Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 07-20-2021, 11:33 AM   #41
Recycles dryer sheets
 
Join Date: May 2010
Posts: 113
Me Also. This thread is helpful...
https://www.early-retirement.org/for...gi-110112.html

https://www.kff.org/health-reform/is...alth-coverage/
Quote:
People with income above 400% FPL will be newly eligible for marketplace premium subsidies. Under the ACA, people with income above 400% FPL were not eligible for marketplace premium subsidies. Now, they will be required to contribute no more than 8.5% of household income toward the benchmark plan.
phil
captain3d 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 07-20-2021, 01:58 PM   #42
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,590
Quote:
Originally Posted by BubbaChris View Post
Right now I'm trying to figure out the ARP rule that limits ACA premium payments to 8.5% of income for this year and 2022. If it's really that straight forward, I'll be evaluating the value of a ROTH conversion versus taking LTCGs in my after-tax account.

Best regards,
Chris
It is as long as (a) your income is over 400% FPL and (b) you pick a plan that is at least 8.5% of income. If your income is under 400% FPL then the marginal percentage effective tax rate will be different (sometimes higher, sometimes lower)(*). If you pick a plan that is less than 8.5% of your income, then you'll lose any subsidy but will also pay less than 8.5% of your income in premiums (e.g. a Bronze plan).

(*) Before people get on me that the applicable figure is under 8.5% below 400% FPL: Yes, I know that. Read this though, where it explains how the actual equivalent marginal tax rate is higher than the applicable figure: https://seattlecyclone.com/aca-premi...s-2021-edition.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 07-20-2021, 02:03 PM   #43
Recycles dryer sheets
 
Join Date: Jul 2014
Posts: 336
Quote:
Originally Posted by BubbaChris View Post
Right now I'm trying to figure out the ARP rule that limits ACA premium payments to 8.5% of income for this year and 2022. If it's really that straight forward, I'll be evaluating the value of a ROTH conversion versus taking LTCGs in my after-tax account.
Roth Conversion and Capital Gains On ACA Health Insurance seems applicable to that situation.
SevenUp is offline   Reply With Quote
Old 07-20-2021, 04:06 PM   #44
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,146
Quote:
Originally Posted by BubbaChris View Post
Right now I'm trying to figure out the ARP rule that limits ACA premium payments to 8.5% of income for this year and 2022. If it's really that straight forward, I'll be evaluating the value of a ROTH conversion versus taking LTCGs in my after-tax account.
Check out healthsherpa.com or healthcare.gov to run some scenarios on how this would work for you. Of course it works on this year's plans but at least you get an idea. Just realize that next year could be a lot different. The key to the subsidy is that 2nd lowest cost silver plan, even if you go for a gold or bronze plan.

Roth conversion for LTCGs. I assume you're talking about being able to take LTCGs at 0%? If not, I would probably favor conversions, but it's not a slam dunk.

First factor is, do you need more money for living expenses? That clearly favors taking LTCGs. You sell the stocks/funds, and put the proceeds in your checking account, and you only pay tax on the gains. Roth conversions are for future use. Otherwise you might as well just do tIRA withdrawals.

Second factor, what are your future tax rates? If you're going to pay 15% LTCGs whether you take them now or later, and you can convert at a lower rate now than you expect later, the advantage goes to doing Roth conversions. But if you can take LTCGs at 0% now and they would be 15% later, it might be hard to see a similar % rate difference in Roth conversions now vs RMDs later.

Third factor, what about heirs? Under current law, they would get stepped up basis on taxable holding, and would have to fully withdraw from an inherited IRA in 10 years. If your LTCGs are taxed, this clearly favors Roth conversion. If you can get 0% tax on LTCGs, it depends on your current tax rate vs theirs over the next 10 years. Look at what happens if you do one or the other now, and die next year. If you do a conversion, your heir pays no taxes on that converted money, and they can even keep it in a Roth for 10 years. But if you pay more taxes on the conversion than they would on a withdrawal, you shouldn't have converted. If you take LTCGs and paid taxes on them, it doesn't work out because your heir would've got stepped up basis and could sell on inheritance with 0 taxes.

So, not a simple answer, and probably other factors I didn't cover. Plus, those tax laws could very easily change. If stepped up basis goes away, that's a big game-changer.
RunningBum is offline   Reply With Quote
Old 07-21-2021, 03:29 PM   #45
Recycles dryer sheets
 
Join Date: May 2016
Posts: 82
I regret not doing Roth conversions sooner. There were several years where I might have done the conversions at a 15% or 12% tax rate. I don't know if I could have paid the tax from outside money at the time but I didn't even think about converting till my first RMD year.
thatguy is offline   Reply With Quote
Old 07-21-2021, 03:43 PM   #46
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 29,719
Quote:
Originally Posted by chassis View Post
Regretting a Roth conversion seems likely to me, for a person who calculates the lifetime wealth impact of the conversions.

