Roth conversion

[Bubba]

I was reading the latest FRTIB minutes. There is discussion in allowing some kind of Roth conversion. I thought that was interesting since I've never read that in prior discussions from them.

Enjoy!

Best,

Bubba

[jimcasada]

https://www.frtib.gov/meeting-minutes/
Is this where you are seeing this? Interesting reading here. I wish I could have put some TSP into the Roth, but they where forcing me to work so much overtime those last few years, I was afraid of being forced into a higher tax bracket. I think they started the Roth option too late in my career to really help me. I would suggest folks get into early on.

[12squared]

the Office of Participant Experience (OPE) is "researching the feasibility of Roth in-plan conversions, which would allow participants to convert their traditional, pre-tax TSP assets to Roth."

from https://www.frtib.gov/meeting-minutes/

[bloobs]

https://www.frtib.gov/meeting-minutes/
Is this where you are seeing this? Interesting reading here. I wish I could have put some TSP into the Roth, but they where forcing me to work so much overtime those last few years, I was afraid of being forced into a higher tax bracket. I think they started the Roth option too late in my career to really help me. I would suggest folks get into early on.

Maybe i'm missing something but i cannot see how converting to a roth now benefits me later in retirement.

my situation is thus: any conversion amount i do now would be taxed at my highest irs bucket, which is 24%. this would knock my investable amount remaining substantially. when i take finally distributions from that amount in my retirement, the tax i pay on that would certainly be less than 24% since i anticipate my retirement income to max out at approx 80% of my present earned income. seems like a lose-lose to me.

[jimcasada]

When I was younger, I had my wife & all my kids to claim come tax time, but as a person gets older you start to lose these deductions. I still have my spouse, but unless both us somehow die together, the remaining partner may have a hard time using up the remaining tax deferred TSP. Since I retired over a year ago, I've been taking out $2200 per month, yet my TSP balance still has gone up over $100k, and my potential future tax burden just keeps growing. That's why I say now, I wish I could have put some of that money into a Roth.

[searight]

I have been looking into this since I am <5 years from retirement and I see the following reasons to potentially do a Roth conversion.
1. You believe that taxes will be higher in the future.
- Somebody has to pay down the debt. But if you move from a high tax state to a lower tax state your taxes may go down.

2. You are worried about having to have too much pulled out of TSP for RMDs when you are 73 and older.
- I believe that Roth IRAs are not subject to RMDs.

3. You are afraid of the cost of Medicare part B if you choose to sign up.
- Roth deductions do not count towards income for the purposes of Medicare costs. If you are able to keep a couples AGI below $206K then your annual Medicare part B costs are $4192.80. If you are above this limit then Medicare will cost you $5870.40, $8385.60, $10900.80 or $13416 per year on a stairstep scale depending on income.

On the other side a Roth conversion is a big bill on top of your marginal tax rate that you have to pay NOW. Ouch.

My conclusion is that I am putting into Roth, but I most likely will not do a conversion.

[bloobs]

Thanks for the input. I don't think any of the following applies to me at all....

1. You believe that taxes will be higher in the future.

the only taxes this affects is income taxes. Practically all of us will (or need to) be receiving less gross income in retirement, and given the IRS tiered tax brackets, I see no realistic scenarios where my income tax liability will be more.

2. You are worried about having to have too much pulled out of TSP for RMDs when you are 73 and older.

If I am so lucky to have excess income when 73 comes a knockin', I could always reinvest the RMDs.

3. You are afraid of the cost of Medicare part B if you choose to sign up.

We're all feds here, meaning most wont ever need Part B, either because DoD'ers get Tricare and civilians get to keep the same insurance and premiums they had as workers into retirement.

[jimcasada]

If you are retired military, Tricare requires you to sign for both Medicare A&B when you turn 65, in order for you to keep your Tricare benefits going.

[Scarfinger]

I was reading that roth conversion at smaller amounts say over a 10 year period may make sense to avoid hitting higher tax brackets and or avoid hitting higher tax brackets when RMDs kick in for your regular 401k.

Me personally.. I have 10% of my portfolio in Roth and will looking into roth conversions more towards retirement to see if it would be beneficial for my situation.

[Scarfinger]

Great in-depth explanations of Roth vs Traditional with pros and cons of doing Roth conversion.

Exposing the TRUTH About Roth vs Traditional Accounts:
https://www.youtube.com/watch?v=VHHNYdpVwrU

How to Avoid the Costly Mistakes of Roth Conversions
https://www.youtube.com/watch?v=giSf4ZBeWMQ

[Bubba]

When I was younger, I had my wife & all my kids to claim come tax time, but as a person gets older you start to lose these deductions. I still have my spouse, but unless both us somehow die together, the remaining partner may have a hard time using up the remaining tax deferred TSP. Since I retired over a year ago, I've been taking out $2200 per month, yet my TSP balance still has gone up over $100k, and my potential future tax burden just keeps growing. That's why I say now, I wish I could have put some of that money into a Roth.

I hope I'm in your shoes in the future. Having too much money is the goal.

[12squared]

RMDs are another reason to have a Roth. The amount legally required to be withdrawn from a Traditional TSP or 401(k) starts at 3.6% and increases every year - more than 10% past age 93. At some point the RMD will exceed the expected rate of return.

My Roth should be about 9% of my total TSP when I retire at 62. Assuming the same rate of return, the Roth side will exceed my traditional TSP when I am 100. By age 104, when the RMD is 20%, my Roth will be 2/3 of my total TSP.

[Scarfinger]

By age 104, when the RMD is 20%, my Roth will be 2/3 of my total TSP.

If you make it to 104 then you may have a chance to be the oldest US citizen at 115 years 34 days and counting.

I am planning a 70/30 stocks/bonds through retirement to keep up with longevity/inflation concerns. My guess is the 70/30 will be the new 60/40 :0

[12squared]

By age 104, when the RMD is 20%, my Roth will be 2/3 of my total TSP.

If you make it to 104 then you may have a chance to be the oldest US citizen at 115 years 34 days and counting.

My grandmother lived to 96. The oldest of her sisters died at 101, in 2000, and drove a car until her late 90s. The youngest only reached 89 - she was an alcoholic- One of my grandfathers lived to 85, as did his mother. My parents are in their 80s and still living on their own.

I expect at least one of their collective descendants to reach 110.

[Bubba]

By age 104, when the RMD is 20%, my Roth will be 2/3 of my total TSP.

If you make it to 104 then you may have a chance to be the oldest US citizen at 115 years 34 days and counting.

I am planning a 70/30 stocks/bonds through retirement to keep up with longevity/inflation concerns. My guess is the 70/30 will be the new 60/40 :0

This has been quite a bit on my mind lately. It's hard to envision what to keep in retirement, since the 60/40 hasn't done well the past couple of years. Paul Merriman suggests something like 50 small cap value/50 bonds. Personally, I'm thinking more like 80/20...but we'll see what happens by then. I have at least another 20 years to go.