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Retirement Planning Question – Roth IRA

 

Q: I’m on disability, single, and turning 59 ½ this next year. I have $38,800 in annual income ($15,200 disability pay & $22,600 social security). Because of disability pay, I’m taxed on only $4143 of that income. I now have about $385,000 in IRA, about $80,000 in non-IRA account, and no debts including no house payment. At 65, I project annual income to be about $53,500 ($27,000 pension & $26,500 SS). Most of this will be taxed except some social security. I’m thinking I have window from age 59 ½ and 65 to withdraw maybe $15k-$20k per year because of my taxable income gap. At 65, I would stop withdrawing. I would plan to put at least half in a Roth rollover account if I qualify for one. I have no earned income. Like you, I think you better have a good reason or desperate situation to withdraw from an IRA. But because of my taxable income situation, do you think this train of thought is worth pursuing or am I off base? Thank you.

A: I think your thought about doing a Roth conversion with some of the money in your IRA makes a lot of sense – especially in years when you have a very low Adjusted Gross Income (like it sounds like you will in those future years). This keeps your overall tax bill very low and ensures you never pay taxes on that Roth money ever again. Your breakeven on the tax bite will vary based on your future return expectations, but I think you are at least on the right path to explore this option further.


 

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