I don’t see actual calculations along those lines on this or many of the Roth threads. Just a lot of patting each other on the back for “tax arbitraging” and avoiding the much-feared “tax missile” or “torpedo”. Roth conversions provide a minuscule benefit to a small number of investors and only then under ideal conditions. Calculate the lifetime wealth benefit and convince yourself.
Been there, done that... I guess that you missed my post in another thread:
Quote:
Originally Posted by pb4uski View Post
Quote:
Originally Posted by Markola View Post
Here’s another take from an early retiree who decided that Roth Conversions don’t result in enough benefit for his circumstance to be worth the effort.

https://www.caniretireyet.com/roth-i...ersions-needs/
WADR to the author who I have read before and like, he is a bit all over the place on this article. First, early in the article he correctly observes that Roth conversions are principally a tax rate arbitrage play.

Quote:
So, there is no difference in the ending values of the two accounts, assuming your tax rate is unchanged between the initial contribution, and your withdrawal. (Thanks to Mike Piper at Oblivious Investor for making this commutative property of multiplication crystal clear.)

If your tax rate changes, though, the story is different: If your tax rate goes down, a Traditional IRA does better. And if your tax rate goes up, then the Roth does better.
Then he goes on to say that his tax rate is dramatically lower in retirement so Roth conversions are not particularly beneficial.
A tax rate lower in retirement than when we were working is true for us too, even once RMDs begin.

But what we are talking about when we talk Roth conversions is a "sweet spot" between early retirement and RMDs. During first 12 years of this 14 year period for us, before I start my SS, our marginal tax rate with no Roth conversons is 0% as our income is less than the standard deduction. For the last 2 years, after I am collecting SS but before RMDs begin (I'm 70-72), we are just a little into the 12% tax bracket. After that, once RMDs begin, we are in the 22% tax bracket for life.

He goes on to say that his modeling with the Prelana calculator showed a 5-10% increase in net worth for doing Roth conversions... that is very consistent with my Excel model for Roth conversions... my model suggests that Roth conversions increase our net worth by 7% measured without any deferred income tax liability and 9% if I include a deferred income tax liability. ... and these calculations are using conservative investment return assumptions. He then goes on to say:

Quote:
Given the variation in results from the commercial calculators, I created my own spreadsheets to further analyze and understand the factors related to RMDs and the Roth conversion decision. My spreadsheets show us maintaining our current 15% tax bracket, with headroom to spare, and project only a 2-3% benefit to net worth from doing Roth conversions.
It seems to me that even a 2-3% improvement in net worth makes it worth the risk of being wrong and the negligible effort of doing Roth conversions....
so it is definitely worthwhile for us but I can see that for others... especially those at the bottom of the 22% tax bracket without Roth conversions... that it might not be worth the effort.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 07-21-2021, 04:12 PM   #47
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,590
Quote:
Originally Posted by chassis View Post
Regretting a Roth conversion seems likely to me, for a person who calculates the lifetime wealth impact of the conversions.

I don’t see actual calculations along those lines on this or many of the Roth threads. Just a lot of patting each other on the back for “tax arbitraging” and avoiding the much-feared “tax missile” or “torpedo”. Roth conversions provide a minuscule benefit to a small number of investors and only then under ideal conditions. Calculate the lifetime wealth benefit and convince yourself.
I know the amount of my 2020 Roth conversions: $XXXXX.

I know the tax rate I paid on those Roth conversion: 0%.

I know the tax rate I would have paid on that amount if I had left it in my traditional IRA until I had to take it out later: 41.32%

I know my average monthly spending over the past six months, excluding any college-related expenses for my two college sophomores: $YYYY

I calculate that $XXXXX * (41.32% - 0%) / $YYYY = 4.11.

In other words, the tax savings on my arbitrage play *for a single year* of Roth conversions paid for a bit over 4 months of my living expenses.

I figure that's a good trade for a few hours of (mostly enjoyable) analysis, a few minutes on Vanguard's website, and an extra 30 minutes at tax time. I don't think that's miniscule.

But I do agree that people should do the math for themselves, with their own numbers and their own goals and situation in mind (as with any financial strategy really). My numbers are probably close to best-case for Roth conversions. Other people with other numbers could easily come to the conclusion that Roth conversions are a wash or even counterproductive.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 07-21-2021, 07:43 PM   #48
Recycles dryer sheets
 
Join Date: Aug 2020
Posts: 334
Quote:
Originally Posted by pb4uski View Post
Been there, done that... I guess that you missed my post in another thread:
Hi @pb4uski it's been a while. The comment was directed toward the original post. Thanks!
chassis is offline   Reply With Quote
Old 07-21-2021, 08:28 PM   #49
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,146
Quote:
Originally Posted by SecondCor521 View Post

In other words, the tax savings on my arbitrage play *for a single year* of Roth conversions paid for a bit over 4 months of my living expenses.

I figure that's a good trade for a few hours of (mostly enjoyable) analysis, a few minutes on Vanguard's website, and an extra 30 minutes at tax time. I don't think that's miniscule.

But I do agree that people should do the math for themselves, with their own numbers and their own goals and situation in mind (as with any financial strategy really). My numbers are probably close to best-case for Roth conversions. Other people with other numbers could easily come to the conclusion that Roth conversions are a wash or even counterproductive.
That's impressive!

