Any one seen this thread at Bogleheads?

[mh]

That's interesting. People who draw a nice paycheck (like lawyers, doctors, and other professionals), can only contribute small amounts of their income to tax-deferred accounts. DW and I haven't been able to contribute to a deductible IRA in ages because of income limitations. That leaves putting relatively small amounts of money in 401Ks when available. Today, only 15% of our portfolio is in tax-deferred accounts.

note: if it's someone like a lawyer or doctor, small business owner, etc.. who is part of a closely held partnership/practice they may well have large tax deferred accounts built up via vehicle's other than run of the mill mega-corp style 401K's

 

[nun]

note: if it's someone like a lawyer or doctor, small business owner, etc.. who is part of a closely held partnership/practice they may well have large tax deferred accounts built up via vehicle's other than run of the mill mega-corp style 401K's

That's true, you can stash $100Ks in defined benefit plans, and $49k in a SEP if you are a small business owner.

 

[eytonxav]

MB,

Apologies, I meant to thank you earlier for posting the link and RMD table, that is helpful info.

One other comment on why my tax deferred port is large. I worked for 26 years at a large mega-corp, retired at 54, and elected to take my pension as a lump sum which was then rolled over into an IRA. Also, went back to work and had several more years of 401K contributions.

 

[meierlde]

Note that there is one other feature of 401ks and IRAs that needs to be considered, should you end up having to file Bankruptcy they are protected by law at least to some large limit. A taxable investment is not. Its not that anyone expects to in advance have to file, but lawsuits are possible.

 

[gerntz]

I'm one of those folks with both taxable and tax-deferred retirement funds.

My plan is to cruise from 59 1/2 to 70 on IRA withdrawals, dividends, and interest. Then at 70 I'll start Social Security (assuming the usual...), so as to minimize the tax bite on SS income that larger required minimum withdrawals would otherwise cause.

This, of course, assumes the world doesn't end next year, or I get smooshed by an asteroid before age 70.

That's the strategy I have in mind. Take as much out of Trad IRA as can to keep tax rate "reasonable", put some in Roth, & live off the balance & investments till taking SS at 70. SS return each year you it put off is 7-8% + inflation protection. If you stay healthy till 70, seems like a good deal. If your health gets risky, switch gears.

 

[veremchuka]

Very timely as I was thinking about this today! I have virtually nothing in taxable accounts with virtually everything in a rollover IRA and 401k (for the stable value fund's yield w/o the nav issues of a ST bond fund).

I'm one of those that does look at the balance, does not spend principal (so far anyway) and wants to leave a good sized balance for a sibling that will need financial help.

I never considered doing Roth conversions because I never expected to get out of the 15% bracket (was in the 25% when working) and you always hear to defer paying taxes for as long as possible. I'm 10 years from hitting the RMD wall and really have no clue how to handle this.

As I build cash reserves from not having to pay my mortgage anymore I expect to have cash on hand to pay taxes on a Roth conversion (if I find it is better) but that'd be to the top of the 15% bracket. Doing that for 10 years may not draw down the IRA balance much. I have no idea if it is better to do that or just pay the taxes on the RMD on the whole IRA in the future? I have considered going to a pro for some advice on how to best handle this. Normally I know what and how to do, this is a case that I can't get my arms around it.

I have not read Rick's post yet and I agree with a prior comment that the minutia obsessed Bogleheads will drive rick away the way they did to Larry Swederoe.

 

[mh]

Very timely as I was thinking about this today! I have virtually nothing in taxable accounts with virtually everything in a rollover IRA and 401k (for the stable value fund's yield w/o the nav issues of a ST bond fund).

I'm one of those that does look at the balance, does not spend principal (so far anyway) and wants to leave a good sized balance for a sibling that will need financial help.

I never considered doing Roth conversions because I never expected to get out of the 15% bracket (was in the 25% when working) and you always hear to defer paying taxes for as long as possible. I'm 10 years from hitting the RMD wall and really have no clue how to handle this.

As I build cash reserves from not having to pay my mortgage anymore I expect to have cash on hand to pay taxes on a Roth conversion (if I find it is better) but that'd be to the top of the 15% bracket. Doing that for 10 years may not draw down the IRA balance much. I have no idea if it is better to do that or just pay the taxes on the RMD on the whole IRA in the future? I have considered going to a pro for some advice on how to best handle this. Normally I know what and how to do, this is a case that I can't get my arms around it.

I have not read Rick's post yet and I agree with a prior comment that the minutia obsessed Bogleheads will drive rick away the way they did to Larry Swederoe.

Given that you intend to will some assets to your sibling. moving some money to a roth would probably make sense because your sibling should be able to maintain that inherited roth money in roth account ( you should double check that, but i think that is doable). if you leave it in a tax defferred account, that again can be transferred to your relative, but they will still have to make RMD's on it via your RMD timetable (not theirs)

So, the longer you think you (and your beneficiary) will maintain that money without drawing down on it, the more converting some tax deferred money to a roth makes sense to me (as long as your are not doing it at 'exorbitant' bracket levels)

 

[chinaco]

I intend to begin my Roth rollover regime next year.

