Of course we all know market timing is a fools game. It’s the reason we own index mutual funds. We get diversity of a type and efficiency. You don’t make a killing and neither get killed. But your life is also plan-able and you can predict expenses quite a ways into the future. I seem to be in a never ending cycle of Roth conversion optimization. My initial plan was to convert over 4 years which I am 1.5 years into. To do that I made a 600K pile of cash to live on which was designed to cover living expenses and conversion taxes. I sold in 2017 near the top of the market. after a nice run up on my time table. But the congress has decided to alter my conversion schedule with the SECURE act and extending my conversion window by an extra 2 years.
I have most of my assets at Fidelity. Fidelity allows for a nice thing, they will transfer assets from a TIRA to a Roth without first turning them into cash. Quite convenient. All I generate is a tax bill. I went through the sequence of conversion and found it best to transfer the highest risk assets first, getting the volatility out of the TIRA and into the Roth. It proved to be a wise choice since the market has done so well. I merely transferred my “so well” part out of a tax deferred vehicle into a tax free vehicle and let the growth happen tax free. I also had also paid post tax money into my IRA since I always made too much money to qualify for the pretax write down. My IRA’s therefore have a component of pretax and a post tax basis. I kept track of the 8606 (actually my tax software kept track since I always used the same tax software) and my basis is 94 cents on the dollar so for every dollar I pull out I pay taxes on only 94 cents. My wife also had post tax money in her IRA’s at a much bigger %. She had to pay tax on something like 83 cents of every dollar converted. So first thing I did was Roth convert ALL of her IRA which allowed me to convert a bigger amount that the limit I set for myself and still Remain in the same tax bracket I set for my conversion. My 6 cent tax break will continue for as long as I own the TIRA. So in a year and a half I’ve managed to get about half of my Roth conversion done
The SECURE act has changed my timing since I have longer to convert I can convert smaller amounts and pay proportionally less tax. A nice windfall. In order to fund the extra 2 years I realized I needed another 2 years of living money. When to raise that money? I decided now is the time. The market has continued to run up and the rule is buy low sell high so I sold and locked in my profit. I took some money out based on my predicted need. My cash is stored in a high yield savings account paying 2.45% so it keeps up with inflation so far.
Just some examples of when to take the money out