Maybe a discussion on things folks have learned about planning.
I'm turning 70 this year and have looked into converting some of our IRA funds into Roth funds. Things I'll be doing;
- Conversion can only be done once you reach age 70.5
- Required Minimum Distribution (RMD) starts at age 73
- If you have individual stocks they can be cashed out and placed into a Donor Advised Fund (DAF)
- Using a DAF with cash stocks, it can carry over every year (30% of gross) until it is used up, and your not taxed on the capitol gains and there is no cost basis
- The DAF funds are locked into giving all to charity, if any are not used for charity there are large penalties
- Once you reach 70.5 no longer give any charity funds by writing a check, always send funds direct from your IRA because this comes direct off your gross and the standard deduction does not apply
- Watch the Medicare Adjusted Gross Income (AGI) when doing this because if you go $1 over it you will pay the next level for the next year. This is not the same as the IRS tax bracket
- When converting from IRA to Roth IRA paying the taxes with your bank savings is better because all the IRA funds go into the Roth. If you use the IRA conversion funds to pay the taxes means there is less funds in the Roth
- You have to keep the converted Roth funds in the Roth for 5 yr and each transfer starts a new clock for those funds
Have others done any research?
You've clearly done your homework, and you're looking at the right issues. From a long-term planning perspective, however, I would be careful about viewing Roth conversions, RMDs, QCDs, and Medicare thresholds as separate decisions. They are all interconnected.
In my experience, the real question is not simply whether a Roth conversion makes sense, but how much to convert, when to convert, and what the marginal tax cost will be relative to the potential future benefit. Paying tax today can be very attractive if you're effectively moving assets from a lower current tax environment into a Roth and avoiding potentially higher future taxation, RMDs, and income-related Medicare costs.
I also place considerable emphasis on managing the "taxable income bands" rather than simply looking at the tax bracket. A conversion that looks reasonable on paper can have unintended consequences once Medicare IRMAA, Social Security taxation, capital gains, and other income-based thresholds are taken into account.
For someone in their early 70s, I would also model the next 10–20 years rather than making the decision based solely on this year's tax bill. The objective should be to optimize lifetime after-tax wealth and, where appropriate, the amount ultimately transferred to heirs or charity—not simply minimize taxes in a single year.
The charitable component is particularly interesting. QCDs and a properly structured Donor Advised Fund can serve very different purposes, so I would evaluate them based on the individual's charitable objectives, appreciated assets, RMD requirements, and overall tax picture.
Ultimately, I would build a multi-year projection before executing a significant conversion. The best strategy is usually the one that manages the entire tax trajectory rather than maximizing any single year's result.
is in an IRA, so when I have to start withdrawing it in a few years, I will take that money and put it in something that earns decent dividends, and just keep moving things it that direction.
