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ORP Calculator Question
Old 12-02-2013, 02:16 PM   #1
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ORP Calculator Question

I like to use different calculators but have a question about ORP. When I put in my factors, I put in taxable and tax deferred, along with my social security. When it prints out, it shows Roth IRA withdrawals starting at age 57, - but I don't have Roth IRAs.

So, is it telling me to convert to Roth IRA's or is this social security - not sure where social security shows on the graph?

I love that it gives me what my after tax spend will be, but it sure is complicated trying to figure out all of the reports - and I thought my portfolio was pretty basic.

Anyone know the answer about the Roth IRA?

Deb
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Old 12-02-2013, 02:43 PM   #2
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So, is it telling me to convert to Roth IRA's or is this social security -
...
Anyone know the answer about the Roth IRA?

Deb
The ORP calculator does quite a bit of regular IRA to ROTH IRA conversions. That's part of the tax optimization.

They have a "help" tab you can click for better explanations.
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Old 12-02-2013, 03:46 PM   #3
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The ORP calculator does quite a bit of regular IRA to ROTH IRA conversions. That's part of the tax optimization.

They have a "help" tab you can click for better explanations.
+1

I'm doing IRA to ROTH conversions using ORP as a guide, but each year I use Turbo Tax to run scenarios as well so I have a better estimate of how much tax I will pay for the conversions. ORP has a very aggressive first few years of conversions recommended for me, but with RMD's, DW's SS, my SS, another private pension, and UK SS all in the future, I can be fairly sure that I will have higher tax bands in the coming years.
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Old 12-02-2013, 03:55 PM   #4
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Okay, so it is telling me to convert my 401K and IRA to Roth IRA? I think I need to buy Turbotax - is that what you guys recommend to figure out the tax ramifications?

I've heard people talk about Taxcaster as well - part of Quickbooks?

I printed out the ORP "cheat sheet" but still confused - probably just me!

Debbie
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Old 12-02-2013, 04:01 PM   #5
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Okay, so it is telling me to convert my 401K and IRA to Roth IRA? I think I need to buy Turbotax - is that what you guys recommend to figure out the tax ramifications?

I've heard people talk about Taxcaster as well - part of Quickbooks?

I printed out the ORP "cheat sheet" but still confused - probably just me!

Debbie
It doesn't need to be turbotax, that just happens to be what I use to do my taxes each year. I save a copy of my return to play with then I can enter differing sums on a 1099-R and see how much the tax changes.

Use whatever tax software you normally use to do your taxes, or you can use Taxcaster which is free. For me, using TT is easy since it already has my data in from the previous year.
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Old 12-02-2013, 04:15 PM   #6
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Okay, got it! I own a business so my CPA has been doing my taxes for 25 years! But that is soon going to change with my retirement!

Probably that is the reason I don't understand alot of the tax "stuff".

Deb
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Old 12-02-2013, 05:10 PM   #7
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If you look at the withdrawal report you can probably see your taxable IRA decline and your Roth IRA increase by the same amount. This will probably go on for a few years depending upon your particular circumstances.
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Old 12-02-2013, 06:49 PM   #8
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When I ran ORP it showed that I could take out about 3X what I am. But I'm more comfortable with the FC figures. Plus I just don't like what it wants me to take out of my ROTH IRA's in the early years.
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Old 12-02-2013, 10:24 PM   #9
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Is there a website or tutorial somewhere to explain to me the whole process of changing IRA's to Roth. I get the basics, that you are paying taxes now to get it tax free later. But the whole point of getting tax deferred was to not pay taxes, right?

So is it to save on taxes later on (assuming the tax bracket will be lower later in retirement) or is it to manage your income so that you can count that withdrawal in the current year and pay taxes - but keep it under a certain tax threshold?

I'm confused... nothing new. And I read alot about this - but haven't seen an actual "why" explanation.

Deb
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Old 12-02-2013, 10:48 PM   #10
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Is there a website or tutorial somewhere to explain to me the whole process of changing IRA's to Roth. I get the basics, that you are paying taxes now to get it tax free later. But the whole point of getting tax deferred was to not pay taxes, right?

So is it to save on taxes later on (assuming the tax bracket will be lower later in retirement) or is it to manage your income so that you can count that withdrawal in the current year and pay taxes - but keep it under a certain tax threshold?

I'm confused... nothing new. And I read alot about this - but haven't seen an actual "why" explanation.

Deb
Converting IRA to ROTH is done primarily for 2 reasons. Pay tax now because you expect to be in a higher tax bracket once SS, pensions and RMD's push up your income. Pay tax now so your non-spouse heirs don't have to pay tax when they inherit. If your children inherit they have to start withdrawals immediately based on their life expectancy, or they can cash it out etc. either way they will have no tax to pay with a ROTH but with an IRA they will pay tax based on their income.

I didn't do any conversions while working because I was in a higher tax bracket before I retired. Now that I am retired I still have some years before future pensions, SS and RMD will move me to a higher bracket. (I retired 4 years ago at 55)
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Old 12-03-2013, 05:33 AM   #11
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Originally Posted by Debinnov a View Post
Is there a website or tutorial somewhere to explain to me the whole process of changing IRA's to Roth. I get the basics, that you are paying taxes now to get it tax free later. But the whole point of getting tax deferred was to not pay taxes, right?

