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jseeland
New Member

I am facing RMD's in 2 years. Wondering if I can use Turbotax to figure out if I should convert traditional IRA's to Roth (or how much to convert)?

 
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3 Replies

I am facing RMD's in 2 years. Wondering if I can use Turbotax to figure out if I should convert traditional IRA's to Roth (or how much to convert)?

TurboTax won’t help making financial planning which requires a knowledge of your tax bracket now and in the future as well as your general financial situation. But generally conversion to a Roth is more beneficial when done farther before retirement. 

dmertz
Level 15

I am facing RMD's in 2 years. Wondering if I can use Turbotax to figure out if I should convert traditional IRA's to Roth (or how much to convert)?

If you don't expect your marginal tax rate to be lower in the future, it's often suggested that one convert to Roth enough to top out your current tax bracket (also taking into account things like net investment income, Medicare IRMAA, etc., that can have an effect on your marginal tax rate).  Particularly with the CD/download version of TurboTax you can use TurboTax to get an idea of the marginal tax rate on  increments of income.  The CD/download version has a what-if worksheet where you can tell TurboTax to use the next year's tax brackets.  You might still need to use overrides on certain cost-of-living-adjusted values to get a more accurate estimate.

 

Still, it might be better to use an early version of TurboTax for the current tax year if you intend to make a Roth conversion near the end of the year.  However, TurboTax developers have a habit of not updating some of the cost-of-living-adjusted values before year end, so you might still temporarily need to use overrides with the CD/download version until the software has been sufficiently updated.

 

As Bsch4477 suggests, though, all of this does require some amount of predicting the future, including what sort of access you will need to your retirement savings to fund your standard of living.

I am facing RMD's in 2 years. Wondering if I can use Turbotax to figure out if I should convert traditional IRA's to Roth (or how much to convert)?

@jseeland the question about "how much" to covert to quite an involved assessment.  Everyone's financial situation is different and everyone's goals are different.  This is quite a complex topic and whole books have been written on the topic with a number of seminars advertised on the internet around this topic.  

 

 

To me, once you've assessed your financial and estate goals and developed that strategy, it does boil down to two decisions in each year: 1) what is the highest tax bracket you can stomach? 2) what is the higher IRMAA tranche you can stomach.  Once you decide those two items, convert so your income doesn't pierce either 1) or 2).

 

So can you use TT to figure out if you should convert? no, it can't and neither can any other software program.  that "if" is dependent on your financial and estate goals. Once those are determined, then yes, a software program can help you implement the annual solution to your strategy. 

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