Should I keep assets in taxable IRA vs. convert to Roth?

[win1177]

I retired last year, now 65, and wife will retire this year. She’s turning 65 this summer.

We have a pretty large portfolio, well above what we will “need” in retirement. No debt. Income from portfolio is above what we “need”, so anticipate portfolio will continue to grow over long run. Due to the size of our portfolio, I have decided to “self fund” any long term care needs.
We’re “blessed”, as far as assets! 

Our portfolio is mainly taxable brokerage accounts, two individual accounts and a trust from my wife’s parents (her inheritance). Most of our “retirement money” outside of our taxable accounts is in Roth accounts, about 10% of the total. I have about 2% of our assets in a “pre-tax” IRA, left over from my work as professor at our state medical school. The rest was slowly converted over to Roth accounts, previously. It is looking like our income will stay “high enough” to keep us in higher tax brackets, so I don’t anticipate we will have a year where will be able to have lower income to allow us to convert the remaining IRA Monet to Roth money.

Big question for me is should I try to convert the remaining IRA over to Roth money, knowing I will pay a boatload of taxes, or leave it as IRA money? Thanks in advance!

Win

[steelpony10]

win1177 ,

      The questions are:

           So who needs tax free money in the future? Doesn’t seem to be you and your wife. How about gifting some away instead of to the government if you’re absolutely sure you’re set?

            Any realistic chance of a longer then normal longevity? LTC at 150k a year+ preceded by independent and assisted living?

             I have a plan if I make it to 85 or sooner if single partially gifting to kids or grandkids or an organization etc. we both have handicapped children so you probably have an ABLE account. Depending on amounts that would lower taxes if you no longer have the money producing asset sorta like prepaid taxes. If my wife outlives me it’s her and her boy toys problem.

[mnfish]

For 2% of your portfolio why bother? You can already control your taxes by having taxable accounts where you can control your dividends and offset gains with some losses, assuming you have losses.

[retiredat48]

win1177 ,...some questions/comments.

--What is your current marginal income tax rate?

--You state the current taxable IRA is about 2% of assets. This is quite small, no? Put another way, when RMD starts you will distribute about 3.5% of the IRA the first year. That is 3.5% times 2% of portfolio which is 0.07% of your portfolio. At a 22% tax rate that is .22 x .07 = 0.0154 of your portfolio. My heavens...pay the small tax.

--Shift as much as possible in taxable to ETFs, especially for any growth type situations. If you are unfamiliar, ETFs have special IRS treatment such that they pay min annual cap gain distributions...thus lowering your taxable income. Like: a small cap ETF in taxable has about zero annual dividend income; and minimal annual cap gain. Only pay taxes if you sell. Keep till death and get step up in basis.

--Since your ROTH is only 10% of assets, sounds like you simply hold until second to die passes on to kids.

Seems to me the question about conversion takes a far backseat to: How can I implement some ways to reduce or save on taxes in my huge taxable account portfolios.

One thought is this.  Determine how much do you spend annually?  Where does this fall on the income tax ledger...12% tax rate?  Just into 22% rate.  Then, invest in taxable throwing off enough dividends/interest to cover this.  Invest remainder in growthy type situations/investments.  Like, you are investing for your heirs.  Thus you minimize taxes.

Good day...

R48