Roth Conversions While Taking RMDs? Here's What To Do...

Are you taking RMDs and wondering how to minimize your future tax liability? With strategic planning, Roth Conversions while taking RMDs is often prudent. You can schedule an appointment with one of our Retirement Experts to look at your situation and help you plan for your future. Call us at [phone] or go to www.safeguardinvest.com/contact.
Timestamps:
0:00 Are Roth Conversions Viable When Taking RMDs?
1:05 The RMD "Creep" Problem
1:52 2-Step Framework for RMD Decision Making
4:13 A Few Case Study Examples: Single Filer
6:34 Using QCDs Wisely To Help with RMD Creep
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[@paulsackles1329]

Fantastic Eric - I think you need to add a Tax Planning service to your SG practice ..😁

[@amerlin388]

This was actually first that I've heard that conversion to Roth does not satisfy RMD requirement. Good to know well before spouse and I start RMD. Can't emphasize this gem of knowledge enough.

[@ARTHURBAER]

Thanks

[@LoveKills70]

Any way to get propert tac waived

[@Casey-summer]

Small taxes can affect investment decisions such as whether to choose tax-free municipal bonds over taxable bonds or do a Roth IRA conversion. I’ve been sitting on over $745K equity from a home sale and I want to invest on the stock market, how do I achieve this without being taxed twice?

[@lilyhershey1]

There’s more benefit to holding fixed-income assets in tax-deferred retirement accounts as opposed to taxable accounts. If you're not who understands strategies to invest in the market, seek a Financial advisor to guide you.

[@Buffet-walton22]

Having an investment adviser is the best way to go about the stock market right now, especially for near retirees, I've been in touch with a coach for awhile now mostly and I made over $800K within a short time

[@Gallo-firestone]

​ *@stefantancredi4287* I've been thinking about going that route. I have a lot of stocks that I have maintained, but they are beginning to lose value, so I'm not sure if I should hold onto them or sell them. I feel hiring your investment coach would make it easier to restructure my portfolio.

[@Buffet-walton22]

I am guided by Camille Alicia Garcia. I found her on a CNBC interview where she was featured and reached out to her. She has since provided entry and exit points on the securities I focus on. You can look her up online if you care for supervision.

[@Gallo-firestone]

This recommendation literally came at the right time, I’m down by $7k in stocks this week alone.. its crazy! I just looked up Camille online and researched her accreditation. She seem very proficient, I wrote her detailing my Fin-market goals and scheduled a call.

[@Detectken]

I’m confused. IRMAA brackets for a single person (2024), are at $103k, $129k, $161k, etc. These don’t line up with the IRMAA dotted lines in the chart. What am I missing?

[@peter-hr1gl]

I have 11 years left before 75 and plan on converting 50-70% of taxable retirement accounts by then. I hope to not have to worry about the size of RMD's by then and have tax free income from Roth's combined with SS income. Much will depend on what happens in 2026 with the tax brackets and standard deduction.

[@larryjones9773]

I'm shooting to get 63% of my portfolio into my Roth, after which I hope to avoid the 22/25% federal tax brackets, IRMAA & NIIT. I've got 2 years to go.

[@artbaer3122]

Does it matter if you do a Roth conversion before you take out your annual RMD? How does the IRS know in which order you do conversions and the RMD?

[@Fred2-123]

@artbaer3122 By definition, you cannot. IRS says that all money taken out is RMD until you have reached your RMD. Also, you cannot roll a RMD withdrawal to a Roth. The IRS only knows what order you did things in if they audit you. So you might be able to get away with it.

[@shannonmcdonald4825]

Would you consider doing a Roth Conversion at the end of 2023 when the markets are up?

[@BasicPoke]

You have made several videos similar to this making it sound like one should simply make their income just below one of the IRMAA thresholds, but it is not that simple because the future IRMAA thresholds are unknown. Do you suggest we assume they will remain the same in the future when doing our calculations? Running through an actual calculation on Roth conversion amount would be very helpful. I have done some searching and not really found this on the internet.

[@larryjones9773]

IRMAA is inflation adjusted, thus I have a row in my spreadsheet titled 'MAGI for IRMAA Goal' and increase it by an inflation factor of 2.25%. I do the same with other rows, like 'Taxable Income Goal'. We always have to estimate when doing any future financial planning, as there are variables that are not yet known.

[@captsorghum]

With a tax cliff it's important not to go over, so it can be useful to stay a couple/few thousand below the intended threshold just to be safe. Many people assume an inflation of factor of 0% for that last year, just to provide that safety margin.

[@larryjones9773]

@@captsorghum Yes, I do the same. I went over the cliff a couple times (before I knew what IRMAA was).

[@captsorghum]

@@larryjones9773 Ouch. And you don't know it until two years later.

