Proposed update to Roth Conversion wiki page
Re: Proposed update to Roth Conversion wiki page
OK, seems we have consensus to make the changes I've proposed so I'll do that.
Re: Proposed update to Roth Conversion wiki page
Any other feedback before the draft goes live?
Re: Proposed update to Roth Conversion wiki page
Some edits in the draft version, primarily to simplify the introductory sections.
No objection if someone wants to put back some of the "How to convert" text that warned about "converting to just under an IRMAA" limit and the like into the "Details" or "Cautions" section, but given the downside to being as little as $1 over an IRMAA tier I don't know that we should be suggesting such an action, even by reference.
No objection if someone wants to put back some of the "How to convert" text that warned about "converting to just under an IRMAA" limit and the like into the "Details" or "Cautions" section, but given the downside to being as little as $1 over an IRMAA tier I don't know that we should be suggesting such an action, even by reference.
Re: Proposed update to Roth Conversion wiki page
I'm not sure exactly what you're proposing. I created the draft, with some reorganization and added details but no major content changes, and posted it for public comment. Feedback on the changes has been positive overall, and I've gotten some great suggestions for edits (including from you) and incorporated all of them to the draft page. It's been reviewed by a lot of folks who may have never looked at the current page and who probably wouldn't make edits on their own. At this point, it's not practical to try to merge the two pages in some way.
I can tell you're unhappy overall. You've remarked many times here that you don't think the current page should be changed, but that's how a wiki works and I don't think I can help you on that point. But, you have given valuable feedback, and I've listened to it all and made all but one of the changes you suggested - the only exception being minor edits to the first sentence of "Whether to convert", which was proven by our conversation to be ambiguous, and you seem to agree the edit covers all bases. You're a smart dude and have been a valuable contributor for a long time; I want your input to make the page as good as we can. If you have more specific changes you'd like to see, please post them here and I will absolutely consider them. Otherwise, the draft has been through about a week of good review and I think we're ready to "go live."
Re: Proposed update to Roth Conversion wiki page
Oh, I see what happened. Thanks for the edits, I’ll take a look tonight.FiveK wrote: ↑Mon May 22, 2023 7:51 pm Some edits in the draft version, primarily to simplify the introductory sections.
No objection if someone wants to put back some of the "How to convert" text that warned about "converting to just under an IRMAA" limit and the like into the "Details" or "Cautions" section, but given the downside to being as little as $1 over an IRMAA tier I don't know that we should be suggesting such an action, even by reference.
Re: Proposed update to Roth Conversion wiki page
More edits, primarily in the "Whether, when..." section but also trying to get the "Using a spreadsheet" heading in an appropriate place.
Re: Proposed update to Roth Conversion wiki page
Read through your changes, here are my thoughts:
Most textual changes are good. Thanks!
I'd rather not give "Nomenclature" its own section; it looks a little clunky for three sentences, but if you feel strongly about it I'm willing to compromise.
"How to convert" has to go back further down the page. Maybe not to the bottom but highest just above "Specific situations". It's not a close call in terms of logical flow; the number of readers who will be interested in the other content first will vastly outnumber the ones who come to this page only looking for instructions on how to convert. No other reviewer had a problem with this change, and it would have been easy to say so. Another problem is that the content about in-kind vs. cash conversions has been removed; these were requested and I think it's valuable to some readers. Adding all this back in lengthens that section and increases the cost for having it so high on the page. If other reviewers feel strongly it belongs at the top I'll reconsider, but barring that I'm going to move it back down.
About coming in under IRMAA tiers specifically, I get what you're saying. On the other hand, (a) it's a very common issue to deal with; all folks 63+ with enough income to make IRMAA a threat have to navigate that terrain, (b) there is the two-year delay that gives some buffer for miscalculations, and (c) the consequences for going up a tier are not enormous. I'm okay leaving it out though if others feel strongly.
The phrase "In a simplistic sense" was meant to cover the "maxing out" effect which can be pretty big. Someone in the top bracket today will have a break-even withdrawal rate in the mid-20% range after a few decades. Removing that phrase makes it sound like it should be a simple comparison of rates, which only applies if paying the taxes from the conversion. I'm not committed to that phrase, but we should use some other language to cover this effect - "similar to or less than" perhaps?
I really think we should keep contribution and conversion tools separate. My tool is a bit of a hybrid, in that it runs equations that can apply to both, but tools like McQ's and MDM's are really conversion-only and belong on the conversion page. What is your objection to having those tools just on the conversion page and linking there whenever you need?
The addition of text about non-progressive tax rate curves is good, but should go below the mention of progressive rates and the Kitces article. Both for theoretical and practical reasons, progressive rates should be discussed first as the baseline, then non-progressive as the special case.
You added back a sentence that says "Roth IRA conversion" which should be changed to "Roth conversion".
That's all for now, thanks again.
Re: Proposed update to Roth Conversion wiki page
Agreed, we can't have that.You added back a sentence that says "Roth IRA conversion" which should be changed to "Roth conversion".
That's how it is now: the progressive rate structure is described as "Typically, ..." while the non-progressive follows under "the opposite sometimes happens:...."The addition of text about non-progressive tax rate curves is good, but should go below the mention of progressive rates and the Kitces article. Both for theoretical and practical reasons, progressive rates should be discussed first as the baseline, then non-progressive as the special case.
Don't understand. This is the conversion page, so...?I really think we should keep contribution and conversion tools separate. My tool is a bit of a hybrid, in that it runs equations that can apply to both, but tools like McQ's and MDM's are really conversion-only and belong on the conversion page. What is your objection to having those tools just on the conversion page and linking there whenever you need?
Perhaps somewhat of a semantic issue. Not just "in a simplistic sense" but in all cases "Roth conversions of pre-tax money will be advantageous whenever the tax rate on the conversion is less than the tax rate on a later withdrawal." Yes, there are additional cases in which conversions will be advantageous even if the conversion tax rate isn't too much greater than the later tax rate.The phrase "In a simplistic sense" was meant to cover the "maxing out" effect which can be pretty big. Someone in the top bracket today will have a break-even withdrawal rate in the mid-20% range after a few decades. Removing that phrase makes it sound like it should be a simple comparison of rates, which only applies if paying the taxes from the conversion. I'm not committed to that phrase, but we should use some other language to cover this effect - "similar to or less than" perhaps?
Strongly? No. Subscribing to the philosophy that providing information in bite-sized chunks is most accessible to the new reader? Yes.I'd rather not give "Nomenclature" its own section; it looks a little clunky for three sentences, but if you feel strongly about it I'm willing to compromise.
