Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 12-02-2019, 05:35 PM   #81
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,419
Quote:
Originally Posted by pb4uski View Post
I dunno. I do it online the last few days of the year every year for the last 6 years and have never had a problem.
I had a problem. I am glad no one else did.
__________________

__________________
I have outlived most of the people I don't like and I am working on the rest.
Ed_The_Gypsy 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 12-02-2019, 06:39 PM   #82
Full time employment: Posting here.
 
Join Date: Jul 2013
Posts: 744
Quote:
Originally Posted by audreyh1 View Post
In our case we can avoid the double RMDs on surviving spouse by having non-spouse beneficiaries on the IRAs.

The only caveat to passing the IRA to a non-spouse is that the recipient will need to immediately begin RMDs. These RMDs will be taxed at whatever incremental tax bracket the recipient might be in. The tax man will get his due somewhere. Now, if the recipient is in a very low tax bracket, this might frustrate Uncle Sam...
__________________

__________________
In alcohol's defense- I've made some pretty bad decisions while completely sober.
Clone is offline   Reply With Quote
Old 12-02-2019, 06:55 PM   #83
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 23,177
Quote:
Originally Posted by Clone View Post
The only caveat to passing the IRA to a non-spouse is that the recipient will need to immediately begin RMDs. These RMDs will be taxed at whatever incremental tax bracket the recipient might be in. The tax man will get his due somewhere. Now, if the recipient is in a very low tax bracket, this might frustrate Uncle Sam...
Since this would be split among multiple siblings, getting older too and with limited retirement resources and in lower tax brackets, this should be an OK trade off.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 12-02-2019, 08:06 PM   #84
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: 23,622
Quote:
Originally Posted by Midpack View Post
.... Although you are avoiding a big chunk of taxes, you are also foregoing the returns on all the money you put into taxes before 70 that could have compounded another 20-30 years (less annual taxes).

And those prepaid taxes will reduce your portfolio, and you won't breakeven until well into your 80's in my case for example. That was true if I converted to 22% or 24%. ....
No, I don't think so.... the return on the money used to pay taxes is at best a secondary issue... it is principally about tax rate arbitrage.

Example: One has $10k in tIRA, $2k in taxable, 20% tax rate and 7% rate of return for 10 years.

Alternative 1: Convert $10k to Roth, use $2k taxable to pay tax... in 10 years Roth has grown to $19,672 (=10000*(1+7%)^10) that can be spent.

Alternative 2: Keep money in tIRA... $10k tIRA grows to $19,672. $2k taxable grows to $3,449 (=2000*(1+(7%*(1-20%)))^10) After paying $3,934 in tax on tIRA withdrawal you have $19,186 to spend.

The difference is the $486 in taxes paid on the growth of the taxable account over the 10 years.
__________________
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...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 12-03-2019, 01:37 AM   #85
Recycles dryer sheets
 
Join Date: Jul 2014
Posts: 143
Quote:
Originally Posted by pb4uski View Post
No, I don't think so.... the return on the money used to pay taxes is at best a secondary issue... it is principally about tax rate arbitrage.

Example: One has $10k in tIRA, $2k in taxable, 20% tax rate and 7% rate of return for 10 years.

Alternative 1: Convert $10k to Roth, use $2k taxable to pay tax... in 10 years Roth has grown to $19,672 (=10000*(1+7%)^10) that can be spent.

Alternative 2: Keep money in tIRA... $10k tIRA grows to $19,672. $2k taxable grows to $3,449 (=2000*(1+(7%*(1-20%)))^10) After paying $3,934 in tax on tIRA withdrawal you have $19,186 to spend.

The difference is the $486 in taxes paid on the growth of the taxable account over the 10 years.
Yes. Even if the withdrawal tax rate had dropped to 18%, converting at 20% ten years earlier and paying the tax from taxable would have been favorable.
SevenUp is offline   Reply With Quote
Old 12-03-2019, 10:12 AM   #86
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 9,592
Quote:
Originally Posted by Midpack
And anyone can lay out scenarios where Roth conversions would have been a mistake, but you can't know that in advance. No different than basic investing where an unexpected sequence of returns can foil the best plans. If you let sequence of returns scare you, you won't invest in anything much less do Roth conversions.
+1

I have done another small Roth Conversion this year - just enough to keep me in the same tax bracket (I hope. )

I figure that in a few years between between turning on SS at 70 and the required RMD from my tIRA, I will probably be in a higher bracket from those alone. Toss in the extremely profligate spending of our elected Federal representatives, and higher tax rates seem probable. And I am not naive enough to think it will just hit the Billionaires and multi-multi millionaires who are asked to pay their 'fair' share.

