Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 08-18-2021, 07:36 PM   #41
Confused about dryer sheets
 
Join Date: Jul 2019
Posts: 9
As a mid 30s HI earner, this thread has been unbelievable to follow. Itís really engaging me in tIRA vs Roth as my assets start to accumulate. These discussions will also help set some conversations with pops to guide some of his retirement management. Thanks!
BaseballDad1618 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-19-2021, 09:01 AM   #42
Recycles dryer sheets
madsquopper's Avatar
 
Join Date: May 2006
Location: Vienna
Posts: 226
I'm in the process of doing this now. A bit limited in that my spouse's very generous pension gets in the way of going over my target limit which is typically at or near the IRMAA level 2 surcharge level. Plus once my SS and both RMD's kick in we'll be close to 24% marginal land. Mostly try to pay the conversion tax from money outside the conversion. But even worst case "break even" using the converted funds will eventually show a long term benefit it keeps us below the higher IRMAA rates later on.
madsquopper is offline   Reply With Quote
Old 08-20-2021, 07:50 AM   #43
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 10,942
Quote:
Originally Posted by madsquopper View Post
I'm in the process of doing this now. A bit limited in that my spouse's very generous pension gets in the way of going over my target limit which is typically at or near the IRMAA level 2 surcharge level. Plus once my SS and both RMD's kick in we'll be close to 24% marginal land. Mostly try to pay the conversion tax from money outside the conversion. But even worst case "break even" using the converted funds will eventually show a long term benefit it keeps us below the higher IRMAA rates later on.
Not yet close to the limits for this year, but went and checked the limits again - just to keep my withdrawal levels where I want them. I had forgotten how steeply the "surcharges" rise. Still, lots of folks would gladly pay those premiums for the decent HC insurance that is MC.

Once again, we have that "first world" problem of keeping within income limits to prevent higher HC costs - and other things. What a great problem to have compared to living in say, Afghanistan. I give thanks daily that most of my problems fall into such "manageable" things as AGI and MAGI levels!

For the youn'uns coming up now, let this be a lesson to you to manage your qualified accounts NOW and be certain you understand the consequences of having "too much" in qualified money. A word to the wise from someone who perhaps mismanaged the qualified accounts. As usual, YMMV.
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 08-20-2021, 04:08 PM   #44
Recycles dryer sheets
 
Join Date: Feb 2018
Posts: 421
Definitely draw that down, especially now when the tax brackets are low. Work with a fee-only Certified Financial Planner do develop a multi-year plan. You also need to factor in Medicare premium surcharges (IRMAA).

A pre-tax retirement account is the worst thing for someone to inherit because they must liquidate the account within 10 years and pay income taxes on the full amount. So, also ensure that if you plan to give to charities in your will that this money is taken from the pre-tax accounts. the rest of your heirs will thank you.

If you have not reached 59 1/2, you can draw the pre-tax account down by converting the funds to Roth. Also, if you are between 55 and 59 1/2 and you retire from your current employer, you can withdraw from that 401K using the "Rule of 55". And when you reach 59 1/2, a good strategy would be to then roll it into your pretax retirement account to not only simplify your estate but also possibly lower your fees.

But if you also have company stock in that 401K (or any prior 401Ks that you would roll over), you can remove the company stock completely as a NUA. The great advantage is that you only pay income tax on the cost basis. You do not pay taxes on the appreciated value until you sell - and at the capital gains rate. in addition, if you still hold that stock when you die, your heirs get it as a stepped up basis and no tax is due (but if rolled over to your pre-tax IRA, they would pay taxes on the full amount)
imnontrad is offline   Reply With Quote
Old 08-20-2021, 05:35 PM   #45
Recycles dryer sheets
 
Join Date: Dec 2018
Posts: 128
I had a friend who was advised to do Roth conversion.

He later regretted how much his Medicare premium increased.

Watch the amountsÖ.lots of moving partsÖ.
a60dan is offline   Reply With Quote
Diversification applied to retirement accounts
Old 08-20-2021, 05:42 PM   #46
Dryer sheet wannabe
 
Join Date: Sep 2010
Location: Weston Lakes
Posts: 11
Diversification applied to retirement accounts

I firmly believe you will be better by diversifying your retirement into different tax categories. I myself have a ton in pre-tax and am doing Roth conversions right up to the point where taxes make me gag. But there is every reason to believe taxes will be higher in the future, so unless I'm going to die early I should bite the bullet, now.

To simplify: diversify.
Curmudgeon44 is offline   Reply With Quote
Old 08-20-2021, 05:45 PM   #47
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 12,379
Quote:
Originally Posted by a60dan View Post
I had a friend who was advised to do Roth conversion.

He later regretted how much his Medicare premium increased.

