Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 12:16 PM   #1
Full time employment: Posting here.
Cattusbabe's Avatar
 
Join Date: Apr 2006
Posts: 814
Any advantage to opening up a ROTH in retirement?

A friend of mine is suggesting that I open up a ROTH IRA this year prior to 4/15 as a future tax hedge. I have already FIRED and am currently in the 15% tax bracket. I do not see the advantage? A large part of portfolio is in Munis and dividend paying equities. I also have a traditional IRA (which I am not contributing to at this point ) as well as a variable annuity which are hold overs from my previous employment. Am I missing something?
__________________

__________________
A todos los amantes del mundo. No importa el color de su piel, la pasion es universal.
_______________

La tavola e il letto non hanno restrizioni.
_____________
Any day your on this side of the grass is a good day.
Cattusbabe is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 12:27 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Apr 2006
Posts: 1,487
Re: Any advantage to opening up a ROTH in retirement?

if there's a prospect of your tax bracket increasing, perhaps due to future required minimum distributions, there's an advantage.
__________________

__________________
d is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 12:29 PM   #3
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Re: Any advantage to opening up a ROTH in retirement?

If I recall correctly, you need earned income to fund a ROTH in any given year. If you just retired then you are probably covered. You can still fund a 2006 ROTH through April 15 (or is it the 17th this year) .

However if you don't have any earned income (from this year or last) then a ROTH isn't available.
__________________
MasterBlaster is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 12:35 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Re: Any advantage to opening up a ROTH in retirement?

Quote:
Originally Posted by Surreal
I have already FIRED and am currently in the 15% tax bracket.
If you have no earned income the only way to put money into the Roth is to convert some or all of your TIRA. So when it come to the conversion, you have to decide if paying 15% (or more) income taxes on your TIRA now is better than paying whatever the rate will be in the future.
__________________
jdw_fire is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 01:04 PM   #5
Full time employment: Posting here.
Cattusbabe's Avatar
 
Join Date: Apr 2006
Posts: 814
Re: Any advantage to opening up a ROTH in retirement?

Quote:
Originally Posted by d
if there's a prospect of your tax bracket increasing, perhaps due to future required minimum distributions, there's an advantage.
Hummmm. That will happen at age 70 when I plan on taking SS and RMD from my traditional IRA and annuity. This looks like a one time thing since I FIRED last May and I would be able to put in 5000 for me and 5000 for DH. Still don't see the advantage.
__________________
A todos los amantes del mundo. No importa el color de su piel, la pasion es universal.
_______________

La tavola e il letto non hanno restrizioni.
_____________
Any day your on this side of the grass is a good day.
Cattusbabe is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 02:53 PM   #6
Full time employment: Posting here.
shiny's Avatar
 
Join Date: Jun 2005
Posts: 673
Re: Any advantage to opening up a ROTH in retirement?

Well, the advantage is that the gains on that 10k invested will never be taxed - it will grow tax free then be taken out tax free (under Roth rules).
__________________
I'm made of atoms, you're made of atoms, and we're all in this together. Ben Lee
shiny is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 03:04 PM   #7
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,620
Re: Any advantage to opening up a ROTH in retirement?

Quote:
Originally Posted by Surreal
Still don't see the advantage.
Here's a summary of reasons to convert to a Roth. For all the gory details you can search the dozen or so threads of reciprocated diatribes & political rants thoughtful analysis under keywords like Roth and conversion.

- Your early FIRE years (after paychecks and before RMDs) may be the lowest tax bracket you'll ever see.
- RMDs may shove you into a higher tax bracket than you're in right now.
- RMDs may subject most of your Social Security to taxation.
- You may not really want as much RMD as you think you'll have to take.
- Converting to a Roth and paying the conversion taxes out of taxable funds has the effet of boosting your Roth by the amount of the tax paid. You reduce the amount of your taxable assets, too.
- You can avoid 72(t) by being able to withdraw your Roth contributions at any time and by being able to withdraw some of the profits under some special situations.

Of course there are also reasons you might not want to convert to a Roth...
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 03:31 PM   #8
Full time employment: Posting here.
 
Join Date: Sep 2006
Posts: 608
Re: Any advantage to opening up a ROTH in retirement?