It's my best calculated guess of a decision. I could be wrong.
__________________
The worst decisions are usually made in times of anger and impatience.
Chuckanut is offline   Reply With Quote
Old 12-03-2019, 10:19 AM   #87
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 9,788
Figuring out how much to convert can be tricky for some folks who get tax credits that go away with rather low income. We jump from the 12% tax bracket to the 37% tax bracket because of loss of tax credits and skip the in-between tax brackets. Only by using tax prep software did we discover this because loss of tax credits was not on our radar.

Around here I think most folks know about the ACA cliff, but there are other cliffs that folks can fall over, too.
LOL! is offline   Reply With Quote
Old 12-03-2019, 10:41 AM   #88
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 8,700
Quote:
Originally Posted by LOL! View Post
Figuring out how much to convert can be tricky for some folks who get tax credits that go away with rather low income. We jump from the 12% tax bracket to the 37% tax bracket because of loss of tax credits and skip the in-between tax brackets. Only by using tax prep software did we discover this because loss of tax credits was not on our radar.

Around here I think most folks know about the ACA cliff, but there are other cliffs that folks can fall over, too.
I know of a couple of smaller cliffs, but nothing that should cause that much of a jump. Help us out and tell us what they are.
RunningBum is offline   Reply With Quote
Old 12-03-2019, 11:17 AM   #89
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 9,788
Education tax credits: American Opportunity Tax Credit phase-out. Lifetime Learning Credit phase-out.

Pushing qualified dividend income from 0% tax rate to 15% tax rate and really 27% tax rate because the Roth conversion gets taxed at 12%, so 12% + 15% = 27%.

Probably some others as well.
LOL! is offline   Reply With Quote
Old 12-03-2019, 12:14 PM   #90
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: 23,622
Quote:
Originally Posted by Midpack View Post
I must be missing something, income and dividend/LTCG rates aren’t additive. And going from 12% to 37% would mean an income of $78,950 to $612,351 for MFJ? I’m not familiar with tax credits in that neighborhood.
What LOL! is referring to is if your income is a combination of ordinary income and preferenced income, once you breach the 12% bracket (actually the $200 lower 0% preferenced income bracket) with additional ordinary income your marginal tax rate is 27% for a while.... 12% on the additional ordinary income plus 15% on preferenced income that the incremental ordinary income pushes from the 0% preferenced income bracket to the 15% preferenced income bracket... then once all preferenced income has been pushed into 15% then only the marginal ordinary tax bracket applies.

So let's say that you have $10k of qualified dividends and that, plus your ordinary income are right at the top of the 0% preferenced income bracket. If you add $5k of Roth conversions (ordinary income) the $5k gets taxed at 12% ($600) and $5k of qualified income gets pushed from the 0% bracket into the 15% bracket ($750)... so your tax increases by $1,350... or 27% of the $5,000 increase in income and you'll be at that marginal rate until the entire $10k is pushed into the 15% bracket, then you'll have $200 at 12% and then any additional ordinary income would be 22%.

Stupid system.
__________________
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...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 12-03-2019, 02:17 PM   #91
Full time employment: Posting here.
RetireBy90's Avatar
 
Join Date: Feb 2009
Location: Cville
Posts: 725
Quote:
Originally Posted by LOL! View Post
Figuring out how much to convert can be tricky for some folks who get tax credits that go away with rather low income. We jump from the 12% tax bracket to the 37% tax bracket because of loss of tax credits and skip the in-between tax brackets. Only by using tax prep software did we discover this because loss of tax credits was not on our radar.

