Possibly doing a large Roth Conversion this year

Forum|Forum|7 months ago
October 22, 2025
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This is my first year of retirement. I somehow was able to go the entire year so far without withdrawing any funds from my IRA or 401k. I decided instead to sell the profits from my tech stocks which I bought at a low during Covid. I had $36,000 dollars of realized gains. I also withdrew $4000 RMD from my inherited IRA from my father for an Adjusted Income of $40,000 , which I have paid my living expenses so far this year with. .

When I did a 1040ES, with my all my deductions for being over 65, with the standardized deduction subtracted from my Adjusted income. I currently owe no or very little income taxes this year. I think this would be a perfect year to do a large Roth Conversion of a $100,000 dollars. Do you agree that this would be an excellent year to do that large a conversion. I realize that it will still be painful in April to write a large check for taxes that I do not actually owe yet. Do you agree that I should do this and how much do you think the Roth Conversion could cost me?

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fanfare

Level 15

Ideally, convert just under the amount that would bring your tax from zero to above zero.

Otherwise convert more up to the tax you find acceptable.

The trick is, to accurately calculate your 2025 AGI, deductiona and incorporate the 2025 Tax brackets, etc.

It is no longer allowed to reverse a conversion if you make a mistake.

@JRretires

JRretiresAuthor

Level 3

Thank you for taking the time to answer my question. I will have an accountant and my financial advisor assisting me. Because I will have no withdrawals from my IRA or 401k this year. I can afford to pay more income taxes than if I was withdrawing funds from my IRA. I came up with a $100,000 as a large enough number to lower my taxes in the future. I was trying to get your opinion if this amount is to large an amount if I have no further Capital gains this year which I should not. And maybe how much or how large a check I would need to write to do a $100,000 Roth Conversion.

JRretiresAuthor

Level 3

You didn't mention your filing status but look out for the long term cap gains on the 36k once your income goes above a certain level the tax on that moves from 0% to 15% which will cost $5400. If you don't have any other income there should be some minimal amount of Roth Conversion which together with the RMD would offset your standard deduction (plus the additional $6k deduction form the 'big bill' for over 65s), and still keep your LTCG rate at 0%. Above that amount you would start paying tax and the effective tax rate on that additional amount of Roth Conversion may be quite high when you take the jump in LTCG into account.

Check your safe harbor for estimated tax (see Form 2210 lines 1-9), the smaller of 100% of 2024 tax (110% if AGI > 150k or 75k if filing MFS), or 90% of 2025 tax. If 2025 is a big jump in income when you start doing Roths then you would probably base this off 2024 tax. Either way you may need to pay Q4 ES and then file Form 2210 AI to avoid a penalty.

If you continue to do Roth conversions annually, the advantage of a low prior year tax goes away and you should pay quarterly ES. If you base the quarterly ES off prior year tax going forward it's a fixed known amount and it doesn't matter when you do the Roth conversions, and rather than waiting til year-end you do them right away to take more advantage of the tax exempt growth (i.e. you could do your 2026 Roth conversion in January not December).

If able, pay tax electronically and directly at irs.gov rather than checks/vouchers etc.

But these are considerations and tax math your wealth and accounting people should cover.

Thank you for taking the time to answer my question. Your answer was very confusing. I am a single 67 year old retired man with no other income other than the $36,000 dollars LTCGs and a $4000 dollar RMD on an inherited IRA. My LTCG rate is still zero because of this and with my single standardized deduction along with my deductions for being over 65 , my current federal income tax is also zero.. I have made no withdrawals from my IRA or 401 k this year. I did have $20,000 cash in my brokerage account at the beginning of the year. I have been able to pay all of my living expenses this year with these assets on a $5400/ month budget.