Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 04-20-2011, 03:48 PM   #21
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Quote:
Originally Posted by GregLee View Post
High income is a good thing, the way I see it.
The way some post here, you'd think that those with above average income or above average assets should be tarred and feathered.
__________________

__________________
MasterBlaster 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!

Old 04-20-2011, 04:18 PM   #22
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,406
Quote:
Originally Posted by MasterBlaster View Post
The way some post here, you'd think that those with above average income or above average assets should be tarred and feathered.
But not until we first raise their taxes...
__________________

__________________
MichaelB is offline   Reply With Quote
Old 04-20-2011, 04:23 PM   #23
Thinks s/he gets paid by the post
DFW_M5's Avatar
 
Join Date: Sep 2003
Posts: 4,980
I fully understand I have to pay taxes on my IRA withdrawals (and that I don't have to spend the withdrawals). Nevertheless, Rick Ferri is smart guy and when he indicates many folks will be in for a rude awakeing at the tax bite in later retirement years due to RMDs and increasing tax rates, that got my attention. Frankly I have not done my homework on this aspect and since I was actually contemplating a before tax port that will growth $ wise, it got my attention.

Hopefully, my comment doesn't get me tarred and feathered
__________________
DFW_M5 is offline   Reply With Quote
Old 04-20-2011, 04:43 PM   #24
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Well if your nestegg will support large withdrawals and you are only taking out small amounts, then yes you will have a larger than expected RMD distribution(s) and rather large tax bills. This effect will be amplified if tax rates go up.

In this case poor planning may indeed lead to a rude awakening and large tax bills.

Use the ORP calculator (or it's logic) to smooth the tax burden.
__________________
MasterBlaster is offline   Reply With Quote
Old 04-20-2011, 05:47 PM   #25
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,031
Quote:
In contrast, people who have drawn a paycheck and retired typically have large IRA rollover accounts (lawyers, physicians and other professionals). As they take required minimum distributions (RMD), they are going to be for a rude awakening. Those distributions will get larger and larger each year as they get older and older, and that means higher and higher taxes, especially under the proposed tax increases. Many RMD may end up being taxed at a much higher tax rate than the income was deferred at. Later in life (80s and 90s) is when the RMDs are huge.
That's interesting. People who draw a nice paycheck (like lawyers, doctors, and other professionals), can only contribute small amounts of their income to tax-deferred accounts. DW and I haven't been able to contribute to a deductible IRA in ages because of income limitations. That leaves putting relatively small amounts of money in 401Ks when available. Today, only 15% of our portfolio is in tax-deferred accounts.
__________________
FIREd is offline   Reply With Quote
Old 04-20-2011, 06:04 PM   #26
Full time employment: Posting here.
 
Join Date: Jan 2007
Location: Thousand Oaks
Posts: 839
Quote:
Originally Posted by FD View Post
That's interesting. People who draw a nice paycheck (like lawyers, doctors, and other professionals), can only contribute small amounts of their income to tax-deferred accounts. DW and I haven't been able to contribute to a deductible IRA in ages because of income limitations. That leaves putting relatively small amounts of money in 401Ks when available. Today, only 15% of our portfolio is in tax-deferred accounts.
note: if it's someone like a lawyer or doctor, small business owner, etc.. who is part of a closely held partnership/practice they may well have large tax deferred accounts built up via vehicle's other than run of the mill mega-corp style 401K's
__________________
mh is offline   Reply With Quote
Old 04-20-2011, 07:13 PM   #27
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,834
Quote:
Originally Posted by mh View Post
note: if it's someone like a lawyer or doctor, small business owner, etc.. who is part of a closely held partnership/practice they may well have large tax deferred accounts built up via vehicle's other than run of the mill mega-corp style 401K's
That's true, you can stash $100Ks in defined benefit plans, and $49k in a SEP if you are a small business owner.
__________________
nun is offline   Reply With Quote
Old 04-20-2011, 09:11 PM   #28
Thinks s/he gets paid by the post
DFW_M5's Avatar
 
Join Date: Sep 2003
Posts: 4,980
MB,

Apologies, I meant to thank you earlier for posting the link and RMD table, that is helpful info.

One other comment on why my tax deferred port is large. I worked for 26 years at a large mega-corp, retired at 54, and elected to take my pension as a lump sum which was then rolled over into an IRA. Also, went back to work and had several more years of 401K contributions.
__________________
DFW_M5 is offline   Reply With Quote
Old 04-20-2011, 09:15 PM   #29
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,707
Note that there is one other feature of 401ks and IRAs that needs to be considered, should you end up having to file Bankruptcy they are protected by law at least to some large limit. A taxable investment is not. Its not that anyone expects to in advance have to file, but lawsuits are possible.
__________________
meierlde is offline   Reply With Quote
Old 04-20-2011, 10:29 PM   #30
Thinks s/he gets paid by the post
 
Join Date: Apr 2011
Posts: 1,552
Quote:
Originally Posted by M Paquette View Post
I'm one of those folks with both taxable and tax-deferred retirement funds.

