BDC's and Energy ETF's which has stabilized my returns.

This is the one thing I keep flip-flopping on, whether it's worth it or not (Roth conversion). I know simply looking at taxes either Traditional or Roth generally work out about the same in the end, like seeing the fork in the road to a circle and taking it... But the thing that's an extra whammy with Traditional IRAs is the IRMMA payments for Medicare Part B, that can also go up if your are forced beyond a point with RMDs.

Is there any benefit to me doing Roth conversions? I have about $600K in TSP and IRAs. RMDs start in 2025. My 2023 MAGI is $240K, all but $30K of it from our (very robust) pensions and Social Security. I’m already in the 24% tax and first IRMAA brackets. I have projected my relatively small RMDs will not push me into higher brackets under current law. Other than potential benefits to my heirs, I don’t think Roth conversions do anything for me?

I'm planning on a mixed strategy to fill out the 15% bracket up to age 75 then start QCD's at age 701/2 to reduce the IRA balance before RMD's kick in at 75.

That is pretty cool software... Is that something developed in-house?

I have searched for an answer to this question on OPENING A ROTH......Can I open a roth with cash way above my 8K contribution limit? 5 figures. This is from an inheritance so it is already tax free. Or is it limited to the contribution limit.

I 100% want to do conversions as I believe taxes will end up increasing and I put too much into 401k (which will cause major RMD issues). My hesitation is ACA given I plan to be fully retired at 58. This means many years of medical needed prior to Medicare. The way I see it for my situation, if I aggressively convert, my ACA is about $1800 a month vs. $300 a month if I don't. That is a lot of money over 8 years.

Tax rates will in all likelihood be higher on average over the next 20 years. Political reality collides with economic reality.

In your scenario it looked like his SS was 48k? Is that approaching the max amount possible?

I say pay later. Pay later and the market drops then save on taxes. Pay later and the market puts me in a higher bracket then I'm doing better than I am now. Pay later and taxes increase, the great unknown certainty. Pay now or pay later? Or is it pay now and pay later? Do you trust the rules not to change?

Roth conv or not depends on tax bracket arbitrage. But if one must conv at the highest income tax bracket due to a multi million traditional IRA, the break-even will be verrry long time. So it is very different for a couple in their 50s with 500k vs couple in 60s with >2M. The latter may take until their 90s to reap positive tax benefits. Do they let their last hurrah years slip away to leave a legacy? On average men die in their 70s...I know what I'd do.

My 3rd question: Is your legacy desire to leave to family OR a 501c3 non-profit corp? 🤔

I accidentally made the right choices funding and investing in my retirement. Now I am generating more than I could ever spend. I am not likely to do Roth Conversions instead I am funding their Roths employer sponsored to the Max as well as their HSA’s reimbursing them for their payroll deduction which gives them more disposable income. Other gifts and bequests will be provided as they reach milestones, same for grandchildren if they ever arrive! My decision was based upon the fact that they can have a great life and experiences now and not wait until they are in their 60’s and don’t need my money as they should have plenty of their own hopefully. I may still have a bundle at the end but maybe they can use Real Estate leverage or something else for deductions before the Feds come for their payday. The planning never ends but it’s a good problem to have. I keep sending them these videos and pay for their Fee Based Financial planners and all that stuff. Starting In their early twenties as well because you know it’s not a speech or lecture because some “cool” person in a suit behind a desk being paid to do show and tell with a financial plan must be legit right?

Debt=80T { Debt=40T Loan=40T } Debt=80T Yield=5% Year=30 Debt(30 Year)=80T*1.05^30 Debt(30 Year)=350T Insurance: Payout(30 Year)=350T Yield=8% Premium=350T/1.08^30 Premium=35T Now Yield=8% Payout=350T If Yield=16% Payout=3000T Loan=40T { Premium=35T(Loan and Debt=0) Extra Cash=5T } Note: Average Yield=8%, Yield(30 Year)=1000% Thank you.

I agree that taxes will be higher in the future (if our dysfunctional government doesn't implode first). Uncle Sam: "Pay me some now - or - pay me much more later."

This presentation doesn't include the time value of money. Should the present value of the Roth taxes be compared to the present value nonRoth taxes ?

No way would I do a ROTH conversion. All things being equal, traditional IRAs and ROTH IRA contributions are equivalent from a mathematical perspective. ROTHs only provide benefits if you believe that taxes will increase. All that being said, I still wouldn't do a ROTH conversion. You have to prepay your taxes out of non-qualified assets. Not a lot of people will want to eat away at that bucket of money, while trying to simultaneously not make withdrawals from their ROTH.