IRMAA is already in the "Cautions" section. Don't know that we need to belabor it....About coming in under IRMAA tiers specifically, I get what you're saying. On the other hand, (a) it's a very common issue to deal with; all folks 63+ with enough income to make IRMAA a threat have to navigate that terrain, (b) there is the two-year delay that gives some buffer for miscalculations, and (c) the consequences for going up a tier are not enormous. I'm okay leaving it out though if others feel strongly.
Comments from all others were indeed good, but we're still talking single digit numbers, and most of those comments were focused on issues of specific concern to the commenter. This is as one would expect: few people are going to comment positively or negatively on every single change."How to convert" has to go back further down the page. Maybe not to the bottom but highest just above "Specific situations". It's not a close call in terms of logical flow; the number of readers who will be interested in the other content first will vastly outnumber the ones who come to this page only looking for instructions on how to convert. No other reviewer had a problem with this change, and it would have been easy to say so.
Another single digit counting would be 3 in favor of having how to convert at the top (the original wiki author, FiveK, and the Investopedia article authors), and 1 opposed (fyre4ce). You are probably correct that most will be more interested in "whether" than "how", but a short "this can be done easily" that caters to the uninformed and daunted seems in keeping with Boglehead philosophy of making personal finance more accessible to exactly that group.
Perhaps include in-kind vs. cash conversions in the Details section?Another problem is that the content about in-kind vs. cash conversions has been removed; these were requested and I think it's valuable to some readers. Adding all this back in lengthens that section and increases the cost for having it so high on the page. If other reviewers feel strongly it belongs at the top I'll reconsider, but barring that I'm going to move it back down.
Good to know that we can collaborate.Most textual changes are good. Thanks!
Re: Proposed update to Roth Conversion wiki page
I think and hope so. I just updated the draft with my proposed edits. The biggest one was moving How to convert back down, but I put two sentences in the header that I hope serve a similar function to why you want it up high - reassures readers it's easy, outlines the process, and informs readers about the differences between conversions from an IRA and employer plans. Relocating that section avoids breaking up the flow of the page for what we seem to agree most readers are most interested in - whether/when/how much to convert. And it allows additional room for the detail on in-kind vs. cash, tax withholding, etc. which I think is good.
On your "creative accounting" on consensus, we have no idea whether the original author even consciously decided to lay the page out that way (as opposed to, say multiple editors coincidentally adding sections in that order), let alone having them here to explain why that was the better choice. If I'm honest, in my experience some of the older pages of the wiki have grammar/layout issues. When I rewrote Managing a windfall a few years ago, the organization was not great - parents were sub-sections to children, some steps were out of order, etc. We should not be beholden to a current layout if there seem to be good reasons to change it. As for Investopedia, it's a good resource but has much less depth than the BH wiki and will attract a different set of readers, and for that reason alone I don't think we should copy their style. I agree there probably are some readers who are just looking for "How", but again, we should be tailoring the page to the typical reader. The less common readers can still find the How to info with one click of the link.
I made the few other minor changes I mentioned, and left your edited text otherwise the same. I'm willing to compromise and publish this draft, and I hope you are too. It's clear to me it's a big improvement on the current live page.
My comment about contribution/conversion was more targeted at this section of the Traditional vs. Roth page where you lay out the a/b/c situations. We both agree (a) and (b) are mathematically equivalent, but (c) is both more complicated and explicitly for conversions rather than contributions. My suggestion is to strip out the conversion-only content from that page, probably by replacing your a/b/c list with a couple sentences saying the math for conversion decisions is similar, and adding a link to the conversion page for the more detailed tools that can analyze those early retirement scenarios. But we can make that decision independently of publishing this conversion page.
Re: Proposed update to Roth Conversion wiki page
Next (final-ish?) converging(?) iteration posted.
Should David Grabiner choose to comment - and if he remembers - then we would know what the original author thought.
The proof of the pudding - i.e., whether these edits improve the existing page or not - may never be known, because we don't get statistically significant feedback on this or any wiki page. If a wiki page lends itself (or a section thereof) to being linked in response to forum questions, that's a good measure of success.
The "T vs. R" page does (and should) address both contributions and conversions. Including the simple commutative math there, along with the three "'Traditional plus taxable' vs. Roth" situations, is appropriate.
Should David Grabiner choose to comment - and if he remembers - then we would know what the original author thought.
The proof of the pudding - i.e., whether these edits improve the existing page or not - may never be known, because we don't get statistically significant feedback on this or any wiki page. If a wiki page lends itself (or a section thereof) to being linked in response to forum questions, that's a good measure of success.
The "T vs. R" page does (and should) address both contributions and conversions. Including the simple commutative math there, along with the three "'Traditional plus taxable' vs. Roth" situations, is appropriate.
Re: Proposed update to Roth Conversion wiki page
I made a couple edits to the paragraph in question. In general I think advising people to contact their brokerage is better than to (in effect) "google it", but I put the Fidelity link in a footnote. I also clarified the mechanism for allowing conversions after separating from an employer. I'm not sure I would say that partial conversions after separation may not be possible, because it should always be possible to roll pre-tax funds out into a traditional IRA, and then convert however much you want from there. Hope that all makes sense and you're ok with it.FiveK wrote: ↑Sat May 27, 2023 5:49 pm Next (final-ish?) converging(?) iteration posted.
Should David Grabiner choose to comment - and if he remembers - then we would know what the original author thought.
The proof of the pudding - i.e., whether these edits improve the existing page or not - may never be known, because we don't get statistically significant feedback on this or any wiki page. If a wiki page lends itself (or a section thereof) to being linked in response to forum questions, that's a good measure of success.
The "T vs. R" page does (and should) address both contributions and conversions. Including the simple commutative math there, along with the three "'Traditional plus taxable' vs. Roth" situations, is appropriate.
I would welcome Grabiner's comments on this wiki edit or any other. Do you want to send him a PM?
I definitely agree some more objective measure of the value of a wiki page to readers in the target audience (mostly not you and me) would be really helpful. I'm not sure counting links in forum posts is the best way though - I can link my favorite page in 1,000 forum posts, but that doesn't necessarily mean the original posters even read it, let alone find it helpful. Some kind of "thumbs up/thumbs down" or "1-5 star" popup might be good? I think it's quite hard to get good quality and quantity feedback, because most people don't take the time to give it. Doing an edit like this one will get eyes on the page (by being posted in the forums) that might not otherwise see it, including some experienced members. Maybe only a dozen or so members will respond, but this thread does have 5,300 views, which is something... Clearly a broader issue than just for this page. I'm happy to help with any suggestions to solicit more valuable feedback.
