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Retirement tax strategist? How not to make money.
Old 11-20-2018, 11:58 AM   #1
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Retirement tax strategist? How not to make money.

So, I am at the point where I would like some fee based help
setting up the next leg of my retirement. (Or free help here if its solid)
But do not want to use my tax people or a generic FA.
Looking for the best advice out there. A specialist if they are out there.
Just not sure what category that would fall under?
My questions revolve mainly around Fed and Calif. tax's.
My goal is to stay in the Married Filing Jointly 12% bracket earning less than 77,400 a year forever.
But am 57 and still have 500k in a trad IRA.
And will be taking $31k from SS at 62. (Personal reasons)
My base income is about $46000 per year from a rental and annuity.
That will continue going forward. That puts me at 77k at 62 with SS.
But will still having 500k in the taxable IRA.
So, should I start a 72t now? $29000 a year for 5 yrs?
Have done some roth conversions but would like to free things up a bit.
Thanks for listening to my story!
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Old 11-20-2018, 12:02 PM   #2
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Don't forget the standard deduction for MFJ of $24k.
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Old 11-20-2018, 12:23 PM   #3
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Yep, $24k, thanks!
With that in mind, could I pull $29k from the IRA with a 72T for 5 years.
And take an additional 27k withdrawals from the IRA in 2 years from 59 1/2 to 62?
That might be the ticket. If you can take additional funds while doing a 72t
after 59 1/2. That would help get it down a bit.
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Old 11-20-2018, 12:27 PM   #4
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Quote:
Originally Posted by almost there View Post
So, I am at the point where I would like some fee based help
setting up the next leg of my retirement. (Or free help here if its solid)
But do not want to use my tax people or a generic FA.
Looking for the best advice out there. A specialist if they are out there.
Just not sure what category that would fall under?
My questions revolve mainly around Fed and Calif. tax's.
My goal is to stay in the Married Filing Jointly 12% bracket earning less than 77,400 a year forever.
But am 57 and still have 500k in a trad IRA.
And will be taking $31k from SS at 62. (Personal reasons)
My base income is about $46000 per year from a rental and annuity.
That will continue going forward. That puts me at 77k at 62 with SS.
But will still having 500k in the taxable IRA.
So, should I start a 72t now? $29000 a year for 5 yrs?
Have done some roth conversions but would like to free things up a bit.
Thanks for listening to my story!
Is there anything else? What about spouse SS?

$77k top of 12% tax bracket +$24k std dedn is $101k of total income... less $46k in real estate rental income leaves $55k of headroom for Roth conversions assuming there is nothing else.

So do Roth conversions of $55k each year for 4 years (58-62)... that's $220k... then start SS at 62 and headroom drops by $31k to $24k... $24k from (63-70) is $168k... total of $388k of conversions... shouldn't leave much for RMDs.

Unless there is anything else, it looks Roth converting to the top of the 12% tax bracket from now until age 70 will keep you in the 12% tax bracket.

You'll need to model it out in Excel with some growth, but I think it will work out that way.

Forget the 72t unless you need the money for spending. For 58-59 1/2 you can do roth conversions without penalty. After 59 1/2 it could be Roth conversions or withdrawals, but unless you need the money for spending Roth conversions may be better because any future growth would be tax free for you and your heirs.
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Old 11-20-2018, 12:48 PM   #5
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What's the reason for doing a SEPP (72t) withdrawal instead of, or in addition to, doing Roth conversions? You still have to pay taxes on the SEPP and you're locked into taking it for 5 years, even if something else changes in your financial situation. If you don't need the IRA money to live on, and if you can pay the tax out of your regular income, then just do conversions for 2 years. After age 59, you can either continue converting or take withdrawals to live on depending on your situation at the time.

For this year:
+$46K income
-$24K standard deduction
+$55.4K Roth conversion
--------
=$77.4K taxable income

Next year, tax brackets and standard deductions go up, so:

+$46K income
- $24.4K std deduction
+ $58.35K Roth conversion
-------------
=$79.95K taxable income

In the year you turn 62, you won't have SS for the full year, so you'll have some room for a smaller conversion then. And really, even in the following years, there might be a bit of head room for conversions depending on how your rental income and the tax parameters change.
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Old 11-20-2018, 02:02 PM   #6
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Thanks, (Spouse SS is included)
I do use additional $$ to the annual 46k. But have been using other funds for that.
Was just thinking about using some of the IRA $$ as I contributed to it for 30 yrs.
And it would feel pretty good to actually see some of it. LOL LOL..Spend some, bank some etc.. But could go either way.
I plan to spend more over the next few years. Travel, new cars etc. So, am thinking about doing the 72t, rather than using the cash from regular accounts. I have kept 3-4 years non IRA for emerg living expenses available. And have not dipped into it yet. I just like having it I guess. Was worried at 51. At 57, not worried as much...


