Obama's State of the Union speech - wealthiest seniors

[Alan]

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.

 

[Alan]

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)

 

[samclem]

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.

 

[youbet]

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.

 

[Stanley]

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.

 

[clifp]

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.

 

[samclem]

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?

 

[timo2]

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.

 

[donheff]

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.

 

[obgyn65]

Not sure if I understand this. Our ROTH money is frozen until age 59, correct ?

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)

 

[heeyy_joe]

Means testing--If you want to see me get mean just test me.

 

[samclem]

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).

 

[Alan]

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.

 

[MooreBonds]

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.

 

[packrat44]

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.

 

[Tadpole]

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.

Actually, I think the first time SS benefits were taxed federally was after the 1983 changes.

But anyway, on the subject of pooling retiree resources and to quote myself in 2004:

Since most solutions boil down to: Take the middle class savings, put them in the SS pool, and redistribute the total equally to all retirees current and future, WHY NOT JUST DO THIS?

http://www.early-retirement.org/for...s-among-us-will-have-ss-15477.html#post283706

 

[REWahoo]

Actually, I think the first time SS benefits were taxed federally was after the 1983 changes.

Correct.

The taxation of Social Security began in 1984 following passage of a set of Amendments in 1983, which were signed into law by President Reagan in April 1983. These amendments passed the Congress in 1983 on an overwhelmingly bi-partisan vote.

Social Security History

 

[scrabbler1]

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.

Using your logic, once a SS recipient has received in benefits what he has paid in (for some people, it doesn't take too long to hit that breakeven point, for others, they get there more slowly), shouldn't 100% of his benefits be subject to income taxes? Using 50% or 85% is a bargain, especially if the SS recipient is receiving them for a long, long time (decades).

 

[misanman]

I think they will need to implement a VAT, which will be somewhat independent of where the money we spend comes from.

 

[ziggy29]

Correct.

The taxation of Social Security began in 1984 following passage of a set of Amendments in 1983, which were signed into law by President Reagan in April 1983. These amendments passed the Congress in 1983 on an overwhelmingly bi-partisan vote.

Social Security History

I remember those, once upon a time...

 

[ziggy29]

I think they will need to implement a VAT, which will be somewhat independent of where the money we spend comes from.

Well, this would tend to counteract the "punish savers" aspect of means testing. Do both and neither spenders nor savers can feel like they are being singled out for the pain...

 

[Bikerdude]

Actually, I think the first time SS benefits were taxed federally was after the 1983 changes.

The only problem was that the income limits for taxation were not indexed for inflation. They remain at 1983 levels.

 

[Jay_Gatsby]

Well, this would tend to counteract the "punish savers" aspect of means testing. Do both and neither spenders nor savers can feel like they are being singled out for the pain...

Sounds like a good balance. However, I would expect that certain categories of goods and services will carry a higher VAT than others. In fact, some stuff may be exempted from the VAT altogether to protect the poor from having to spend more on the essentials of life.

 

[ziggy29]

Sounds like a good balance. However, I would expect that certain categories of goods and services will carry a higher VAT than others. In fact, some stuff may be exempted from the VAT altogether to protect the poor from having to spend more on the essentials of life.

No doubt -- I think it would be more like sales taxes where food is exempt, and probably medicine as well. Though I would expect some social engineering over which foods are exempt, with those perceived as "unhealthy" being hit with a VAT.

 

[NW-Bound]

No doubt -- I think it would be more like sales taxes where food is exempt, and probably medicine as well. Though I would expect some social engineering over which foods are exempt, with those perceived as "unhealthy" being hit with a VAT.

Oh boy!

Do I look forward to a debate as to why expensive seafood gets a tax break because it is healthy, while cheap staples like flour, sugar, and white rice get taxed because they contribute to diabetes? Wine is good, while whiskey and beer are bad, the latter because of its effect on men's tummies?