Speaking of broader issues, I have always thought the "T vs. R" page primarily focused on contributions, with links in a few places to this Conversions page where the topics butt up against one another. That page is very detailed, and clearly for this Conversions page I linked to major section of T vs. R where it would be redundant to repeat the same material. It makes some sense to keep the topics separated - contributions can only happen during working years, which are less likely to have conversions make sense because of the income, although there will be lots of exceptions. I'd have to think about whether I'd prefer T vs. R to be focused mostly on contributions or cover both more equally. If it is meant to cover conversions too, there are probably places where discussion of conversions should be added. I don't think that should hold up this page though, if it's ready to be published.
Re: Proposed update to Roth Conversion wiki page
Just a few more edits....
1) Negating the "rule of 55" for amounts people want to withdraw (but not convert) between age 55 and 59.5, and
2) Interfering with the backdoor Roth process if that remains of interest.
Both of those situations occur frequently enough in forum questions that it is worth mentioning in this wiki.
Helping people realize they can find things on their own may be more valuable, but your contact suggestion remains. The conversions aren't limited to those coming from a tIRA.
Yes, that is possible, but it can have two downsides:I also clarified the mechanism for allowing conversions after separating from an employer. I'm not sure I would say that partial conversions after separation may not be possible, because it should always be possible to roll pre-tax funds out into a traditional IRA, and then convert however much you want from there. Hope that all makes sense and you're ok with it.
1) Negating the "rule of 55" for amounts people want to withdraw (but not convert) between age 55 and 59.5, and
2) Interfering with the backdoor Roth process if that remains of interest.
Both of those situations occur frequently enough in forum questions that it is worth mentioning in this wiki.
Could well be that he has seen but figures it's six of one vs. a half dozen of another.I would welcome Grabiner's comments on this wiki edit or any other. Do you want to send him a PM?
Yes - no objective measure of wiki quality in general. Just commenting on the one subjective measure that the more non-authors choose to quote (a section of) an article, the more likely it is good. E.g., your SS taxation "heat map" has been well received by that measure.I definitely agree some more objective measure of the value of a wiki page to readers in the target audience (mostly not you and me) would be really helpful. I'm not sure counting links in forum posts is the best way though - I can link my favorite page in 1,000 forum posts, but that doesn't necessarily mean the original posters even read it, let alone find it helpful. Some kind of "thumbs up/thumbs down" or "1-5 star" popup might be good? I think it's quite hard to get good quality and quantity feedback, because most people don't take the time to give it. Doing an edit like this one will get eyes on the page (by being posted in the forums) that might not otherwise see it, including some experienced members. Maybe only a dozen or so members will respond, but this thread does have 5,300 views, which is something... Clearly a broader issue than just for this page. I'm happy to help with any suggestions to solicit more valuable feedback.
At some point, enough is enough....Speaking of broader issues, I have always thought the "T vs. R" page primarily focused on contributions, with links in a few places to this Conversions page where the topics butt up against one another. That page is very detailed, and clearly for this Conversions page I linked to major section of T vs. R where it would be redundant to repeat the same material. It makes some sense to keep the topics separated - contributions can only happen during working years, which are less likely to have conversions make sense because of the income, although there will be lots of exceptions. I'd have to think about whether I'd prefer T vs. R to be focused mostly on contributions or cover both more equally. If it is meant to cover conversions too, there are probably places where discussion of conversions should be added. I don't think that should hold up this page though, if it's ready to be published.
Re: Proposed update to Roth Conversion wiki page
Telling readers to do an web search sounds... unprofessional? But I admit, search engines are good enough that they usually take you to the information you want, if it's publicly available. I'd still much prefer to leave that clause out, but if you insist I'm okay publishing as-is. I need to wrap up this review soon due to some upcoming non-BH responsibilities. No issues with the other edits.FiveK wrote: ↑Sun May 28, 2023 11:05 pm Just a few more edits....
Helping people realize they can find things on their own may be more valuable, but your contact suggestion remains. The conversions aren't limited to those coming from a tIRA.
Yes, that is possible, but it can have two downsides:I also clarified the mechanism for allowing conversions after separating from an employer. I'm not sure I would say that partial conversions after separation may not be possible, because it should always be possible to roll pre-tax funds out into a traditional IRA, and then convert however much you want from there. Hope that all makes sense and you're ok with it.
1) Negating the "rule of 55" for amounts people want to withdraw (but not convert) between age 55 and 59.5, and
2) Interfering with the backdoor Roth process if that remains of interest.
Both of those situations occur frequently enough in forum questions that it is worth mentioning in this wiki.
Could well be that he has seen but figures it's six of one vs. a half dozen of another.I would welcome Grabiner's comments on this wiki edit or any other. Do you want to send him a PM?
Yes - no objective measure of wiki quality in general. Just commenting on the one subjective measure that the more non-authors choose to quote (a section of) an article, the more likely it is good. E.g., your SS taxation "heat map" has been well received by that measure.I definitely agree some more objective measure of the value of a wiki page to readers in the target audience (mostly not you and me) would be really helpful. I'm not sure counting links in forum posts is the best way though - I can link my favorite page in 1,000 forum posts, but that doesn't necessarily mean the original posters even read it, let alone find it helpful. Some kind of "thumbs up/thumbs down" or "1-5 star" popup might be good? I think it's quite hard to get good quality and quantity feedback, because most people don't take the time to give it. Doing an edit like this one will get eyes on the page (by being posted in the forums) that might not otherwise see it, including some experienced members. Maybe only a dozen or so members will respond, but this thread does have 5,300 views, which is something... Clearly a broader issue than just for this page. I'm happy to help with any suggestions to solicit more valuable feedback.
At some point, enough is enough....Speaking of broader issues, I have always thought the "T vs. R" page primarily focused on contributions, with links in a few places to this Conversions page where the topics butt up against one another. That page is very detailed, and clearly for this Conversions page I linked to major section of T vs. R where it would be redundant to repeat the same material. It makes some sense to keep the topics separated - contributions can only happen during working years, which are less likely to have conversions make sense because of the income, although there will be lots of exceptions. I'd have to think about whether I'd prefer T vs. R to be focused mostly on contributions or cover both more equally. If it is meant to cover conversions too, there are probably places where discussion of conversions should be added. I don't think that should hold up this page though, if it's ready to be published.
Re: Proposed update to Roth Conversion wiki page
Some amount of "unprofessionalism" can be a good thing in a wiki article, making it more accessible to a wider audience. Assuming no other contributor suggestions, going for it as is looks good.fyre4ce wrote: ↑Mon May 29, 2023 1:27 amTelling readers to do an web search sounds... unprofessional? But I admit, search engines are good enough that they usually take you to the information you want, if it's publicly available. I'd still much prefer to leave that clause out, but if you insist I'm okay publishing as-is. I need to wrap up this review soon due to some upcoming non-BH responsibilities. No issues with the other edits.