So the only question I have then is can you take additional IRA $$$ at 59 1/2 if you are 2 years into a 5 year 72t? Have never thought about it. But would think you could?

And yes, my income will go up a bit, and there is a return on the 500k.
So it wont go as fast as one might think. But feel I should start to address it aggressively...
Held off as I needed some time to figure things out. The past 5 years has been a breeze..
Worried a bit too much for nada...

On a side note, was planning on saving both ROTH IRA'a till the end. Thats still the way to go, right? Last thing to go.....
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Old 11-20-2018, 02:37 PM   #7
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I wouldn't bother with a 72t for just 2 years... just use some of the taxable money and then replenish it if you want once you can do penalty free withdrawals from the IRA.

And yes, best to leave Roths to last in most cases.

No idea on your 72t question but I suspect the answer is yes.
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Old 11-20-2018, 03:03 PM   #8
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Your right. I guess its just physiological. I mean I can always access the taxable money.
But in my head I do not have access to the funds in the IRA. Must just be in my head.
Scary place to be, lol lol
So, once again....... Converting regular IRA to Roth is the best way to go.
Was just looking forward to actually having the ability use some of my retirement funds.
Been retired 5 years and have not used a dime of it. I am starting to sound like a "jg wentworth commercial" Ha!
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Old 11-20-2018, 03:08 PM   #9
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$29K from your 401(k) is about 5.8% withdrawal rate. If you plan on tapering your withdrawals after SS kicks in, I see no problem using the 72t, but it does lock you in for five years, with zero room for error.

If you haven't already, check out: https://72t.net/72t/Planning/Pointers
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Old 11-20-2018, 03:21 PM   #10
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There and here......https://www.dinkytown.net/java/72t-calculator.html

If I were to do it, I would play it safe and go well under the maximum.
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Old 11-20-2018, 04:23 PM   #11
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Originally Posted by almost there View Post
Your right. I guess its just physiological. I mean I can always access the taxable money.
But in my head I do not have access to the funds in the IRA. Must just be in my head.
Scary place to be, lol lol
So, once again....... Converting regular IRA to Roth is the best way to go.
Was just looking forward to actually having the ability use some of my retirement funds.
Been retired 5 years and have not used a dime of it. I am starting to sound like a "jg wentworth commercial" Ha!
Money is fungible.
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Old 11-21-2018, 12:55 AM   #12
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Not sure why you donít want to use your tax person to help with this? Mine did projections for me and it was very helpful to look at different options and choose what was best for us short term and longer term.
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Old 11-21-2018, 07:06 AM   #13
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Accessing the IRA through 72t appears to be an emotional response vs a well thought out plan. Don't let emotions drive your planning. pb4uski is on track with a plan that will reduce your future IRA balance without just spending the money. Roth conversions would seem to be the best path to me also.

72t is not the nirvana it is made out to be- lots of rules.

Best to you,

VW
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Old 11-21-2018, 08:59 AM   #14
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Thanks, will do.
I think the order in which to use funds got me thinking 72t.
To simplify, use old 401k - IRA 1st, Roth last, mentality.
Will just convert to roth as mentioned. And use other funds
to bridge to 59 1/2.
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Old 11-21-2018, 09:08 AM   #15
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Money is fungible.
Agree, I just seem to put things into buckets.
And came up with a 5 pronged approach to retirement decades ago.
I need to fix that. lol lol

Thanks again for all the help! Much appreciated!
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Old 11-21-2018, 09:08 AM   #16
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.... To simplify, use old 401k - IRA 1st, Roth last, mentality.
Will just convert to roth as mentioned. And use other funds to bridge to 59 1/2.
Yes, from now until 59 1/2 use taxable and do Roth conversions to the top of the 12% tax bracket to reduce the tIRA but avoid the penalty.

From 59 1/2 to 70 1/2, use IRA withdrawals for any spending in excess of rental income and SS and supplement with Roth conversions to the top of the 12% tax bracket.

Continually assess but I think this should allow you to avoid the 22% bracket when RMDs begin.
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Old 11-21-2018, 02:47 PM   #17
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My standard reply to a tax minimized withdrawal question is to use i-orp as a data point. Take your time and understand all the inputs. One "gotcha" is that you need to put the same % equities in all 3 tax categories under "glide path". This will give you an optimal plan. Many say it's too aggressive with the Roth conversions, but it does that because of the RMD's. Also, the marginal extra dollar might not beat the bird in the hand, which is why I say it's a data point. It can be a sensitivity tool, since you can adjust the Roth conversions from full to something less and see how much that costs you (usually not much).
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