So is it to save on taxes later on (assuming the tax bracket will be lower later in retirement) or is it to manage your income so that you can count that withdrawal in the current year and pay taxes - but keep it under a certain tax threshold?

I'm confused... nothing new. And I read alot about this - but haven't seen an actual "why" explanation.

Deb
You have it right that the whole purpose of the IRA/401k/403b was to avoid paying taxes when you deposited the money into the account but that assumed that your tax rate in retirement would be lower. That is not always the case. In the case of married couples, the death of one spouse would trigger the much higher individual tax rates for the surviving spouse.

There are lots of tax games that can be played out and converting to a Roth is only one aspect. As Alan case stated above shows, there can be many issues in ones finances that are not covered by iORP.

One particular flaw/limitation I've found with iORP is based on putting in different returns between types of accounts. Typically, fixed income is maximized in tax deferred accounts up to an individuals asset allocation level. This rate of return is usually considered to average below that for equities which would be maximized in a Roth. Putting in a low tax deferred ROR and a higher Roth ROR has any conversions put on steroids. The program converts massive amounts of tax deferred assets to the Roth without any consideration to the asset allocation and the return on those assets.
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Old 12-03-2013, 08:28 AM   #12
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I was looking at the same thing on iORP last week and got the same results of large Traditional to Roth conversions over the next few years before SS starts (and large tax bills). There are quite a few ira to roth conversion calculators available that I then ran to try to help figure all this out. They are pretty basic, and only one I found/used let you pick you state (for taxes). Some are brokerage supplied calculators (Vanguard, Fidelity...). Others aren't. One interesting thing I noted (if I remember correctly from last week when I was "playing" with these calculators) is that for my age (58) the advantage of converting didn't really come in to play (i.e. the two lines of converting and not converting) until I got well into my 80's and it was't a huge %. But that is just my specific case.

Googling what I posted in blue above will display alot of the available ones. I'll probably need to see a independent financial/tax professional before I make a final decision. I'm still trying to figure what direction (% of my tIRA to convert to Roth each year for the next few years) to go on all this.
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Old 12-03-2013, 08:31 AM   #13
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Here's Vanguard's "should I convert to Roth" calculator:
http://www.archimedes.com/vanguard/r...Consumer.phtml
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Old 12-03-2013, 09:28 AM   #14
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Here's Vanguard's "should I convert to Roth" calculator:
http://www.archimedes.com/vanguard/r...Consumer.phtml
That is even scarier than ORP for me, particularly if I put in a future marginal tax rate of 40%, which is a real possibility as we are hoping to set up a permanent place in England and split our time equally between here and England. It will mean very large tax bills this next few years doing the conversions.

Pity this calculator doesn't allow you to play with conversions over a few years.

What to do, what to do..... ??
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Old 12-03-2013, 10:42 AM   #15
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Thanks, everyone for the feedback. One question.... can you also convert 401K monies to Roth IRA or just IRA monies? Also, what is tIRA? taxable IRA or no?

Deb
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Old 12-03-2013, 10:50 AM   #16
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Thanks, everyone for the feedback. One question.... can you also convert 401K monies to Roth IRA or just IRA monies? Also, what is tIRA? taxable IRA or no?

Deb
a tIRA is a traditional or taxable IRA.

I rolled my 401k in entirety to a tIRA (often called a Rollover IRA, but it is taxable on withdrawal like a tIRA). Zero tax liability for 401k -> Rollover IRA.

Now I am in the process of doing ROTH conversions, at a pace that suits me.
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Old 12-03-2013, 01:25 PM   #17
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Here's something else to ponder concerning ROTH conversions....

Looking forward regarding our budget situation, I suspect that there will be quite a bit of pressure to change ROTH IRA rules.

Are you confident that they won't cap tax-free ROTH withdrawals ? Or could they put an "excess distribution" penalty on large ROTH withdrawals. There certainly is a historical basis for such.

Note also that Obama floated the idea of a total qualified balance cap that would require those with very large IRA/401k balances to divest down to the proposed cap and pay income taxes on the excess.

In my opinion things like this are coming, like it or not.
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Old 12-03-2013, 02:34 PM   #18
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Here's something else to ponder concerning ROTH conversions....

Looking forward regarding our budget situation, I suspect that there will be quite a bit of pressure to change ROTH IRA rules.

Are you confident that they won't cap tax-free ROTH withdrawals ? Or could they put an "excess distribution" penalty on large ROTH withdrawals. There certainly is a historical basis for such.

Note also that Obama floated the idea of a total qualified balance cap that would require those with very large IRA/401k balances to divest down to the proposed cap and pay income taxes on the excess.

In my opinion things like this are coming, like it or not.
Then maybe we should just hope the asteroid gets here soon so we don't have to deal with all the gloom and doom?

Sorry. It's a little OT.
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Old 12-03-2013, 07:07 PM   #19
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Just call me stupid. I don't understand ORP as it has me taking considerably much more money than firecalc, FIDO or any other retirement calculator I've tried. When I say considerably more I mean considerably more.
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Old 12-03-2013, 07:25 PM   #20
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Just call me stupid. I don't understand ORP as it has me taking considerably much more money than firecalc, FIDO or any other retirement calculator I've tried. When I say considerably more I mean considerably more.
+1
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