merlin3942
Recycles dryer sheets
- Joined
- Jun 9, 2014
- Messages
- 67
Hi everyone,
Just ran my first I-ORP pass. What an amazing tool! Part of the reason I've been in "OMY" mode for a while is because I thought it was easier to just keep working than to try and figure out how to handle the withdrawl strategy on my own.
So, in looking at what the ORP results are showing me, I have a question about the IRA-2-ROTH conversion column. I'm currently 60, and ran it to retire at the end of this year. It has me doing about 25K/year conversion from IRA to Roth, which seems ok until I look at the "Taxes" column. That shows that I'm paying about 24% income tax, and I think that is solely from the the Roth conversion. In reading through the "ORP Explanation" documentation, I came across this paragraph:
RothIRA: The amount of money distributed from the Roth IRA account. No tax is paid on Roth IRA withdrawals. For IRA to Roth IRA conversions there is a 10% penalty charged for the withdrawal of the increase in account value within five years of the deposit in a Roth IRA. ORP conservatively assumes that the 10% applies to all of the early distribution. This will cause ORP to assess a larger than necessary economic penalty on early distributions and will cause ORP to prefer to avoid early distributions.
I'd never heard of that "10% penalty within 5 years" before ... unless that was just for folks under the age of 59.5? Or is that penalty really true for everyone? If so, it really seems unwise to to convert anything to Roth during those first 5 years? Of course, the vast majority of funds in the IRA have been in there much longer than 5 years, so I don't understand how/why that 10% penalty would apply anyway?
I'm sure I'm misunderstanding something ... maybe I was right, and it's easier to just keep working anyway! ;-)
One other question about I-ORP - it crunched all the numbers, and came up with an "annual spending amount" that should comfortably last me 35 years, and did all its withdrawal calculations based on that amount. However, that amount is more than twice what I think I'd ever be able to spend in a year (based on my current spending and lifestyle habits). Is there anyway for me to input that number into I-ORP somewhere, instead of relying on it to figure out how much I should spend each year?
Thanks!
Just ran my first I-ORP pass. What an amazing tool! Part of the reason I've been in "OMY" mode for a while is because I thought it was easier to just keep working than to try and figure out how to handle the withdrawl strategy on my own.
So, in looking at what the ORP results are showing me, I have a question about the IRA-2-ROTH conversion column. I'm currently 60, and ran it to retire at the end of this year. It has me doing about 25K/year conversion from IRA to Roth, which seems ok until I look at the "Taxes" column. That shows that I'm paying about 24% income tax, and I think that is solely from the the Roth conversion. In reading through the "ORP Explanation" documentation, I came across this paragraph:
RothIRA: The amount of money distributed from the Roth IRA account. No tax is paid on Roth IRA withdrawals. For IRA to Roth IRA conversions there is a 10% penalty charged for the withdrawal of the increase in account value within five years of the deposit in a Roth IRA. ORP conservatively assumes that the 10% applies to all of the early distribution. This will cause ORP to assess a larger than necessary economic penalty on early distributions and will cause ORP to prefer to avoid early distributions.
I'd never heard of that "10% penalty within 5 years" before ... unless that was just for folks under the age of 59.5? Or is that penalty really true for everyone? If so, it really seems unwise to to convert anything to Roth during those first 5 years? Of course, the vast majority of funds in the IRA have been in there much longer than 5 years, so I don't understand how/why that 10% penalty would apply anyway?
I'm sure I'm misunderstanding something ... maybe I was right, and it's easier to just keep working anyway! ;-)
One other question about I-ORP - it crunched all the numbers, and came up with an "annual spending amount" that should comfortably last me 35 years, and did all its withdrawal calculations based on that amount. However, that amount is more than twice what I think I'd ever be able to spend in a year (based on my current spending and lifestyle habits). Is there anyway for me to input that number into I-ORP somewhere, instead of relying on it to figure out how much I should spend each year?
Thanks!