Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 05-15-2015, 10:44 AM   #101
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
It may not really matter that much since you would have all the money you didn't spend down waiting , to draw from still growing and compounding as a secondary back up. that may have a higher income stream potential then maybe the higher ss payment.

just something to think about



.
__________________

__________________
mathjak107 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 05-15-2015, 02:24 PM   #102
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,812
Quote:
Originally Posted by Golden sunsets View Post
DH and I visited a fee only FP at the point that DH retired in 2008. The visit was to have a set of eyes other than our own review our plan once to validate our numbers/assumptions. One of his suggestions was to defer taking SS until 70 and intentionally take RMD's in the amount that SS would have been between retirement(62) and 70. Doing so would keep our income taxes the same during that period but reduce the amount of future RMD's that would need to be taken once reaching 70.5. Furthermore, Converting those 8 years of annual withdrawals into a Roth IRA and investing them also avoided the concern of liquidating during a down market and in fact the Roth grew handsomely as the market since 2009 has outperformed historical returns. And now that Roth is worth a considerable amount and can never be taxed. Not to mention that the SS to be claimed at 70 will be 164 percent of its original amount, not including COLA's. I am well aware that many could not afford to take this path but would need to spend the WD's to live but as a pure math play I think this advise was flawless. Our FP earned his fee for that suggestion alone.
"... the Roth grew handsomely as the market since 2009 has outperformed historical returns." It seems to me that the money withdrawn from the traditional IRA (or other qualified account) would have grown just as handsomely if it had been left there instead of converted to a Roth.

If you had taken the SS and invested it in an ordinary taxable account, using the same asset allocation as the Roth, it would have also grown handsomely over that period.

I tried to build a spreadsheet to reflect this decision. If I assume strong returns in the early years, it seems that the extra earnings on the SS derived from taking SS early outrun the tax savings.
__________________

__________________
Independent is offline   Reply With Quote
Old 05-15-2015, 03:49 PM   #103
Full time employment: Posting here.
Golden sunsets's Avatar
 
Join Date: Jun 2013
Posts: 734
I don't pretend to be a math wizard and mathematically prove one plan over another, but wouldn't the growth of the money in a Roth trump growth of the same money left in an IRA, as that appreciation would eventually be taxed in the IRA but not in the Roth? Also we are in the fortunate position of having to worry about RMD's kicking us into the 33 percent tax bracket with AMT ramifications as well a reduction of deductions and exemptions, thus the 8 years of WD's have reduced/delayed that risk. As several have posted on this string - each individual has a unique set of circumstances, which result in different solutions to the SS filing question. I posted our unique circumstances as anecdotal info for the reader's consumption. And.... there is the longevity insurance aspect - how does one quantify the piece of mind affect of increasing a SS income stream that is 164% higher at 70 than 62, not including 8 years of colas.

Having said this, at the slightest hint that Congress might change the current SS benefits, we would file immediately in a heartbeat to make sure that we are grandfathered if need be.
__________________
Golden sunsets is offline   Reply With Quote
Old 05-15-2015, 04:03 PM   #104
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
you have to compare apples to apples . with a roth you are prepaying the taxes and losing compounding on that money so if you take the equivalent amounts of money ,given the same taxes and gains they will equal the same thing.

folks like to figure by prepaying the taxes on the roth with money from out side the roth but always want to compare it to taking taxes out of the traditional calculation instead of paying that too with money outside the ira..
__________________
mathjak107 is offline   Reply With Quote
Old 05-15-2015, 04:31 PM   #105
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,369
Quote:
Originally Posted by mathjak107 View Post
you have to compare apples to apples . with a roth you are prepaying the taxes and losing compounding on that money so if you take the equivalent amounts of money ,given the same taxes and gains they will equal the same thing.

folks like to figure by prepaying the taxes on the roth with money from out side the roth but always want to compare it to taking taxes out of the traditional calculation instead of paying that too with money outside the ira..

I admit I am guilty as charged from using that math. But saying all things were equal, if a person wanted to take a huge chunk out for lets say a second vacation home , the Roth would clearly benefit as you are not pushed into a high tax bracket from a big one time withdrawal, correct?


