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Roth IRA

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  • jfoxcpacfp jfoxcpacfp 
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    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8366
    Joined: 01/09/2016

    At age 65, my typical recommendation is Roth conversions, as already referenced by @Faithful_Steward. Roth contributions are fine, too, but the impact at this point is relatively negligible. Hopefully, this person has an IRA and/or a 401k that s/he can begin converting to a Roth. At a minimum, s/he should fill out at least through the 12% bracket, maybe even through the 24% bracket, depending upon the ability to pay taxes and the tax brackets of the intended recipients.

    If the recipients will be in the top marginal bracket, one technique is for the 65-y.o. to convert through the 24% bracket and for the eventual recipients to loan the $$ at a reasonable rate of interest to pay the taxes. A clause w/b added to the LWT to ensure the taxes are repaid from the estate at death.

    Click to expand…

    JFox—is there an easy guide or something to figure a plan for this?  I think I need to recommend this for my mom (71) who’s still working part time, they’re not taking any withdrawals aside from RMD and living on SS.  I think she only has maybe 30k in Roth and several hundred in tIRAs.   Think they’re in lowest tax bracket (living on ~75k/yr).  So should they just move convert X amount each year, but not enough to bump a tax bracket?

    Click to expand…

    In this case, I just don’t see the benefit if she plans to spend the Roth. If she plans to leave it to kids/grandkids, my answer would change. However, they would have to be able to afford the tax hit and also not convert so much that Medicare premiums jump.

    Johanna Fox Turner, CPA, CFP: I am not your financial advisor; any responses are for general purposes only
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #238517 Reply
    aelliscpacfa aelliscpacfa 
    Participant
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 9
    Joined: 08/13/2019

    I will add another thought that may or may not be relevant.  Let’s assume you would like to employ a Roth Conversion strategy for your mother.  She might want to get started sooner than later.  The tax brackets will be more narrow if she has to file as a Single taxpayer at some point in the future.  She will be able to convert more dollars into the Roth each year during her married years.  This was relevant to me because my father passed in September 2018.

    Andrew B. Ellis, CPA, CFA, CFP

    #238819 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4637
    Joined: 05/13/2011

    https://www.whitecoatinvestor.com/the-stretch-ira-the-best-inheritance/

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #239361 Reply
    Avatar disneydoc 
    Participant
    Status: Physician, Retired
    Posts: 27
    Joined: 11/29/2017

    I want to do my taxes for the first time with Turbotax &  not hire an Accountant as I have done all these years. I am retired & just have the Dividends & Interest income from Vanguard & a few CDs respectively, so I am taking a crack at the 2019 Taxes.

    I am 63, we will not have any earned income in 2019 & I want to convert $50k from the Traditional IRA to Roth. I realize the tax savings may not be much at this age, but it is a (i) way to decrease the RMD distributions from the IRA starting at age 70 & leaving some tax free money for the kids when I & wife pass.

    I gather not much has changed between 2018 & 2019 Tax Laws, & to get familiar with the task I got a CD of 2018 Turbotax Premier & started filling in approx numbers for 2019 to see how I fare.

    Most of the TurboTax. steps styled as questions seem easy enough till I come to IRA to Roth Conversion, I am unable to figure out where to report the Roth Conversion of $ 50k. The 1099s will be coming at the end of this year at which time I will have to complete Form 8606 showing the basis for the Non deductible IRA contributions over the years. This year I & wife cannot contribute to IRA . I get the idea that Turbotax is asking me to fill in my contribution & then conversion, but I only have Roth conversion this year.

    Any way, when I proceeded further after putting in the just the conversion amount, on completion the result did not include the conversion in my income. This got me stumped

    I know many of us here use Turbotax to do their own taxes, I will be thankful if some one can show me the correct way to handle this problem I have, do I have to complete Form 8606 , as it asks numbers in column 1a, 2a…etc. ??.  If any more information is needed to help answer this, I will be happy to give.

    Thanks a lot

    #243081 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8366
    Joined: 01/09/2016

    I want to do my taxes for the first time with Turbotax &  not hire an Accountant as I have done all these years. I am retired & just have the Dividends & Interest income from Vanguard & a few CDs respectively, so I am taking a crack at the 2019 Taxes.

    I am 63, we will not have any earned income in 2019 & I want to convert $50k from the Traditional IRA to Roth. I realize the tax savings may not be much at this age, but it is a (i) way to decrease the RMD distributions from the IRA starting at age 70 & leaving some tax free money for the kids when I & wife pass.

