Hi
We all know that Firecalc is a tax-neutral tool, and that any taxes you pay must be paid out of the safe withdrawal you choose, be it 95% safe or 100% safe or whatever.
But if you convert from your TIRA to your Roth IRA, the tax you pay on such a conversion is not the same as regular taxes. Regular taxes do not create any future value. Taxes on Roth IRA conversion amounts are the price you pay for creating two forms of future value: 1) lower tax payments on lower TIRA MRD's after you reach the age of 70 1/2 and 2) the tax-free compounded growth over time of the amount(s) converted to the Roth (which are worth a lot more than if the same amount(s) had stayed pre-tax in the TIRA).
So, is it possible to regard this particular tax (the tax on converting a portion of your TIRA to your Roth IRA) as somehow different from all other taxes because it creates such future value(s), and not regard these particular taxes as having to be paid out of your safe withdrawal? Normally, spending is spending - it's money gone never to return. The same is true of taxes too - it's just money out that does not create future financial benefit. However, THESE conversion taxes are different, aren't they? They DO create future benefits. So, do they have to come out of your safe withdrawal the same way all other taxes do? Or not?
Is there any way to use Firecalc to adjust or add back for these future value created by such current Roth Conversions tax payments? How could they be quantified and/or factored into the program?
Any comments on this subject are much appreciated. I'm considering a 10-year program of Roth conversions from my TiRA that stay just under the 15% bracket each year (I'm 60 years old now). That will basically leave half tax-deferred money in my TIRA and the other half in my Roth by the time I'm 70 1/2, thus hedging my bets, so to speak. I'm just wondering if I can afford the tax payments out of my Firecalc safe withdrawal rate . . .
Thanks for your feedback.
We all know that Firecalc is a tax-neutral tool, and that any taxes you pay must be paid out of the safe withdrawal you choose, be it 95% safe or 100% safe or whatever.
But if you convert from your TIRA to your Roth IRA, the tax you pay on such a conversion is not the same as regular taxes. Regular taxes do not create any future value. Taxes on Roth IRA conversion amounts are the price you pay for creating two forms of future value: 1) lower tax payments on lower TIRA MRD's after you reach the age of 70 1/2 and 2) the tax-free compounded growth over time of the amount(s) converted to the Roth (which are worth a lot more than if the same amount(s) had stayed pre-tax in the TIRA).
So, is it possible to regard this particular tax (the tax on converting a portion of your TIRA to your Roth IRA) as somehow different from all other taxes because it creates such future value(s), and not regard these particular taxes as having to be paid out of your safe withdrawal? Normally, spending is spending - it's money gone never to return. The same is true of taxes too - it's just money out that does not create future financial benefit. However, THESE conversion taxes are different, aren't they? They DO create future benefits. So, do they have to come out of your safe withdrawal the same way all other taxes do? Or not?
Is there any way to use Firecalc to adjust or add back for these future value created by such current Roth Conversions tax payments? How could they be quantified and/or factored into the program?
Any comments on this subject are much appreciated. I'm considering a 10-year program of Roth conversions from my TiRA that stay just under the 15% bracket each year (I'm 60 years old now). That will basically leave half tax-deferred money in my TIRA and the other half in my Roth by the time I'm 70 1/2, thus hedging my bets, so to speak. I'm just wondering if I can afford the tax payments out of my Firecalc safe withdrawal rate . . .
Thanks for your feedback.