Should we drain our $200,000 savings for Roth conversions on $2.3 million in our 60s?

Core Insights - The article discusses the implications of Required Minimum Distributions (RMDs) and Roth conversions for individuals nearing retirement age, particularly focusing on tax strategies and income management [1][3][9]. Financial Planning Considerations - Individuals with a combined income of approximately $130,000 have the potential to execute Roth conversions before reaching the RMD threshold, which could significantly increase their retirement savings from $2.3 million to an estimated $3.7 million by the time RMDs begin [1]. - The RMDs for a couple could amount to around $140,000 annually, assuming a 7% average growth rate on their investments [1]. - The Medicare Income-Related Monthly Adjustment Amount (IRMAA) surcharges will apply starting at $212,000 for married couples in 2025, which could affect financial planning strategies [2]. Roth Conversion Strategies - Financial advisers recommend considering Roth conversions even before age 63 to optimize tax implications and manage future income levels [3]. - The current tax rate is crucial in determining whether to proceed with Roth conversions, as future tax rates remain uncertain [7][8]. - A Roth conversion up to the top of the 22% tax bracket (currently $206,700 for married couples) could save on tax liabilities, with potential conversions around $75,000 incurring approximately $17,000 in taxes [9]. Cash Flow and Tax Efficiency - Paying taxes on Roth conversions from the conversion amount itself is deemed inefficient, as it reduces the amount transferred to the Roth IRA [11]. - Continuous withdrawals from savings to cover taxes on conversions could impact cash flow over time, especially if done repeatedly [11]. Estate Planning Considerations - Decisions regarding the nearly $4 million accumulated assets should consider whether the funds will be spent, left to heirs, or donated to charity, as each scenario has different tax implications [12][13][14]. - If leaving assets to children, future tax rates must be considered, which complicates planning due to the long time frame before inheritance [14].