Robert from FL posted over 7 years ago:

At retirement(year end),how to convert a 401k lump sum to a Roth IRA avoiding taxes?

George from TX posted over 7 years ago:

I don't understand the benefit ... the costs outweigh the benefits as I understand it.

1. You liquidate current IRA accounts ... which means you pay the IRS this year on your total IRA amount as "normal income".

2. You can invest the remainder in a Roth IRA, where future growth is "tax free".

Oops ... #1 forces me into approx. 50% tax bracket for the conversion year ... meaning I have to double my remaining investment to "break even" ... then, in theory, I've lost the inflation rate or "opportunity cost" in economic terminology.

Additionally, as a "retired" person, I make quarterly withdrawals from these IRA accounts - supplementing Social Security for living expenses.

Roth accounts seem to be a great idea for young people ... BUT not so good an idea for those of us who are retired.

Am I missing something?

Richard from NJ posted over 7 years ago:

I would like to hear the particulars of this posting

Paul from MD posted over 7 years ago:

You are absolutely right, Robert. I am 68 and work part time. New money I put in a Roth; but I have not touched my IRA because of the tax bite. When I start withdrawing my income will be less and the tax bite smaller.

Dan from FL posted over 6 years ago:

(63) I have the same opinion. I looked at converting and found no benefit other than estate planning. I think a Roth is treated differently and would benefit our heirs, possibly?

Suzane from NV posted over 6 years ago:

Conversion does not need to be all or nothing as I understand it. I am converting a portion of my IRA to Roth so that I will have a liquid source of funds free from AMT preference. Also, with Medicare cost brackets changing and cost for higher income rising I am trying to think about future MAGI levels. At least for a change we know what AMT will be doing for two years instead of just one.

Kevin from CO posted over 6 years ago:

I think Robert's sceanrio is an interesting one. The ROTH IRA seems to make more sense for those of us in the "planning for retirement phase". I am 51 and just converted a fair portion of my investments into a ROTH. With increased pressure on taxes, the conversion seemed wise. I now have 15+ years to contribute to it and let it grow. That being said, I am going to write the IRS a nice check this year. OUCH! Time is on my side, now I just need to invest wisely. AAII is helping me with that.

Hudson from IA posted over 6 years ago:

(34) All these comments make good sense and provide some nice perspective. I did convert all of two previous 401ks simply because I knew this was the last time I could spread them over two years. I considered doing it slowly over time, but I expect my tax bracket to increase as my income (hopefully) increases. As a younger person I made the switch, but were I near retirement I would not get too excited about a conversion unless I had a GREAT reason to do it.

Stanley from NV posted over 6 years ago:

The ROTH IRA should be maximized each year with the thought of leaving it to love ones who will benefit the most from the investment or to charity but never left to the local,state or federal governmental bodies.....

Nathan from OH posted over 5 years ago:

This is my first post so hope I can ask a question not related to the issue above?

When we start withdrawing from our investments for retirement, is it better to draw down IRAs first or non-deferred accounts?

Anthony Diana from NY posted over 4 years ago:

I make withdrawals first from my Non- IRA Accounts first, since the taxes are already paid. Once I reached 70 and 1/2 I had to take MRD's out every year or face a 50% fine from the Government. I take these withdrawal out of my Money Market IRA so that it will not effect my equity portion of my IRAs. If possible, it's usually better to wait till after you retire to withdraw from IRAs so you can pay less taxes. I did not convert to Roth IRAs, since you would have to pay up-front taxes!

Steve from PA posted over 2 years ago:

I have some issue with Myth#1. Some people say 70% some say 100% but I think they all suffer from thinking one size fits all. I would think, or hope, that most members here are investing for retirement and try to reduce or elimate debt. If you are living on $100,000 a year but are investing $20,000 a year and making mortgage payments of $30,000 a year you are really lviing on $50,000. Instead of using a percentage why not look at your current spending, remove anything you won't be paying in retirement, add in any new expenses and increase for inflation?