Re: Proposed update to Roth Conversion wiki page
My issue wasn't just the informal tone. It was more that we can't control where a search engine sends people to. CSR's aren't infallible either, but at least if someone gets wrong instruction from a CSR they might have a case for some remedy if things go awry.FiveK wrote: ↑Mon May 29, 2023 4:35 amSome amount of "unprofessionalism" can be a good thing in a wiki article, making it more accessible to a wider audience. Assuming no other contributor suggestions, going for it as is looks good.fyre4ce wrote: ↑Mon May 29, 2023 1:27 amTelling readers to do an web search sounds... unprofessional? But I admit, search engines are good enough that they usually take you to the information you want, if it's publicly available. I'd still much prefer to leave that clause out, but if you insist I'm okay publishing as-is. I need to wrap up this review soon due to some upcoming non-BH responsibilities. No issues with the other edits.
Re: Proposed update to Roth Conversion wiki page
The new page is live! Thanks to all those who participated.
Re: Proposed update to Roth Conversion wiki page
How about “when to stop Roth converting?”
I did a web Boglehead search but came up empty handed. It seems like a good question?
I did a web Boglehead search but came up empty handed. It seems like a good question?
Re: Proposed update to Roth Conversion wiki page
A short answer is "when the conversions stop looking advantageous" - in other words, when the current marginal rate appears much higher than the predicted future marginal rate.
Examples can be useful. Is there a situation you have in mind?
Re: Proposed update to Roth Conversion wiki page
The live page addresses this to an extent:
Sometimes it makes sense to only convert a small amount, or none at all. Other times, it makes sense to convert your entire pre-tax balance.Also note that the decision to convert a given amount only applies so long as the marginal tax rate remains the same. Once the marginal tax rate increases, for example when crossing into the next tax bracket, the decision of whether to convert more money should be made separately. Typically, this results in converting to the top of your current tax bracket this year, and converting the remainder in future year.
Likewise, consider the possible effect on future marginal tax rates by making large Roth conversions - if you substantially reduce your pre-tax balance, your predicted future tax bracket may be lower due to smaller taxable withdrawals or Required Minimum Distributions (RMDs), reducing the benefit of further conversions. Due to the usually progressive nature of the US tax system, a major overall goal of tax-planning with Roth conversions is to equalize tax rates as much as possible across all the years of your life.
Does this help?
Re: Proposed update to Roth Conversion wiki page
I’m thinking life planning should be included. Why convert if family doesn’t want or need help. Why not give now when the need is greater. Why should I sacrifice for my heirs. Without going above say $180k AGI we can avoid IRMAA. For me and many others that should be plenty. Donation is different but likely a lower tax burden.
Pay yourself first. You’ve toiled for years, spend it. We know that many/most retired folks save too much as it is. Tax now vs. later. Life cycle spending has increased validity knowing this. Break the frugality habit. Join Penny Pinchers Anonymous, a 12 step program. I’m the local chapter treasurer.
Divorce, death, health issues, probably other issues with heirs and self will surface and change the plans. Too much to anticipate and plan for. Major life events can’t always be anticipated. Cancer, cardiac episodes, infection may upset the apple cart.
Point is there be a stopping point at which 4% draw plus SS tells me to convert no more.
Now remember, I’m not saying this is appropriate for everyone, I’m suggesting awareness be included in the Wiki. Maybe this applies to a limited few, say tIRA plus Roth, etc. of about $2-5 million or so.
Pay yourself first. You’ve toiled for years, spend it. We know that many/most retired folks save too much as it is. Tax now vs. later. Life cycle spending has increased validity knowing this. Break the frugality habit. Join Penny Pinchers Anonymous, a 12 step program. I’m the local chapter treasurer.
Divorce, death, health issues, probably other issues with heirs and self will surface and change the plans. Too much to anticipate and plan for. Major life events can’t always be anticipated. Cancer, cardiac episodes, infection may upset the apple cart.
Point is there be a stopping point at which 4% draw plus SS tells me to convert no more.
Now remember, I’m not saying this is appropriate for everyone, I’m suggesting awareness be included in the Wiki. Maybe this applies to a limited few, say tIRA plus Roth, etc. of about $2-5 million or so.
-
- Posts: 1226
- Joined: Tue Feb 28, 2017 3:59 pm
Re: Proposed update to Roth Conversion wiki page
Maybe a separate BH wiki is needed on how much to hold in pre-tax IRAs? This would include the question of when to stop contributing to pre-tax while still working.fyre4ce wrote: ↑Tue May 30, 2023 11:47 pmThe live page addresses this to an extent:
Sometimes it makes sense to only convert a small amount, or none at all. Other times, it makes sense to convert your entire pre-tax balance.Also note that the decision to convert a given amount only applies so long as the marginal tax rate remains the same. Once the marginal tax rate increases, for example when crossing into the next tax bracket, the decision of whether to convert more money should be made separately. Typically, this results in converting to the top of your current tax bracket this year, and converting the remainder in future year.
Likewise, consider the possible effect on future marginal tax rates by making large Roth conversions - if you substantially reduce your pre-tax balance, your predicted future tax bracket may be lower due to smaller taxable withdrawals or Required Minimum Distributions (RMDs), reducing the benefit of further conversions. Due to the usually progressive nature of the US tax system, a major overall goal of tax-planning with Roth conversions is to equalize tax rates as much as possible across all the years of your life.
Does this help?
About a year ago, in 2022, I posted a thread asking when to stop converting. My thinking was that I should stop converting when the balance of my pre-tax IRAs had been reduced to a specific amount (for example, $400K - $500K for a single taxpayer). Initially, I had a ratio in mind (goal of splitting tax-advantaged funds, with 50% in tax-deferred and 50% in Roth), but could find no reason to justify this measure, as there would be no way to sustain it over my retirement years.
In mid-2022, at age 74, my pre-tax IRAs had been reduced to $500K (due to conversions, RMDs, and market decline), but I wanted to take advantage of the downmarket to continue conversions. OTOH, After 10 years of retirement, I had just been "promoted" from HoH to single filer (my son graduated from college and started a job), and I knew that my reduced standard deduction would increase my effective tax rate without changing my marginal tax rate. I paid about $6K extra in taxes in 2022 than I would have as HoH.
I plan to continue Roth conversions for a few more years, but at a slower pace, with a goal of reducing pre-tax IRAs to a balance of $400K.
