RMD and possible Roth conversions

[Kamban]

Depends a lot on how the tax scenario will be in 20+ years. If the ordinary income tax rates gets very high would it not be better to bite the bullet and convert more of the pre tax into Roth now, pay the taxes but enjoy tax free growth for 40+ years?

The only caveat might be that they might enforce RMD for Roth or, horror of horrors, start taxing Roth !!!

[litovskyassetmanagement]

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.

An easier way to calculate how much to convert is to subtract current age from 72, and to divide the total amount by the number of years, and this would give us a ballpark. Depending on the size of one's portfolio, 10-15 years might be enough to get high ROI vs. waiting for RMDs. Not too many docs will have more than 15 years to convert ~$5M account until age 72 anyway, so if one has 20+ years, converting over a longer period of time is great, but even if one does it over 10 years vs. 20, they'll still be far ahead. In some cases even 5 years is acceptable.

Short answer is that nobody really knows how to do this optimally because this involves lots of assumptions and considerations, some of which are described here:

https://www.whitecoatinvestor.com/mega-backdoor-roth-with-erisa-401k-plans/

The only thing we can really do is compare various scenarios side by side. Compared with RMD scenario, Roth conversion (whether done over 20 or over 10 years, depending on the size of the account) will still win over the long term (even if the doc reaches a breakeven point and doesn't live long enough to realize positive gains), as there is estate planning to consider as well (which is what makes this so complex). I bet that over 20 years the results will be even better but probably not by a huge amount because the biggest savings come from prepaying taxes via Roth conversions vs. taking RMDs. I haven't ran the 10 vs. 20 year calculations (due to limitation of available tools), but the tax savings will definitely depend on the size of converted portfolio.

[ENT Doc]

Have you considered a SEPP until 59.5?

[Kennyt7]

David Graham I think just does advice/reviews; not managing acts

[Kennyt7]

They might even dictate RMDS for Roths!!!

[Tim]

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

Here is Fidelity's.

https://www.fidelity.com/retirement-planning/overview

It allows additional planning factors and gives you the ability to see significantly below, below, and average returns as well as the withdrawal levels.
The detail spreadsheet gives the results including the RMD's based on the assumptions and data you put in.

The result is the same, the tax deferred will grow.

David Graham at FiPhysician.Com has been used by some here. Hourly fee that you might want to consider.

[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.

[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.

[Kennyt7]

The govt is thinking of Capping IRA accounts

[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.

[LoboDO]

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

[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]

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

[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.

[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.