I also think it is a shame that there are no new or current articles dealing with retirement on the site. Retirement is one of, if not the largest reason to be investing. It would seem from the comments that a good article on IRA conversions would help a lot of the members.

Don Bain from OR posted over 2 years ago:

I agree with Steve. With so many of us crossing the threshold of retirement age, and retirement/estate planning being a big important topic which necessarily overlaps with investing, AAII should be providing a lot more on these topics. AAII should even offer a whole section in print and on line covering such issues.

Personally, the idea of devoting my time, attention & energy to baby sitting a portfolio of individual stocks and other asset class investments is about as appealing as cleaning the house daily. It's not a hobby or shouldn't be another job!

JAMES from Illinois posted about 1 year ago:

I must admit I think I am somewhat better off than most retirees. I invested carefully all bonuses received during my working years and invested all dividends received except for occasionally buying a car. My income now is more than three times what it was when working. I converted my relatively small IRA to roth six years ago and have been happy with the results. I knew the tax rate would never be lower than then. A work sheet provided by TDAmeritrade indicated that my grandchildren would be a half-million dollars to the good by my converting then even with the tax bite which was substantial.

JAMES from ILLINOIS posted about 1 year ago:

I just read Don's above. I have two suggestions that have worked very well for me. First pick several very substantial stocks that pay a very good dividend (mine are in energy and consumer goods)then a couple of good bond funds (mine are municipals) that pay monthly. You will sleep very well at night. Then for the occasional speculative investments I go by the AAII Superstars who tell you when to buy and when to sell. That's the only trading I do and though I do watch the totals daily for the fun of it I don't play nursemaid to my portfolio. I have been investing since 1950.

Jim from MA posted about 1 year ago:

Sorry AAII members, no offense intended. I have just watched an excellent 2.5 hour video by Paul Merriman with a presentation you can print if needed on retirement withdrawal strategies. He also discusses asset allocations models and recommends funds. See http://paulmerriman.com/financial-fitness-forever-video/

FYI - I have been following recommendations from several education sources

Christopher Viscomi from VT posted about 1 year ago:

A few comments:
-The percentage of income needed discussion is flawed. If much of your working years' income was spent on sending kids to college, paying for a house, family vacations, you can now spend much less. Unlike when you had children, you can now choose the off season to travel. You will likely have downsized into a smaller and less costly home.
-Once retired (but prior to age 70.5), it makes sense to use your non-retirement savings to live off of, and make a limited conversion of your IRA/403b to a Roth up to the limit of low tax brackets. For example, convert $90k to a Roth while still staying within the lowest tax brackets. This will lower your RMDs and taxes once you hit 70.5 yrs,

Matthew Moran from NH posted about 1 year ago:

The Roth IRA has tremendous benefits if invested wisely with a long term perspective. For example, ROTH, unlike a traditional IRA has no MRD and you can determine when you withdraw the income growing tax-deferred. The benefit is to have appreciating assets or likely more risky investments that also have more reward that support one's need to cover inflationary exposure. Therefore even at 60 with potentially 25 or greater life expectancy that fund if not needed or required for MRD at 70 1/2 has potential to growth appreciably from let's say 71 to 85 with you determining when to withdraw from this tax free account. Unfortunately for most of us we did not take advantage of a ROTH IRD in our 20's or 30's as they did not exist. I encourage my daughter an husband to do this now in their 20's to prepare for their future before their contributions are phased out.

Steven Sellers from PA posted about 1 month ago:

Wait until the market takes a dump then convert a portion of your traditional IRA to the Roth IRA while trying to stay in a lower tax bracket then repeat when appropriate until conversion is done before you are 70.5 years old and have to take RMD

George from Georgia posted 23 days ago:

Because this article is somewhat out of date, I would love to know if the same rules and outcomes are the same under the new tax laws. For example, could it be smart to withdraw money from a traditional IRA early to keep the tax down if you are in one of the lower tax brackets?

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