Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Roth with new income - or not?
Old 02-26-2016, 11:56 PM   #1
Confused about dryer sheets
 
Join Date: Apr 2014
Location: waSpokane,
Posts: 5
Roth with new income - or not?

We are recently FIRED and need a little help.
We have $1.2 million in various 403b's and traditional IRA's. We are both turning 59 and a half this week. We are getting a $12,000 payment from the sale of some property for the next 5 years.
My question: should we put this into a Roth - one for each of us - and invest in a 10 year horizon for this money or spend it on living expenses now?
We can spend it down easy enough, but with the deferral of the income in the Roth and the looming RMD in 12 years which makes more sense?
Thanks!
__________________

__________________
Jigger 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 02-27-2016, 02:41 AM   #2
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: 16,410
Need more info. Will you be living off of the IRA or do you have other sources of income like a pension or taxable account monies? Is the $12k the total or the amount you will receive each year for the next 5 years?

You may want to look through the threads on Roth conversions and see if they will help you avoid or mitigate the RMD "tax torpedo".
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Roth with new income - or not?
Old 02-27-2016, 03:20 AM   #3
Recycles dryer sheets
 
Join Date: Nov 2013
Posts: 78
Roth with new income - or not?

To qualify to make a Roth contribution you need earned income, not income from rentals or investments. The payments you are receiving from a sale sound like return of capital and perhaps capital gains, so I'm not sure you'll be able to contribute to a Roth.

However, if you're in a low tax bracket now and expect to be in a higher one later when RMD's (and perhaps other income) kick in, consider partial Roth conversions for several years. A Roth conversion is treated as taxable income and you'll need cash or taxable accounts to pay the increased tax bill. Be aware that increasing your reported income can have implications for other benefits such as ACA subsidies so check some of the threads on Roth conversions before making the decision.
__________________
Done is offline   Reply With Quote
Old 02-27-2016, 02:33 PM   #4
Confused about dryer sheets
 
Join Date: Apr 2014
Location: waSpokane,
Posts: 5
Thanks! We do have about $26,000 a year in pension income so we anticipate drawing $40,000 + from the IRA/403b pile. We will be in the 15% tax bracket. My wife is earning a small amount each year - only $3000 or so which makes it sound like she can do a Roth for at least part of this money? The total paid out over the contract will be $60,000 at $12,000 per year.



Sent from my iPad using Early Retirement Forum
__________________
Jigger is offline   Reply With Quote
Old 02-27-2016, 03:42 PM   #5
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: 16,410
There are two way to put money into a Roth.

One is contributions... money goes directly from your bank or taxable brokerage account into the Roth... but you are limited to contribution the lesser of your earned income or $6,500/year... so in your case between you and your wife you could contribute $3,000 since you have $3000 of earned income.

The second is conversions from a qualified plan (like a 403b or IRA). Conversions are not limited, but you have to pay tax on the amount converted. From what you wrote it sounds like you should have some headroom to do some conversions to the top of the 15% tax bracket.

Top of 15% bracket $75,300 + deductions (standard deduction is $12,600) + exemptions ($4,050 each) would be $96,000 of income a couple could have and stay in the 15% tax bracket if they use the standard deduction... if they itemize it would be more. You have $3,000 of earned income + $26,000 of pension income + $40,000 of IRA withdrawals for living expenses + the gain on the installment sale of the property so you should be able to do some Roth conversions at 15%.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 02-27-2016, 05:43 PM   #6
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,045
Quote:
Originally Posted by Jigger View Post
We are recently FIRED and need a little help.
We have $1.2 million in various 403b's and traditional IRA's. We are both turning 59 and a half this week. We are getting a $12,000 payment from the sale of some property for the next 5 years.
My question: should we put this into a Roth - one for each of us - and invest in a 10 year horizon for this money or spend it on living expenses now?
We can spend it down easy enough, but with the deferral of the income in the Roth and the looming RMD in 12 years which makes more sense?
Thanks!
That $12K is not eligible for a Roth. The $3K is. All of it.

If you want a Roth, open a business, and pay yourself a wage. It can be a 1099 or a W2. A 1099 will be cheaper. A Schedule C business is all it takes. Use all or part of the $12K as business income.

You will have to pay income taxes on the money, which you will have to do no matter if it is dividend or a wage. You will also have to pay 15.3% on the money for self employment taxes. If your wages are low enough, Uncle Sam will give you a $2K tax credit to help out.
__________________

__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator 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
Roth 401k when not eligible for Roth IRA? NinjaPigeon FIRE and Money 3 06-08-2014 03:15 PM
converting IRA to Roth IRA based on new Roth Rules vs. 72t mbmmccoy FIRE and Money 27 09-28-2009 07:27 AM
Roth 403(b), Roth IRA and 'earned income' ERD50 FIRE and Money 16 02-24-2008 08:00 PM
To Roth or not to Roth Helen FIRE and Money 3 02-07-2007 12:00 AM
To Roth or not to Roth, that is the question... cute fuzzy bunny FIRE and Money 8 03-02-2004 08:24 PM

 

 
All times are GMT -6. The time now is 04:02 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.