Quote:
Originally Posted by Nords
Your early FIRE years (after paychecks and before RMDs) may be the lowest tax bracket you'll ever see.
Yes, and thus a really optimal time to contribute to a Roth. Only problem is,
you're retired (duh) so you have no "compensation income" to qualify you
for making a contribution. Anyone have any bright ideas, loopholes, scams
(legal ones, that is) for managing to have some compensation income ?

'Course, what's good for the goose is good for the gander, and this low tax
bracket is also a good time to do IRA conversions.

__________________
JohnEyles is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 03:59 PM   #9
Recycles dryer sheets
 
Join Date: Nov 2005
Posts: 195
Re: Any advantage to opening up a ROTH in retirement?

This just popped into my head while reading this post. So don't beat me up

Could a Roth conversion be done, using a working spouse's income. Like a spousal ira? But, since no Roth IRA has been established yet, this probably wouldn't work.

I also assumed, there was a working spouse.
__________________
Sundance Kid is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 04:01 PM   #10
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,322
Re: Any advantage to opening up a ROTH in retirement?

Quote:
Originally Posted by Nords
Of course there are also reasons you might not want to convert to a Roth...
Yes, and these are what I am wrestling with. Let me list a few:

- My general distrust of the benefit of paying taxes early

- The small but finite chance of major tax reform, e.g. some type of consumption tax or a flat tax with a lower rate than I would pay on my RMD's

- The possibility of means testing Roth withdrawals - as we know this is being done with SS and Medicare

- The possibility of making IRA withdrawals more attractive from a tax point of view - this could be done in order to take pressure off SS and Medicare - a recent example of this was the increase of the RMD divisor to 27.4. A more recent is allowing a direct contribution from an IRA to a charity count as your RMD.

These are just a few I can think of at the moment. Nords has made some very good arguments in favor of converting. For me this is a conundrum.



__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 04:10 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Re: Any advantage to opening up a ROTH in retirement?

Quote:
Originally Posted by Sundance Kid
Could a Roth conversion be done, using a working spouse's income.
A Roth conversion is funded from a traditional IRA not earned income.
__________________
jdw_fire is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 04:27 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
Re: Any advantage to opening up a ROTH in retirement?

Goggle up the ORP calculator and try some retirement scenario's : mine(single) has me spend mine early and let the trad ride - no nest egg, spend last dollar.

I did some anyway(7%) to take advantage of low tax (2005 - Katrina losses).

heh heh heh - I croak at 85 on this one's default setting. Lot's of fun.
__________________
unclemick is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 08:44 PM   #13
Recycles dryer sheets
 
Join Date: Jul 2004
Posts: 430
Re: Any advantage to opening up a ROTH in retirement?

I'll provide the ORP link, as I have it bookmarked:

http://www.i-orp.com/TaxCutForm.html
__________________
gindie is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 08:49 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Any advantage to opening up a ROTH in retirement?

I figured to just keep it split 50/50 between a traditional IRA and a Roth. Then whatever happens, we're straddling.

We went into ER with the traditional IRA and we're funding the Roths from my wifes part time income as we go along.

Should we keep the current tax situation, the Roth could be very advantageous to draw from to avoid taking capital gains when we're in our 60's+. Should we move to a flat tax or national sales tax, we didnt throw the baby out with the bath water by converting everything to a Roth.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-19-2007, 09:45 PM   #15
Thinks s/he gets paid by the post
lazygood4nothinbum's Avatar
 
Join Date: Feb 2006
Posts: 3,895
Re: Any advantage to opening up a ROTH in retirement?

i'm moving the tira to a roth yearly up to the 15% tax bracket. could i also (somebody hold me, i think i'm going to faint) w*rk a part time job, but only w*rking, of course, enough to earn the maximum roth contribution for that year and add that to the rollover money if i thought i'd like to have some more money for my later retired years? my concern is most of my tira money can not be rolled over as that is an inherited ira and for some odd reason (i think it might just be fashion sense) i feel like i should have more in a roth than i'll have otherwise.
__________________
"off with their heads"~~dr. joseph-ignace guillotin

"life should begin with age and its privileges and accumulations, and end with youth and its capacity to splendidly enjoy such advantages."~~mark twain - letter to edward kimmitt 1901
lazygood4nothinbum is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-20-2007, 12:49 PM   #16
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,620
Re: Any advantage to opening up a ROTH in retirement?

