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Old 02-13-2013, 02:24 PM   #21
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It sounds like another good reason to keep up IRA to ROTH conversions...
Eh, the law could be easily changed so that Roth withdrawal is not taxed (to keep Uncle Sam's promise), but included in determining Medicare costs. Remember that Uncle Sam has X-ray vision, and knows where each of us keeps his stash.

Just the other day, I was thinking about FIRECalc which many of us run again and again, trying to optimize our results. It is actually a fairly simple program.

Now, imagine the "mother of all spreadsheets" that Uncle Sam has at his fingertips, when trying to estimate results of any policy change. I am sure that one exists, and wonder how many zillion variables that one can tweak. Not only that there are so many things to vary, they would also have to estimate the populace's response to the changes. Let's say I up the IRA contribution limit to $10K, how many workers would take advantage of that? What if I tax this and not that? Where would these people run to hide?

That would keep me busy all day, playing with that program.
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Old 02-13-2013, 02:38 PM   #22
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Eh, the law could be easily changed so that Roth withdrawal is not taxed (to keep Uncle Sam's promise), but included in determining Medicare costs. Remember that Uncle Sam has X-ray vision, and knows where each of us keeps his stash.
Eh?

Why is that a reason not to do IRA - ROTH conversions? Do you think taxes will go down in the future or that RMD's will go down or disappear?

Taxes have to be paid on the IRA's at some time, and as I said in my post, this is another reason to pay over the coming years while taxes are low. (and I personally don't believe they will tax net worth)

If it is announced that it will go the way you suggest then it would be worth transferring the ROTH money into a savings account before the new law comes into effect, so only the interest from the previous ROTH money is income.

Spin the wheel and place your bets.
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Old 02-13-2013, 02:39 PM   #23
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Eh, the law could be easily changed so that Roth withdrawal is not taxed (to keep Uncle Sam's promise), but included in determining Medicare costs.

Exactly. And similar things are already going on. For example, muni bonds are typically tax exempt for fed taxes. But muni bond interest in added back to AGI to calculate MAGI for determining your Medicare Part B and Part D premium.

Roth distributions could be handled exactly the same way....... not taxed as fed income tax but added into MAGI for other purposes such as Medicare costs.

I would bet even money that that eventually happens. With the rule change allowing "wealthy" folks to convert TIRA's to Roth IRA's, there are too many dollars now hiding in Roths to go overlooked.
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Old 02-13-2013, 02:41 PM   #24
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Eh?

Why is that a reason not to do IRA - ROTH conversions? Do you think taxes will go down in the future or that RMD's will go down or disappear?
No, don't get me wrong. I will certainly do Roth conversions. It's just that the advantages may be reduced in the future.
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Old 02-13-2013, 02:44 PM   #25
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Eh?

Why is that a reason not to do IRA - ROTH conversions? Do you think taxes will go down in the future or that RMD's will go down or disappear?

Taxes have to be paid on the IRA's at some time, and as I said in my post, this is another reason to pay over the coming years while taxes are low. (and I personally don't believe they will tax net worth)

If it is announced that it will go the way you suggest then it would be worth transferring the ROTH money into a savings account before the new law comes into effect, so only the interest from the previous ROTH money is income.

Spin the wheel and place your bets.
I think you missed NW's point Alan. He's saying that it's possible that Roth withdrawals might be included in MAGI for determining Medicare Part B and Part D premium levels. I pointed out they are already doing that with muni int and divs so it's wouldn't be an unprecedented action on the govt's part.

I agree with you, there would still be other reasons to do Roth conversions, and I'm doing some right now. It might or might not help you for Medicare premiums though depending on how the feds work things going forward. For example, I never thought my muni bond portfolio would generate income that counts against me for means testing for Medicare. But they chaged the rules, long after I created the muni bond portfolio, and now muni bond income does go into MAGI for Medicare means testing.
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Old 02-13-2013, 02:46 PM   #26
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No, don't get me wrong. I will certainly do Roth conversions. It's just that the advantages may be reduced in the future.
No disagreement on this.