Watch the amountsÖ.lots of moving partsÖ.
Did it prevent them from having Medicare increased (IRMAA) multiple years because of high RMDs?
RunningBum is offline   Reply With Quote
Old 08-20-2021, 07:13 PM   #48
Administrator
Gumby's Avatar
 
Join Date: Apr 2006
Posts: 19,487
I think the lesson for our younger members is to keep some money in after tax accounts. If I could do it all over again, I would only contribute to the 401k to: 1) get any match (I never had one) and 2) get us down to the next lower tax bracket, but not more. And I most certainly would not make non-deductible IRA contributions. What a tax preparation nightmare that is.
__________________
Living an analog life in the Digital Age.
Gumby is offline   Reply With Quote
Old 08-20-2021, 07:23 PM   #49
Recycles dryer sheets
 
Join Date: Jul 2008
Location: .
Posts: 371
Quote:
Originally Posted by RunningBum View Post
T
Unless there is something you have not disclosed about your situation, I would be converting up to top of the 24% tax bracket, or possibly to the top of one of the IRMAA tiers.
This is what I did. I converted over three years and considered the IRMAA brackets. I wanted to complete the conversions before both my husband and my self were on Medicare. Paying the tax was painful but I happy it is done.
__________________
__________________________________________
"If things go wrong, don't go with them" -Roger Babson
Doribe is offline   Reply With Quote
Old 08-20-2021, 07:56 PM   #50
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 12,379
Quote:
Originally Posted by Doribe View Post
T Paying the tax was painful...
Not calling you out, especially since you understand and appreciate the benefit, but I find it funny how people feel so negatively about paying conversion taxes, which is really just a deferred liability. So many people are uber happy to pay off their mortgage, but hate paying off their deferred income taxes. They aren't that different. Both have to be paid off eventually, with the exception that you can avoid some or possibly all of the tIRA tax by giving it away to charity. Personally, I love seeing the tIRA shrink and my Roth grow after a conversion

Maybe my attitude is different because in my investment net worth spreadsheet I've always reduced my 401K/tIRA value by the taxes I estimate I'd have to pay. If I've estimated correctly, a Roth conversion has no impact on that investment net worth. I know some people do this, but it seems that many do not. But most people wouldn't consider their home value as part of their full net worth without reducing it by their mortgage balance.

I'm sure it helps that my taxable account holds the majority of my money, so paying conversion taxes don't come anywhere close to draining that account.
RunningBum is offline   Reply With Quote
Old 08-20-2021, 11:03 PM   #51
Dryer sheet aficionado
 
Join Date: Mar 2012
Posts: 38
Quote:
Originally Posted by RunningBum View Post
There's nothing sketchy about doing a Roth conversion. The only reason you might get help is to try to come up with the right about to convert for best tax/wealth management. It's as simple as moving money from one account (your tIRA) to another (your Roth). I'd have both accounts with the same holding company to keep it that simple.

If you don't need the money, I would absolutely convert money to a Roth rather than just withdraw the money and keep it in taxable, for the simple reason that all growth in the Roth is tax-free.

Unless there is something you have not disclosed about your situation, I would be converting up to top of the 24% tax bracket, or possibly to the top of one of the IRMAA tiers.
+1
JeKa is offline   Reply With Quote
Old 08-25-2021, 10:03 PM   #52
Confused about dryer sheets
 
Join Date: Jul 2019
Posts: 9
Quote:
Originally Posted by Gumby View Post
I think the lesson for our younger members is to keep some money in after tax accounts. If I could do it all over again, I would only contribute to the 401k to: 1) get any match (I never had one) and 2) get us down to the next lower tax bracket, but not more. And I most certainly would not make non-deductible IRA contributions. What a tax preparation nightmare that is.

I was a bit foolish (in hindsight, brilliant) when I was fresh out of college as I just created a taxable account to fund all my investments, aside from 401k. I certainly missed out on 3-4 years of Roth contributions during those first few years being a young, dumb Ďfinanceí major, but itís funny coming back full circle now where my wife and I are almost phased out of any Roth contributions due to income limits.

My 401k has quickly accelerated to over 50% of my inv portfolio (less than 25% a year ago) due to some generous matching & profit sharing contributions, but Iím finding tax implications and reducing them in both current and future scenarios to be quite the arduous task. Roth 401k vs Trad401k? Contribute to a 457b or Backdoor Roth? Or just after tax investments, all have different outcomes on current and/or future tax liability. I suppose as I read in another thread thatís why itís called Ďpersonalí finance.

Itís probably worth a post to get some thoughts on structure, but again I just love the commentary on a thread like this as there is so much to learn and not one answer is correct, or at least different answers can be rationalized.
BaseballDad1618 is offline   Reply With Quote
Old 08-26-2021, 12:23 AM   #53
Thinks s/he gets paid by the post
 
Join Date: Aug 2007
Posts: 2,298
Quote:
Originally Posted by Gumby View Post
I think the lesson for our younger members is to keep some money in after tax accounts. If I could do it all over again, I would only contribute to the 401k to: 1) get any match (I never had one) and 2) get us down to the next lower tax bracket, but not more. And I most certainly would not make non-deductible IRA contributions. What a tax preparation nightmare that is.

Good advice.

Iím still contributing max to 401k to stay out of the next tax bracket. Same as your advice, but from a different perspective.