Around here I think most folks know about the ACA cliff, but there are other cliffs that folks can fall over, too.
Another cliff applies if you have rental property. With my wages and 2 small military pension we have not been able to take depreciation the past few years.
__________________
FIRE 31 Aug, 2018
RetireBy90 is offline   Reply With Quote
Old 12-03-2019, 03:20 PM   #92
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 23,177
Quote:
Originally Posted by pb4uski View Post
What LOL! is referring to is if your income is a combination of ordinary income and preferenced income, once you breach the 12% bracket (actually the $200 lower 0% preferenced income bracket) with additional ordinary income your marginal tax rate is 27% for a while.... 12% on the additional ordinary income plus 15% on preferenced income that the incremental ordinary income pushes from the 0% preferenced income bracket to the 15% preferenced income bracket... then once all preferenced income has been pushed into 15% then only the marginal ordinary tax bracket applies.

So let's say that you have $10k of qualified dividends and that, plus your ordinary income are right at the top of the 0% preferenced income bracket. If you add $5k of Roth conversions (ordinary income) the $5k gets taxed at 12% ($600) and $5k of qualified income gets pushed from the 0% bracket into the 15% bracket ($750)... so your tax increases by $1,350... or 27% of the $5,000 increase in income and you'll be at that marginal rate until the entire $10k is pushed into the 15% bracket, then you'll have $200 at 12% and then any additional ordinary income would be 22%.

Stupid system.
Yes, this is how it pretty much hits us. Any additional ordinary income pushes long-term cap gains income and qualified dividend income from 0% to 15% tax (or even 18.8% if crossing the NIIT threshold).

Once we start drawing SS it won’t matter as the 12% bracket will be filled, but right now it initially hits as a 27% or even 30.8% marginal tax.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 12-05-2019, 01:20 AM   #93
Full time employment: Posting here.
 
Join Date: Aug 2015
Posts: 552
Tax Torpedo PLUS the possible loss of ACA credit, IRRMA increase, etc, can make the marginal net cost significant, if you are anywhere near those areas or use those services. I’ve never been fortunate (?, smart enough?) to have set myself up for low taxed/preferred income, and so even though my income has been in about the same ballpark, I have always paid taxes well past those cliffs, so I don’t miss them. Knowing my overall taxes will be about half what they were when working, never needing ACA and not having to pay myself first for savings, seems plenty grand to me, because of the larger net to me increase. Like always having a mortgage, even in retirement, it seems normal, and has always been profitable, so why change.
Perryinva is offline   Reply With Quote
Old 12-05-2019, 10:28 AM   #94
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: 23,622
I completed my month subscription with Income Strategy. It was an interesting tool, albeit a bit clunky and complex. Income Strategy results seems to suggest that at the end of the day my withdrawal/conversions strategy didn't change the end results much, suggesting that anything would be fine so I didn't find it very valuable.

Top strategies (% are Total Value divided by highest Total Value):
  • 100.00%....Starting in year 2019, withdraw using the conventional wisdom sequence (Taxable, IRA, Roth)
  • 99.95%......Starting in year 2019, withdraw using the opposite conventional wisdom sequence (Roth, IRA, Taxable)
  • 99.90%..... Starting in year 2019, withdraw using the conventional wisdom sequence (Taxable, IRA, Roth). Additionally use Roth conversions to target your modified adjusted gross income up to $169,999.00.
YMMV.
__________________
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...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 12-05-2019, 11:33 AM   #95
Recycles dryer sheets
 
Join Date: Jul 2004
Posts: 50
Quote:
Originally Posted by pb4uski View Post
Income Strategy results seems to suggest that at the end of the day my withdrawal/conversions strategy didn't change the end results much, suggesting that anything would be fine so I didn't find it very valuable.

