grayparrot
Dryer sheet wannabe
- Joined
- Dec 30, 2011
- Messages
- 22
Hi, I'm 39 years old, and financially independent after many years of 1) working as an investment analyst and 2) living like a hermit with a tightwad complex.
My main interest at the moment, as I have posted in more detail on the FIRE & Money board, is in comparing notes with others who have devoted time to ROTH conversion decisions. I'm working on this project to help my parents as they begin their retirement.
Here are my parents particular circumstances; if it is considered poor etiquette to post about a situation other than oneself, then please ignore the post and forgive me.
My parents' question: Should we convert?
Details: Mom is not working. Dad about to retire after 40 year university career. Due to a lifetime of passionate frugality and some unexpected inheritances, the financial picture is this:
$5.5MM current net worth, of which
-$1.9 million is in TIAA/CREF retirement plans
the remainder includes
-$750k retirement home
-$350k current home (conservative, post transaction proceed estimate)
-$250k rental duplex
-$1.2 MM in cash & cds
-$1.1MM in outside stocks
The TIAA/CREF plan is comprised of roth-eligible funds, and also a TIAA annuity that will provide transfer payments each year over the next 10 years and is not convertible now. Each year's transfer payment is convertible to the extent of of the excess of RMD for that year. This portion is worth $950k, so checks will average a bit more than $100k each year as the account grows at a guaranteed 3% (4% currently).
The remaining $950k is convertible, and I am urging my parents to use part of their $1.1 in cash to do so over the next three years.
The average tax on this conversion will be about 38% including federal and state.
Their future tax rate would be no less than 37%.
They need about $125k net of income per year to live on, and they also want to use another $400k of cash immediately to purchase land around their retirement home.
Anybody do a similar analysis and go through year by year to see where the breakeven is, how long they have to rely on outside assets before the ROTH "catches" up and is worth more than the outside assets?
In my view, they do have enough to get by for the decade or so that would make a ROTH conversion now a no-brainer. What do you guys think? Any general tips, personal experiences from working through these decisions, etc. would be welcome. Anybody want to swap spreadsheets? Thanks!
My main interest at the moment, as I have posted in more detail on the FIRE & Money board, is in comparing notes with others who have devoted time to ROTH conversion decisions. I'm working on this project to help my parents as they begin their retirement.
Here are my parents particular circumstances; if it is considered poor etiquette to post about a situation other than oneself, then please ignore the post and forgive me.
My parents' question: Should we convert?
Details: Mom is not working. Dad about to retire after 40 year university career. Due to a lifetime of passionate frugality and some unexpected inheritances, the financial picture is this:
$5.5MM current net worth, of which
-$1.9 million is in TIAA/CREF retirement plans
the remainder includes
-$750k retirement home
-$350k current home (conservative, post transaction proceed estimate)
-$250k rental duplex
-$1.2 MM in cash & cds
-$1.1MM in outside stocks
The TIAA/CREF plan is comprised of roth-eligible funds, and also a TIAA annuity that will provide transfer payments each year over the next 10 years and is not convertible now. Each year's transfer payment is convertible to the extent of of the excess of RMD for that year. This portion is worth $950k, so checks will average a bit more than $100k each year as the account grows at a guaranteed 3% (4% currently).
The remaining $950k is convertible, and I am urging my parents to use part of their $1.1 in cash to do so over the next three years.
The average tax on this conversion will be about 38% including federal and state.
Their future tax rate would be no less than 37%.
They need about $125k net of income per year to live on, and they also want to use another $400k of cash immediately to purchase land around their retirement home.
Anybody do a similar analysis and go through year by year to see where the breakeven is, how long they have to rely on outside assets before the ROTH "catches" up and is worth more than the outside assets?
In my view, they do have enough to get by for the decade or so that would make a ROTH conversion now a no-brainer. What do you guys think? Any general tips, personal experiences from working through these decisions, etc. would be welcome. Anybody want to swap spreadsheets? Thanks!