COcheesehead
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Yeah, you can pay full freight. That should make you happy.
Ah, or paying your fair share as opposed to the subsidy welfare.
Yeah, you can pay full freight. That should make you happy.
After almost 10 years of doing Roth conversions to the top of the 15% bracket for the very reason you stated, I've come to the conclusion that I'm not making much of an impact. My t-IRAs totaled ~$1M when I FIREd, so doing a $30-$50K conversion (in the good years) hasn't even kept my balance the same. My t-IRAs have gained more than I've been able to convert. I'm still glad I've done it, but I'm not avoiding any torpedoes. I guess I could have gone deeper into the 25% bracket, but then it becomes a financial wash for me. It might have benefited my heirs someday, but I'm not too worried about that.
Under this post's logic, all those who are getting ACA subsidies will get a tax hike!
The SC ruled that the penalties are a tax, not supplements.The ACA is a tax, that is the reason why the Supreme Court ruled the ACA constitutional, as convoluted as it is.
Here is the rant part: Federal and state taxes increased by $1,346. Subsidy decreased by $746. So, that is an effective tax rate of 27% combined Fed and state and a 15% "tax" in the form of decreased ACA subsidies. 42% combined even though my top tax bracket is 15%.
In case you did not know this, increased income causes more SS to be taxed creating a super-marginal tax rate. Will have to find that sweet spot - draw SS later, convert less, find more above the line deductions. But 42%!!!
I think the OP is smart to run the scenarios and see what happens, but I don't get the rant part. Just don't convert the extra $5K. Or don't take SS early. Comparing 42% to 15% isn't the same thing since 42% is the total cost of taxes on the delta, and 15% is just a bracket for one of the taxes involved. What was the previous $5K in distributions taxed at?
I've just been starting the conversions. I do have a question about yours... what were your tIRAs invested in? Most of our tIRAs are in fixed income. Most of our Equities are either in roths or after tax accounts. In after tax accounts ETFs or individual stocks are used to lessen the tax bite. Mostly Q-divys with a small amount of CG unless we sell.After almost 10 years of doing Roth conversions to the top of the 15% bracket for the very reason you stated, I've come to the conclusion that I'm not making much of an impact. My t-IRAs totaled ~$1M when I FIREd, so doing a $30-$50K conversion (in the good years) hasn't even kept my balance the same. My t-IRAs have gained more than I've been able to convert. I'm still glad I've done it, but I'm not avoiding any torpedoes. I guess I could have gone deeper into the 25% bracket, but then it becomes a financial wash for me. It might have benefited my heirs someday, but I'm not too worried about that.
I agree that your 42% is "real". In other words, because it mixes subsidies and taxes does not make it less real.I knew it was coming, so it is no surprise, but 42% is too high. I will have to reshuffle the deck.
The $5k is just sitting in my IRA, waiting to be taxed. When is the question. Take it out now and hopefully avoid the dreaded RMD. Take it out later and keep the subsidy. I could delay SS and avoid tax (some call it subsidy) at 42% but I have to give up 100% of the SS cash in exchange for more SS cash later. These are all variables and that's why I "run the numbers".
I knew it was coming, so it is no surprise, but 42% is too high. I will have to reshuffle the deck.
Yes, it is a wonderful problem to have. Some wonder if their next paycheck will cover their bills. I can sip my coffee and rant about marginal tax rates. I am thankful.
I've just been starting the conversions. I do have a question about yours... what were your tIRAs invested in? Most of our tIRAs are in fixed income. Most of our Equities are either in roths or after tax accounts. In after tax accounts ETFs or individual stocks are used to lessen the tax bite. Mostly Q-divys with a small amount of CG unless we sell.
So I'm expecting out tIRA may not grow at such a great rate. Plus you may have been doing this during the 2009 to now recovery in the market. Who knows what is next.
Look on the bright side. You may not have to deal with the ACA subsidy issue after 2017.