I'm sure they realize that should changes be announced to have some sort of taxation of ROTH withdrawals, that folks will move their ROTH money into other accounts to minimize the impact. But I'm sure there are many ways to get more taxes out of ROTH accounts.
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Old 02-13-2013, 02:50 PM   #27
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I think you missed NW's point Alan. He's saying that it's possible that Roth withdrawals might be included in MAGI for determining Medicare Part B and Part D premium levels. I pointed out they are already doing that with muni int and divs so it's wouldn't be an unprecedented action on the govt's part.
That is why I said that you could move some or all of your ROTH money somewhere else once the change is announced (before it is enacted) so that withdrawal of ROTH money is not included in MAGI. (taking money from savings or CD's etc is not included in MAGI - yet)
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Old 02-13-2013, 02:52 PM   #28
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Spin the wheel and place your bets.
This is why it probably makes sense to leave at least some money in the various pots (rather than totally spend some dry, as the i-orp calculator might suggest is optimum). It just allows more flexibility to jump through the future hoops.

Somebody is going to design a calculator that allows a user to maximize all these things: Health care subsidies, taxation of SS benefits, Federal and State income taxes, federal and state tax credits, Medicare co-pays, etc. It would be a monster of a program to accommodate all the possible situations, and would have to incorporate some type of "sensitivity analysis" so users could see just how things are affected by possible future changes. But the interdependencies are already so complex that doing these things "by gut" probably leaves a lot of money on the table.
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Old 02-13-2013, 02:55 PM   #29
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That is why I said that you could move some or all of your ROTH money somewhere else once the change is announced (before it is enacted) so that withdrawal of ROTH money is not included in MAGI. (taking money from savings or CD's etc is not included in MAGI - yet)
Yep, you could. But the earnings from the money removed from the Roth would count towards your Medicare MAGI.

I understand what you're saying Alan. My only point is that Roth's may or may not be a place to shelter earnings from Medicare MAGI in the future. Just the same, I'm doing some Roth conversions now and regret I didn't do a larger amount last year. I only have 5 years until RMD time and likely won't get as much converted as I would like.

It seems like the goal of having a substantial FIRE portfolio yet be treated like a poor guy by the feds is becoming more and more difficult for us folks unwilling to use elaborate (and perhaps borderline outside of the rules) schemes.

Goal 1 - Have a substantial FIRE portfolio

Goal 2 - Have the portfolio earn and grow significantly to exceed inflation

Goal 3 - Have the portfolio itself and its significant earnings be untaxed and not counted in any means testing by the fed or state gov's

I keep feeling like some very smart, motivated folks are working overtime to find ways to keep us from achieving these things. I know some here (Zig for example) are optimistic they can "look poor" on paper while actually having wealth and income. I'm not. With an income supported about 50/50 (pension-SS / earnings and withdrawals) and with little in Roths, it seems like there are few places to hide and getting tougher all the time.
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Old 02-13-2013, 03:35 PM   #30
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Well, it may be that with means testing, the conventional wisdom may change. First, spend the traditional IRA funds since that counts as income. Then the regular money, and last the Roth money.
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Old 02-13-2013, 03:44 PM   #31
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This is why it probably makes sense to leave at least some money in the various pots (rather than totally spend some dry, as the i-orp calculator might suggest is optimum). It just allows more flexibility to jump through the future hoops.

Somebody is going to design a calculator that allows a user to maximize all these things: Health care subsidies, taxation of SS benefits, Federal and State income taxes, federal and state tax credits, Medicare co-pays, etc. It would be a monster of a program to accommodate all the possible situations, and would have to incorporate some type of "sensitivity analysis" so users could see just how things are affected by possible future changes. But the interdependencies are already so complex that doing these things "by gut" probably leaves a lot of money on the table.
I have to say my brain hurts for trying to figure out the best one of optimizing the ObamaCare health insurance subsidies vs taxes. E.g. if I cluster my income and deduction so one year my AGI is low enough to get a subsidy but the next year, my income the next year will shoot up putting me in a higher bracket.

