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04-30-2011, 11:30 PM
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#21
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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Quote:
Originally Posted by Independent
I'm trying to understand the advantage in doing larger conversions right now. Any additional conversions would be taxed at 25%. I can imagine us being in a 25% marginal bracket after age 70 due to RMD's, but the 28% bracket starts at $167k taxable (maybe $200k gross) and I'm not seeing us getting that high. There's no age limit on conversions, if congress looks likely to raise tax rates, I should have some forewarning and be able to move to the Roth then.
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the problem with waiting till you have started RMDs to do conversions to your roth IRA is that you will have larger RMDs and they (the RMD amounts) cant be converted to your roth IRA. so if you start earlier you can convert more (up to the entire TIRA value) to your roth IRA.
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05-01-2011, 11:52 PM
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#22
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Moderator Emeritus
Join Date: Dec 2002
Location: Oahu
Posts: 26,856
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Quote:
Originally Posted by wolfbay
Isn't it also true that even if tax rates didn't change and you had a significant amount of your IRA left when you died your heirs would pay higher taxes? I don't like paying higher taxes even when I'm dead!
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We plan to avoid this issue by ensuring that there's not a significant amount of IRA left when we die.
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Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
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05-02-2011, 01:25 AM
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#23
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Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,056
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Quote:
Originally Posted by Independent
I've done traditional to Roth conversions in years when my marginal FIT rate was 15%. I converted enough to "fill up the 15% bracket".
I'm trying to understand the advantage in doing larger conversions right now. Any additional conversions would be taxed at 25%. I can imagine us being in a 25% marginal bracket after age 70 due to RMD's, but the 28% bracket starts at $167k taxable (maybe $200k gross) and I'm not seeing us getting that high. There's no age limit on conversions, if congress looks likely to raise tax rates, I should have some forewarning and be able to move to the Roth then.
I suppose the catch is that if I tried to move lots to the Roth over a short time frame I'd kick us into a 28% bracket in the year of the conversion.
The other side is the possibility that Congress follows the Simpson/Bowles plan and raises taxes by eliminating deductions while reducing rates.
I'm having trouble with the inheritance analysis. It seems that one way I might leave each of my kids $100k in a trad IRA, the other way I leave them $75k in a Roth. I don't see an big advantage in one or the other.
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We're in the 25% bracket now and ORP recommends converting 1/3 of our tIRA's to Roths now, at a rate of ~$40k/year, then stop in a few years time and not touch the rest of the tax deferred until age 70. Not sure why, and I can't seem to bring myself to choose to pay an extra $10k/year of taxes now, so I'm converting $25k/year.
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Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
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05-02-2011, 10:22 AM
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#24
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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Quote:
Originally Posted by jdw_fire
the problem with waiting till you have started RMDs to do conversions to your roth IRA is that you will have larger RMDs and they (the RMD amounts) cant be converted to your roth IRA. so if you start earlier you can convert more (up to the entire TIRA value) to your roth IRA.
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I'm going to restate this to see if I've got it.
If I've got more money coming out of the TIRA via RMDs than I want to spend, that money will have to be invested somewhere. There is no other option that's as attractive as a Roth IRA. But the money that came out due to the RMD isn't eligible for a Roth.
The key is to move it to the Roth before the RMD. I could wait and do that at age 69, but I might want to move so much in one year that I'd drive myself into a 28% bracket in that year. So it's better to do some math and see how soon I need to start to spread it out enough to avoid the 28% bracket.
But, that calc won't necessarily show that I need to be moving money at 60. Depending on my assets and other income, it might turn out that I can wait a number of years before I start.
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05-02-2011, 10:43 AM
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#25
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gone traveling
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
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Quote:
Originally Posted by Independent
If I've got more money coming out of the TIRA via RMDs than I want to spend, that money will have to be invested somewhere.
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True.
Just remember that not all your income will be taxed at a higher rate (25, 28 or higher % rate) in the future.
It's only the excess beyond the prior table rate that will be taxed at the higher rate.
Some folks look that they must convert as if all their projected income will be subject to a higher (whatever) rate. That's not the way it works.
What is most important is what your total FIT rate is - not just the marginal rate, that may only pertain to a little income overall.
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05-02-2011, 09:07 PM
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#26
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,012
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Quote:
Originally Posted by Independent
I'm going to restate this to see if I've got it.
If I've got more money coming out of the TIRA via RMDs than I want to spend, that money will have to be invested somewhere. There is no other option that's as attractive as a Roth IRA. But the money that came out due to the RMD isn't eligible for a Roth.
The key is to move it to the Roth before the RMD. I could wait and do that at age 69, but I might want to move so much in one year that I'd drive myself into a 28% bracket in that year. So it's better to do some math and see how soon I need to start to spread it out enough to avoid the 28% bracket.
But, that calc won't necessarily show that I need to be moving money at 60. Depending on my assets and other income, it might turn out that I can wait a number of years before I start.
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well said; just remember, income and tax brackets/rates can change so do the math early and convert as early and as much as the math tell you to.
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05-03-2011, 07:39 AM
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#27
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Thinks s/he gets paid by the post
Join Date: Mar 2004
Posts: 3,431
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Quote:
Originally Posted by jdw_fire
well said; just remember, income and tax brackets/rates can change so do the math early and convert as early and as much as the math tell you to.
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+1
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05-03-2011, 03:58 PM
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#28
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Recycles dryer sheets
Join Date: Nov 2003
Location: Charlotte
Posts: 360
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I have enjoyed using ORP and we have converted such that about 17% of our investment portfolio is Roth. I would be hesitant to follow ORP's aggressive conversion advice now. How about we go to a strictly VAT taxing system and drop income taxes? Doubt that will happen, but future tax laws are very hard to predict. Settle for good diversification in your account holdings (taxable, taxed deferred, tax free).
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05-03-2011, 04:42 PM
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#29
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by WilliamG
I have enjoyed using ORP and we have converted such that about 17% of our investment portfolio is Roth. I would be hesitant to follow ORP's aggressive conversion advice now. How about we go to a strictly VAT taxing system and drop income taxes? Doubt that will happen, but future tax laws are very hard to predict.
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This is one that I can predict-in a 100 billion years it will not happen. Adopt VAT yes, drop income tax, never.
Ha
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"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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05-03-2011, 06:19 PM
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#30
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Recycles dryer sheets
Join Date: Nov 2003
Location: Charlotte
Posts: 360
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Ha -
As I said, doubt that will happen, but in our terrible fiscal situation the powers that be will go where the money is. Still think diversification in account allocation makes sense.
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05-05-2011, 01:03 PM
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#31
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gone traveling
Join Date: Jul 2007
Posts: 8
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Math Modeling
Quote:
Originally Posted by veremchuka
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There are two purposes to mathematical modeling of this sort:
1) To get some guidelines for making cash flow decisions today.
2) To get a sense of perspective of your retirement situation over time.
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