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Old 04-23-2018, 02:46 PM   #41
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No Roth for me. I am solidly in the 22% bracket and my income will never go down. I take enough from IRA each year as spending money to bump me up to just under the first Medicare income threshold. After 70, SS will put me in about the same place without any withdrawals from tax deferred. RMDs will be taken as QCDs to charity for the first 10 or 15 years so no income impact. This is part of my inheritance plan. For my situation, it seems best to just let the money grow in tax deferred accounts as long a possible.
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Old 04-23-2018, 03:11 PM   #42
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Originally Posted by SecondCor521 View Post
...................................

And then as far as avoiding penalties, I'd look at the instructions for Line 79 of Form 1040. I believe what it will say is that one of the ways to avoid penalties is if the amount owed (Line 78) is less than $1,000. ...................................
This section from F2210 is more restrictive:

4 Current year tax. Combine lines 1, 2, and 3. If less than $1,000, stop; you donít owe a penalty.
Donít file Form 2210 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5 Multiply line 4 by 90% (0.90) . . . . . . . . . . . . . 5
6 Withholding taxes. Donít include estimated tax payments (see instructions) . . . . . . . 6
7 Subtract line 6 from line 4. If less than $1,000, stop; you donít owe a penalty. Donít file Form 2210

You take the current yr tax and take 90% of that is your minimum required for safe harbor. Note that line 6 includes only W/H taxes .....but not est. tax payments...............so you can't get out of trouble by paying est. taxes in Q4.

You are quite right that the estimated payments can vary w/ time if your income varies accordingly . However unless income varies accordingly, you
generally have to pay each quarter. The reporting requirement is not fun either.
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Old 04-23-2018, 03:36 PM   #43
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Originally Posted by kaneohe View Post
This section from F2210 is more restrictive:

4 Current year tax. Combine lines 1, 2, and 3. If less than $1,000, stop; you donít owe a penalty.
Donít file Form 2210 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5 Multiply line 4 by 90% (0.90) . . . . . . . . . . . . . 5
6 Withholding taxes. Donít include estimated tax payments (see instructions) . . . . . . . 6
7 Subtract line 6 from line 4. If less than $1,000, stop; you donít owe a penalty. Donít file Form 2210

You take the current yr tax and take 90% of that is your minimum required for safe harbor. Note that line 6 includes only W/H taxes .....but not est. tax payments...............so you can't get out of trouble by paying est. taxes in Q4.

You are quite right that the estimated payments can vary w/ time if your income varies accordingly . However unless income varies accordingly, you
generally have to pay each quarter. The reporting requirement is not fun either.
Well, as my Mom used to say, you learn something new every day. Thank you for pointing this out.

Currently, I have a negative federal tax bill - Line 63 is zero and line 74 is positive. But in the future, I may have to pay federal taxes, and if so I will keep this in mind.

If I do have to pay taxes, though, I think a single estimated tax payment on 1/15 may still work for me under the annualized income installment method since the majority of my income is likely to be in Q4. And now that I write that, I realize that one of my income sources is capital gains from a private company stock I owned, so it might be possible to have a significant portion of my income in the Q1 or Q2 because that is when those distributions might happen. Sigh. I'm really beginning to strongly dislike the complexity of taxes.
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Old 04-23-2018, 04:01 PM   #44
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1. What pct of conventional IRA do you/will you have converted to Roth by your RMD Year?
100%

2. Will you/ did you continue Roth conversion after your RMD’s start?
No

3. Do you plan on converting 100% to Roth?
Yes, every penny.

4. How old were you when you started Roth conversions?
62

5. Do you do Roth conversions every year and once per year? And pay the tax in the quarter that you convert?
A couple of times a year. or quarterly, or once a year. We convert on dips.

6. Is your Roth IRA investment mix the same as in your traditional IRA?
No

7. To what extent was/is your decision on delaying SS based on your Roth conversion strategy?
Completely dependent. Taking SS before 70 would cost too much in additional taxes.

8. Do you have reasons to not do Roth conversions?
We are planning on a leaving a sum to our daughter. Roth will reduce taxes, overall.
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Old 04-23-2018, 04:46 PM   #45
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We're both 57 and retired 5 years. I've been converting to the top of the 15% bracket (now 12%) for 3 years. First 2 years of retirement, we did no conversions because we were still in a high bracket due to exercising employee stock options. Conversion amounts are small due to 2 pensions and some rental income. At this rate, I've projected that we will convert only about 35-40% of tax-deferred to Roth by 70.

