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I'm trying to understand if a Roth conversion makes sense this year.

Small interest/dividend income and SS benefit is all I'll have this year, as I have taxed accounts to make up the difference in what I need.

I'm looking at keeping the SS non-taxable, while putting some Traditional IRA money into a Roth by conversion.

I'm confused about the 5 year rules.
I'm over 59 1/2 and the Roth was established more than 5 years ago.

If I am in a low tax bracket, basically living on SS for realized income, does it make sense to do a conversion?

Is there a separate rule on the money I convert - does it have to be in the Roth account 5 years before it's tax free?


nag
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Small interest/dividend income and SS benefit is all I'll have this year, as I have taxed accounts to make up the difference in what I need.

Will there be any capital gains realized from those taxable accounts? That's income, too.

I'm looking at keeping the SS non-taxable, while putting some Traditional IRA money into a Roth by conversion.

Presumably, this means that your AGI (including Roth conversions and capital gains), plus any tax-free interest, plus 50% of your SS will be less than $25k (if not MFJ) or $32k (if MFJ).

If I am in a low tax bracket, basically living on SS for realized income, does it make sense to do a conversion?

Since you don't mention RMDs as a part of your income, presumably you will still be younger than 70 1/2 by the end of this year? If so, then I would say it depends on whether your RMDs are going to push you into a higher bracket when you have to start taking them. Here's an RMD calculator that you can use to figure what your RMDs could be: https://personal.vanguard.com/us/insights/retirement/living/... Please keep in mind, if your AGI (including RMDs) plus tax-exempt interest plus 50% of your SS income will push you above the $25k/$32k income levels, then your SS will become taxable, since those thresholds are not adjusted for income.

I'm confused about the 5 year rules.
I'm over 59 1/2 and the Roth was established more than 5 years ago.
.
.
.
Is there a separate rule on the money I convert - does it have to be in the Roth account 5 years before it's tax free?


Since you are over 59 1/2 and the Roth account was established more than 5 years ago, all distributions from the Roth will be qualified distributions, so there is no 5 year clock needed for the conversions. It's only when the distributions are not qualified that the ordering rules, which include the 5 year conversion rule, come into play.

AJ
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Thanks very much AJ!

nag
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Hi,

"Since you are over 59 1/2 and the Roth account was established more than 5 years ago, all distributions from the Roth will be qualified distributions, so there is no 5 year clock needed for the conversions. It's only when the distributions are not qualified that the ordering rules, which include the 5 year conversion rule, come into play."



So the 5 year "seasoning" is not a requirement for distributions for example, a 60 year old converts an does not need to wait to 65 to distributions from the conversation.

Sorry, I forgot how italics work here.

Regards,

SJ Coleman
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Sorry, I forgot how italics work here.

https://www.fool.com/community/advanced-features/#Styling

Styling Your Post

Yes, you too can now use bold and italic (even bold italic if you are really clever!) type in your board posts! Fancy!

For those of you who know HTML, just use the standard opening and closing HTML tags when you write your post. The rest of us will need that explained. At the beginning of the text you want to enhance, type for bold, and for italic. At the end of the enhanced text, type for bold, or
for italic, whichever you used (using both tags creates bold and italic text, of course).

Inserting a hyperlink is even simpler. Just type or paste it in. The post page will automatically change anything that starts with "www." or "http://" into a link. You don't have to do any fancy HTML formatting.

PRE tags are also supported for table data or ASCII art. Just use
 and 
surrounding the text. For word sentences within those tags, you will need to enter your own line breaks, or the post will be too wide to fit on the screen.

George
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So the 5 year "seasoning" is not a requirement for distributions for example, a 60 year old converts an does not need to wait to 65 to distributions from the conversation.

Well, there are two different kinds of 5 year "seasoning", which (I presume) is why the original poster was confused about the 5 year rules. Since you didn't specify which 5 year rule you are talking about when you say "seasoning", let me try to explain it again:

1. The Roth account must have been open for at least 5 years. The 60 year old DOES need to worry about this type of "seasoning" because if the account has not been open for at least 5 years, the distribution is not a qualified distribution. So the account itself has to have "seasoned" for at least 5 years, or the 60 year old will be subject to the other "seasoning" rules.

2. The other type of 5 year "seasoning" is the number of years each conversion has "seasoned". For instance, a conversion that was done in 2014 has 5 years of "seasoning" in 2019 - this year. If the 60 year old's distribution is a qualified distribution because their Roth account has been open for at least 5 years (see #1 above), then they do not need to worry about the "seasoning" of each year's conversions. But if the account has not been open for at least 5 years, then distributions will not be qualified distributions, and they do need to worry about the "seasoning" of each individual year's contributions, until the Roth account has been open for at least 5 years.

Please keep in mind that conversions are an attempt to manage future taxes. If the 60 year old is going to convert from a Traditional to a Roth, and then withdraw from the Roth in the same tax year, then there wasn't any reason to do the conversion - they may as well have just taken the money from the Traditional and put it into their spending account. For those who are over 59 1/2, doing conversions is probably going to be most effective if it's done with the intent of having lower RMDs in the future (managing their own future taxes), or wanting to leave Roth accounts for their beneficiaries, rather than leaving Traditional accounts (managing their beneficiary's future taxes). Any conversion reason other than tax management is questionable, IMO.

AJ
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If the 60 year old is going to convert from a Traditional to a Roth, and then withdraw from the Roth in the same tax year, then there wasn't any reason to do the conversion - they may as well have just taken the money from the Traditional and put it into their spending account.

Some states exempt some or all withdrawals from retirement accounts from state income taxes. If you live in one of those states converting from Traditional to Roth and then withdrawing from the Roth avoids state taxes.

https://www.forbes.com/sites/ashleaebeling/2017/02/21/senior...
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Some states exempt some or all withdrawals from retirement accounts from state income taxes. If you live in one of those states converting from Traditional to Roth and then withdrawing from the Roth avoids state taxes.

The way I read the article, whether you withdraw to spend or withdraw to convert, you're still avoiding state taxes. So, I'm not sure what taxes you're avoiding by converting and then withdrawing in the same year, rather than just withdrawing to spend.

AJ
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