Roth Conversion Tax Question
Say I stop working at 67 and live off savings for the next three years. No income. I do a Roth Conversion of $15,500. My standard deduction is $15,500. Does that mean I pay no taxes on the Roth Conversion? If so, that means I paid no taxes on it when I contributed it to my Traditional 401k, and still paid no taxes on it when I took it out (converted it to Roth) of the Traditional 401k.
Is that correct?
Permalink Submitted by David Mertz on Fri, 2023-06-02 12:12
Correct, except that the 2023 standard deduction for someone age 67 is $13,850 + $1,850 = $15,700. An AGI of $15,700 resulting from the Roth conversion minus the standard deduction of $15,700 leaves $0 as taxable income.
Permalink Submitted by Chuck Salvi on Fri, 2023-06-02 13:32
Ok, thanks for the reply.
Permalink Submitted by Jay Wiedwald on Sat, 2023-06-03 20:17
Rather than converting to a Roth, why not just take the equivalent distribution rather than cut into your savings? That way you keep your savings and will reduce your RMD when that time comes?
Permalink Submitted by David Mertz on Sat, 2023-06-03 21:48
Being over age 59½, the amount converted to Roth can be distributed from the Roth IRA at any time without tax or penalty, so the conversion to Roth doesn’t cut into available savings; amounts in the Roth IRA *are* savings. Taking a distribution instead of converting to Roth under these circumstances only serves to lose the opportunity for tax-free growth on these funds.