The IORP tool MB noted is helpful.

 

[kaneohe]

Given that you intend to will some assets to your sibling. moving some money to a roth would probably make sense because your sibling should be able to maintain that inherited roth money in roth account ( you should double check that, but i think that is doable). if you leave it in a tax defferred account, that again can be transferred to your relative, but they will still have to make RMD's on it via your RMD timetable (not theirs)

For both Roth and TIRA beneficiary IRAs, a non-spousal beneficiary must take RMDs....generally based on the beneficiary's lifetime (not on original owner's)
http://www.schwab.com/cms/P-1625576.3/CS13416-02_MKT13598-10_FINAL_118091.pdf?cmsid=P-1625576&cv8

 

[eytonxav]

For both Roth and TIRA beneficiary IRAs, a non-spousal beneficiary must take RMDs....generally based on the beneficiary's lifetime (not on original owner's)
http://www.schwab.com/cms/P-1625576.3/CS13416-02_MKT13598-10_FINAL_118091.pdf?cmsid=P-1625576&cv8

I thought that was the case, thanks for clarifying. DW and I would definitely like to leave $s for our kids and doing that based on my RMD schedule may not be desireable.

 

[nun]

I believe tax planning to be far more difficult than investing. I hadn't thought of deferring SS until 70 as a strategy to allow larger IRA withdrawals or rollovers. It sounds like a good plan. Right now I'm contributing to my ROTH each year and I plan to finance the years between ER and 59.5 with after tax dollars so that I can do low tax IRA to ROTH rollovers.

 

[nun]

I just realized that RMDs won't really be an issue as I get older and I'll have to withdraw increasingly large %ages of my portfolio anyway to pay for healthcare

 

[meierlde]

For both Roth and TIRA beneficiary IRAs, a non-spousal beneficiary must take RMDs....generally based on the beneficiary's lifetime (not on original owner's)
http://www.schwab.com/cms/P-1625576.3/CS13416-02_MKT13598-10_FINAL_118091.pdf?cmsid=P-1625576&cv8

I expect this to revert back to based on the original owners life expectancy once tax reform gets cranked up, its an easy way to get more revenue, and does not directly hurt the senior.

 

[veremchuka]

Given that you intend to will some assets to your sibling. moving some money to a roth would probably make sense because your sibling should be able to maintain that inherited roth money in roth account ( you should double check that, but i think that is doable). if you leave it in a tax defferred account, that again can be transferred to your relative, but they will still have to make RMD's on it via your RMD timetable (not theirs)

So, the longer you think you (and your beneficiary) will maintain that money without drawing down on it, the more converting some tax deferred money to a roth makes sense to me (as long as your are not doing it at 'exorbitant' bracket levels)

WOW! That sucks, I thought they were able to do RMD's based upon their age not mine, she is 7 years younger than me. Roth conversions maybe are worth doing over the next 10 years. Like I said I need to talk to a tax pro to get a handle on this. Thanks for the info!

I just read the reply from kaneohe and I will read that link you provided. Thank you!

It is much easier to accumulate your portfolio than spend it down I am learning! Who knew? Maybe I plowed too much into my 401k and should have put more into taxable? Well that's water over the dam at this point.

Money, too little is real bad and too much can be a hassle! I guess paying taxes is better than eating cat food but it is a rude awaking that as frugal as I am I have to do things with my money that I would rather not! Yes I knew about RMDs but years ago it seemed like a long time off and no big deal.

 

[mh]

Given that you intend to will some assets to your sibling. moving some money to a roth would probably make sense because your sibling should be able to maintain that inherited roth money in roth account ( you should double check that, but i think that is doable). if you leave it in a tax defferred account, that again can be transferred to your relative, but they will still have to make RMD's on it via your RMD timetable (not theirs)

So, the longer you think you (and your beneficiary) will maintain that money without drawing down on it, the more converting some tax deferred money to a roth makes sense to me (as long as your are not doing it at 'exorbitant' bracket levels)

kaneohe's followup to the above is right my post was wrong.. so read his link and ignore my misinformation.

 

[Zero]

MB,

..Snip...
One other comment on why my tax deferred port is large. I worked for 26 years at a large mega-corp, retired at 54, and elected to take my pension as a lump sum which was then rolled over into an IRA. Also, went back to work and had several more years of 401K contributions.

Exactly the same here. My mega-corp had a very generous defined benefits plan and I had the option of a pension or a lump sum. I took the lump sum. I also generated a large 401k over the years because our plan allowed us to buy individual stocks and I chose techs all thru the 90s.

So after rolling the lump sum into my IRA at retirement, it was a substantial amount of money and after recent market performance, the RMD is still 10 years away but I can envision 50% tax rate by then.