[@billh4285]

I'm 62, retired, and the New Retirement program is telling me to do huge (6 figures) Roth Conversions in 2024 and 2025 followed by smaller ones in 2026 and 2027. I think that will allow me to take advantage of the low brackets before they go back up. It will also allow me to do the majority of my conversions before it will cause IRMAA increases.

[@Flash-rg8bf]

I've seen the same. Safeguard videos also show this. However, it is kind of a gamble on what the tax rates/tables are going to be after 2025. Could actually pay more tax than optimal.

[@billh4285]

@@Flash-rg8bf Yes, that is why I will continue to update my info and make changes to my plan as I need to. I've been mistreated/ripped off by a few FPs and do not trust them anymore. That's why I'm using New Retirement.

[@ld5714]

Good video and discussion Eric. A topic one everyone should be knowlegable of and strongly consider. I'm retired 12 years, 74, so am taking SS and RMDs. I continue doing relatively small conversions each year to fill the 22% tax bracket. I will continue through 2025 until the TCJA sunsets in 2025; at which time we'll take another look and evaluate our situation.

[@kevinmccumber7489]

Whenever someone reports “going to the top of the 22% bracket” I question their logic if they are subject to IRMAA. If you are subject to IRMAA, the “tax” rate on the final $15,000 of the 22% bracket (MFJ, if both are subject to Medicare) is taxed at about 35% (IT plus IRMAA). If you are single, the final $8,000 in the 22% bracket is taxed at about 35%. (These are guesses since IRMAA thresholds for 2024 income are not yet known). It is better to “go to the first IRMAA threshold” or “go to the second IRMAA” threshold. Either stop before the 35% marginal bubble or blow right past it and pay some 24% marginal rates which are a bargain after paying 35%.

[@ld5714]

Agree and I keep it under the threshold.@@kevinmccumber7489

[@jerrylabat550]

@@kevinmccumber7489 You might want to look at this in actual dollars impact versus adding disparate percentages applied to different amounts. That first IRMAA penalty is like $1500 more in cost per year - double that if both are over 65. For a married couple filling out that 22% tax bracket they are looking at over $30k of federal taxes plus state taxes. Realistically we are talking about a 3-6% increase not 13%.

[@captsorghum]

For 2023 the joint filers 22% bracket ends at $190,750 plus $27,700 standard deduction = approx $218,450 AGI. The first 2024 IRMAA penalty starts at $206,000 MAGI. Exactly maxing out the 22% bracket means you would be $12,450 into the first penalty zone, at a cost of $1987 in IRMAA penalties for two people. That's a 16% marginal rate for IRMAA alone, 38% total. I would either reduce my conversions by at least $12,500 or increase them by $39,500 (actually I would stay a little below that, for safety). Of course that's assuming no itemization or tax exempt income.

[@kevinmccumber7489]

Thank you Capt for supporting the concept that "top of the 22% bracket" is not as good as "just short of the IRMAA threshold" due to the higher marginal rate caused by IRMAA of the last $8K-$15K in the 22% bracket. A small quibble with your numbers - The 2023 standard deduction is higher when one or both of the taxpayers is 65 or older. The 2024 IRMAA penalty is based on 2022 income, so you applied or compared 2023 tax rates to a 2022 income item. Regardless, the point remains the same - for those subject to IRMAA - the high end of the 22% tax bracket has marginal "tax" rates that are much higher than 22%.

[@conradkalb4464]

If you're at the age where you must take RMDs , don't you have to satisfy that years RMD requirements before you can do Roth conversions? Example, if you're taking RMDs monthly on the 1st , you can't do a conversion until December.

[@Fred2-123]

Yes.

[@michaelmclaughlin1958]

My biggest problem when planning how much to convert is we DON’T KNOW THE IRMMA BRACKETS! We have to guess. A ridiculous tax law that needs reform.

[@davegilbertson312]

If you Google 2025 Irmaa brackets you will find sites that have a pretty good estimate of what that will be.

[@larryjones9773]

True. Google 'The Finance Buff IRMAA' for help with planning, until tax reform.

[@amerlin388]

I would just treat the unknown bump up for the bracket as a safety margin in case of larger than expected 4th quarter dividends, etc.

[@glynnsimms1250]

You actually can look up the IRMAA tax brackets for 2 years into the future (in this tax year, 2024, you can find those brackets for 2026 in irs.gov). Look up IRMAA for 2026, that will tell you where to limit conversions this year, 2024. Your IRMAA penalty in 2026 will be based on this year’s income (2024). So brackets shown for 2026 will tell you where to be this year.

[@pensacola321]

At age 73, I have a bigish RMD and an IRMAA penalty. Personally I am not going to make any big changes at this point in my life. There can be unintended consequences. But if you are younger, plan if you can. Because I can get expensive and frustrating