Do Roth Conversions Make Sense for Seniors?

[stuartkuz]

Roth conversions for RE folks seem to be a good way to access IRA monies before being old enough to withdraw those funds without a penalty. As a senior who is in the RMD zone, I could also convert IRA funds to Roths. Would this allow funds to last longer? (Yeah, Mrs and I are not so thrifty anymore. Been there and done that.) Money taken out of an IRA, is taxed as income. By paying the tax up front from taxable accounts, the IRA money could be put into a ROTH. After the taxed accounts and the IRA are depleted, the Roth and its growth would not be taxed at all. The question, is which technique would have the resources last longer.  This Google drive spreadsheet seems to say it doesn't matter much at all.
https://docs.google.com/spreadsheets/d/1v0xy3wYT-4BAKAQRo_iS2mimuJyfLvrLVdlUpPb-ZdU/edit?usp=sharing

Would love to have errors in thinking or execution pointed out.

Thanks!

[ixtap]

The Roth conversions would be above and beyond your RMDs. As such, for some it may make sense to try to do some conversions before the tax rates go back up in a few years. However, tax rates are pretty unpredictable in the long term, so who knows?

[MDM]

After the taxed accounts and the IRA are depleted....

You probably don't want to go this far voluntarily.  No need to empty the tIRA when you can withdraw the standard deduction amount tax free each year (assuming no other ordinary income).

[stuartkuz]

Actually, for us, the goal is to have the market, IRAs and any Roth accounts all depleted at the same time as the heart, liver and other organs. ;-)

The exercise/question/spreadsheet is more general, trying to see if there is a financial benefit to convert IRAs to a Roth for those of us old enough to draw on both accounts. Since Roths are attractive for their tax free growth, the question is whether there is a financial reason to go thru the brain damage to convert IRAs to a Roth.

It would seem that taxable resources should be depleted first taking only RMDs from the IRA, allowing as much as possible to grow tax free. 

[MDM]

...trying to see if there is a financial benefit to convert IRAs to a Roth for those of us old enough to draw on both accounts.

The answer to this question always comes down to the marginal rate you would pay now, vs. the marginal rate you would pay later.

See Traditional versus Roth - Bogleheads, particularly Maxing out your retirement accounts if you will pay the conversion tax from cash on hand.

[stuartkuz]

Thanks MDM of MMM. Being new to MMM, these links show the value of a meeting place like this where others have already worked through the same concerns. Many bring valuable experience and personal knowledge with them. Thanks again.

[ender]

The Roth conversions would be above and beyond your RMDs. As such, for some it may make sense to try to do some conversions before the tax rates go back up in a few years. However, tax rates are pretty unpredictable in the long term, so who knows?

It also depends on what "seniors" means - you may want to do conversions to lower your RMD requirements.

But if "seniors" starts at 70 years old this matters less :)

[stuartkuz]

In my case, the 70 year old threshold was crossed a few years ago.

Why does that make the Roth less interesting?

[MDM]

In my case, the 70 year old threshold was crossed a few years ago.

Why does that make the Roth less interesting?

RMDs and SS benefits may increase the marginal cost of Roth conversions.

[Car Jack]

In my case, the 70 year old threshold was crossed a few years ago.

Why does that make the Roth less interesting?

A big benefit of converting some tIRA money to Roth money is to reduce RMDs.  Between 59 1/2 and 70, there's no penalty for taking IRA or 401k money out beyond paying taxes.  If one has stopped working and minimized income (no ss, no pension, etc), then a bigger chunk of tIRA money can come out for absolutely zero tax.  So it's sort of more than just the Roth part....it's the pulling out of a tIRA or 401k.

There can be complications, like having a lot of tIRA pre tax sitting there.  I've got that problem with half of my savings in pre-tax IRAs, so Roth conversions make no sense for me unless I roll them all back into my 401k.

It's all about minimizing taxes....that's all it is.

[MDM]

There can be complications, like having a lot of tIRA pre tax sitting there.  I've got that problem with half of my savings in pre-tax IRAs, so Roth conversions make [the backdoor Roth process makes] no sense for me unless I roll them all back into my 401k.

The paragraph as orginally written is specifically pertinent to the Backdoor Roth process, not so much the generic thread title.

[BTDretire]

I have a 76 year old friend that is stuck with $80k of RMDs, it's certainly a first world problem,
but I think many would want the $80K but rather pull it from a Roth, than have the RMD's to worry about.
At 64yrs old, I'm certainly going to Roth convert all I can, I hope to stay in the 12% bracket, but it's possible that time would
put me ahead, even if I paid in the 22% bracket.