Quote:
Originally Posted by RustyShackleford
Anyone have any bright ideas, loopholes, scams
(legal ones, that is) for managing to have some compensation income ?
Well, you could always go get a job.

But I've enjoyed great success with the "working spouse" option. Of course when she gets home from a hard day at the office I express my appreciation with dinner on the table, a clean kitchen, and whatever else she wants.

Quote:
Originally Posted by Sundance Kid
Could a Roth conversion be done, using a working spouse's income. Like a spousal ira? But, since no Roth IRA has been established yet, this probably wouldn't work.
We file a joint return with alternating partial conversions up to the top of the 15% bracket, no matter who earned the income. Last year we converted part of my IRA to a Roth, and this year it'll be her turn to convert part of her IRA to a Roth.

The real fun is when the IRA gains more than we convert. We don't have to struggle with that problem very often, and it's not really much of a problem...
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-20-2007, 05:41 PM   #17
Full time employment: Posting here.
Cattusbabe's Avatar
 
Join Date: Apr 2006
Posts: 814
Re: Any advantage to opening up a ROTH in retirement?

Thanks for all of the responded. Now I get it (I'm slow but I get there by and by.) I will make the conversion to a ROTH prior to 4/17/2007. I ran the suggested calculations. Better to pay the tax on funds while I am at 15% tax rate than later when I may be much higher. Again thanks to all who gave such sound advice.
__________________
A todos los amantes del mundo. No importa el color de su piel, la pasion es universal.
_______________

La tavola e il letto non hanno restrizioni.
_____________
Any day your on this side of the grass is a good day.
Cattusbabe is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-20-2007, 07:40 PM   #18
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,620
Re: Any advantage to opening up a ROTH in retirement?

Quote:
Originally Posted by Surreal
I will make the conversion to a ROTH prior to 4/17/2007.
Uhm, no.

While you can make a 2006 contribution to a conventional IRA or a Roth IRA by the filing deadline (17 Apr 2007), you have to convert before the end of the calendar year. The deadline for 2006 was 31 Dec. But you can do a conversion in 2007 anytime before 31 Dec 07-- subject, of course, to the AGI limits and all the other rules. See page 27 of Pub 590.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-21-2007, 03:29 PM   #19
Full time employment: Posting here.
Cattusbabe's Avatar
 
Join Date: Apr 2006
Posts: 814
Re: Any advantage to opening up a ROTH in retirement?

A little red faced re. my last post. Thanks for the link. we ended up contributing to a ROTH and left the other alone.
__________________
A todos los amantes del mundo. No importa el color de su piel, la pasion es universal.
_______________

La tavola e il letto non hanno restrizioni.
_____________
Any day your on this side of the grass is a good day.
Cattusbabe is offline   Reply With Quote
Re: Any advantage to opening up a ROTH in retirement?
Old 02-21-2007, 05:51 PM   #20
Full time employment: Posting here.
 
Join Date: Sep 2006
Posts: 608
Re: Any advantage to opening up a ROTH in retirement?

Quote:
Originally Posted by Nords
While you can make a 2006 contribution to a conventional IRA or a Roth IRA by the filing deadline (17 Apr 2007), you have to convert before the end of the calendar year.
That's weird, isn't it ? Kinda a PITA if you're RE'ed and trying to be sure to
max out your low tax brackets with IRA conversions, since it means accurately
pre-computing your taxes, in the few days in between when dividends
come out and when the year ends, all when you're busy with holiday cheer.

I guess the work-around is to convert an upper bound of what you think you'll
wish you had, and then re-characterize (from Roth back to TIRA) once you know
for sure what your taxable income is. Re-chars can be done up 'til filing deadline,
no ?

__________________

__________________
JohnEyles is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Retirement Accounts and Early Retirement heebygeeby Young Dreamers 9 03-14-2007 04:56 PM
Opening a kid's Roth IRA Nords Young Dreamers 70 06-06-2005 08:40 PM
How people find us... asian carp?? dory36 Forum Admin 4 05-27-2005 01:07 PM
Tax Deferred to Roth Strategy mccl FIRE and Money 10 06-09-2004 12:08 PM

 

 
All times are GMT -6. The time now is 02:34 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.