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General Finance – IRA and Roth

Q: I’m 60 years old, single, and retired on disability. My disability(1260/mo.) is not fully taxed and neither is my SS. My taxable income is about $5K a year. At 65, my future pension(about $2200/mo) will be taxes making much of my SS taxed too. To take advantage of this lower tax bracket between 59.5 & 65, I’ve rolled over $13K the last 2 years from IRA to a Roth. I have about $120K outside IRA & $450K in IRAs. I pay the taxes from non-IRA funds. I think I’m right to withdraw from IRA with my tax situation. Am I right to put it in the Roth or should I invest with my regular funds? I’m saving a little about 25% of my income now. 

 

A: It is a great strategy to take advantage of the Roth conversion while you are in the lowest possible tax bracket. To your point, your bracket is likely to increase once you start your pension at 65.

 

You can continue to spread the conversion between now and 65 so that you 1) minimize your tax bill and 2) prevent the conversion from bumping you into a higher tax bracket.

 

As far as contributions (not conversions) to your Roth, as long as you have at least $6,500 in earned income, you can contribute that each year to your Roth regardless of how much you convert. The two amounts are independent. You are putting after-tax money in a Roth just like you would be putting after-tax money in a brokerage account. The difference is that the Roth grows tax deferred and is withdrawn tax free. In the brokerage account, you would pay taxes on capital gains unless you stay at or below the 15% tax bracket.

 

If you would like to discuss further, we offer a free one-hour consultation. Please feel free to reach out to Barbara (copied on this email) at 404-531-0018 to schedule an appointment with one of our advisors.


 

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