Sent from my iPad using Tapatalk
__________________
Mulligan is offline   Reply With Quote
Old 05-15-2015, 06:39 PM   #106
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,812
Quote:
Originally Posted by Golden sunsets View Post
I don't pretend to be a math wizard and mathematically prove one plan over another, but wouldn't the growth of the money in a Roth trump growth of the same money left in an IRA, as that appreciation would eventually be taxed in the IRA but not in the Roth? Also we are in the fortunate position of having to worry about RMD's kicking us into the 33 percent tax bracket with AMT ramifications as well a reduction of deductions and exemptions, thus the 8 years of WD's have reduced/delayed that risk. As several have posted on this string - each individual has a unique set of circumstances, which result in different solutions to the SS filing question. I posted our unique circumstances as anecdotal info for the reader's consumption. And.... there is the longevity insurance aspect - how does one quantify the piece of mind affect of increasing a SS income stream that is 164% higher at 70 than 62, not including 8 years of colas.

Having said this, at the slightest hint that Congress might change the current SS benefits, we would file immediately in a heartbeat to make sure that we are grandfathered if need be.
Like you, I rolled some traditional IRA into a Roth IRA, and I deferred SS. Like you said, every situation is different. In my case, I could "fill up" the 15% bracket with a Roth conversion, which was better than waiting to pay 25% later on. You apparently did the same thing with 25% vs. 33%.

So I was just commenting on the good market performance. I actually tried to build a spreadsheet to test this strategy, and that seemed to be a negative.

I agree with mathjak on the " growth of the money in a Roth ..." comparison. Say I'm thinking about rolling $20,000 from a traditional IRA to a Roth IRA. And, suppose I am in a 25% tax bracket.

If I do the rollover, I have $15,000 in my Roth (because I paid $5,000 in taxes). If it doubles before I spend it, then I have $30,000 of spendable cash.

If I don't do the rollover, I have $20,000 in my tIRA. If it doubles before I spend it, I've got $40,000 inside a tIRA. But, in order to spend it, I have to pay $10,000 in taxes, leaving $30,000 of spendable cash. For equal tax rates, this is a wash.

Of course, if my bracket moves up to 33% before I spend the money, the Roth is still $30,000, but the tIRA is only worth $26,667.
__________________
Independent is offline   Reply With Quote
Old 05-15-2015, 06:48 PM   #107
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,164
Quote:
Originally Posted by Independent View Post
Like you, I rolled some traditional IRA into a Roth IRA, and I deferred SS. Like you said, every situation is different. In my case, I could "fill up" the 15% bracket with a Roth conversion, which was better than waiting to pay 25% later on. You apparently did the same thing with 25% vs. 33%.

So I was just commenting on the good market performance. I actually tried to build a spreadsheet to test this strategy, and that seemed to be a negative.

I agree with mathjak on the " growth of the money in a Roth ..." comparison. Say I'm thinking about rolling $20,000 from a traditional IRA to a Roth IRA. And, suppose I am in a 25% tax bracket.

If I do the rollover, I have $15,000 in my Roth (because I paid $5,000 in taxes). If it doubles before I spend it, then I have $30,000 of spendable cash.

If I don't do the rollover, I have $20,000 in my tIRA. If it doubles before I spend it, I've got $40,000 inside a tIRA. But, in order to spend it, I have to pay $10,000 in taxes, leaving $30,000 of spendable cash. For equal tax rates, this is a wash.

Of course, if my bracket moves up to 33% before I spend the money, the Roth is still $30,000, but the tIRA is only worth $26,667.
Hopefully when you do the rollover you pay the taxes out of pocket and roll over the full amount. So let's say you have 20K in an IRA and 5K in a taxable account with a 5K basis.

If you do the rollover, you have 20K in the Roth, and 0 in the taxable account. If it doubles, you have 40K since there is no tax.

If you don't do the rollover, you have 20K in the tIRA and 5K in taxable. If they double, you have 30K after taxes from the tIRA, and taxable doubles to 10K but you pay 15% cap gains tax on the 5K gain. That's $750, so you have 39,250 total. No longer a wash.
__________________
RunningBum is offline   Reply With Quote
Old 05-15-2015, 07:05 PM   #108
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,904
Quote:
Originally Posted by RunningBum View Post
Hopefully when you do the rollover you pay the taxes out of pocket and roll over the full amount. So let's say you have 20K in an IRA and 5K in a taxable account with a 5K basis.