Re: Proposed update to Roth Conversion wiki page
I am thinking these issues are beyond the scope of just Roth conversions and should be addressed as part of a comprehensive estate plan. I don't think this page can tell you whether you SHOULD spend all your money yourself, or leave it to your heirs. But it does tell you, given your choice, whether you should prefer to keep more money in pre-tax or convert it to Roth.hvaclorax wrote: ↑Wed May 31, 2023 9:19 am I’m thinking life planning should be included. Why convert if family doesn’t want or need help. Why not give now when the need is greater. Why should I sacrifice for my heirs. Without going above say $180k AGI we can avoid IRMAA. For me and many others that should be plenty. Donation is different but likely a lower tax burden.
Pay yourself first. You’ve toiled for years, spend it. We know that many/most retired folks save too much as it is. Tax now vs. later. Life cycle spending has increased validity knowing this. Break the frugality habit. Join Penny Pinchers Anonymous, a 12 step program. I’m the local chapter treasurer.
Divorce, death, health issues, probably other issues with heirs and self will surface and change the plans. Too much to anticipate and plan for. Major life events can’t always be anticipated. Cancer, cardiac episodes, infection may upset the apple cart.
Point is there be a stopping point at which 4% draw plus SS tells me to convert no more.
Now remember, I’m not saying this is appropriate for everyone, I’m suggesting awareness be included in the Wiki. Maybe this applies to a limited few, say tIRA plus Roth, etc. of about $2-5 million or so.
Do you want to propose some specific edits?
Re: Proposed update to Roth Conversion wiki page
Agree those issues don't belong in Roth Conversion page; they're generic enough and apply to a number of investing options during various parts of one's life.fyre4ce wrote: ↑Wed May 31, 2023 10:57 amI am thinking these issues are beyond the scope of just Roth conversions and should be addressed as part of a comprehensive estate plan. I don't think this page can tell you whether you SHOULD spend all your money yourself, or leave it to your heirs. But it does tell you, given your choice, whether you should prefer to keep more money in pre-tax or convert it to Roth.hvaclorax wrote: ↑Wed May 31, 2023 9:19 am I’m thinking life planning should be included. Why convert if family doesn’t want or need help. Why not give now when the need is greater. Why should I sacrifice for my heirs. Without going above say $180k AGI we can avoid IRMAA. For me and many others that should be plenty. Donation is different but likely a lower tax burden.
Pay yourself first. You’ve toiled for years, spend it. We know that many/most retired folks save too much as it is. Tax now vs. later. Life cycle spending has increased validity knowing this. Break the frugality habit. Join Penny Pinchers Anonymous, a 12 step program. I’m the local chapter treasurer.
Divorce, death, health issues, probably other issues with heirs and self will surface and change the plans. Too much to anticipate and plan for. Major life events can’t always be anticipated. Cancer, cardiac episodes, infection may upset the apple cart.
Point is there be a stopping point at which 4% draw plus SS tells me to convert no more.
Now remember, I’m not saying this is appropriate for everyone, I’m suggesting awareness be included in the Wiki. Maybe this applies to a limited few, say tIRA plus Roth, etc. of about $2-5 million or so.
Do you want to propose some specific edits?
A couple other wiki articles are good jumping off points for such issues:
https://www.bogleheads.org/wiki/Investm ... _statement
https://www.bogleheads.org/wiki/Retirem ... _statement
Re: Proposed update to Roth Conversion wiki page
I think your question should be addressed by this page and the Traditional vs. Roth page, though maybe they could do it better.RetiredCSProf wrote: ↑Wed May 31, 2023 10:49 amMaybe a separate BH wiki is needed on how much to hold in pre-tax IRAs? This would include the question of when to stop contributing to pre-tax while still working.fyre4ce wrote: ↑Tue May 30, 2023 11:47 pmThe live page addresses this to an extent:
Sometimes it makes sense to only convert a small amount, or none at all. Other times, it makes sense to convert your entire pre-tax balance.Also note that the decision to convert a given amount only applies so long as the marginal tax rate remains the same. Once the marginal tax rate increases, for example when crossing into the next tax bracket, the decision of whether to convert more money should be made separately. Typically, this results in converting to the top of your current tax bracket this year, and converting the remainder in future year.
Likewise, consider the possible effect on future marginal tax rates by making large Roth conversions - if you substantially reduce your pre-tax balance, your predicted future tax bracket may be lower due to smaller taxable withdrawals or Required Minimum Distributions (RMDs), reducing the benefit of further conversions. Due to the usually progressive nature of the US tax system, a major overall goal of tax-planning with Roth conversions is to equalize tax rates as much as possible across all the years of your life.
Does this help?
About a year ago, in 2022, I posted a thread asking when to stop converting. My thinking was that I should stop converting when the balance of my pre-tax IRAs had been reduced to a specific amount (for example, $400K - $500K for a single taxpayer). Initially, I had a ratio in mind (goal of splitting tax-advantaged funds, with 50% in tax-deferred and 50% in Roth), but could find no reason to justify this measure, as there would be no way to sustain it over my retirement years.
In mid-2022, at age 74, my pre-tax IRAs had been reduced to $500K (due to conversions, RMDs, and market decline), but I wanted to take advantage of the downmarket to continue conversions. OTOH, After 10 years of retirement, I had just been "promoted" from HoH to single filer (my son graduated from college and started a job), and I knew that my reduced standard deduction would increase my effective tax rate without changing my marginal tax rate. I paid about $6K extra in taxes in 2022 than I would have as HoH.
I plan to continue Roth conversions for a few more years, but at a slower pace, with a goal of reducing pre-tax IRAs to a balance of $400K.
One common misconception I see is that people try to target some ideal ratio of pre-tax to Roth funds (you cited an example of 50/50). I don't think this is the right way to think about the problem. Once money becomes Roth, the taxes paid on it are water under the bridge and it ceases to have any interaction with future taxes. Pre-tax money has a huge impact on future taxes, and I think it usually makes more sense to target a specific dollar amount of pre-tax money that depends on one's overall tax situation. Say you collect $40k/year of Social Security and have no other income besides pre-tax withdrawals, and no state taxes. If you use a tool like the Personal Finance Toolbox you can plot marginal tax rate vs. tIRA withdrawal, and several major breakpoints become evident:
Code: Select all
Total tIRA Marginal Tax Rate Pre-Tax Balance to Support
Withdrawal/Conversion Compared to Last Breakpoint Withdrawal @ 4%
==============================================================================
$12,000 0% $300,000
$13,800 15% $345,000
$18,200 18.5% $455,000
$36,400 22.2% $910,000
$72,800 ~28.2% $1,820,000
$163,200 ~28.3% $4,080,000
$464,000 ~35.0% $11,600,000
The software tools on the page, specifically the MDM Spreadsheet and the Retiree Portfolio Model, can automate parts of this calculation.
Does this help?