    I gather not much has changed between 2018 & 2019 Tax Laws, & to get familiar with the task I got a CD of 2018 Turbotax Premier & started filling in approx numbers for 2019 to see how I fare.

    Most of the TurboTax. steps styled as questions seem easy enough till I come to IRA to Roth Conversion, I am unable to figure out where to report the Roth Conversion of $ 50k. The 1099s will be coming at the end of this year at which time I will have to complete Form 8606 showing the basis for the Non deductible IRA contributions over the years. This year I & wife cannot contribute to IRA . I get the idea that Turbotax is asking me to fill in my contribution & then conversion, but I only have Roth conversion this year.

    Any way, when I proceeded further after putting in the just the conversion amount, on completion the result did not include the conversion in my income. This got me stumped

    I know many of us here use Turbotax to do their own taxes, I will be thankful if some one can show me the correct way to handle this problem I have, do I have to complete Form 8606 , as it asks numbers in column 1a, 2a…etc. ??.  If any more information is needed to help answer this, I will be happy to give.

    Thanks a lot

    Click to expand…

    You will not have to prepare a Form 8606 unless you are converting after-tax IRA funds (having “basis”) to a Roth IRA. If you are converting $50k from your pre-tax (already deducted) IRA to a Roth, you will receive a Form 1099R in January 2020 with instructions to report on page 1 of your 1040. Very easy to do. Given the information you have provided, you s/h no problem converting to DIY using TT.

    Johanna Fox Turner, CPA, CFP: I am not your financial advisor; any responses are for general purposes only
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #243219 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2465
    Joined: 03/01/2018

    You should absolutely be doing Roth conversions between now and beginning of RMDs, while you have I assume low taxable income and assuming you have substantial tax deferred balances.

    I assume you’ve completed form 8606 in the past, if you’ve made nondeductible IRA contributions?

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #243222 Reply
    Avatar disneydoc 
    Participant
    Status: Physician, Retired
    Posts: 27
    Joined: 11/29/2017

    Thanks every body for your time & feedback.

     

    I will try to download Form 1099 R & see if I can fill it from the present data from Vanguard & see if it helps, other wise I may just have to wait till after the year for the info.

    But getting an idea what the total income would be, kind of nice so that I do not exceed $168k of total income this year. This will keep me from exceeding the Tax Bracket of 22% for married filing jointly to keep my Medicare Premiums manageable when I turn 65 in 2 years. Maximised Roth Conversions + rest of the income ….eg year end projections of dividends, interest income etc……

    Maximum roth conversions need to be done within the year 2019, so it is kind of a balancing act. Goal is to maximise the Roth conversions & be just under $168k

     

    Thanks

    #243420 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4715
    Joined: 01/08/2016
    Maximum roth conversions need to be done within the year 2019

    Click to expand…

    depending on your nest egg, expected RMDs etc, i might be filling up the entire 24% bracket….

    #243422 Reply
    Avatar GasFIRE 
    Participant
    Status: Physician
    Posts: 232
    Joined: 01/08/2018

    @disneydoc – I agree/w @peds consider using the 24% bracket also. You have 7 years until RMDs kick in. Depending on how big your pretax IRA bucket is, converting $50K may not move the needle very much. In an excellent post at FIPhysician

    IRMAA 2020: High Income Retirees – Avoid the Cliff

    If you exceed the $170K MFJ threshold your Medicare surcharge is about $800. Your cost for further conversions will be 24% plus ~$800 up to $214K. The next 2 cliffs are still in the 24% bracket, but obviously the surcharge gets bigger and bigger. Everyone’s situation is different, so I would run your own numbers to see how much Roth conversion tax/surcharge your willing to pay. I wouldn’t outright reject the 24% bracket just because you hit the first Medicare surcharge cliff.

    #243481 Reply
    Avatar disneydoc 
    Participant
    Status: Physician, Retired
    Posts: 27
    Joined: 11/29/2017

    Thanks GasFire for the excellent write up on Irmaa & Medicare Surcharges, this clearly points to keep our MGI below $170k & keep within the 22% Marginal Tax Bracket. Applying to my case – (Total Income – $24k) Adjusted Gross Income + Interest from Tax Exempt Bond Fund needs to be below $170k.

    I will appreciate any help in figuring out the step in TurboTax to report the $50k Roth Conversion income, this has got me stuck.

    I am understanding the numbers to be reported from Forms 8606 (Non Dedeuctible – Basis) and 1099R which is basically the monies taxable from the Roth Conversion.

    I am unable to find the step by step calculations to report the Roth Conversions, which Jim had put together on this Forum, any pointers ?

    Thanks & regards

    #244306 Reply

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