If you do the rollover, you have 20K in the Roth, and 0 in the taxable account. If it doubles, you have 40K since there is no tax.

If you don't do the rollover, you have 20K in the tIRA and 5K in taxable. If they double, you have 30K after taxes from the tIRA, and taxable doubles to 10K but you pay 15% cap gains tax on the 5K gain. That's $750, so you have 39,250 total. No longer a wash.
Please correct me if I'm wrong but my understanding is that as long as income es below $73,800 for a couple, long term capital gains are taxed at 0%.
__________________
ejman is offline   Reply With Quote
Old 05-15-2015, 07:27 PM   #109
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by mathjak107 View Post
you have to compare apples to apples . with a roth you are prepaying the taxes and losing compounding on that money so if you take the equivalent amounts of money ,given the same taxes and gains they will equal the same thing.

folks like to figure by prepaying the taxes on the roth with money from out side the roth but always want to compare it to taking taxes out of the traditional calculation instead of paying that too with money outside the ira..
This is true but at least when doing Roth conversions, you have more control. If your traditional IRA or 401k account grows big, RMDs might put you in a much higher tax bracket. Conversely, if account balance goes down in a bear market, you'll still be forced to take anywhere from 3-50% of your remaining account balance not allowing the account to recover. Sure you could put RMD withdrawals in a taxable account but unless you can engineer income so qualified dividends tax rate is 0% (and that's only for federal, some states will tax them as regular income anyway), Roth is better.

Mind, I do have a spreadsheet comparing total net worth and the effect of doing a Roth conversion (assuming 0% inflation, a low 1-3% real rate of return, fixed 15-25% actual tax rate, RMDs reinvested in taxable accounts). While total account balances without conversion are bigger (at least until you start taking RMDs), "effective, after-tax" balances favor Roth conversions. That's not even considering possible tax bracket implications of large RMDs.
__________________
hnzw_rui is offline   Reply With Quote
Old 05-15-2015, 08:07 PM   #110
Full time employment: Posting here.
ownyourfuture's Avatar
 
Join Date: Jun 2013
Posts: 512
There's so many variables to consider here.

But we 'all' have one thing in common, an 'unknown' expiration date.

Dust In The Wind. Written By Kerry Livgren, Kansas guitarist.
"All your money, won't another minute buy"

Therefore, I agree with shotgunner.

Take it as soon as you can get it!
__________________
ownyourfuture is offline   Reply With Quote
Old 05-16-2015, 04:23 AM   #111
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,164
Quote:
Originally Posted by ejman View Post
Please correct me if I'm wrong but my understanding is that as long as income es below $73,800 for a couple, long term capital gains are taxed at 0%.
The scenario I took this from started with
Quote:
Say I'm thinking about rolling $20,000 from a traditional IRA to a Roth IRA. And, suppose I am in a 25% tax bracket.
In the 25% tax bracket, cap gains are taxed a 15%.
__________________
RunningBum is offline   Reply With Quote
Old 05-16-2015, 04:41 AM   #112
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
Quote:
Originally Posted by ejman View Post
Please correct me if I'm wrong but my understanding is that as long as income es below $73,800 for a couple, long term capital gains are taxed at 0%.
you are corrrect but the amount rolled over becomes part of the 73,800.

any other income you get at higher tax rates takes priority and eats up the 73,800 first.

so if you have 50k in other income like taxable ss , pension income , interest , roth conversions and distributions not taxed at long term rates that goes in the bucket first eating up what you have left to apply to zero capital gains.
__________________
mathjak107 is offline   Reply With Quote
Old 05-16-2015, 06:50 AM   #113
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Quote:
Originally Posted by ownyourfuture View Post
There's so many variables to consider here.

But we 'all' have one thing in common, an 'unknown' expiration date.

Dust In The Wind. Written By Kerry Livgren, Kansas guitarist.
"All your money, won't another minute buy"

Therefore, I agree with shotgunner.

