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03-01-2016, 09:29 AM
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#41
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gone traveling
Join Date: Feb 2016
Posts: 34
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At 55 there are many years of risk that the tax treatment of roths will not be as lucrative. I think 1 candidate is already looking at creating rmd rules for roths.
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03-01-2016, 09:35 AM
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#42
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Full time employment: Posting here.
Join Date: Apr 2015
Posts: 903
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Quote:
Originally Posted by Frankie1926
At 55 there are many years of risk that the tax treatment of roths will not be as lucrative. I think 1 candidate is already looking at creating rmd rules for roths.
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Yeah, that too. Hence, I'm only planning on doing Roth conversions for tax smoothing.
Oh well, I'm just 32 right now. I'm likely gonna have to adjust plans in response to changes in tax law.
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03-01-2016, 09:40 AM
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#43
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Thinks s/he gets paid by the post
Join Date: Apr 2012
Location: Nashville
Posts: 2,506
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Quote:
Originally Posted by Frankie1926
At 55 there are many years of risk that the tax treatment of roths will not be as lucrative. I think 1 candidate is already looking at creating rmd rules for roths.
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Death, Taxes, and Legislative changes to the tax code....
I'm a year older and am planning (after retirement) to convert fairly aggressively in early retirement--with an aspirational goal of getting as close to 50/50 as is reasonable. 100% Roth conversions is, in my mind/situation, trusting too much in the current Code provisions continuing.
__________________
OMY * 3 2ish Done 7.28.17
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03-03-2016, 10:56 AM
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#44
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Thinks s/he gets paid by the post
Join Date: Apr 2013
Location: Ormond Beach
Posts: 1,407
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Quote:
Originally Posted by hnzw_rui
That's at age 70 1/2 though. I don't think that's an option for someone retiring at 55 and planning to do Roth conversions in order to reduce RMDs.
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The point was that you can use IRA QCDs to satisfy RMDs with no tax consequences, not that it's better than conversions before RMD time. If you don't want to convert and take the upfront tax hit before you turn 70 1/2 this is a way to have no tax hit when you do reach that age.
And of course there are other ways to minimize RMDs without conversions so you don't have to donate a big chunk every year, such as spending down your tax-deferred accounts between the ages of 60-70. Like I said before, this is a personal call not strictly a financial one.
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03-03-2016, 06:48 PM
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#45
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Full time employment: Posting here.
Join Date: Apr 2015
Posts: 903
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Quote:
Originally Posted by GTFan
The point was that you can use IRA QCDs to satisfy RMDs with no tax consequences, not that it's better than conversions before RMD time. If you don't want to convert and take the upfront tax hit before you turn 70 1/2 this is a way to have no tax hit when you do reach that age.
And of course there are other ways to minimize RMDs without conversions so you don't have to donate a big chunk every year, such as spending down your tax-deferred accounts between the ages of 60-70. Like I said before, this is a personal call not strictly a financial one.
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Ah, I agree. Personally planning on spend down and/or small conversions of tax deferred from 55-70. If returns are so good and portfolio becomes so large that my RMDs still exceed desired spending, then I'll just do QCDs. I'm loathe to prepay a lot in taxes because 15 years is a pretty long time and portfolio survival will be a concern during the earlier years. I definitely have no plans of Roth converting to the point where RMDs become zero.
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03-04-2016, 08:38 AM
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#46
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Thinks s/he gets paid by the post
Join Date: Sep 2007
Posts: 1,214
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Quote:
Originally Posted by pb4uski
Another thing to know is that just because you design your conversion to bring you to the top of the 15% tax bracket does not mean that you pay 15% tax on the conversion.
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Actually, yes it does. The tax brackets are marginal rates. Which means that each additional dollar of income you get is taxed at 15% (or whatever). If you are in the 15% bracket, $1000 of Roth conversion will cost $150 of income tax.
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03-04-2016, 08:47 AM
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#47
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Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,902
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If one's first dollar of conversion fits below the 15% bracket then converting up to the top of the 15% bracket will not incur 15% tax on the entire conversion.
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03-04-2016, 11:16 AM
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#48
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,374
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Quote:
Originally Posted by rayvt
Actually, yes it does. The tax brackets are marginal rates. Which means that each additional dollar of income you get is taxed at 15% (or whatever). If you are in the 15% bracket, $1000 of Roth conversion will cost $150 of income tax.
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Quote:
Originally Posted by GrayHare
If one's first dollar of conversion fits below the 15% bracket then converting up to the top of the 15% bracket will not incur 15% tax on the entire conversion.
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No rayvt, it doesn't work that way - GrayHare is right. Let's say a married couple is in ER, living off their taxable accounts (no pension and SS yet) and have $20k of dividend income and capital gains and are doing Roth conversions to the top of the 15% tax bracket and take the standard deduction. The tax on their 2016 $76k Roth conversion is 9.7% because some of the conversion is covered by exemptions and deductions (effective rate of 0%), $18,550 is taxed at 10% and the remainder is taxed at 15% and the effective tax rate on the conversion is a blend of these 3 rates. IF their ordinary income before any Roth conversions was $39,250 or more then what you wrote would be correct.
| | 2016 | | | TI at top of 15% tax bracket | | 75,300 | | | Standard deduction | | 12,600 | | | 2 exemptions | 4,050 | 8,100 | | | | | 96,000 | | | Qualified dividends and LTCG | | (20,000) | | | Roth conversion | | 76,000 | | | | | | | | | | | | | Deductions and exemptions | 0% | 20,700 | - | | $0-$18,550 | 10% | 18,550 | 1,855 | | $18,551-$75,300 | 15% | 36,750 | 5,513 | | | | 76,000 | 7,368 | | Effective tax on conversion | | | | 9.7% | | | | | | Qualified income | 0% | 20,000 | - | | Total tax | | | 7,368 | | Total effective tax rate | | | | 7.7% | | | | | | Total income | | 96,000 | | | Deductions | | (12,600) | | | Exemptions | | (8,100) | | | Taxable income | | 75,300 | | |
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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03-04-2016, 12:14 PM
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#49
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Thinks s/he gets paid by the post
Join Date: Apr 2013
Location: Ormond Beach
Posts: 1,407
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Yep, it's always a blended rate because of the tax tiers. At least for federal, that is - many states are flat rate.
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03-04-2016, 12:33 PM
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#50
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
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It just depends on your "regular" income before doing any conversions. If that other income already puts you in the 15% bracket, then it's very true that every dollar of Roth conversion is taxed at 15% (or higher, if you go into the next bracket).
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03-04-2016, 12:42 PM
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#51
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,374
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Agreed... I conceded that... (but only ordinary income... not all other income as you wrote....if the income that puts them in the 15% bracket before Roth conversions is qualified income then the Roth conversion is still at the lower rates since the qualified income is taxed at 0% on top of ordinary income).
Quote:
Originally Posted by pb4uski
.... IF their ordinary income before any Roth conversions was $39,250 or more then what you wrote would be correct....
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__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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