My plan is to cruise from 59 1/2 to 70 on IRA withdrawals, dividends, and interest. Then at 70 I'll start Social Security (assuming the usual...), so as to minimize the tax bite on SS income that larger required minimum withdrawals would otherwise cause.

This, of course, assumes the world doesn't end next year, or I get smooshed by an asteroid before age 70.
That's the strategy I have in mind. Take as much out of Trad IRA as can to keep tax rate "reasonable", put some in Roth, & live off the balance & investments till taking SS at 70. SS return each year you it put off is 7-8% + inflation protection. If you stay healthy till 70, seems like a good deal. If your health gets risky, switch gears.
__________________
gerntz is offline   Reply With Quote
Old 04-21-2011, 12:12 AM   #31
Thinks s/he gets paid by the post
veremchuka's Avatar
 
Join Date: Oct 2010
Location: irradiated - too close to the nuclear furnace
Posts: 1,294
Very timely as I was thinking about this today! I have virtually nothing in taxable accounts with virtually everything in a rollover IRA and 401k (for the stable value fund's yield w/o the nav issues of a ST bond fund).

I'm one of those that does look at the balance, does not spend principal (so far anyway) and wants to leave a good sized balance for a sibling that will need financial help.

I never considered doing Roth conversions because I never expected to get out of the 15% bracket (was in the 25% when working) and you always hear to defer paying taxes for as long as possible. I'm 10 years from hitting the RMD wall and really have no clue how to handle this.

As I build cash reserves from not having to pay my mortgage anymore I expect to have cash on hand to pay taxes on a Roth conversion (if I find it is better) but that'd be to the top of the 15% bracket. Doing that for 10 years may not draw down the IRA balance much. I have no idea if it is better to do that or just pay the taxes on the RMD on the whole IRA in the future? I have considered going to a pro for some advice on how to best handle this. Normally I know what and how to do, this is a case that I can't get my arms around it.

I have not read Rick's post yet and I agree with a prior comment that the minutia obsessed Bogleheads will drive rick away the way they did to Larry Swederoe.
__________________
veremchuka is offline   Reply With Quote
Old 04-21-2011, 01:45 AM   #32
Full time employment: Posting here.
 
Join Date: Jan 2007
Location: Thousand Oaks
Posts: 839
Quote:
Originally Posted by veremchuka View Post
Very timely as I was thinking about this today! I have virtually nothing in taxable accounts with virtually everything in a rollover IRA and 401k (for the stable value fund's yield w/o the nav issues of a ST bond fund).

I'm one of those that does look at the balance, does not spend principal (so far anyway) and wants to leave a good sized balance for a sibling that will need financial help.

I never considered doing Roth conversions because I never expected to get out of the 15% bracket (was in the 25% when working) and you always hear to defer paying taxes for as long as possible. I'm 10 years from hitting the RMD wall and really have no clue how to handle this.

As I build cash reserves from not having to pay my mortgage anymore I expect to have cash on hand to pay taxes on a Roth conversion (if I find it is better) but that'd be to the top of the 15% bracket. Doing that for 10 years may not draw down the IRA balance much. I have no idea if it is better to do that or just pay the taxes on the RMD on the whole IRA in the future? I have considered going to a pro for some advice on how to best handle this. Normally I know what and how to do, this is a case that I can't get my arms around it.

I have not read Rick's post yet and I agree with a prior comment that the minutia obsessed Bogleheads will drive rick away the way they did to Larry Swederoe.
Given that you intend to will some assets to your sibling. moving some money to a roth would probably make sense because your sibling should be able to maintain that inherited roth money in roth account ( you should double check that, but i think that is doable). if you leave it in a tax defferred account, that again can be transferred to your relative, but they will still have to make RMD's on it via your RMD timetable (not theirs)

So, the longer you think you (and your beneficiary) will maintain that money without drawing down on it, the more converting some tax deferred money to a roth makes sense to me (as long as your are not doing it at 'exorbitant' bracket levels)
__________________
mh is offline   Reply With Quote
Old 04-21-2011, 04:25 AM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
I intend to begin my Roth rollover regime next year.

The IORP tool MB noted is helpful.
__________________
chinaco is offline   Reply With Quote
Old 04-21-2011, 09:46 AM   #34
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,925
Quote:
Originally Posted by mh View Post
Given that you intend to will some assets to your sibling. moving some money to a roth would probably make sense because your sibling should be able to maintain that inherited roth money in roth account ( you should double check that, but i think that is doable). if you leave it in a tax defferred account, that again can be transferred to your relative, but they will still have to make RMD's on it via your RMD timetable (not theirs)
For both Roth and TIRA beneficiary IRAs, a non-spousal beneficiary must take RMDs....generally based on the beneficiary's lifetime (not on original owner's)
http://www.schwab.com/cms/P-1625576....=P-1625576&cv8
__________________
kaneohe is offline   Reply With Quote
Old 04-21-2011, 09:55 AM   #35
Thinks s/he gets paid by the post
DFW_M5's Avatar
 
