What are the steps for IRA withdrawals post 59 1/2 yo and its conversion to Roth IRA when the income is higher than the limit? We have done backdoor Roth before the retirement age but now not sure of the steps now. Also, does one pay taxes at the point of IRA withdraws or by April 15th of the next year?
DH has been doing Roth conversions from his IRA. The amount is included as taxable for the tax year in which itās done. So when you file, thatās when you pay taxesā¦if you didnāt elect to have taxes withheld when you did the conversion.
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many folks pay quarterly. Or, have all taxes due withheld from
the last distribution of the year.
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Wouldnāt it be better to pay taxes using non-IRA cash in order to maximize the Roth conversion?
I understand that withholding from the final distribution could help satisfy the safe harbor requirement, but I thought you always wanted to use other funds to pay the taxes.
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yes, that is ideal for Roth conversions
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Thank you all yāall!
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for years prior and after age 65, considered IRMAA (Medicare tax) before doing any jumbo rollovers.
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Or you could take the non-pretax funds you mention to pay the taxes and just invest those funds. There are no limitations on those funds if you need access. As well if you pass those funds to an heir they get a step-up in basis.
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sure, but doing a Roth today can help with future IRMAA, and perhaps getting one into a lower marginal tax bracket when RMD;s kick-in. Not to mention, when the first spouse dies, the RMDās will continue, but the tax brackets get cut in half as the surviving spouse is now filing Single, as opposed to MFJ.
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That last sentence is whatās going to cost us a fortune one day!
We worked so hard to save a lot of money (pre-tax) and Iām kicking myself for not moving to doing some Roth a long time ago. I keep considering moving some to Roth, but so far I havenāt.
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Weāre putting off SS until 70 and aggressively converting to Roth in the meantime. That single tax bracket for the surviving spouse is an important reason for this, because the bulk of our savings is in pretax retirement accounts.
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But wait, thereās moreā¦
depending on how much pretax funds you have, when you pass and leave them to your heirs, they will have 10 years to deplete teh balances and will be paying taxes at their then marginal rates. So, if your heirs are making bank in NYC, for example, they could be paying ~50% income tax on their inherited (from you) pre-tax IRA. Thatās another reason to keep up with Roth coversions, even if you are have started RMDās. I read some Bogleheads who are taking RMDs and still Roth converting just enough to: 1) remain under IRMAA; 2) max their 22% tax bracket; or, max their 24% tax bracket. (MFJ). For example, even if RMDās put you in the 22% (or 24%) bracket, you can still do Roth conversions by paying 22% tax on that extra money (up to the 22%/24% bracket limit). That is still a whole lot better than your kids paying ~50% when they receive the inheritance in their prime earning years. OTOH, if your kids are in a no income tax stateā¦
btw: if you are required to take RMDās, you must take 100% of that RMD amount for the tax year, before doing any Roth conversions.
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I am 63 and husband is 65, so we have quite a few years before we have to take RMDs. Now that I am no longer working at all, and husbandās retirement gig is slowing down a little, I may seriously consider Roth conversion. It will cause IRMAA issues, but thatās just the way it is.
We had considered not even taking Medicare (we have very good coverage for life as federal retirees), but husband decided he is going to start Medicare this year.
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There are many different ways to think about a tax problem.
For example. You can invest in ETFs in your non qualified accounts and invest in taxable bonds in your 401k accounts. Historically stocks out perform bonds over the long run. If this holds true, upon your death(s), your heirs get the stepped up basis on more of the appreciated assets.
Also, you can take income from your qualified accounts first and takes less from your non qualified ETFs. This will reduce your RMDs. Or you can do some combination of the two. If you want less distributions from your non qualified investments, you can allocate some asset classes that have higher turnover in your qualified accounts and have a mix of bonds and aggressive funds.
These are just hypothetical examples and should not be considered tax or financial advice
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Absolutely, the standard recommendation is to put bonds in tax-deferred accounts and equities in taxable accounts.
I went to one of those free dinners to sit through a session about estate planning. The acoustics were so bad I could barely hear a thing. But the food was great!
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Thatās a win-win. You dont have to hear their sales pitch and get to just enjoy the food.
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Im buying muniās in my taxable accounts. IMO the yields are quite attractive, especially the longer duration. But thatās just my personal situation and not a recommendation.
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And most munis will get called !! Hence thereās a zillion refunding issues !! Munis in taxable. Govt agencies is IRAs.
Smart strategy.
Indeed. A free meal and you donāt have to think about annuities that you donāt need.
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