Lower yearly tax bill by paying with a Roth Conversion?

Managing your TSP and alternate investment options after retirement or separation from service.

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TSPBuilder
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Joined: Tue Jun 19, 2012 2:14 pm

Lower yearly tax bill by paying with a Roth Conversion?

Post by TSPBuilder »

I talked to a financial planner who was a fiduciary that tried to explain to me a way to lower my yearly tax bill by paying it with a Roth Conversion. Has anyone ever heard of this possibility and how is it achieved?

The planner retired before I could implement the possibility.

My tax preparer didn't have a clue. Probably because I didn't ask the right question. So I am here today because it's Sunday and I can't find anything online that hints at more than the standard possibilities of a Roth and conversions. Tomorrow I'll start the search for a more learned (ler-ned :) tax preparer and advisor that's a fiduciary.

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ArrieS
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Re: Lower yearly tax bill by paying with a Roth Conversion?

Post by ArrieS »

Do you mean converting from a Traditional IRA to a ROTH to lower your tax bill?

If that's the case... It's only lowering your tax bill in the future. Not the current year. The idea is you convert from traditional to ROTH in years when your tax bill is low. So when you withdraw it later in larger quantities (Like RMD at 70 1/2) your taxes are lower then.

https://www.forbes.com/sites/advisor/20 ... tax-bills/
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Pregoamich
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Joined: Sun Dec 31, 2017 3:35 am

Re: Lower yearly tax bill by paying with a Roth Conversion?

Post by Pregoamich »

Conversions only refer to an IRA, right? One cannot convert traditional tsp to roth tsp, correct?

TSPBuilder
Posts: 254
Joined: Tue Jun 19, 2012 2:14 pm

Re: Lower yearly tax bill by paying with a Roth Conversion?

Post by TSPBuilder »

ArrieS wrote:Do you mean converting from a Traditional IRA to a ROTH to lower your tax bill?

If that's the case... It's only lowering your tax bill in the future. Not the current year. The idea is you convert from traditional to ROTH in years when your tax bill is low. So when you withdraw it later in larger quantities (Like RMD at 70 1/2) your taxes are lower then.

https://www.forbes.com/sites/advisor/20 ... tax-bills/
Great article ArrieS! I had no idea of the complexity after age 62. The caps of IRA balances that if exceeded reduce your social security income and the need to do ladder conversions to get that balance below $359,000 approx. The payback by age 80 I think can be reduced by a third from the example my (financial planner(fiduciary) showed me using a backdoor roth conversion ladder. Another contributor(evilanne) threw a wrench in that though saying you might not be able to do them for the years that you are 63 to 64 because Medicare does its' calculations on the year before you turn 65.

TSPBuilder
Posts: 254
Joined: Tue Jun 19, 2012 2:14 pm

Re: Lower yearly tax bill by paying with a Roth Conversion?

Post by TSPBuilder »

Pregoamich wrote:Conversions only refer to an IRA, right? One cannot convert traditional tsp to roth tsp, correct?
Not that I've ever heard. Feel free to search TSP literature to confirm form the source.


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mjedlin66
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Re: Lower yearly tax bill by paying with a Roth Conversion?

Post by mjedlin66 »

Pregoamich wrote:Conversions only refer to an IRA, right? One cannot convert traditional tsp to roth tsp, correct?
This is not possible. You are correct.

But after retiring, you can convert your TSP to an IRA, and then do the conversions inside the IRA.
Owner/creator of TSPcalc.com - "Know your numbers"

TSPBuilder
Posts: 254
Joined: Tue Jun 19, 2012 2:14 pm

Re: Lower yearly tax bill by paying with a Roth Conversion?

Post by TSPBuilder »

Ericdelee wrote:I’ll present this;
https://the-military-guide.com/how-and- ... to-an-ira/
Excellent link, Ericdelee. I'm not military but a lot of the concepts are the same in execution. Like how it filled in and supported the things evilanne said earlier. Thanks!

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