Capital Gains and Losses
Questions and comments about tax rules for buying and selling stocks, mutual funds, real estate and other assets.
Conversion to Roth IRA for Older Couple
Posted by: tomd37, August 23, 2017 07:59PM
Older couple in excellent health and in early 80s with RMD in excess of budget needs. 40/60 stock/bond asset allocation in Vanguard Total Stock Market Index fund (VTSAX) and Vanguard Intermediate-Term Bond Index fund (VBILX). Also hold small taxable account in Vanguard High Dividend Yield Index fund that currently represents about 4% of our total investments. Social security benefits are, and probably always will be, fully taxable at 85% level based on RMD and other pension income. Taking advantage of QCDs each year to reduce taxable income and make a more significant charitable contribution each year. Long-term care needs would be mostly covered by current LTC policies if needed. Couple has about $40K Roth conversion room staying within current 25% marginal tax bracket and within the $170K limit so that Medicare monthly rates will not rise. Cost of conversion easily covered by excess RMD funds each year and rolling CD maturities. Only heir to anything left over is now and will probably be in much higher tax bracket in future.

The cost to convert about $40K each year would be about $10K and appears to be easily financially acceptable to us right now. Have read Kaye's "Fairmark Guide to the Roth IRA" (2004 edition) and am reading the new version "Go Roth, Your Guide to the Roth IRA and Other Roth Accounts" (2015 edition). Current thinking is that if we convert now it might reduce our taxable income each year and make any leftover funds available to heir as non-taxable.

Which of the two current funds is best suited to conversion? My initial thinking is the stock fund. Is there anything else we should be considering? Any and all comments would be appreciated.

PS: Accidentally posted same post on Ed Slott's forum, but meant to post it here so it appears on both.


Tom D.



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