Re: Proposed update to Roth Conversion wiki page
Regarding the suggested Wiki changes, why not add a paragraph or two about when to stop Roth converting. I’ve opened the subject for the author to consider.
To use a tool such as conversion one should know when to use, when to stop.
All the other cool kids are doing it, why not. That’s the question the author should at least consider.
Consider how many threads address Roth. Search for when to stop. Not much there. Professor McQuire addressed it, so could the Wiki.
It does save tax to convert. No doubt. For some, other life events are pressing. Events that no one can put a slide rule on. Medical expenses are deductible after a floor is met. 10 or 15% IIRC.
Many individuals have life altering issues. They had a great plan that was rudely interrupted.
The authors dot need to stretch the overarching message just give a nod to our fragility, frailty, uncertainty.
There is a bias where those of us on the forum are alive and currently unencumbered. A survival bias so to speak.
Others may think differently.
Thanks
To use a tool such as conversion one should know when to use, when to stop.
All the other cool kids are doing it, why not. That’s the question the author should at least consider.
Consider how many threads address Roth. Search for when to stop. Not much there. Professor McQuire addressed it, so could the Wiki.
It does save tax to convert. No doubt. For some, other life events are pressing. Events that no one can put a slide rule on. Medical expenses are deductible after a floor is met. 10 or 15% IIRC.
Many individuals have life altering issues. They had a great plan that was rudely interrupted.
The authors dot need to stretch the overarching message just give a nod to our fragility, frailty, uncertainty.
There is a bias where those of us on the forum are alive and currently unencumbered. A survival bias so to speak.
Others may think differently.
Thanks
Re: Proposed update to Roth Conversion wiki page
The conversion isn’t driven solely by tax advantages. There is a large element of uncertainty. Life events can happen to change the math. Except those few who have such a long timeline that even death and dying aren’t worrisome over several generations.
I see tax rates driving the decision where a nod to events other than financial should be included. The tax tail is wagging the dog. Selection bias probably, those of us who are answering this thread are not the ones who are going through these life events. (My suspicion.)
These events that change the math are mostly health related. How many of us won’t have health issues sooner or later.
By way of example, my younger DS was recently diagnosed with severe cancer. She had followed the all the advice for risk factor avoidance and screening but still developed a serious condition. Now chemotherapy and surgery won’t allow her dreams to be fulfilled. It’s life altering.
Advance planning for black swan events is reasonable since the black swan is more common than we thought.
Bottom line, since no one can predict these events, health, divorce, legal, or other calamities why base the decision on tax rates. It gives a sense of certainty that doesn’t exist.
We address the idea that the unpredictable can’t be planned for because we know in a vague sense that it will happen sooner or later.
Death is not optional. Or is it off the subject as some would argue?
Re: Proposed update to Roth Conversion wiki page
We may be saying more or less the same thing.hvaclorax wrote: ↑Thu Jun 01, 2023 9:42 amThe conversion isn’t driven solely by tax advantages. There is a large element of uncertainty. Life events can happen to change the math.
...
Whether a conversion will have been advantageous can be known only in hindsight. The math is the math, but without a working crystal ball we don't know all values in the equations ahead of time. The best any of us can do is make our best guess and go from there. How much to hedge those bets, and what to hedge against, will differ from person to person.
Is that at all close to your perspective also?
Re: Proposed update to Roth Conversion wiki page
Yes, very close.
There may be a time when data becomes available to look at probability. No one hits the bullseye every time. Currently Roth conversion is new enough that we can’t do anything but our best guess. Data for morbidity and mortality is available however. Not a pleasant topic for some but necessary to allow for.
McQuire addressed this issue but my search came up empty. (See McQ August 15, 2021 and his answer to my question. His response was close to the point. Sorry I can’t get you to the exact page.)
I’d be skeptical and I’d look at pros cons threats and opportunities here. When we don’t know we try to insure our outcomes. In this case we’ll have paid the taxes and can’t reverse that. To me caution is the best way to go.
The wiki authors will have the last say.
Thanks so much for consolidating my thoughts.
There may be a time when data becomes available to look at probability. No one hits the bullseye every time. Currently Roth conversion is new enough that we can’t do anything but our best guess. Data for morbidity and mortality is available however. Not a pleasant topic for some but necessary to allow for.
McQuire addressed this issue but my search came up empty. (See McQ August 15, 2021 and his answer to my question. His response was close to the point. Sorry I can’t get you to the exact page.)
I’d be skeptical and I’d look at pros cons threats and opportunities here. When we don’t know we try to insure our outcomes. In this case we’ll have paid the taxes and can’t reverse that. To me caution is the best way to go.
The wiki authors will have the last say.
Thanks so much for consolidating my thoughts.
Re: Proposed update to Roth Conversion wiki page
Intelligence and biology are really two different things. We have our plans and even the best laid plans can be derailed by the unexpected. It’s later than we think.
Roth conversion to third tier IRMAA (standard x 2.6) vs no conversion (standard Medicare.)
Incomes $350k converting just below the IRMAA tier vs $180k not converting
$100k into Roth vs no conversion (actually will draw $25k from Roth for taxes)
$85k tax Roth vs $27k Fed and State ( $25k paid through Roth withdrawal.)
$15k Medicare with IRMAA vs $5k no IRMAA
$65k essential spend. Same for both
Total Disposable with Roth 350-265=85
Total Disposable with no Roth 180-72=108 Disposable including travel gifting entertainment
85/108=79% or 21% more with no Roth
Also kids don’t need/want what’s left. Bequest can be given either way.
Currently $2.1 tIRA $1.2 Roth IRA. With this much investable why live on $85k even if the tax situation would suggest Roth is better, yielding more terminal wealth. Would be spent but not by me.
My situation given the vagaries of health and wellbeing suggests no Roth or stop what I’ve already accomplished. Only with high prediction of returns for stocks over the next decade or more would I be better off with Roth.
Also Roth will be $100k higher and-$25k lower in above situations. Some might point out that overall Roth conversion is better for wealth but not so good for disposable income. I know which one I’d choose.
Roth conversion to third tier IRMAA (standard x 2.6) vs no conversion (standard Medicare.)
Incomes $350k converting just below the IRMAA tier vs $180k not converting
$100k into Roth vs no conversion (actually will draw $25k from Roth for taxes)
$85k tax Roth vs $27k Fed and State ( $25k paid through Roth withdrawal.)
$15k Medicare with IRMAA vs $5k no IRMAA
$65k essential spend. Same for both
Total Disposable with Roth 350-265=85
Total Disposable with no Roth 180-72=108 Disposable including travel gifting entertainment
85/108=79% or 21% more with no Roth
Also kids don’t need/want what’s left. Bequest can be given either way.
