truenorth418
Full time employment: Posting here.
I am retired in my early 50s, and I am beginning to make Roth IRA conversions. The only other income I have currently is from dividend and cap gains in my after tax accounts. As is usually recommended, I intend to pay the income taxes on the Roth conversions from a separate, after-tax account. This will not be a problem.
However, there is another rule of thumb I follow which is that current year's income taxes should be paid from within one's predetermined withdrawal rate, just like any other ongoing expense.
Before including taxes on these Roth conversions, my income tax payments are minimal since they consist of dividend and cap gains taxes, and so these tax payments barely put a dent in my annual withdrawal rate.
However, if I include taxes for Roth conversions, suddenly my current year's taxes take up a much more significant amount of my spending and a significant percent of my withdrawal rate, which of course crowds out all the money I have set aside for retirement living expenses and discretionary spending.
How do others account for Roth conversion taxes in their budgets? Do you budget for them within your current year withdrawal limits, or do you pay for them above and beyond your predetermined withdrawal rate?
However, there is another rule of thumb I follow which is that current year's income taxes should be paid from within one's predetermined withdrawal rate, just like any other ongoing expense.
Before including taxes on these Roth conversions, my income tax payments are minimal since they consist of dividend and cap gains taxes, and so these tax payments barely put a dent in my annual withdrawal rate.
However, if I include taxes for Roth conversions, suddenly my current year's taxes take up a much more significant amount of my spending and a significant percent of my withdrawal rate, which of course crowds out all the money I have set aside for retirement living expenses and discretionary spending.
How do others account for Roth conversion taxes in their budgets? Do you budget for them within your current year withdrawal limits, or do you pay for them above and beyond your predetermined withdrawal rate?