Nervous about ER with $5.5 million

[RunningBum]

Pb,

This is what I am doing and why there are 2 parts. Part 1 before RMD is Roth conversion. Part 2 after RMD is 13K per year in perpetuity into Roths to convert LT cap loss into net worth using that small sliver of RMD money as the vehicle. I don't expect to have need for Roth money for many years if ever, and I will only get about 300K into the Roths before RMD hits, but it's tax and inheritance efficiency going forward adds another aspect of diversity without IRA bracket creep.

Interesting discussion

Best

Are you saying in Part 2 that you are contributing 13K /year into a Roth? Do you have earned income? RMDs do NOT count as earned income, nor does investment income. Nor does rental income, unless you do something like set up a way to pay yourself for the actual work you do on the rentals.

 

[RunningBum]

"Part 2 after RMD is 13K per year in perpetuity into Roths to convert LT cap loss into net worth using that small sliver of RMD money as the vehicle."

That makes no sense anyway. RMDs are (unearned) income. LT cap losses can only be used against cap gains, except for 3000/yr. I'd ask what you mean about that, but your whole Part 2 plan seems very flawed and not legal.

 

[pb4uski]

It depends on whether Doc has earned income or not. If Doc does not have earned income (ie; wages, salary, board fees, etc.) then I agree that the $13k/year does NOT work... they would excess contributions and subject to the 6% penalty each year until withdrawn.

 

[Doc0]

My argument may have been poorly worded, or I may misunderstand what I have read.

The way I read it is: Let's say I have a RMD of 50K. That money is not eligible for contribution. But if I take out more IRA money say 60K the extra 10K (less taxes) would be eligible for Roth roll over. Is that not the case?

Best

 

[RunningBum]

You can convert however much else you want from your tIRA to your Roth, after you take your RMD, just like you can convert in the years before you are required to take RMDs. It's not a roll over, or a contribution, it's a conversion.

The two things are separate. You have to take an RMD yearly after 70.5, which cannot go back into an IRA of any kind.

Separately, you can convert from a tIRA to a Roth at any time, paying tax on the conversion.

I don't know where you think the LT cap losses come into effect, since you can only reduce the income from conversion and RMDs by $3000.

 

[pb4uski]

My argument may have been poorly worded, or I may misunderstand what I have read.

The way I read it is: Let's say I have a RMD of 50K. That money is not eligible for contribution. But if I take out more IRA money say 60K the extra 10K (less taxes) would be eligible for Roth roll over. Is that not the case?

Best

That is not the case... and that is the point that we have been trying to make to you.

There are only two ways to add new money to a Roth IRA, contributions or conversions. Contributions are money that you put into a Roth from taxable account funds.... contributions are limited to the lower of $6,500 or your earned income (income from salaries adn wages, etc). Conversions are money directly from a tax-deferred account (like a 401k or tIRA) to a Roth IRA... however, conversions do not count as RMDs.

So in the scenario that you outline where you take a $60k RMD, pay $10k in tax and have $50k left to invest.... you cannot put that $50k into your Roth IRA.

 

[sanjeev0276]

Go for it. You have enough by all means. You don't want your DH to work if he is in stress. Life is short. You said "we budgeted $1000 a month for travel for the rest of our lives. Also about $1500 a month is budgeted for charity". You can modify these as needed. You can't be travelling rest of your lives. As you age, it will slow down. Also, you can always be little frugal in other unnecessary areas.

 

[Pilot2013]

Yes, you are nuts. Why hasn't he retired already?

+1

 

[Blue Collar Guy]

Hi,

As the title says I am nervous about early retirement with approximately $5.5 million. He would like to retire now.

Am I nuts to be so concerned? Any thoughts would be appreciated.

My thoughts, your nutz. Unless you grew up privileged, you have exceeded most peoples wildest dreams in terms of accumulated wealth. Run to the retirement desk. The grim reaper doesnt wait for anyone. I never saw an armored car follow a hearse to the cemetery.

 

[medved]

I am also in the process of thinking through these issues. One thing I would encourage the OP is not to be unduly influenced by those who might point out that other people live quite happily on a lot less than you plan, so your retirement is a "no-brainer." Each of us is different in terms of what we want from retirement, including how much we want to be able to spend. I know there are people who are happy spending $20,000 per year -- or whatever. I do not doubt their sincerity or happiness at all. I am just not one of them. So really you need to figure out what YOU personally want to be able to spend in retirement, regardless of what other people spend in their retirement. Then you need to figure out what is your risk tolerance. I am relatively risk averse (and have no pension), so I am looking at a 2% withdrawal rate. Others have more risk tolerance and use a higher w/d rate. (Another issue when thinking about w/d rates is how much money you are going to have to pay in taxes, which varies greatly even among people with the same net worth -- depending on the mix between taxable and tax-deferred accounts, basis in the taxable accounts, etc.)

 

[Blue Collar Guy]

...... I know there are people who are happy spending $20,000 per year -- or whatever. I do not doubt their sincerity or happiness at all. I am just not one of them.

Hahahah

 

[Foxtails]

Update- We made an investment a few years ago in a company. We were not sure if we would get our initial investment back must less a profit so we kept it out of our porfolio value. Anyway, we were cashed out and this addition brings our portfolio to around $7.5 million. If we stick with $168,000 a year in expenses it brings our WR to about 2.24. I'm much more comfortable with this WR rate and DH will probably look to retire at some point next year.

 

[tomc5179]

Well, there you go - Congrats! At 2.25 WR, your pile should continue to grow for you. Well done!

 

[gerntz]

Since we've never had that much, have been retire five years w/o SS, & have more now than when we retired, I can't understand the issues. Now our prop taxes are 20% of yours.

 

[gayl]

I know there are people who are happy spending $20,000 per year -- or whatever.

I'm well rooted in Prop 13, it's hard to spend or stop saving / investing. But I do travel (Brussels for April-May, Japan next month). It was quite an eye opener to learn that's about all I spend