Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 03-01-2016, 10:29 AM   #41
gone traveling
 
Join Date: Feb 2016
Posts: 34
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.


Sent from my iPhone using Early Retirement Forum
__________________

__________________
Frankie1926 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-01-2016, 10:35 AM   #42
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by Frankie1926 View Post
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.
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.
__________________

__________________
hnzw_rui is offline   Reply With Quote
Old 03-01-2016, 10:40 AM   #43
Thinks s/he gets paid by the post
2017ish's Avatar
 
Join Date: Apr 2012
Posts: 1,842
Quote:
Originally Posted by Frankie1926 View Post
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.

...
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
2017ish is offline   Reply With Quote
Old 03-03-2016, 11:56 AM   #44
Full time employment: Posting here.
GTFan's Avatar
 
Join Date: Apr 2013
Location: Atlanta
Posts: 634
Quote:
Originally Posted by hnzw_rui View Post
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.
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.
__________________
GTFan is offline   Reply With Quote
Old 03-03-2016, 07:48 PM   #45
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by GTFan View Post
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.
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.
__________________
hnzw_rui is offline   Reply With Quote
Old 03-04-2016, 09:38 AM   #46
Full time employment: Posting here.
 
Join Date: Sep 2007
Posts: 716
Quote:
Originally Posted by pb4uski View Post
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.
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.
__________________
rayvt is offline   Reply With Quote
Old 03-04-2016, 09:47 AM   #47
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,356
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.
__________________
GrayHare is offline   Reply With Quote
Old 03-04-2016, 12:16 PM   #48
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,405
Quote:
Originally Posted by rayvt View Post
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.
Quote:
Originally Posted by GrayHare View Post
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.
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 exemptions0% 20,700 -  
$0-$18,55010% 18,550 1,855  
$18,551-$75,30015% 36,750 5,513  
   76,000 7,368  
Effective tax on conversion   9.7%
     
Qualified income0% 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.
pb4uski is online now   Reply With Quote
Old 03-04-2016, 01:14 PM   #49
Full time employment: Posting here.
GTFan's Avatar
 
Join Date: Apr 2013
Location: Atlanta
Posts: 634
Yep, it's always a blended rate because of the tax tiers. At least for federal, that is - many states are flat rate.
__________________
GTFan is offline   Reply With Quote
Old 03-04-2016, 01:33 PM   #50
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,614
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).
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 03-04-2016, 01:42 PM   #51
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,405
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 View Post
.... IF their ordinary income before any Roth conversions was $39,250 or more then what you wrote would be correct....
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Ruh-roh: Roth IRA conversions-- the IRS way. Nords FIRE and Money 14 06-03-2006 07:36 PM
Roth Conversions for Retirees mickeyd FIRE and Money 5 03-12-2006 10:35 AM
Roth IRA Conversions for Retirees mickeyd FIRE and Money 4 12-17-2005 11:38 AM
Roth Conversions?? stevelb FIRE and Money 18 02-28-2005 05:46 PM
ER Roth conversions unclemick FIRE and Money 8 03-05-2004 11:25 PM

 

 
All times are GMT -6. The time now is 05:05 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.