feeling like a roth is a waste now

[Doc0]

I look at at the mean fido TIRA and it worked out to be around 500-600K. I then worked the tax code and found despite the rhetoric, the tax code is completely designed to soak the rich, so the idea was to turn myself into something tax wise that looks very plain vanilla SS + small TIRA in terms of my ordinary income. To the top of the 12% is the best you're going to do from a maximum tax efficiency perspective. After the top of the 12% the government considers you rich and therefore quite liable for a good soaking.

 

[braumeister]

Please define SORR.
Thanks

Sequence Of Returns Risk
Standard Acronyms You May Find on the Forum

 

[capjak]

Per current Law:

2020-2025 tax rates are lower than
2026-forward

So I am thinking it may be better to convert sooner than later...

 

[Ferd]

since the passage of the secure act I am feeling a little like the roth will change down the road too and why bother. . .

Is it hard for the rest of you to stick to the original game plan?

I don't see them taxing a Roth, that would amount to double taxation. So if they can't tax it then why would they care how long you keep it?



So I'm doubling down on Roths. 100% of my 401k is going to Roth this year and I plan on starting IRA conversions to Roth this year as well. I'm less than 2 years away from retirement and want to get a lot of money converted before I start taking SS. I hope to leave a fair amount of Roth money in my estate.

 

[truenorth418]

I will continue doing Roth conversions as I am in a low(er) bracket situation currently and I like the flexibility that comes with more money across the various account types.

But.... I don’t share the conviction that our politicians will not change the Roth tax rules in the future. They just changed the Roth inheritance rules. A couple of years ago they eliminated two Social Security claiming strategies (restricted application and file/suspend).

Seems to me that they make these retroactive changes all the time. All the more reason to diversify your options.

 

[BeachOrCity]

The key is tax diversification so you can optimize your drawdown based on the law and your needs at the time you need the money.

 

[ncbill]

I don't see them taxing a Roth, that would amount to double taxation. So if they can't tax it then why would they care how long you keep it?



So I'm doubling down on Roths. 100% of my 401k is going to Roth this year and I plan on starting IRA conversions to Roth this year as well. I'm less than 2 years away from retirement and want to get a lot of money converted before I start taking SS. I hope to leave a fair amount of Roth money in my estate.

I can see Roth withdrawals being taxed in some way...but only if your other income is "too high" e.g. you pay more in Medicare premiums.

Our entire tax system here in the U.S. is setup to track and tax based on income, not assets.

So I figure those of us who can "manage" their annual mAGI to be low enough won't be affected regardless of how much they have in a Roth.

And that's easier for those of us in a MCOL/LCOL area versus those who choose to stay in or retire to HCOL/VHCOL areas.

 

[Out-to-Lunch]

I consider our ROTH as the source for money we will need if either or both have to go into long term care. That way we will not go into a higher tax bracket just to spend it on our care.

I take just the opposite view. Likely, your LTC medical expenses would be tax-deductible (above 7.5% AGI). So you would get a deduction that would largely wipe out the tax burden due to TIRA withdrawals. So my plan (like Doc0's) is to convert/spend the TIRA down to about $500k, then keep that in tax-deferred for possible LTC expenses.

 

[RunningBum]

The key is tax diversification so you can optimize your drawdown based on the law and your needs at the time you need the money.

I don't agree. That may be the result, but it's not the key. While you are working, you want to defer income as much as possible. In retirement, you'd like to have as much tax-free as possible. The balance between the two often leads to tax diversification, but that doesn't make it a goal.

 

[jollystomper]

The key is tax diversification so you can optimize your drawdown based on the law and your needs at the time you need the money.

I agree with this. All the modeling I did showed that, assuming tax rates stayed the same, Roth conversions are a wash for me. But that is a big assumption. Then factor in, as a couple, the surviving spouse's tax rate, and having a Roth just makes more sense, if for nothing else diversification.

 

[oldphd]

Several posts have mentioned the idea of a change in rules that will result in taxation. My assumption is that the thinking is that this would be on the gains, since you've already paid taxes on the contribution/conversion.

From a practical standpoint, this would be tough to do, since there is no current requirement folks need to have the information on what the "basis" is. You think the financial firm has it? Not necessarily... One of my kids has had a Roth for about 15 years. I started it when he was 18 and had some earned income while going to college. I continued to contribute while he was in college, and he did for the first few years after. Fast forward to today, and that account has grown nicely. He decided to look into getting the contributions out to invest in real estate (he's in CA and has made a great return over the past 6 years on his house, personally I think it's a dumb idea - voluntarily moving tax free $ to taxable... ). Upon contacting Fidelity, who holds the Roth, they indicated they don't have info for the life of the account, I think they went back 5 years. Of course, maybe it's there but tough to get, or you have to pay a fee to get old statements, etc. I didn't have all the info since I'd purged tax returns and account statements when I moved. In hindsight, I should have maintained the info, but I didn't think about the possibility that this could arise.

If anything was implemented, I'd have to believe it would be going forward. Saying you have to pay tax on ALL of it would require double taxation, while only the gains is a number that may be difficult to impossible to get your hands on it. Another possibility is an indirect way to tax, like a VAT.

Speculation as always, but I'm doing conversions without any expectation that rules could change retroactively.

 

[sengsational]

I'm not so worried about any tax law changes on Roth, but slightly more worried about a national sales tax than taxing Roth gains. Zero worry about taxing Roth basis.


The national sales tax could come about in a crisis, where only the unpatriotic would oppose it. The few Roth holders off in the corner complaining could easily be ignored. Or, if things are more fair, you'd get a tax write-off for the gains portion of Roth funds you withdrew in the tax year. But you'd need to know your basis for that to work. The IRS accepted taxpayer records for stock basis in the old days, so I suppose if the custodian hasn't maintained those records, taxpayers could come up with them.

 

[cathy63]

I'm not so worried about any tax law changes on Roth, but slightly more worried about a national sales tax than taxing Roth gains. Zero worry about taxing Roth basis.


The national sales tax could come about in a crisis, where only the unpatriotic would oppose it. The few Roth holders off in the corner complaining could easily be ignored. Or, if things are more fair, you'd get a tax write-off for the gains portion of Roth funds you withdrew in the tax year. But you'd need to know your basis for that to work. The IRS accepted taxpayer records for stock basis in the old days, so I suppose if the custodian hasn't maintained those records, taxpayers could come up with them.

I've noticed for the past couple of years that TurboTax is offering to track the basis for Roth IRAs. It may have been doing this for longer and I just haven't noticed, but I thought it was interesting. I didn't bother to enter it in TTax, but I think I can figure it out if I need to since my Quicken file is older than our Roth accounts and should have all the contribution and conversion transactions.