Dang it. I'm walking a tightrope trying to do Roth conversions without tilting into the next higher tax bracket, and now there's another tax hellhound nipping at my heels.
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Correct. I personally think of stocks and bonds through a broker as being liquid with some caveats. There are rarely situations where you'd need to be pulling out 10s of thousands of dollars on the spot, so you could sell what you have and transfer it when you need it. That said:

1. This doesn't apply to retirement accounts - just taxable brokerage accounts. Unless you want to deal with pretty large penalties, those are a one-way street until you are truly nearing retirement.
2. There's no guarantee that you'd get the price you want at the time you are forced to sell. And often times emergencies come up when the stock market sucks, like getting laid off or having your home value tank when you need expensive repairs.
3. Short-term capital gains taxes are pretty high, so it's not a good strategy to invest everything you have with a plan of pulling it out in a few months. Ideally, you shouldn't be selling anything that's been invested less than a year.
4. This all assumes that we're talking about publicly-traded stocks. I have a situation where I can buy stock in my own company, but we're still privately held. If I wanted to sell those stocks, I'd have to find a buyer, which would definitely not be a 2-3-day process.

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That’s fair. Not offended at all.
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Curious what people think of ROTH conversions, I’m not sure it’s advisable in most situations, but would like to be “convinced” just for discussion.
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I've built a big financial projection model for retirement and it's been very informative. As part of that process, I realized that I'll have a big income drop after my working years (Age 61) through when Social Security and Required Minimum Distributions start (Age 67 when my wife turns 70 and starts getting Social Security). Over the next years after that, my taxable income and tax rate will rise quite a bit as my own SS kicks in and then RMDs start.

That means that I have a six to ten year window when my tax rate will be low, and then it'll rise back to (roughly) the pre-retirement rate. Roth conversions work great in that case, because I can do conversions and pay taxes in these upcoming lower income years at a low rate instead of paying the higher rate when they're RMDs. Plus, then they grow tax-free. As an added bonus, taking the conversions now also lowers the amount of the RMDs in future years, which can also help my tax bill at those later dates.

The tightrope I'm walking is that I want to do conversions that take me up to, but not over certain tax brackets, to maximize the tax benefits. Now I'm learning that I also need to watch the MAGI amount for Medicare payments too, to be sure I don't get a surcharge.
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Thanks Rainman, that makes a lot of sense for your situation. I’d love to hear others. An advisor started doing this for my SIL and I can’t figure out why!
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i think it makes a lot of sense in certain situations.


it makes sense to convert when the market is down, to me anyway.


You can also do partial conversions over time...



I think if you have X years remaining BEFORE you retire, then we can take a look at X and see if it makes sense.


The higher X is, the more it would probably make sense.



The other thing you can do is just stop contributing to your traditional IRA and let it ride, and then ONLY contribute to a ROTH from here on out. (you CAN have both and its not all or nothing) You have until April 15 to contribute to 2023, and then you can still contribute to 2024 till next april. So if you haven't maxed it out yet, you can still put two years worth in right now.


For whatever it is worth, I did a conversion.. So I literally put my money where my mouth is on this one. Ive probably got 15-20 years left (hopefully) of max contributions so I just decided to do it and not look back.
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I dont have the credentials you have but I think everyone's first 6500 - 7500 worth of savings every year should be in a ROTH or maybe trad. ira. (Unless they are broke)


you dont?


It just seems like a no brainer to get that ROTH tax free growth for retirement...
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Not sure how old you are but think of it this way…it seems more likely than not that tax rates will be higher in the future so paying presumably lower taxes today will benefit you in the long run. As it currently stands the existing TCJA tax cuts are sunsetting in 2025 so keep that in mind. In addition, there are other factors to take into consideration like reducing future RMDs, building a legacy pool for kids, having greater tax flexibility in retirement planning, etc. Lots of potential benefits that most people would agree on. Does this mean you should convert a massive chunk of pretax dollars to your Roth? No of course not; it’s best done incrementally and when you have some tax flexibility. Most clients I work with like having different buckets of money in retirement.
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^ everything 493 said and also no tax on the GROWTH.

with a traditional you DO have to pay tax on the growth..

so the longer it has to grow, the more sense a conversion makes because youre going to come out way ahead if it grows even normal amount
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It depends on your situation. I think your first should be any company match. I get 6%, so I make 100% on my 401k contribution. After that, it depends. I don’t want all of my investments long term retirement. I also get a 15% discount on my ESPP. Everyone’s situation will be different.
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While taxes may go up, so does the standard deduction. I think there is a balance between tax deferred and after tax retirement savings.
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The existing standard deduction is scheduled to be halved and taxes increased as it stands today. The goal is to give the government as little as possible. I’d suggest finding a good CPA.
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Links to the current standard deduction being halved?
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for sure. I was referring to folks who don't have the option of a 401k.... if you can do a 401k ROTH then that's better than an IRA.
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