Roth Conversion – Convert IRA of older spouse first?
I’m working with a couple and have mapped out the merits of implementing an annual Roth conversion strategy in order to take advantage of the lower marginal bracket currently in place. Goal is to max out the 24% tax bracket (maybe) until the Tax Cuts and Job Act sunsets at the end of 2025.
The question came up about whether we should start converting the husband’s IRA or the wife’s IRA first. Case facts, the husband is three years older than the wife. Since the husband obviously will reach RMD age first, it appears that converting his IRA would make the most sense. His RMD amount would then be lower when he does reach age 70.5. This strategy seems pretty straightforward. Is there anything that I’m not taking into consideration? Also, has anyone modeled the various scenarios that would produce the most optimal outcome (convert husband’s IRA first, wife’s IRA first or a combination of both)? Just want to make sure I’m taking into consideration all the various scenarios.
Permalink Submitted by Alan - IRA critic on Tue, 2019-08-13 20:22
Agree, husband’s TIRA should be converted first for the reason you cited. However, if there is basis in either spouse’s IRA that as a % is considerably higher than the other spouse’s, the higher basis IRA should be converted first since more dollars will be converted for the same tax cost. There is obviously a cross over point when contrasting these two factors.
Permalink Submitted by Kirk Hackbarth on Wed, 2019-08-14 15:38
I don’t beleive the clients in question have any IRA basis to factor into the anaysis, but it’s a good reminder to always add the basis question to the checklist before implementing a Roth conversion. Thanks again for yuou comments and quick reply.