Join Date: Sep 2003
Posts: 4,980
Quote:
Originally Posted by kaneohe View Post
For both Roth and TIRA beneficiary IRAs, a non-spousal beneficiary must take RMDs....generally based on the beneficiary's lifetime (not on original owner's)
http://www.schwab.com/cms/P-1625576....=P-1625576&cv8
I thought that was the case, thanks for clarifying. DW and I would definitely like to leave $s for our kids and doing that based on my RMD schedule may not be desireable.
__________________
DFW_M5 is offline   Reply With Quote
Old 04-21-2011, 09:59 AM   #36
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,834
I believe tax planning to be far more difficult than investing. I hadn't thought of deferring SS until 70 as a strategy to allow larger IRA withdrawals or rollovers. It sounds like a good plan. Right now I'm contributing to my ROTH each year and I plan to finance the years between ER and 59.5 with after tax dollars so that I can do low tax IRA to ROTH rollovers.
__________________
nun is offline   Reply With Quote
Old 04-21-2011, 01:54 PM   #37
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,834
I just realized that RMDs won't really be an issue as I get older and I'll have to withdraw increasingly large %ages of my portfolio anyway to pay for healthcare
__________________
nun is offline   Reply With Quote
Old 04-21-2011, 02:25 PM   #38
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,707
Quote:
Originally Posted by kaneohe View Post
For both Roth and TIRA beneficiary IRAs, a non-spousal beneficiary must take RMDs....generally based on the beneficiary's lifetime (not on original owner's)
http://www.schwab.com/cms/P-1625576....=P-1625576&cv8
I expect this to revert back to based on the original owners life expectancy once tax reform gets cranked up, its an easy way to get more revenue, and does not directly hurt the senior.
__________________
meierlde is offline   Reply With Quote
Old 04-21-2011, 04:57 PM   #39
Thinks s/he gets paid by the post
veremchuka's Avatar
 
Join Date: Oct 2010
Location: irradiated - too close to the nuclear furnace
Posts: 1,294
Quote:
Originally Posted by mh View Post
Given that you intend to will some assets to your sibling. moving some money to a roth would probably make sense because your sibling should be able to maintain that inherited roth money in roth account ( you should double check that, but i think that is doable). if you leave it in a tax defferred account, that again can be transferred to your relative, but they will still have to make RMD's on it via your RMD timetable (not theirs)

So, the longer you think you (and your beneficiary) will maintain that money without drawing down on it, the more converting some tax deferred money to a roth makes sense to me (as long as your are not doing it at 'exorbitant' bracket levels)
WOW! That sucks, I thought they were able to do RMD's based upon their age not mine, she is 7 years younger than me. Roth conversions maybe are worth doing over the next 10 years. Like I said I need to talk to a tax pro to get a handle on this. Thanks for the info!

I just read the reply from kaneohe and I will read that link you provided. Thank you!

It is much easier to accumulate your portfolio than spend it down I am learning! Who knew? Maybe I plowed too much into my 401k and should have put more into taxable? Well that's water over the dam at this point.

Money, too little is real bad and too much can be a hassle! I guess paying taxes is better than eating cat food but it is a rude awaking that as frugal as I am I have to do things with my money that I would rather not! Yes I knew about RMDs but years ago it seemed like a long time off and no big deal.
__________________
veremchuka is offline   Reply With Quote
Old 04-21-2011, 07:03 PM   #40
Full time employment: Posting here.
 
Join Date: Jan 2007
Location: Thousand Oaks
Posts: 839
Quote:
Originally Posted by mh View Post
Given that you intend to will some assets to your sibling. moving some money to a roth would probably make sense because your sibling should be able to maintain that inherited roth money in roth account ( you should double check that, but i think that is doable). if you leave it in a tax defferred account, that again can be transferred to your relative, but they will still have to make RMD's on it via your RMD timetable (not theirs)

So, the longer you think you (and your beneficiary) will maintain that money without drawing down on it, the more converting some tax deferred money to a roth makes sense to me (as long as your are not doing it at 'exorbitant' bracket levels)
kaneohe's followup to the above is right my post was wrong.. so read his link and ignore my misinformation.
__________________

__________________
mh 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
New here, referred from Bogleheads amcan57 Hi, I am... 42 08-12-2010 07:40 PM
Bogleheads Guide to Retirement walkinwood FIRE and Money 6 09-28-2009 03:51 PM
Bogleheads: Closet FIRE'es? DblDoc FIRE and Money 17 08-10-2008 09:20 AM
Twin City Bogleheads? Marquette Young Dreamers 8 07-17-2008 10:52 AM
Four Pillars and Bogleheads' Guide Jeb-NY FIRE and Money 3 01-04-2006 03:34 PM

 

 
All times are GMT -6. The time now is 11:50 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.