With the 2018 tax law changes, converting tax-deferred savings into Roth IRAs is advantageous for those who can pay the income taxes. For individuals on Medicare, there are income thresholds that impact Medicare premium costs that must be considered when deciding how much to convert. Converting just under the $267,000 threshold may be best for married couples expecting to complete conversions while both are alive. For those needing access to funds sooner, determining the optimal strategy can be more complicated.

1. With the tax law change of 2018, the current year is time to focus on tax deferred
taxes. Anyone who can afford to pay the federal income tax out of other funds should
be converting the maximum amount of tax deferred savings into Roth IRAs.
The following is true for states with no state income tax (like Texas). Separate analysis
would be required to factor in the effects of state income tax on optimum strategy.
There is complexity, especially for those on Medicare since Medicare Part B and D
premiums are based on Gross Income on Federal Tax Return (but takes two years to
show up, addition premiums based on 2018 tax will not affect Medicare Part B and D
premiums until 2020).
If you are not on Medicare, then pushing Federal Taxable Income up to $ 315,000
(Married, Joint Return) can be optimum (assuming tax deferred funds to convert to
Roth, the ability to pay the Federal Income Tax from other funds, and still have enough
savings reserve after the conversion). Obviously dollar amount are different for filling as
single, etc.
If you are on Medicare, the situation is much more complicated. There are discrete
Federal Gross Income limits where Medicare Part B & D Premiums “jump” (Married: $
170K, $ 214K, $ 267K, $ 320K). There are the income tax rates for 2018. There is the
future of income tax rates (current law returns to the 2017 rates in 2026). Finally, there
is how much tax will be saved in the future since there will be no Required Minimum
Distribution (and tax deferred gains) on future withdrawals at higher tax rates.
For those in “very, very good circumstances” where funds converted to Roth IRA will
not be NEEDED to be used for several years, then staying just under $ 267K Medicare
break point works best for a married couple who expected to complete conversion to
Roth while both are alive (general life expectance is 84). For scenarios where one
spouse dies and Medicate Part B and D premiums, and Federal Income Tax rates go to
those for singles, there are long term advantages even to just below the $ 320K final
Medicare breakpoint. Make certain to not accidently go above a Medicare Part B and D
premium threshold (increase of thousands of dollars can occur for $ 1 increase in gross
income). Threshold for singles are half those for married couples.
For others on Medicare where funds will be needed, the analysis can be complicated to
arrive at an optimum strategy.