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Old 04-09-2012, 11:39 AM   #21
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Absolutely true, but you ARE required to include RMDs in your taxable income. If you had been able to "game" the system (one possible game is to "Roth" some of your tIRA/401(k)) you might end up with a lower life-time tax bill. True, it might not turn out the way you planned, but if your plan works, you could save a significant amount of taxes. I'm only suggesting that you need to at least consider playing the game. If you decide not to (or you think it''s a wash), so be it. But, we have been given this "gift" of the Roth. It's not perfect and playing the game is fraught with dangers and pitfalls, but it's the best game in town for many of us, IMHO of course. And yes, YMMV.
I looked at the numbers, and I think they make it clear. I'll be happy to be shown to be wrong, but my view is that when you have more money than you'll probably be able to spend, and you aren't intending to leave money for your heirs, gaming the system to pay the least tax will not be to your advantage. That is, you might have the lowest lifetime tax total, but you will leave money behind.

Here's an example: Let's say I'm 80 years old, and I still have $1 million dollars in my retirement account. In this situation, the government says I must take about $50K out of my account.

roth.jpg

I'm 80 years old, and if I don't start taking at least $50K out each year, I'm going to die with money left in the bank. I could take $50K out until I'm 100, and still not use up my money. Let's say I Roth'd the system, and didn't have any RMDs. Would I take out less than $50K?

Just for fun, I found that if I'm 100 years old and I still have $1,000,000 in the bank, the government says I must take out $158,000 each year.

Please let me know if this makes sense, because I'm basing my strategy on it.
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Old 04-09-2012, 02:54 PM   #22
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I'm 80 years old, and if I don't start taking at least $50K out each year, I'm going to die with money left in the bank. I could take $50K out until I'm 100, and still not use up my money. Let's say I Roth'd the system, and didn't have any RMDs. Would I take out less than $50K?

Just for fun, I found that if I'm 100 years old and I still have $1,000,000 in the bank, the government says I must take out $158,000 each year.

Please let me know if this makes sense, because I'm basing my strategy on it.
The less you pay in taxes while you are alive (and if you spend it all before you die, that's taxes on your entire portfolio), you'll have more to spend while you're alive. You may want only $50k/year, which would be in a good tax bracket. But if RMD's force you to take $158k/year that will push your tax bracket up that year and start filling your taxable account where you will start owing capital gains.

You have to do the calculaitons. If you only have 401k/IRA money then maybe there's no way to further optimize other than taking just the RMD. If you have taxable accounts and very low income, then Roth conversion should help reduce the taxes you pay and increase the amount left to spend.
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Old 04-09-2012, 03:18 PM   #23
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I've decided simply convert up to 15% tax bracket and not try to over-analyze things. Having converted all my non-deductible tIRA money, everything else is taxable.

The future of tax rates and/or methods of taxation is so uncertain that I'm not going to sweat the details, since saving money on taxes probably only means passing more money to our heirs.
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Old 04-09-2012, 04:03 PM   #24
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I'm with Alan. My problem at this point is to decide when to take SS as it will cut down on my Roth conversions. I was planning to take SS in Dec when DW turns 62 and I'll be 63 and 8 months. So this will be the last year of full Roth conversions but I have a lot more to convert. Maybe I'll let DW take her SS in Dec, which is a small amount and I'll try to hold off a bit.

If these are the worst problems we have in life then it's all good.
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Old 04-09-2012, 04:22 PM   #25
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If these are the worst problems we have in life then it's all good.
If you need something to worry about you could always hire a distant relative to remodel your kitchen...
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Old 04-09-2012, 04:24 PM   #26
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It seems to me what makes sense is to try and estimate how much taxable income one will have - distributions plus SS - and try to even out that income stream over time. Because the tax structure is progressive, the lowest total tax over time will be paid when the income is always taxed at the same rate. One extra dollar of income is taxed at a higher rate than one deferred dollar, so "tax volatility" leads to higher total taxes paid.

Ideally, assume 30 years span, SS begins in 10 years, calculate the real PV of both those income streams, then calculate the tIRA withdrawal flow so that each year is the same inflation adjusted amount over the entire 30 year period. If that leads to a withdrawal of unneeded tIRA, then convert the difference. Any shortfall between budget and withdrawal is made up from the taxable funds. The Roth are the last to go because they are entirely tax free.
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Old 04-09-2012, 06:28 PM   #27
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If you need something to worry about you could always hire a distant relative to remodel your kitchen...

Who would be dumb enough to do something like that.
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Old 04-09-2012, 08:02 PM   #28
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If you need something to worry about you could always hire a distant relative to remodel your kitchen...
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Who would be dumb enough to do something like that.
My Dad, and then we had to listen to a litany of complaints for the next 10 years...
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Old 04-09-2012, 08:21 PM   #29
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Your Dad is not alone Alan, just a quick story. REW was breaking my shoes because it happened to me last year.

Get this, we move to Florida and DW decides we need a new kitchen. We call in a few guys for estimates and after talking to one of them it turns out that his DW's Mom is my DW's God Mother who was my DW's Dad's sister, very strange indeed.

Any way we contract with him. He tells us that he will come in on a Monday and rip out the old kitchen and install the new kitchen on Tuesday then the granite will be in by that Friday. So the Monday comes and they tear out the Kitchen. Ten weeks later.........Grrrrrr!
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