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Old 02-24-2011, 01:11 PM   #21
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Ha, I'm really hoping some brilliant soul comes onto this thread and suggests a method of tax efficient withdrawal for a retiree with significant IRA assets. I cannot for the life of me see how to do it. I feel like I did not do due diligence back in my contribution phase.
Hindsight is always more accurate. But in thinking about this I don't think I would have done anything differently:

Contribute to a non-deductible IRA when there were no other retirement accounts available with a good range of investment options.

Reinvest dividends to continue growth rather than pay taxes on them in a taxable account.

Manage the investments while grumbling about the lousy choices in the 401k (oh and fund that to the maximum if possible, then convert it!).

Start a Roth and fund it when possible.

So now the non-deductible contributions amount to 2% of the T-IRA balance.



This is a bad problem to have.


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Old 02-24-2011, 02:20 PM   #22
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Originally Posted by Gotadimple View Post
Hindsight is always more accurate. But in thinking about this I don't think I would have done anything differently:

Contribute to a non-deductible IRA when there were no other retirement accounts available with a good range of investment options.

Reinvest dividends to continue growth rather than pay taxes on them in a taxable account.

Manage the investments while grumbling about the lousy choices in the 401k (oh and fund that to the maximum if possible, then convert it!).

Start a Roth and fund it when possible.

So now the non-deductible contributions amount to 2% of the T-IRA balance.



This is a bad problem to have.


-- Rita
i am thinking you really mean "this is a good problem to have". if not and you really think it is a bad problem to have then just donate your TIRA to an approved charity over the years and you wont pay any taxes on it.
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Old 02-24-2011, 02:33 PM   #23
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Ha, I'm really hoping some brilliant soul comes onto this thread and suggests a method of tax efficient withdrawal for a retiree with significant IRA assets. I cannot for the life of me see how to do it. I feel like I did not do due diligence back in my contribution phase.

At 70, I will be required to take 3.65% of my IRA. So assuming I was 70 today, that would be $65k. AND, if I had waited till 70 for SS, I'd be getting $35k. So that is $100k forced on me when in reality I can live comfortably on $60k, easily. AND, taxes (per Bankrate) would be 20%. On the other hand, if I were free to take cap gains and dividends from a taxable account, I'd only need $25k + $35k to get the $60K that I want. So I'd pay 10% tax. So I'd be paying $20k in the forced scenario, versus, $6k in my preferred.

BTW, I intend to put my ROTH conversions into fairly risky stocks and let that be my hormones account. As I build it the amount is small enough to just roll with volatility, and if I lose, I lose not much.
as walkinwood said
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The money in 401K & T-IRAs are going to be taxed, so trying for the lowest tax bracket is probably the best strategy.
soo look at your tax picture over your life time and try to set up your withdraws from your TIRA to minimize total life time tax paid. i dont know how old you are so i dont know how many years you have till age 70 but maxing out the 25% tax bracket with TIRA WDs between now and age 70 (converting what you dont need for living to your roth ira) seems to be a good start. depending on your overall income picture it may be that you can max out the 28% tax bracket during that time.
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Old 02-24-2011, 02:36 PM   #24
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Hindsight is always more accurate. But in thinking about this I don't think I would have done anything differently:
.
SNIP
.

This is a bad problem to have.

-- Rita
I think my main self-flagellation is that I went along during those years of contributing to a good IRA (lots of choices, even individual stocks), and my thought was that when I reached withdrawal age: "The taxes in my old age will be a pittance, the government will have pity on us tired old workers and give us a break on taxes. Those kind souls."

Instead I suspect that I'm gonna pay some hefty taxes.

Here is my current thinking. I have about 10 years till 70 and can do the following:
1. Take SS at 62 of about $20k.
2. Also draw down the IRA by $100k per year.
3. Tax rate would be effective 20% and so that would leave me with about $40k +20k SS to spend and $60k left to put into a Roth.
4. Do that for 10 years, so that RMDs from IRA will only be about $20k
5. Then from 70 till 80 years old, take only my SS, the RMD and withdraw the rest from the Roth. Therefore the tax rate will be only about 10%.

By doing that the average tax rate over that 20 year period is 15%.