The new tax law has me pondering conversions into the 22% bracket, but the cost is actually greater than 22% due to the 27% incremental rate on QDs and LTCGs. RMDs and SS will put us well into the 22% bracket at 70. So there's not a compelling case to convert further unless I think rates will revert to 25%. And then it's a small upside with a whole lot of unknowns. So I'm still undecided pending further analysis.

We convert in Dec and pay tax by Jan 15 using the quarterly method to avoid under-withholding penalties. AA in tax-deferred is a mix of bonds and equities. Roth and taxable are all equity. We will delay SS as long as possible to enable max Roth conversion.
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Old 04-23-2018, 04:48 PM   #46
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^^^^ my brother from a different mother. Describes our strategy to a "tee".
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Old 04-23-2018, 06:59 PM   #47
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I'm not sure we can even get to 35% conversion, within the 12% bracket. Going back to an earlier comment, does it make sense to keep converting after RMD's to avoid an even higher bracket later (particularly when one of you passes)?

FYI, we are still 8 years away from RMD's. Just trying to plan ahead.
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Old 04-23-2018, 07:24 PM   #48
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I'm going to have to take a real hard look at it when we turn 65 and relocate to a no state income tax state.
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Old 04-23-2018, 08:04 PM   #49
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Thanks to this thread, I finally started focusing on the Roth notion, especially once I remembered that my 401k added in-plan conversions of after-tax contributions earlier this year, so I did that today--just $7k, but I figured it would start the clock at least.

But I'm still not sure it's something that I should pursue with my tIRA during the years that my income drops. If it's fairly likely I will be in the 22% or higher bracket once I hit 65 just with pension and SS and after-tax proceeds, so is there much reason to really push to make conversions? Is it as much about heirs as anything?
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Old 04-23-2018, 08:19 PM   #50
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Enjoying the thread with so many aspects to consider with Roth. Since most here appear to fully grasp the power of Roth, I would humbly suggest that we all take an extra bit of initiative (surely many of you are)to spread this wisdom of maximizing ROTH contributions to the 20 and 30 something’s that you come across. I am. Not always successful so please let me know any tips.

My message is,
1. 401k to company match
2.Roth to IRS limit and
3. And ....

Should there be a cash withdrawal need, let them know that Roth contribution is always there for you.

Am I generally correct?
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Old 04-23-2018, 09:28 PM   #51
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1. What pct of conventional IRA do you/will you have converted to Roth by your RMD Year? ~35%, we plan to convert as much IRA and 401K as possible without going over ACA Cliff or 12% bracket.

2. Will you/ did you continue Roth conversion after your RMDís start? Decision will be based on financials when we get there

3. Do you plan on converting 100% to Roth? I don't see that being economically feasible for us.

4. How old were you when you started Roth conversions? 55, converted tiny amount in 2017, first year of retirement

5. Do you do Roth conversions every year and once per year? And pay the tax in the quarter that you convert? We are new at this but thinking of converting in December when we have better estimates of investment income. May do a very conservative conversion earlier in the year and true up in December. My 401k plan limits conversions to 2 per year.

6. Is your Roth IRA investment mix the same as in your traditional IRA? Planning to put higher growth assets (equities) in Roth.

7. To what extent was/is your decision on delaying SS based on your Roth conversion strategy? Very much so. Looking for a long run way for doing Roth conversions as 75% of assets are tax deferred.

8. Do you have reasons to not do Roth conversions? No. I only wish Roths had been available in my early, lower earning years.
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Old 04-23-2018, 09:43 PM   #52
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Quote:
Originally Posted by free2020 View Post
.....My message is,
1. 401k to company match
2.Roth to IRS limit and
3. And ....

Should there be a cash withdrawal need, let them know that Roth contribution is always there for you.

Am I generally correct?
Generally, however for those currently in a high tax bracket because of earned income but who will not have a pension and plan to retire early the the power of tax benefits is hard to beat.... I was in the 32% or higher tax bracket when much of my 401k deferrals were made (federal and state)... in retirement, I pay about 13% on current conversions (a mix of 0%, 10% and 12% and ~5% state)... hard to beat a 19% tax savings. Even once SS starts and I am in the 22% tax bracket (and no state taxes ) I'll be saving 10%.
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Old 04-23-2018, 10:42 PM   #53
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I'm going to have to take a real hard look at it when we turn 65 and relocate to a no state income tax state.
Another wrinkle comes into the mix.