Take it as soon as you can get it!
An approach based on wisdom may surpass those based on analysis paralysis as evident in a lot of posters seeking to optimize or maximize outcome.
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Old 05-16-2015, 07:58 AM   #114
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
my wife and i have the same discussion about doing some sort of liability matched annuity eventually. i am an investor at heart .

i want to do things soley with market and interest rate risk.

on the other hand she was a widow before i met her. she likes guarantees .

she would rather take longevity risk than market and interest rate risk.

so down the road it will be something i will consider for her sake .
__________________
mathjak107 is offline   Reply With Quote
Old 05-16-2015, 08:09 AM   #115
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Quote:
on the other hand she was a widow before i met her. she likes guarantees .

she would rather take longevity risk than market and interest rate risk.
Most people, I think, desire guarantees. She seems to a wise person. The market is risky. Why play the market game (at a later stage of your life) when you do not have to unless you think it's fun?
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Old 05-16-2015, 08:11 AM   #116
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
well having been left in that position before of having a pile of investments to deal with and a recession in the works i can see her point.
__________________
mathjak107 is offline   Reply With Quote
Old 05-16-2015, 08:52 AM   #117
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,812
Quote:
Originally Posted by RunningBum View Post
Hopefully when you do the rollover you pay the taxes out of pocket and roll over the full amount. So let's say you have 20K in an IRA and 5K in a taxable account with a 5K basis.

If you do the rollover, you have 20K in the Roth, and 0 in the taxable account. If it doubles, you have 40K since there is no tax.

If you don't do the rollover, you have 20K in the tIRA and 5K in taxable. If they double, you have 30K after taxes from the tIRA, and taxable doubles to 10K but you pay 15% cap gains tax on the 5K gain. That's $750, so you have 39,250 total. No longer a wash.
In your case, the gain on the rollover derives from converting some money that's currently in a taxable account into a Roth account. The poster didn't mention anything about taxable accounts, so I assumed (possibly incorrectly) that your scenario wasn't the same as theirs.
__________________
Independent is offline   Reply With Quote
Old 05-16-2015, 08:55 AM   #118
gone traveling
 
Join Date: Sep 2013
Posts: 1,248
I will delay it to at minimum age 65 unless doctor tells me I have 2-3 years left to live.

Why? Because there is no guaranteed investment which astronomical returns that delaying SS provides so why would I miss this return....... It is all about discipline and plan

Taking SS at 62 tells me lack of planning which results in missing high returns.
__________________
eta2020 is offline   Reply With Quote
Old 05-16-2015, 09:08 AM   #119
Recycles dryer sheets
cooch96's Avatar
 
Join Date: May 2014
Location: Lakewood
Posts: 442
Quote:
Originally Posted by Which Roger View Post
A third is which will minimize one's chances of dying broke.
A fourth is which wil maximize one's chances of dying broke. I can't take it with me.
__________________
Why be normal when you can be yourself?
cooch96 is offline   Reply With Quote
Old 05-16-2015, 09:10 AM   #120
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,812
Quote:
Originally Posted by hnzw_rui View Post
This is true but at least when doing Roth conversions, you have more control. If your traditional IRA or 401k account grows big, RMDs might put you in a much higher tax bracket. Conversely, if account balance goes down in a bear market, you'll still be forced to take anywhere from 3-50% of your remaining account balance not allowing the account to recover. Sure you could put RMD withdrawals in a taxable account but unless you can engineer income so qualified dividends tax rate is 0% (and that's only for federal, some states will tax them as regular income anyway), Roth is better.

Mind, I do have a spreadsheet comparing total net worth and the effect of doing a Roth conversion (assuming 0% inflation, a low 1-3% real rate of return, fixed 15-25% actual tax rate, RMDs reinvested in taxable accounts). While total account balances without conversion are bigger (at least until you start taking RMDs), "effective, after-tax" balances favor Roth conversions. That's not even considering possible tax bracket implications of large RMDs.
I'll re-word this to "If you assume you'll be forced to take RMDs that you won't spend, then the proceeds are going to go into taxable accounts. In this case, it's better to proactively get money into Roth accounts. This is true even for equal tax brackets."

Correct?
__________________

__________________
Independent 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
When Should You Take Social Security? wanaberetiree FIRE and Money 20 09-02-2014 02:56 PM
when should you take social security article veremchuka FIRE and Money 117 02-21-2011 06:04 PM
why you should ALWAYS take SS as soon as you can endthefed FIRE and Money 69 06-05-2010 09:38 AM
Iraq and the Kansas Tornado. You should be angry. We all should. newguy88 Other topics 16 05-08-2007 08:20 AM

 

 
All times are GMT -6. The time now is 02:53 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.