Hi! If you want to convert a traditional IRA to a ROTH IRA within the same institution, they will have a system in place that should walk you through the process. It is far easier to do this sort of thing within the same institution that to switch to another. If you already have a ROTH set up, there is no reason to establish a new one for this conversion. As for steps, you will contact your institution and they will have forms to fill out where you will tell them how much to convert.
There is not limit to the amount that you can convert in a single year. However, there are some tax planning considerations. You can convert your entire account from the IRA to the ROTH IRA, or you can convert some this year and some next year. The decision of how much to convert depends on how much you want to pay in taxes. You can take advantage of the tax brackets to take out just enough to not go into the next tax bracket.
Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
The other rates are:
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly);
- 32% for incomes over $182,100 ($364,200 for married couples filing jointly);
- 24% for incomes over $95,375 ($190,750 for married couples filing jointly);
- 22% for incomes over $44,725 ($89,450 for married couples filing jointly);
- 12% for incomes over $11,000 ($22,000 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
Here is a link to the IRS if you would like to read up on the 2023 tax brackets https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023
You also want to consider how much of your social security income is taxed. You will be taxed on up to 85% of your social security income if your other income exceeds certain thresholds.
You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you:
- file a federal tax return as an "individual" and your combined income* is
- between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $34,000, up to 85 percent of your benefits may be taxable.
- file a joint return, and you and your spouse have a combined income* that is
- between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $44,000, up to 85 percent of your benefits may be taxable.
- are married and file a separate tax return, you probably will pay taxes on your benefits.
Here is a link to more information from the SSA if you would like to take a look. https://www.ssa.gov/benefits/retirement/planner/taxes.html#:~:text=between%20%2425%2C000%20and%20%24....
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