@thumper1 In out case it was to avoid RMD.
Ah…when the time comes in a few years, we will take the RMD.
DH converted a bunch or IRA $ to Roth several years ago. The tax burden was HUGE. DS’s do backdoor Roths, which is different.
@jym626 How is that different? You still have to pay the tax on the amount transferred from ira to roth.
@thumper1 That works, too.
We crunched the numbers. Our tax rate now is MUCH higher than it will be when both of us are required to take a RMD.
@Iglooo - I meant that the Roth conversion is, if I understood correctly, different from the back door Roth. Several years back, DH converted IRA to a Roth when it looked like there was going to be just a small window of opportunity at a certain income level. However, it turns out that they kept that window open so there wasn’t such a need to do it when he did. That said while we paid a boatload of taxes back then, anything earned now on that IRA should be earned interest free if I understand correctly. Of course it’s quite possible I might not but that’s my understanding. By the way I am dictating this so apologies for any weird auto correct
I know this is somewhat off topic, but you may want to suggest your kids do ROTH IRAs if they aren’t making that much now but expect their income to go up.
I am paying attention to this thread, but I’m not sure it will ever make economic sense for us to convert to ROTHs, because my husband and I will both get pensions. Will likely run the numbers as we make retirement decisions though.
We did Roth IRAs and do some Backdoor IRÁ conversions so I don’t have to do minimum withdrawals when I am older. Our CPA suggested we not convert as our D has very low tax rate and if she inherits our traditional IRAs could end up not paying much tax on them. We are already at a higher tax rate than we’ve ever been, so we really don’t want to increase our current tax burden and aren’t that excited about doing more conversions from traditional to Roth IRAs.
My understanding of this is modest, but IIRC, the reason to convert to a Roth was to pay the taxes on the amount converted now and let it then grow tax free. If there is little time for significant growth, that may not be a reasonable approach.
If you are converting a non-deductible IRA to a Roth, I think you would only pay taxes on the earnings, not on the entire contribution.
Agreed. For example, one can contribute to a non-deductible IRA and then convert it to a Roth the next day. No gains, no taxes owed.
Only if you have absolutely no other IRA accounts, including SEPs and likely including SIMPLEs.
^Yes! Pro Rata rule makes this tricky for many people. OP, Bogleheads is worth another look. They have a wiki you can browse as well as a forum with great, and no-nonsense, posters. Or a CPA if you’d prefer. I don’t think you’re really talking about a backdoor Roth, but just a simple Roth conversion.
“For example, one can contribute to a non-deductible IRA and then convert it to a Roth the next day. No gains, no taxes owed.”
Only true if you have no other IRAs. You don’t get to choose only to convert the non deductible IRA. You have to convert proportionately. For instance if you do a $5000 non deductible IRA and ,already have $20,000 FMV in IRAs, if you convert $5000 to a Roth it will be $1000 (5000/25000 x 5000) from the non deductible (no tax) and $4000 from the other (taxable).
Agreed as well. That’s what I do—convert the nondeductible IRA to Roth IRA when it has not earned anything (or pay taxes on the minimal earnings). Note: if you have other traditional IRAs and are only converting some of it, that gets more complicated. It’s cleanest and easiest if that’s your only traditional IRA.
You can convert any time you want, however you cannot convert the RMD amount. That is, if you have to take an RMD, you must take this first, and then withdraw additional funds if you want to do a conversion.
RMDs don’t start until the year you become 70.5 years old.