Top strategies (% are Total Value divided by highest Total Value):
  • 100.00%....Starting in year 2019, withdraw using the conventional wisdom sequence (Taxable, IRA, Roth)
  • 99.95%......Starting in year 2019, withdraw using the opposite conventional wisdom sequence (Roth, IRA, Taxable)
  • 99.90%..... Starting in year 2019, withdraw using the conventional wisdom sequence (Taxable, IRA, Roth). Additionally use Roth conversions to target your modified adjusted gross income up to $169,999.00.
YMMV.
Curious as to whether you ran your situation through either RPM or I-ORP and how the results are similar/different.
MileKing is offline   Reply With Quote
Old 12-05-2019, 08:57 PM   #96
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: 23,622
No, I haven't.
__________________
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...60/35/5 AA
pb4uski is online now   Reply With Quote
Old Today, 08:09 AM   #97
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: NC
Posts: 14,335
Quote:
Originally Posted by MileKing View Post
Curious as to whether you ran your situation through either RPM or I-ORP and how the results are similar/different.
You canít easily run a comparable I-ORP result. Youíd have to match your spending to what I-ORP spits out, a completely different scenario than I wanted. And forcing a residual to reduce i-ORP spending isnít the same.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 45% equity funds / 30% bond funds / 25% cash - radically changed Nov 2018
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old Today, 08:16 AM   #98
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: NC
Posts: 14,335
Quote:
Originally Posted by pb4uski View Post
I completed my month subscription with Income Strategy. It was an interesting tool, albeit a bit clunky and complex. Income Strategy results seems to suggest that at the end of the day my withdrawal/conversions strategy didn't change the end results much, suggesting that anything would be fine so I didn't find it very valuable.

Top strategies (% are Total Value divided by highest Total Value):
  • 100.00%....Starting in year 2019, withdraw using the conventional wisdom sequence (Taxable, IRA, Roth)
  • 99.95%......Starting in year 2019, withdraw using the opposite conventional wisdom sequence (Roth, IRA, Taxable)
  • 99.90%..... Starting in year 2019, withdraw using the conventional wisdom sequence (Taxable, IRA, Roth). Additionally use Roth conversions to target your modified adjusted gross income up to $169,999.00.
YMMV.
All consistent with my findings. To my surprise, reducing taxes didn’t translate to a much higher or lower ending portfolio.

And though I agree IS is somewhat “clunky and complex” - I needed to see the detailed results to be convinced and found no other way to do so. I-ORP is truly great for free, it’s not as flexible or detailed as Income Strategy.

However, remember this assumes future tax rates will continue with TCJA or the prior rate schedule - I don’t believe that for a minute. Unless someone found a way to predict and vary future tax rates.

There are also other significant reasons to consider Roth conversions, previously elaborated in several recent threads.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 45% equity funds / 30% bond funds / 25% cash - radically changed Nov 2018
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Old Today, 08:20 AM   #99
Full time employment: Posting here.
 
Join Date: Nov 2006
Posts: 568
Quote:
Originally Posted by pb4uski View Post
I completed my month subscription with Income Strategy. It was an interesting tool, albeit a bit clunky and complex. Income Strategy results seems to suggest that at the end of the day my withdrawal/conversions strategy didn't change the end results much, suggesting that anything would be fine so I didn't find it very valuable.

Top strategies (% are Total Value divided by highest Total Value):
  • 100.00%....Starting in year 2019, withdraw using the conventional wisdom sequence (Taxable, IRA, Roth)
  • 99.95%......Starting in year 2019, withdraw using the opposite conventional wisdom sequence (Roth, IRA, Taxable)
  • 99.90%..... Starting in year 2019, withdraw using the conventional wisdom sequence (Taxable, IRA, Roth). Additionally use Roth conversions to target your modified adjusted gross income up to $169,999.00.
YMMV.
What about the strategy of picking and choosing the best withdrawal rate from EACH of the three categories depending on the current years numbers?

I'm trying to even out the Taxable/Deferred/Tax Free monies a little bit to give me the opportunity to take what I need from each category to minimize taxes on an annual basis. At this point, I have no idea if it will make any real difference.

We only have savings and SS, so we aren't burdened by those horrible large pensions that other have
__________________

PatrickA5 is offline   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
Balloon child Notmuchlonger Other topics 110 12-23-2009 11:21 AM
Logistics of paying off balloon mortgage, then selling house 1-2 months later RunningBum FIRE and Money 9 05-29-2008 12:04 AM
Albuquerque Balloon Fiesta Eagle43 Travel Information 3 01-06-2008 04:58 PM

» Quick Links

 
All times are GMT -6. The time now is 11:45 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×