RMD and possible Roth conversions

[LoboDO]

Hello first time poster here.
My wife and I are both physicians who have recently sold our practice and plan to retire. She is 46yo and I am 51yo.
Currently we have about $4.5 Million in Tax deferred accounts( In that is about $2 million from Cash Balance plan we will be closing with practice)
We have about $3 Million in taxable accounts and other liquid assets.


I know it is 20 years out, but I am a little concerned about the amount of RMD especially as portfolio will continue to grow(Hopefully).
Any thoughts on a mega roth conversions probably in early 2022 when no have no working income anymore ?

Thanks for any advice.
LD

[JBME]

depends on your marginal rate but in the current tax scenario (which could change by 2022) I would make sure I have enough living expenses and convert all the way up to the 24% bracket

[jz-]

What If Congress Bans Backdoor Roth and Mega Backdoor Roth? (thefinancebuff.com)

Agree that you are on track for an RMD problem with high tax brackets.
Given that the legislation on this is pending,.........Harry Sit interprets that pre-tax to Roth conversions can continue through 2031, for those with income <400k. Pace your conversions out over the next ten years up to the 24% bracket.

[Kennyt7]

Agree completely. Convert as much as you can to fill 24% bracket
The govt is looking to limit IRA accounts as well
The SECURE ACT killed many of our best laid plans
RMDS for ROTHS???? not crazy

[StarTrekDoc]

Congrats on such a great savings rate! Going to be really hard to get that much converted over, but start now while you can to at least the 24% filled and if not more given the tax environment forthcoming.

I really don't understand why government would PREVENT a conversion as that generates a taxable event (vs allowing Tax deferred to sit). If I were current government would sunset ALL pretax and only allow Roth style savings.

[GasFIRE]

I agree with previous posters regarding the benefits of Roth conversions. At $4.5M in pre-tax, this will be a long term process. Don’t know what your AA is, but placing the bulk of any bond allocation in pre-tax will be beneficial. By placing lower performing assets here you slow the growth of the highest taxed portion of your portfolio. I would also consider having a cash bucket for at least 2-3 years of anticipated expenses that can be periodically refilled from your taxable account.

[spiritrider]

Any thoughts on a mega roth conversions probably in early 2022 when no have no working income anymore ?

To avoid confusion, it might be good idea to avoid using the term mega to describe very large traditional IRA Roth conversions.

Mega has a very specific connotation in the retirement account space as in Mega Backdoor Roths. Which are totally different accounts and process.

[MPMD]

fwiw i feel like this is one of the more difficult topics/decisions that comes up.

-high earner(s)
-significant assets
-retirement not imminent
-real chance of explosive portfolio growth

i mean it would be a good problem to have to have your passive retirement income kick off that much money, but it's still kind of a thorny problem.

[LoboDO]

yes our current plan is to spend about 150K on living expenses for the next 5-10 years...my thought was to slowly convert at least a $100K a year over next 10 years

[GasFIRE]

On a $4.5M account making yearly $100K Roth conversions is only going to slow the growth of your account. I suggest using this Schwab RMD calculator to give yourself a rough estimate:

https://www.schwab.com/ira/understand-iras/ira-calculators/rmd

With even modest growth you’re likely to end up with an 8 figure account in your 70s, with or without the $100K conversions. While a first world problem, with regards to Uncle Sam it’s either pay me now or pay me later. Currently the MFJ tax bracket for 24% is $330K. If you can pay the tax out of your taxable account, I would consider paying him now and fill up that 24% bracket.

[LoboDO]

Like the calculator..yes looks like I should probably triple conversion starting next year

[White.Beard.Doc]

Our plan is to convert tax deferred to Roth this year up to the top of the 24% bracket. For many years we have always been in the top bracket, and we anticipate that RMDs and other passive income could keep us in the top bracket, even in future retirement.

For 2021 we have a one time huge write off that will fully shelter all income from W2, S-corp, consulting, and RE. This deduction is due to RE investments that are throwing off bonus depreciation deductions in the setting of my spouse qualifying as a real estate professional.

[Kennyt7]

The govt is thinking of Capping IRA accounts

[White.Beard.Doc]

The govt is thinking of Capping IRA accounts

Yes, it looks like tax deferred accounts could potentially be capped at 10MM. It is likely that we will exceed that cap before we reach the RMD age of 72. And likely that any 2 high income couples that max out tax deferred every year for decades will be there as well.

The details of the legislation will matter. Will it be for certain types of accounts? For each spouse individually? There are way too many variables to be able to make any current plans based on this. I wonder, if I Roth convert now but have more than 10MM in the future, could my Roth account be taxed? That would constitute double taxation.

[Tim]

Yes, it looks like tax deferred accounts could potentially be capped at 10MM. It is likely that we will exceed that cap before we reach the RMD age of 72. And likely that any 2 high income couples that max out tax deferred every year for decades will be there as well.

The details of the legislation will matter. Will it be for certain types of accounts? For each spouse individually? There are way too many variables to be able to make any current plans based on this. I wonder, if I Roth convert now but have more than 10MM in the future, could my Roth account be taxed? That would constitute double taxation.

Double, single, triple are not considerations when considering wealth redistribution. Not a prediction, just for some the end justifies the means calling it "your fair share".
Remember that.