I hope the folks at Intuit are hard at work on such a program.
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Old 02-13-2013, 04:05 PM   #32
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I have to say my brain hurts for trying to figure out the best one of optimizing the ObamaCare health insurance subsidies vs taxes. E.g. if I cluster my income and deduction so one year my AGI is low enough to get a subsidy but the next year, my income the next year will shoot up putting me in a higher bracket.
Yep. At some point an "off the books" stash buried in a hole in the back yard is going to look pretty smart. Is it still possible to get paper stock certificates? Printed on Tyvek?
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Old 02-13-2013, 04:50 PM   #33
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It sounds like another good reason to keep up IRA to ROTH conversions so that if more income-based taxes come into play, one will have more after-tax money to spend. (I personally don't expect net worth taxation to come into play)
That's a really good thought. I also was wondering how social security would fit into the AGI. Right now it depends on the state, right? That's something I need to investigate more, how the timing between savings and social security disbursements might change.
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Old 02-13-2013, 06:12 PM   #34
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I haven't seen any proposals in my life that would seriously affect then current seniors and I don't anticipate anything coming up that will make me nervous about my own future. Plenty to worry about my kids. But no one is really proposing to mess with me in a serious way.
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Old 02-13-2013, 07:26 PM   #35
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Not sure if I understand this. Our ROTH money is frozen until age 59, correct ?
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That is why I said that you could move some or all of your ROTH money somewhere else once the change is announced (before it is enacted) so that withdrawal of ROTH money is not included in MAGI. (taking money from savings or CD's etc is not included in MAGI - yet)
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Old 02-13-2013, 07:56 PM   #36
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Old 02-13-2013, 08:02 PM   #37
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Not sure if I understand this. Our ROTH money is frozen until age 59, correct ?
No, you can withdraw any of your Roth contributions for any reason prior to 59.5 YO. It's just the earnings on the money in the Roth that you can't touch until then (aside from using a 72t withdrawal, etc).
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Old 02-13-2013, 09:17 PM   #38
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Not sure if I understand this. Our ROTH money is frozen until age 59, correct ?
You can convert as much money from your tIRA to a ROTH at any age, which is what I was talking about doing while the tax rates are low.

Since I am 58 then all of my ROTH money will be available before any of the legislation that is thread is about comes into effect - if it ever does. Being only a wee bairn yourself, then samclem has stated what the restrictions are for withdrawals before age 59.
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Old 02-13-2013, 11:16 PM   #39
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Eh?
Taxes have to be paid on the IRA's at some time, and as I said in my post, this is another reason to pay over the coming years while taxes are low. (and I personally don't believe they will tax net worth)
True, taxes have to be paid on IRAs (contributions or distributions) at some time....but don't put it out of the realm of possibility that ROTH IRA distributions would be directly taxed.

After all, half of your social security check you receive in your 60s has already been taxed by income taxes when you earn it on your paycheck. Yet, up to 85% of your SS check (depending on your AGI) is subject to income tax.

50% of your SS payments into the system were never hit with income tax (your employer contribution), but up to 35% of your SS payments - which were taxed once when they were taken out of your paycheck - are taxed AGAIN when you receive them.

Before it changed in the late 80s/early 90s, it was always such that just 50% of your SS benefits were taxed (since you had already been taxed on 50% of it when you earned it).

It surely doesn't make 'sense' that you would be hit with income tax twice on the same dollar that you put in to SS and then take out - but the gub'mint can do whatever the elected politicians so decree.

So...moral of the story: don't merely assume that there's no way that a ROTH could be directly hit with some form of income/asset tax in the future, since such a blatant example of double taxation would surely never make sense or seem obviously unfair.
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Old 02-13-2013, 11:59 PM   #40
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Before it changed in the late 80s/early 90s, it was always such that just 50% of your SS benefits were taxed (since you had already been taxed on 50% of it when you earned it).

.

Prior to LBJ and his need for more help in funding the Viet Nam war, there was no taxing on receipt of SS benefits. Roosevelt stated SS benefits would never be taxed. However, when politicians want more money, all prior promises are off the table. You can run, but you can't hide.
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