By then I'm 80 and surely our munificent government will ease up on me.
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Old 02-24-2011, 02:48 PM   #25
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as walkinwood said


soo look at your tax picture over your life time and try to set up your withdraws from your TIRA to minimize total life time tax paid. i dont know how old you are so i dont know how many years you have till age 70 but maxing out the 25% tax bracket with TIRA WDs between now and age 70 (converting what you dont need for living to your roth ira) seems to be a good start. depending on your overall income picture it may be that you can max out the 28% tax bracket during that time.
You must have been reading my mind. I was typing that exact scenario as you were posting yours.
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Old 02-24-2011, 04:50 PM   #26
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I think my main self-flagellation is that I went along during those years of contributing to a good IRA (lots of choices, even individual stocks), and my thought was that when I reached withdrawal age: "The taxes in my old age will be a pittance, the government will have pity on us tired old workers and give us a break on taxes. Those kind souls."

Instead I suspect that I'm gonna pay some hefty taxes.

Here is my current thinking. I have about 10 years till 70 and can do the following:
1. Take SS at 62 of about $20k.
2. Also draw down the IRA by $100k per year.
3. Tax rate would be effective 20% and so that would leave me with about $40k +20k SS to spend and $60k left to put into a Roth.
4. Do that for 10 years, so that RMDs from IRA will only be about $20k
5. Then from 70 till 80 years old, take only my SS, the RMD and withdraw the rest from the Roth. Therefore the tax rate will be only about 10%.

By doing that the average tax rate over that 20 year period is 15%.

By then I'm 80 and surely our munificent government will ease up on me.
how would taking $91750/yr (maxes out the 25% tax bracket only) from now till age 70 from your TIRA but putting off SS till then, converting what you dont spend to your roth, work for you? at age 70 go to RMD +SS. seems like this would keep your maximum tax bracket at 25% or less.
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Old 02-24-2011, 05:20 PM   #27
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i am thinking you really mean "this is a good problem to have". if not and you really think it is a bad problem to have then just donate your TIRA to an approved charity over the years and you wont pay any taxes on it.
I was being clever. When one has had good fortune in growing a retirement account, complaining about the taxes on the account is a problem a lot of other people would enjoy having.
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Old 02-24-2011, 06:05 PM   #28
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I was being clever. When one has had good fortune in growing a retirement account, complaining about the taxes on the account is a problem a lot of other people would enjoy having.
i thought so but i also responded as if you were serious just in case.
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Old 02-25-2011, 08:09 AM   #29
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Ha, one option for the tax deferred accounts is investing in assets that do not have taxable alternatives. Two examples are real estate and CCFs. During longer periods of sustained rising prices and interest rates these may outperform fixed income and equities, but both are very tax inefficient.
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Old 02-25-2011, 10:03 AM   #30
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Ha, one option for the tax deferred accounts is investing in assets that do not have taxable alternatives. Two examples are real estate and CCFs. During longer periods of sustained rising prices and interest rates these may outperform fixed income and equities, but both are very tax inefficient.
Oh Michael, I do not know what a CCF is. Could you amplify?

Also, by real estate, do you mean REITs?

Ha
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Old 02-25-2011, 10:18 AM   #31
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Oh Michael, I do not know what a CCF is. Could you amplify?

Also, by real estate, do you mean REITs?

Ha
I'm not Michael but I've just been rereading Larry Swedroe's book on alternative investments. CCF's are Collateralized Commodity Funds. They have low correlation with other more typical portfolio assets and can provide a diversification benefit. The book also gives info on asset location/tax efficiency for the various alternative investments.

If you put a hold on it at the library I'll have to return it in about 2 weeks and then you can read all about 'em.

edited after MichaelB's reply: REITs are in the book too.
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Old 02-25-2011, 10:24 AM   #32
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I'm not Michael but I've just been rereading Larry Swedroe's book on alternative investments. CCF's are Collateralized Commodity Funds. They have low correlation with other more typical portfolio assets and can provide a diversification benefit. The book also gives info on asset location/tax efficiency for the various alternative investments.

If you put a hold on it at the library I'll have to return it in about 2 weeks and then you can read all about 'em.
Done! Thanks~

Ha
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Old 02-25-2011, 10:44 AM   #33
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Oh Michael, I do not know what a CCF is. Could you amplify?

Also, by real estate, do you mean REITs?

