Question
My income for 2021 will be approximately $227,000 of which $161,030 is my RMD (required minimum distribution). This income puts me in the middle of the 24% married filing jointly Federal tax bracket.
How much am I allowed to convert to a Roth IRA?
Should I take out additional RMDs from my traditional IRA to get to the highest level in the 24% bracket ($329,850)? If yes, how much would I be allowed to convert?
Additional info you might need.
The income difference between my RMD ($161,030) and my total 2021 estimated income is $65,970. This amount comes from our Social Security, dividends, pension, wife’s RMD, and bonds.
Answer
None of the $161,030 can be converted to a Roth IRA, says Ethan Gilbert, CFA, CFP®, with Rockbridge Investments. “An RMD must be taken from your IRA and distributed to a non-tax-advantaged account. Beyond the RMD, you can convert additional money from the Traditional IRA to a Roth. There is no limit to the amount you can convert though you probably don’t want to convert too much,” he explains.
“The question of how much to convert depends on a host of things, like what marginal tax rate you are paying now versus what rate you (or your heirs) expect to pay in the future,” adds Gilbert. Another important question is if you’ll be paying the taxes from the conversion (with IRA money) or with after-tax money (you’d prefer after-tax).
“I can’t give a concrete recommendation without knowing your full situation but based on what you said it is likely I would recommend converting enough to fill up the 24% tax bracket as you suggested,” says Gilbert. That likely means a Roth Conversion of about $125,000 (the $102,850 difference plus the standard deduction).
Assistant editor Kim McSheridan assisted with this report.
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Question
My income for 2021 will be approximately $227,000 of which $161,030 is my RMD (required minimum distribution). This income puts me in the middle of the 24% married filing jointly Federal tax bracket.
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