Iím hoping I can convert a majority - or all - of tax sheltered accounts before RMDs. This is an area I havenít modeled yet. I have time, but should do this soon to make sure I wonít have any unexpected surprises in the future.
__________________
Eat, Drink and Be Merry.
tulak is offline   Reply With Quote
Old 08-26-2021, 01:15 AM   #54
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 10,942
Quote:
Originally Posted by tulak View Post
Good advice.

Iím still contributing max to 401k to stay out of the next tax bracket. Same as your advice, but from a different perspective.

Iím hoping I can convert a majority - or all - of tax sheltered accounts before RMDs. This is an area I havenít modeled yet. I have time, but should do this soon to make sure I wonít have any unexpected surprises in the future.
Yeah, I started too late. Still a bunch in the 401(k) and RMDs are out of my control. Convert early and often!
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 08-26-2021, 07:54 AM   #55
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 31,683
I started Roth conversions for myself and my wife from the first year after retiring and one bit of advice I would give, that I may have missed in this particular thread is as follows. My wife and I each had non-deductible IRAs which, as Gumby points out above, are a pain to track the basis, so I what I did was not to rollover my zero-basis 401k into an IRA until I had done a Roth conversion of my IRA. Reason being that a Roth conversion takes into account all the non-deductible contributions from one's IRAs but 401ks are not included. My IRA had a lot more basis than taxable gain so in a single year I converted the lot and then had zero basis going forward.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 08-26-2021, 12:09 PM   #56
Full time employment: Posting here.
 
Join Date: May 2017
Posts: 772
Maybe I'm missing something, but I did some math and if your income need at 70 is more than the RMD there is no benefit to doing the early conversions unless the return on the IRA is super low (like 2% or less). Not stating this as fact, perhaps I did a calculation wrong, just throwing it out there for discussion.
brokrken is offline   Reply With Quote
Old 08-26-2021, 12:16 PM   #57
Thinks s/he gets paid by the post
Out-to-Lunch's Avatar
 
Join Date: Jan 2020
Location: Milwaukee
Posts: 2,544
Quote:
Originally Posted by brokrken View Post
Maybe I'm missing something, but I did some math and if your income need at 70 is more than the RMD there is no benefit to doing the early conversions unless the return on the IRA is super low (like 2% or less). Not stating this as fact, perhaps I did a calculation wrong, just throwing it out there for discussion.
I may be missing something in your calculation. I agree that the impetus for doing conversions is blunted if your withdrawal is greater than the RMD. However, it is still conceivable that your tax rate at that time would be greater than the tax rate on conversions now.
__________________
The closing years of life are like the end of a masquerade party, when the masks are dropped. -Arthur Schopenhauer, philosopher (1788-1860)
Out-to-Lunch is offline   Reply With Quote
Old 08-26-2021, 12:20 PM   #58
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jan 2018
Location: Tampa
Posts: 9,797
Quote:
Originally Posted by Out-to-Lunch View Post
I may be missing something in your calculation. I agree that the impetus for doing conversions is blunted if you withdrawal is greater than the RMD. However, it is still conceivable that your tax rate at that time would be greater than the tax rate on conversions now.
Agree that this aspect is also a piece of the decision making process.
__________________
TGIM
Dtail is offline   Reply With Quote
Old 08-26-2021, 12:22 PM   #59
Thinks s/he gets paid by the post
Out of Steam's Avatar
 
Join Date: Mar 2017
Posts: 1,197
Quote:
Originally Posted by Gumby View Post
I think the lesson for our younger members is to keep some money in after tax accounts.
Agree with this one; in our first two years of retirement, lack of funds outside of retirement accounts has proven to be at least an annoyance.
Out of Steam is offline   Reply With Quote
Old 08-26-2021, 12:29 PM   #60
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 12,379
Quote:
Originally Posted by brokrken View Post
Maybe I'm missing something, but I did some math and if your income need at 70 is more than the RMD there is no benefit to doing the early conversions unless the return on the IRA is super low (like 2% or less). Not stating this as fact, perhaps I did a calculation wrong, just throwing it out there for discussion.
Might you be conflating income with spending? I don't ever have an "income need". I have a need for cash available to spend, which might come from a tIRA (which would be 100% income), or a taxable account (only the capital gains are income) or a Roth (0% income).

With that in mind, if you still think you are onto something, please show your math calculations.
RunningBum is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Inherited IRA and turbo tax question on RMDs DFW_M5 FIRE and Money 12 02-08-2016 07:26 AM
IRA RMDs bobbee25 FIRE and Money 16 11-21-2014 04:19 PM
SPIA within an IRA and RMDs Richard4444 FIRE and Money 11 04-03-2014 04:51 AM
Roth IRA RMDs, what! veremchuka FIRE and Money 11 11-24-2013 07:17 AM
The Education Bubble starting to deflate? dex Other topics 2 09-05-2010 03:51 PM

» Quick Links

 
All times are GMT -6. The time now is 03:22 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.