Ha
kyounge1956 is correct. CCFs are collateralized commodity index funds. PIMCO has one - PCRIX. There are others. There has been a raging debate over at Bogleheads for years between L Swedroe and R Ferri on these. They have a high positive correlation with unexpected inflation and low correlations with everything else. But very tax inefficient, also very volatile. If you are interested I can send some links for online reading. Anson Handbook of Alternative Assets is a good read as well.

And yes, I mean REITS. A REIT that specializes in office properties and has most of its financing long term should do very well if inflation picks up and stays at a higher level.
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Old 02-26-2011, 05:49 PM   #34
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kyounge1956 is correct. CCFs are collateralized commodity index funds. PIMCO has one - PCRIX. There are others. There has been a raging debate over at Bogleheads for years between L Swedroe and R Ferri on these. They have a high positive correlation with unexpected inflation and low correlations with everything else. But very tax inefficient, also very volatile. If you are interested I can send some links for online reading. Anson Handbook of Alternative Assets is a good read as well.

And yes, I mean REITS. A REIT that specializes in office properties and has most of its financing long term should do very well if inflation picks up and stays at a higher level.

Those sound interesting is there a particular economic scenario where CCF's would do well. I assume you can put them in an IRA?
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Old 02-26-2011, 08:51 PM   #35
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Those sound interesting is there a particular economic scenario where CCF's would do well. I assume you can put them in an IRA?
Interesting question. I think there are restrictions on use of options in an IRA and maybe the same rules would bar futures contracts as well. There are CCF mutual funds, and I'm pretty sure you can put them in an IRA.

CCFs tend to be positively correlated with inflation, less correlated with stocks or bonds. I think their primary benefit is diversification—they zig when your other asset classes are zagging, producing a smoother-riding portfolio overall.

Maybe you should request the book on inter-library loan. You can read it when haha has finished.
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Old 02-26-2011, 09:04 PM   #36
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Interesting question. I think there are restrictions on use of options in an IRA and maybe the same rules would bar futures contracts as well. There are CCF mutual funds, and I'm pretty sure you can put them in an IRA.

CCFs tend to be positively correlated with inflation, less correlated with stocks or bonds. I think their primary benefit is diversification—they zig when your other asset classes are zagging, producing a smoother-riding portfolio overall.

Maybe you should request the book on inter-library loan. You can read it when haha has finished.
Which may be a while, 'cause I don't have it yet.
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Old 02-27-2011, 02:23 AM   #37
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Maybe you should request the book on inter-library loan. You can read it when haha has finished.
Which may be a while, 'cause I don't have it yet.
That's 'cause I don't have to return it until the 7th.
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Old 02-27-2011, 07:26 AM   #38
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Developing a strategy to optimize (minimize) taxes is very complicated. I found the i-orp tool be insightful.

I agree with the general assessment of the RIRA and TIRA. However, it really depends on one's financial circumstances and age (statement of the obvious).

I will FIRE at 55. During the early years, much of our income will come from a taxable account (1/3 of our portfolio with a high tax basis..).... so we will have a low yearly income tax burden for our spending (yearly income)... we will use the taxable account to optimize our marginal tax rate and roll TIRA assets to RIRA over the 15 years prior to age 70. To aid in this (and for longevity mitigation) I will also defer taking my SS till age 70. It will occur in many steps (assuming tax rates and the various retirement statutes do not change much).
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Old 02-27-2011, 04:36 PM   #39
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Interesting question. I think there are restrictions on use of options in an IRA and maybe the same rules would bar futures contracts as well. There are CCF mutual funds, and I'm pretty sure you can put them in an IRA.

CCFs tend to be positively correlated with inflation, less correlated with stocks or bonds. I think their primary benefit is diversification—they zig when your other asset classes are zagging, producing a smoother-riding portfolio overall.

Maybe you should request the book on inter-library loan. You can read it when haha has finished.
Right. I'm not an expert but I think funds structured as partnerships and produce K-1 are problems, such as DBC. Maybe also the ishares product GSG. The PIMCO fund (PCRIX) is not structured this way and is suitable for IRAs.

Swedroe's book looks interesting. He and Rick Ferri have had endless debates on this and still disagree. I think Swedroe oversells CCFs but if one is particularly concerned about inflation and rising rates they are useful.
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Those sound interesting is there a particular economic scenario where CCF's would do well.
Yes. Rising inflation and interest rates. Especially over a longer period of time.
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