In the process of transferring accounts from T Rowe to Schwab. Not worried about the Roth to Roth transfer. What do I need to know about transferring my rollover IRA to a Roth? Currently have both Roth and IRA setup at Schwab, haven't transferred yet.
Looking at converting roughly 320k to Roth, is it better to do over a few years or all at once? Any timing issues for tax purposes? In the 24% tax bracket currently, if that matters.

If the market returns something greater than 8% & change percent between now and the time you finish the conversion, is there really much of a difference in marginal 24% and 32%? How close are you to age 65? What does your capital gain situation look like? Do you itemize ever? Are you charitably inclined? Do you have cash to pay taxes or are you paying from the conversion? Do you have a bonus coming in Q1? What's your safe harbor?

Be careful of personalizing overly generic investment advice.

The stock market cannot provide an8% risk free return. No investment can. Avoid the 8% increase in taxes and do it over two to three years if it makes sense at all depending on age and any other pensions in retirement.

A couple of things I'd add.

What you're describing is a Roth conversion, not really a backdoor Roth. If you want to do backdoor Roths in future years, the $320k IRA can be a problem. The IRS looks at all of your traditional IRAs as one big pot (the pro-rata rule), so you can't just say you're converting only the new after-tax money. One way around it is to roll the IRA into your 401(k) at work, if the plan allows it. That move isn't taxable.

On the tax bill, permabull's math is right. Married filing jointly at the bottom of the 24% bracket, converting all $320k this year is roughly $88k of federal tax. Spread over three years it's closer to $77k if it all stays at 24%. That bracket ends at $403,550 of taxable income, so figure out where you are now. At $300k, you only have about $100k of room before the next dollars are taxed at 32%, then 35%.

I wouldn't get hung up on the 8% question. The money stays invested either way. What matters is the tax rate you pay now versus later. A few lower-income years after you retire, before Social Security and required withdrawals kick in, could be better years to convert.

If you're under 59.5, pay the tax with cash outside the IRA. Anything withheld from the IRA can also get hit with a 10% penalty. And make sure you've paid in enough during the year to avoid an underpayment penalty. Extra paycheck withholding late in the year can help fix that.

This is key and why we are doing this for next couple of years. I'm 52 (retired) and wife is 50 (self employed). Right now is our lowest taxable income trough of our life so we are converting over next 2-3 years while we are down here in the bottom rungs.

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What matters is the tax rate you pay now versus later. A few lower-income years after you retire, before Social Security and required withdrawals kick in, could be better years to convert.

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mosdefn14 said:

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If the market returns something greater than 8% & change percent between now and the time you finish the conversion, is there really much of a difference in marginal 24% and 32%? How close are you to age 65?

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Can you go over the math on this...... I struggle with the logic?

It's going to keep growing.

Carnwellag2 said:

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mosdefn14 said:

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If the market returns something greater than 8% & change percent between now and the time you finish the conversion, is there really much of a difference in marginal 24% and 32%? How close are you to age 65?

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Can you go over the math on this...... I struggle with the logic?

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The pretax balance would be growing meaning you need to convert more money over time resulting in more taxes vs getting that into the tax free bucket before the market climbs (don't want those gains in pretax bucket vs tax free bucket?). Too many things to forecast out of your control that worrying about it absent a current market crash would be overthinking it. If the market crashes, convert more so you can get it over before the rebound.

Have you run this by AI? With specific figures?

I run these scenarios a couple of times a day. Most people around 60 yrs old should convert most of their IRA in the first few years. I have seen it suggest well into the 37% tax bracket.

However, one I ran this morning said don't go above the 22% tax bracket.

It depends on how much you have outside of IRAs, how much you will spend, when you will retire, and what you will accumulate by RMD time.

The big mistake most make is thinking the jump from 24 to 32 is bad, but they don't account for how large the IRAs can get. RMDs, SS, and outside Roth investments can bring you into higher brackets triggering NIIT, IRMAA, and taxes on SS (not easy to avoid unless start early).

Yes, this is AI generated and the best calculate I could find. It is called MaxiFi and I think you can try it for free.

Just ran one on a 60yr old who will retire in 10yrs.

The calc suggested convert about 200k of the $350k in the next 4 yrs and staying in the 22% bracket.

I would think converting all in the next 10 yrs is best and it still may be. I will rerun it each year to see if it suggests changes. Reminder that even though this situation may show 200k of the 350k is best, it can also mean converting all over 8 yrs loses by $1.

The math for Roth conversions is similar to "lump sum" vs "dollar cost averaging". Just like "lump sum" investing into the market works out in most cases, doing large Roth conversions will work out in most cases. But there is a difference between statistics and your individual experience. Just because it works out in most cases, if you are the unlucky one that does a large Roth conversion right before a market dump it still stings.

The issue is when you do a Roth conversion you're pulling future taxes forward to today and hoping the back end tax free compounding, coupled with increasing tax rates in the future will pay off long term. However if the market drops, you just paid tax on dollars that might have never been taxed in the first place (because they went down in value). Assuming you are retired and doing Roth conversions early you are essentially increasing withdrawal rate early by pulling those taxes forward, which puts more pressure on your entire portfolio and increases your sequence of return risk. (i.e. if someone is doing a 4% withdrawal rate early in retirement but needs to pull another 1% to pay taxes on a conversion, they are now putting 5% pressure on their account early in retirement)

All that to say, there is no rule of thumb of what someone should do. Its an extremely unique to each person's personal situation and there are so many variables you can't give a very good recommendation without a holistic review of everything.