No wonder a lot of folks are moving to Texas and Florida. No state tax on big RMD's and pensions is surely a reason to move to a no state tax state. A big $ reason.
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Old 04-25-2018, 06:15 AM   #54
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Just curious.
When people do their Roth conversions, do they typically pay the taxes from the converted amount, or pay from separate monies?
I suppose it is all the same in the end, unless the separate monies are not held in their investment portfolio assets and thus the the investment portfolio remains intact, even though the NW (temporarily) decreases.
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Old 04-25-2018, 07:36 AM   #55
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Just curious.
When people do their Roth conversions, do they typically pay the taxes from the converted amount, or pay from separate monies?
I suppose it is all the same in the end, unless the separate monies are not held in their investment portfolio assets and thus the the investment portfolio remains intact, even though the NW (temporarily) decreases.
I'm going to pay the tax on the first conversion or 2 from cash. Then I'll either sell taxable equities to get $ to pay the tax or just make an IRA withdrawal to pay tax on conversions down the road.
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Old 04-25-2018, 07:42 AM   #56
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I have always paid mine from taxable funds as it is a backwards way of transfering more money into the Roth, which is tax-free from that date forward. From a different thread:

Quote:
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..... A simple example.... one has $10,000 in a tIRA and is in the 22% tax rate and expects to be in that tax rate indefinitely.

If you leave the money in the tIRA for 10 years at 7% it grows to $19,672. You take it out, pay the 22% in tax and have $15,344 to spend.

Alternatively, you convert and pay the tax from the proceeds of the tIRA and have $7,800 in the Roth. After 10 years at 7% the $7,800 has grown to $15,344.

Where there is a bit of an advantage is if you have $2,200 in taxable and $10,000 in a tIRA.

If you convert, your $2,200 goes poof (pays the taxes) and your $10,000 grows to $19,671.

If you don't convert, your taxable account grows to $3,744 after paying tax on the annual returns and the $10,000 grows to $19,671. When you withdraw and pay the taxes you have a net of $19,087.

So the advantage of the Roth is not having to pay tax on the growth in the taxable account, which totals $584.
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Old 04-25-2018, 08:43 AM   #57
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Just curious.
When people do their Roth conversions, do they typically pay the taxes from the converted amount, or pay from separate monies?
I'm trying to get as much into the ROTH as I can, so I've always paid the taxes from non-IRA funds.
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Old 04-25-2018, 08:50 AM   #58
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Thanks for the responses folks.
Theoretically, I would like to pay the taxes from outside the converted funds, but (perhaps overthinking it) if the taxes are paid from investment assets, then I worry about ramping up the WR.
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Old 04-25-2018, 08:57 AM   #59
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Another wrinkle comes into the mix.

No wonder a lot of folks are moving to Texas and Florida. No state tax on big RMD's and pensions is surely a reason to move to a no state tax state. A big $ reason.
I agree with you. But one thing to look at if one is planning on moving to a no state income tax state is the cost of property taxes. Will they be higher? Will it still be worth the move? I don't know the answer to that.
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Old 04-25-2018, 09:32 AM   #60
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We are currently invested

83% Tax-Deferred accounts
15% Roth
2% After-Tax

Our plan is:

2018-2022 - Spend down tax-deferred accounts with marginal rate of 31.35% (22% plus California's 9.35%)

2023-2026 - Sell California house and move somewhere with lower state tax.
With house cash available, convert to top of the lowest Medicare Part B MAGI bracket (middle of 22% bracket).

2027 til death of first one spouse - Start second SS, take annual RMDs and stay within the 12% (or whatever it is then) bracket.

Essentially we plan to pay 22% tax on trad-to-Roth conversions before age 70, so we do not pay 22% (or probably higher) tax on RMDs at age 70 and beyond (at least while both spouses survive).

Quote:
Originally Posted by Ronstar View Post

Questions:

1. What pct of conventional IRA do you/will you have converted to Roth by your RMD Year? Plan to go from 83%/15%/2% to 58%/33%/9%, but that depends on market performance through 2026.

2. Will you/ did you continue Roth conversion after your RMD’s start? Open to the idea because the surviving spouse will be thrown into higher marginal bracket. Depends on market returns and longevity predictions, so - we'll see in 2027 and later.

3. Do you plan on converting 100% to Roth? No

4. How old were you when you started Roth conversions? Not yet

5. Do you do Roth conversions every year and once per year? And pay the tax in the quarter that you convert? N/A

6. Is your Roth IRA investment mix the same as in your traditional IRA? Overall portfolio is 60/40, Roth portion is 100% Equities.

7. To what extent was/is your decision on delaying SS based on your Roth conversion strategy? None, but conversions fit nicely into a "delay SS until 70" strategy.

8. Do you have reasons to not do Roth conversions?Yes, current marginal rate of 31.35%
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