Currently $2.1 tIRA $1.2 Roth IRA. With this much investable why live on $85k even if the tax situation would suggest Roth is better, yielding more terminal wealth. Would be spent but not by me.
My situation given the vagaries of health and wellbeing suggests no Roth or stop what I’ve already accomplished. Only with high prediction of returns for stocks over the next decade or more would I be better off with Roth.
Also Roth will be $100k higher and-$25k lower in above situations. Some might point out that overall Roth conversion is better for wealth but not so good for disposable income. I know which one I’d choose.
Re: Proposed update to Roth Conversion wiki page
Yes, if the alternative is withdrawal/conversion at less favorable marginal rate in the future.
Paying too high a price for conversion is something to avoid.
In the example given, it isn't clear (to me) what the "apples v. apples" comparison is...?
Re: Proposed update to Roth Conversion wiki page
I’m making Roth to no Roth comparisons. Apples to apples would be oversimplifying. I’m not comparing tax rates now with conversion vs later depending on which are likely to be favorable.
I think about when not to convert or in my situation when to stop converting. Life events in my opinion need to be considered. If life events, not simply taxes, are considered then we approach real world decision making. And conservatively one might hedge bets with this in mind. Simply saying “it’s not likely or quantifiable” doesn’t cut it. Or another way of saying it would be now vs delayed where delay might not turn out as planned.
I might have answered my own question. Terminal wealth (when you die) vs maximum current disposable income (while living.) Which one would you choose?
I think about when not to convert or in my situation when to stop converting. Life events in my opinion need to be considered. If life events, not simply taxes, are considered then we approach real world decision making. And conservatively one might hedge bets with this in mind. Simply saying “it’s not likely or quantifiable” doesn’t cut it. Or another way of saying it would be now vs delayed where delay might not turn out as planned.
I might have answered my own question. Terminal wealth (when you die) vs maximum current disposable income (while living.) Which one would you choose?
Re: Proposed update to Roth Conversion wiki page
Simply as I can put it:
There is a difference in disposable income with Roth vs no Roth, Roth looses
Morbidity and mortality are statistical but not unknown. They’re known unknowns. With uncertainty about actual individual outcomes why plan for solely for total wealth. Don’t put your money in one basket. It’s a bell curve.
My concern about Roth conversion is that I’ll have to wait some time possibly decades for Roth to come out ahead and by then it likely will to go family and charities. So stop when those gifts are taken care of.
Remember we’re giving advice to the Wiki authors. I’m hoping they will add some words about uncertainty and when to stop.
There is a difference in disposable income with Roth vs no Roth, Roth looses
Morbidity and mortality are statistical but not unknown. They’re known unknowns. With uncertainty about actual individual outcomes why plan for solely for total wealth. Don’t put your money in one basket. It’s a bell curve.
My concern about Roth conversion is that I’ll have to wait some time possibly decades for Roth to come out ahead and by then it likely will to go family and charities. So stop when those gifts are taken care of.
Remember we’re giving advice to the Wiki authors. I’m hoping they will add some words about uncertainty and when to stop.
Re: Proposed update to Roth Conversion wiki page
"Payback time" might apply when facing situations b) or c) described in "Traditional plus taxable" vs. Roth.
Otherwise, because the IRS taxes a conversion no worse (and sometimes less) than a withdrawal, and assuming all Roth distributions are qualified, if the marginal tax rates are the same there seems no difference between
a) converting this year and then withdrawing from Roth next year (or later this year), vs.
b) waiting until next year (or later this year) to withdraw from the traditional account.
Could you elaborate on the concern about waiting decades for a Roth conversion to come out ahead? You aren't the only one who has ever said that, but often the context isn't clear.
Re: Proposed update to Roth Conversion wiki page
Mathematically what you are saying is correct. Unfortunately science doesn’t always prove that what makes sense mathematically is valid.
The conversion to Roth is fairly new, and we don’t know long-term how it has affected returns. I’m hesitant to get into a A plus B equals C argument because that isn’t really how I am looking at the problem.
I’m looking at in terms of probability and uncertainty. One of the responses I got was that this is unknown. But my rebuttal is it’s a known unknown as mortality and morbidity data are available for any timeline. Our dreams may not be realized.
I know annual stock returns aren’t always the same as individual stock returns. Unfortunately, they are usually poorer.
I don’t always hit the bullseye. Rather the target shows a cluster. That’s what we’re looking for here. I’m quite surprised that uncertainty hasn’t worked its way into the subject. I’m wondering, not certain, which cluster of returns will be optimal and I suppose that it will be stratified by age, mortality.
So again why not give a nod to uncertainty. We can’t always hit the bullseye.
The conversion to Roth is fairly new, and we don’t know long-term how it has affected returns. I’m hesitant to get into a A plus B equals C argument because that isn’t really how I am looking at the problem.
I’m looking at in terms of probability and uncertainty. One of the responses I got was that this is unknown. But my rebuttal is it’s a known unknown as mortality and morbidity data are available for any timeline. Our dreams may not be realized.
I know annual stock returns aren’t always the same as individual stock returns. Unfortunately, they are usually poorer.
I don’t always hit the bullseye. Rather the target shows a cluster. That’s what we’re looking for here. I’m quite surprised that uncertainty hasn’t worked its way into the subject. I’m wondering, not certain, which cluster of returns will be optimal and I suppose that it will be stratified by age, mortality.
So again why not give a nod to uncertainty. We can’t always hit the bullseye.
-
- Posts: 1819
- Joined: Thu May 26, 2011 9:36 pm
Re: Proposed update to Roth Conversion wiki page
The variable TIME is not a factor, unless you are so inclined to throw a taxable account into the mix, just to confuse people. First you must know how to swim before jumping in the deep end.hvaclorax wrote: ↑Mon Jun 05, 2023 7:07 am Mathematically what you are saying is correct. Unfortunately science doesn’t always prove that what makes sense mathematically is valid.
The conversion to Roth is fairly new, and we don’t know long-term how it has affected returns. I’m hesitant to get into a A plus B equals C argument because that isn’t really how I am looking at the problem.
I’m looking at in terms of probability and uncertainty. One of the responses I got was that this is unknown. But my rebuttal is it’s a known unknown as mortality and morbidity data are available for any timeline. Our dreams may not be realized.
I know annual stock returns aren’t always the same as individual stock returns. Unfortunately, they are usually poorer.
I don’t always hit the bullseye. Rather the target shows a cluster. That’s what we’re looking for here. I’m quite surprised that uncertainty hasn’t worked its way into the subject. I’m wondering, not certain, which cluster of returns will be optimal and I suppose that it will be stratified by age, mortality.
So again why not give a nod to uncertainty. We can’t always hit the bullseye.
