Roth IRA conversion advice for retired couple: Larger conversions now or let it grow for inheritance?

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  • #91617 Reply

      Looking to glean the wisdom of this community: Question about Roth IRA conversion. Both my husband and I are retired and in our late 50s and early 60s. Would it be better to do larger Roth conversions over the next few years and paying taxes in the higher brackets (in the 22-24% tax bracket) or letting it continue to grow during our life span and passing along to our children.

      We are considering it because the value of the tax deferred accounts are increasing at a higher level than what we need for our annual expenses.

      #91618 Reply

        It may be helpful to watch these two videos from the recent Bogleheads forum. There are multiple factors to consider and likely not enough information provided in your post to give a directly relevant response. But these can help you think about what might be helpful to think about.

        #91619 Reply

          Any Trad IRA passed onto non-spouse beneficiaries have a 10-year period in which they have to withdraw the entire balance. Many times, adult children who receive inheritances are in their peak earning years and now they owe taxes on everything withdrawn as well. Also, keep in mind that 2024-2025’s 22-24% tax brackets are scheduled to increase to 25-28% starting in 2026.

          Maybe consider converting modest amounts in 2024 and 2025, then after retirement when your income is lower, convert as much as you can within the 25% bracket. Then if/when your kids inherit, they’ll still have a 10-year window, but it will at least be tax free.

          Don’t miss: Where to invest after maxing out 401(k), HSA, and ineligible for Roth IRA?

          #91620 Reply

            How old are your kids? Are they currently in peak earnings years?

            If you feel like you want to leave them a large inheritance then you can eat the tax bill now to make it easier on them regarding the new 10 year rule and the tax bomb it creates.

            However, you’re also being very generous to leave an inheritance so I wouldn’t worry too much about their future tax bills. If they are money savvy and expect to be in high tax brackets when they inherit, you could always see if they would help with the taxes on the conversion.

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