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Old 12-31-2015, 02:33 PM   #41
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You may want to look at converting as much as you can even beyond the classic 15% rate while you still have the chance before MRDs are forced on you. You may want to take current living expenses only from the trad IRA and leave the Roth alone.
I've run some TurboTax what-ifs. For us it turns out that my IRA is big enough that I cannot get it all into Roth's without pushing the conversion marginal tax up too much. So there will always be some IRA money subject to RMD's for us and that SS will get taxed at higher rates --- no way around this. So I felt like what the hell, might as well get a couple of years of very low tax rates before the hammer falls.

I think the IRA RMD's plus SS will put us into a moderate tax bracket and Roth's will allow us to manage that marginal tax rate should we need additional spending money.

Should we enter a bull market nirvana and the IRA grows beyond expectations giving higher RMD's, I'll just have to pay more taxes. Could be worse.
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Old 12-31-2015, 08:32 PM   #42
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I'm expecting a drop in 2016.
Defensively, I moved some to Healthcare, some to Consumer staples, and will be moving some to Japan fund after Jan 2, for tax reasons. I am waiting on commodities to see new lows before I commit.

I felt good about long term on Japan and Healthcare. I hope for commodities to be out of cycle to the rest of my picks. I bailed on Total World. There were too many underperforming that brought the average down.
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Old 12-31-2015, 10:14 PM   #43
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My plans for 2016 are to keep re-investing my dividends into AMLP to lower my average cost per share. My excess w-2 income will be saved in cash, goal is to hit one year's living expenses in cash by the year's end.

ESR will probably not happen until 2021 when I will be 45 and have 20 years vested into a pension. By then my investment income should cover more than 100% of yearly living expenses (currently at 82%) and I should have between one to six year's living expenses in cash (probably three).

ESR plan is to find a part-time IT job working remotely from home or find some kind of part-time fun minimum wage job. Maybe work at a movie theater or a gamestop or something like that.
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Old 12-31-2015, 10:26 PM   #44
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I'm expecting a drop in 2016.
Defensively, I moved some to Healthcare, some to Consumer staples, and will be moving some to Japan fund after Jan 2, for tax reasons. I am waiting on commodities to see new lows before I commit.

I felt good about long term on Japan and Healthcare. I hope for commodities to be out of cycle to the rest of my picks. I bailed on Total World. There were too many underperforming that brought the average down.

Im thinking like you. I am not a wild investor, but I am toying with a small bet on DBC, a commodities index just because it has gotten so low. I personally think the market isn't going anywhere, The Fed will give up on rate hikes after they start flattening out the yield curve. I am staying 80% funded in preferred stocks again.
The talking heads were all belaboring the fact "nothing worked" this year. They obviously know nothing about investment grade preferred stocks because they ran like stallions this year.


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Old 01-01-2016, 03:16 AM   #45
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I've run some TurboTax what-ifs. For us it turns out that my IRA is big enough that I cannot get it all into Roth's without pushing the conversion marginal tax up too much. So there will always be some IRA money subject to RMD's for us and that SS will get taxed at higher rates --- no way around this. So I felt like what the hell, might as well get a couple of years of very low tax rates before the hammer falls.

I think the IRA RMD's plus SS will put us into a moderate tax bracket and Roth's will allow us to manage that marginal tax rate should we need additional spending money.

Should we enter a bull market nirvana and the IRA grows beyond expectations giving higher RMD's, I'll just have to pay more taxes. Could be worse.
Your current marginal rate is more than 40%?

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Old 01-01-2016, 07:56 AM   #46
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I am continuing to simplify as well. Coffeehouse and Ultimate Buy and Hold were too complicated for me, but I did like the 50/50 US/non-US equities (but looking at reducing non-US fraction).
Lol, 2 or 3 fund still wasn't simple enough for me. I have the tendency to tinker when I rebalance and even a written IPS couldn't prevent the tinkering. Only way to prevent that is if I could be as hands-off as possible ergo balanced fund.
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Old 01-01-2016, 10:23 AM   #47
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Your current marginal rate is more than 40%?
...
What I think I did is look at the marginal rate we'd be in at RMD time. If I have to pay marginal rates now that are higher then RMD marginal rates, I stop converting. Make sense?
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Old 01-01-2016, 12:30 PM   #48
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What I think I did is look at the marginal rate we'd be in at RMD time. If I have to pay marginal rates now that are higher then RMD marginal rates, I stop converting. Make sense?
Yes, if you are basing this on the two of you living.

I am looking at a worst case where one spouse dies. (Worst-worst: one of us dies very soon and the survivor lives into the 90's. Family histories show this is possible.) The survivor is left with less SS and one less deduction. SS+MRDs puts the survivor up into a very high marginal rate with no way out--the Tax Torpedo. The only way I can think of to dodge this after the fact is to suspend taking SS for a couple of years while taking large amounts out of trad IRA. I have not run the numbers on that scenario but it doesn't seem as good an idea as moving everything before MRDs start. We would have to run the tIRA down to about $90k in order for the MRDs at that point plus SS to stay nontaxable. The marginal rate jumps directly from zero to ~40% if the IRA distributions forced by the MRDs get over the limit.

We do not have much so I had to investigate this situation in detail while we still have options, so we are paying the taxes now so we never have to again (unless Congress bites us--can't plan for that).

Cheers,

Ed
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Old 01-01-2016, 01:05 PM   #49
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...We would have to run the tIRA down to about $90k in order for the MRDs at that point plus SS to stay nontaxable. The marginal rate jumps directly from zero to ~40% if the IRA distributions forced by the MRDs get over the limit.
...
We have more then the standard deductions. Maybe that is the difference because our marginal taxes (state + fed) do not show such a jump. I do a table yearly that shows IRA distributions in 10k increments.

The marginal rate climbs to about 30%. Then they come down before going back up. Even at $100k IRA distribution the marginal rate shows 31%. Hope I'm not doing something wrong but the only thing I'm varying in making out the table is the IRA distribution figure.

Another thing to look at is the absolute dollar amount of taxes. The marginal rate could be high but the dollar figure may not be so bad. Just a thought.
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Old 01-01-2016, 05:16 PM   #50
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The absolute dollar difference for our worst case with standard deductions is between $100,000 and $200,000 over the survivor's lifetime.

I am sure you are right. Your deductions make the difference. We have not exceeded the standard deductions for years.

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Old 01-01-2016, 06:41 PM   #51
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Ed, you are a very thoughtful husband. I figure DW would have to sell our house and that would net a bundle. She would be well taken care of, but I have not done the tax situation. Roth's have favorable inheritance treatment as I recall.

I've made notes for her that reside in the safe deposit box. We've discussed this a bit but I'm sure she would be challenged with the financial stuff. Whenever I've discussed her logging into our accounts and doing some looking around, she firmly resolves to do it but then drops the ball. Some people just have other priorities in life. Vanguard could help her out so there is a nice institution to lean on.

As I mentioned to someone today, I'm shooting for infinity as my final age.
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Old 01-03-2016, 04:46 PM   #52
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Thanks, Lsbcal, I do my best.

I, too, hope we live long and prosper. We both have great genes, but as they say, Man plans, God laughs.

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Old 01-03-2016, 05:09 PM   #53
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I would be curious to hear what both the pre-FIREs and post FIREs are planning to do different in 2016, if anything, and how you reconcile the 2 logical sides of your brain as you analyze the markets going forward?
I suppose you are talking about a tactical adjustment of some kind. For the past two years we've dialed down equities about one percent each year. Will, probably do that later this evening by moving a small equity slice into a guaranteed income fund.
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