Uncertainly drops to 50% only after the end of the tax year of the conversion, and at that point in time 50% of the uncertainty is gone. You can essentially assign dollar by dollar a tax cost to each dollar converted, much like you assign a cost basis to every stock bought in a taxable account. But let's forget about taxable accounts adding them to the mix is not helpful for you to learn how to swim. Now whether the Conversion was "right" or "wrong" in the eyes of having more spendable income is only dependent on one thing and that is the tax cost of each dollar spent. It is much easier to not do this on a dollar by dollar basis, but if you want the math to be "valid" as you suggest then you have to be precise in your numbers to get accurate results.
However, like you suggest we don't have to know "accurate" numbers on how much money was saved or loss. First, we just have to know if we made the right choice in the eyes of spending our TDA and Roth money wisely. Right or wrong is probably the wrong choice of words but in most cases unless the tax delta between in and out is large you have probably spent more money going to your favorite coffee shop 2 or 3 times a week.
In this two dimensional world of TDA and Roth accounts there is NO way to make a Roth conversion win by waiting it out to age 100 or beyond, each dollar has a tax cost assigned to it and there is only one period involved and that is when you sell it ("it" being the twin pre-tax dollar that would have been in the TDA account compounded by the same growth as the Roth account.) The reason to sell that dollar in the TDA as an RMD has no bearing on the math.
Stock returns are actually irrelevant to the above discussion and so is asset placement for equal tax rates.
Investor A takes $5000 of earnings and buys $3750 AAPL stock to put in their Roth and $5000 of TLT to put in their TDA.
At the exact same time Investor B takes $5000 of earnings and buys $3750 TLT to put in their Roth and $5000 of AAPL to put in their TDA.
AAPL compounds at 28% for 10 years and TLT compounds at 7% for 10 years. Both investors end up with $51,649 of spendable income, but stay in their equal tax rates of 25%.
I agree there is enough uncertainty in investing to drive the proverbial truck through but that uncertainty does not really come from whether to do a Roth conversion or not and you don't need a PHD in math to understand it if you stick to the basics.
Personally, I think the Roth Conversion wiki and others such as Trad vs Roth are good, but don't need the confusion of the taxable account dropped into this subject. As it relates to either the TDA or Roth it is a less efficient account, so mixing it in with TDA and Roth sort of defeats the purpose in choosing between the two.
I love simulated data. It turns the impossible into the possible!
Re: Proposed update to Roth Conversion wiki page
You’ve left me with a lot to contemplate. I have a question as I mull over the rest. I’m not certain if time isn’t part of the equation. Doesn’t it take time for the Roth Conversion to bear fruit? During that period my social, medical, legal and financial situation could change. And my heirs might suffer the same issues.
So when the math plays out to the positive the person or people making the Roth Conversion may not do so well in other spheres. As the timeline lengthens we become more uncertain. I say, respecting the uncertainty, why not temper Roth Conversion?
In other words it’s a biostatistical calculation. I can’t see how the biology doesn’t trump the financial decision. I could do more conversions but 1/3 Roth 2/3 TDA is fine for me.
One other thing, I’m worried so many Roth enthusiasts are on this bandwagon. Shouldn’t I be suspicious when others are not. A new tool to play with. Only time will tell. Statistics on this issue will be a long time coming.
Thanks again for your response.
So when the math plays out to the positive the person or people making the Roth Conversion may not do so well in other spheres. As the timeline lengthens we become more uncertain. I say, respecting the uncertainty, why not temper Roth Conversion?
In other words it’s a biostatistical calculation. I can’t see how the biology doesn’t trump the financial decision. I could do more conversions but 1/3 Roth 2/3 TDA is fine for me.
One other thing, I’m worried so many Roth enthusiasts are on this bandwagon. Shouldn’t I be suspicious when others are not. A new tool to play with. Only time will tell. Statistics on this issue will be a long time coming.
Thanks again for your response.
-
- Posts: 1819
- Joined: Thu May 26, 2011 9:36 pm
Re: Proposed update to Roth Conversion wiki page
What I am saying is time doesn't matter only in the baseline case where we are living in a flat tax world. This is the world where we have to agree on what happens before we can look at what happens in the real world.hvaclorax wrote: ↑Wed Jul 19, 2023 4:54 pm You’ve left me with a lot to contemplate. I have a question as I mull over the rest. I’m not certain if time isn’t part of the equation. Doesn’t it take time for the Roth Conversion to bear fruit? During that period my social, medical, legal and financial situation could change. And my heirs might suffer the same issues.
1. In the baseline case where you put expected growth does not matter as I showed above.
2. Also in the baseline case the Roth NEVER wins no matter how long you hold it.
3. In the baseline case taxable accounts (IRMAAs, NIT and other nonlinear limits) are not put in the mix - but I can prove that at least taxable accounts don't change anything, if you install the proper initial conditions that compare investor pre-tax earnings to post-tax withdrawals.
I absolutely agree with the Boglehead wiki statement that essentially says your best choice on average is to not do Roth conversions at all, especially if you have no idea what your retirement tax-rate will be, because a high percentage of people fall into the case where smaller Roth is better.hvaclorax wrote: ↑Wed Jul 19, 2023 4:54 pm
So when the math plays out to the positive the person or people making the Roth Conversion may not do so well in other spheres. As the timeline lengthens, we become more uncertain. I say, respecting the uncertainty, why not temper Roth Conversion?
In other words, it’s a biostatistical calculation. I can’t see how the biology doesn’t trump the financial decision. I could do more conversions, but 1/3 Roth 2/3 TDA is fine for me.
One other thing, I’m worried so many Roth enthusiasts are on this bandwagon. Shouldn’t I be suspicious when others are not. A new tool to play with. Only time will tell. Statistics on this issue will be a long time coming.
Thanks again for your response.
In fact, I remember a statement somewhere in the wiki that suggested Roth conversions done at 15% or below have a much higher success rate that converting in higher tax brackets and my all research (done before I ever read that statement) came to the same conclusion.
I love simulated data. It turns the impossible into the possible!
Re: Proposed update to Roth Conversion wiki page
Thanks. The wiki doesn’t address the issue that human experience may cause a poor outcome. Some might do well to avoid high Roth Conversion amounts. My best guess is that factors other than financial will affect some 25% or more of investors where the schedule of conversations might be overly ambitious. That percentage is not based on anything except my experience. It’s possible the individuals participating in the Boglehead blog are more likely to be wealthy and have better outcomes. As you point out conversion is not likely to help people who are in higher tax brackets. Are those the only ones who are showing great interest in conversion? Not if we go by the personal finances of respondents. Death and taxes, which one can we avoid.
HVAC
HVAC