I started to take a look at estimating my Roth conversions savings. It would be a lot of work to do that. I'd have to:
- Figure out how much each dollar of my conversions over the last 11 years were taxed.
- How much more ACA subsidy I'd have received without doing conversions
- Effect in my taxable account due to taking money out of there to pay the conversion taxes. Loss of those funds, loss of the growth on those funds, and any tax paid to convert those funds to cash to pay the tax
- How much my Roth grew tax free
- How much my tIRA would've grown tax-deferred
- How much tax I'd pay to drain my tIRA via RMDs and perhaps withdrawals. This would include any IRMAA charges and any additional SS benefits being added to taxable income, along with QDivs and LTCGs going from untaxed to 15% tax. If I don't drain the tIRA in my lifetime, how much tax my heirs would pay. Unless you give your tIRA money away, someone will be paying the tax.

Phew! Lots of work, not worth my time at all. Much, much more work that doing a Roth conversion to the top of some tax bracket. A simple spreadsheet shows an advantage of converting at a lower rate now vs. a higher rate later, especially since I paid taxes out of my taxable account. The only doubt is whether my assumptions are correct, mostly about future tax rates. I'd rather not speculate on those, so a bird in the hand converting at reasonable rates now looks good to me. So I know I'm coming out ahead, but it's hard to know by how much. And I won't know for certain for quite a few years.

A nice plus is that converted money is available to me from the Roth right now with $0 in taxes on Roth withdrawals. If I needed to make a big withdrawal from a tIRA that could really spike the taxes paid over what I converted at.
RunningBum is offline   Reply With Quote
Old 07-21-2021, 10:17 PM   #50
Full time employment: Posting here.
FlaGator's Avatar
 
Join Date: Aug 2008
Location: The 850
Posts: 711
Quote:
Originally Posted by SecondCor521 View Post
I know the amount of my 2020 Roth conversions: $XXXXX.

I know the tax rate I paid on those Roth conversion: 0%.

I know the tax rate I would have paid on that amount if I had left it in my traditional IRA until I had to take it out later: 41.32%

I know my average monthly spending over the past six months, excluding any college-related expenses for my two college sophomores: $YYYY

I calculate that $XXXXX * (41.32% - 0%) / $YYYY = 4.11.

In other words, the tax savings on my arbitrage play *for a single year* of Roth conversions paid for a bit over 4 months of my living expenses.

I figure that's a good trade for a few hours of (mostly enjoyable) analysis, a few minutes on Vanguard's website, and an extra 30 minutes at tax time. I don't think that's miniscule.

But I do agree that people should do the math for themselves, with their own numbers and their own goals and situation in mind (as with any financial strategy really). My numbers are probably close to best-case for Roth conversions. Other people with other numbers could easily come to the conclusion that Roth conversions are a wash or even counterproductive.
Yeah, doing them at -0- tax kinda blows up the idea they are not worth doing, much less considering. That some think it's universally unfavorable to convert to a Roth shows how uninformed they are about the range of resources and situations for an early retiree.

I've been able to move low->mid $xxx,xxx over the last 4 years at -0- tax, and expect to add to that at minimal tax for the next few years. Happy with the flexibility a larger Roth balance gives me in terms of tax-free cash for me and heirs.
__________________
Stay at home slacker dad since 2015
FlaGator is online now   Reply With Quote
Old 07-21-2021, 10:30 PM   #51
Recycles dryer sheets
RetiredHappy's Avatar
 
Join Date: Jun 2021
Posts: 138
The "ROI" to do ROTH conversion includes giving up taxable account money and future growth of this money for immediate taxes vs. continuing to pay taxes of such money in the taxable account for dividends and capital gains.

We pay alot of taxes on dividends and capital gains in our taxable accounts and for most part, we do not tap into our taxable accounts for living expenses. If I have my druthers, I would have preferred to have all investments in ROTH and IRA. We do not own a single ROTH account as we never qualified income-wise to fund ROTH when we were working.
RetiredHappy is online now   Reply With Quote
Old 07-22-2021, 08:36 AM   #52
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 11,692
Quote:
Originally Posted by RetiredHappy View Post
The "ROI" to do ROTH conversion includes giving up taxable account money and future growth of this money for immediate taxes vs. continuing to pay taxes of such money in the taxable account for dividends and capital gains.

We pay a lot of taxes on dividends and capital gains in our taxable accounts and for most part, we do not tap into our taxable accounts for living expenses. If I have my druthers, I would have preferred to have all investments in ROTH and IRA. We do not own a single ROTH account as we never qualified income-wise to fund ROTH when we were working.
For us, the problem was the type of investment.

We also had lots of tax surprises from various mutual funds, they always sent us a statement of (surprise) declared capital gains.
They never sent a statement of declared capital loss.

We over a number of years sold off the mutual funds and bought ETF's of the same funds.
Now we get hardly any tax surprises, no declared capital gains (that I can think of) and can control when we have a capital gain. We do still get dividends, but they are not a surprise and never were.
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 07-22-2021, 08:51 AM   #53
Recycles dryer sheets
RetiredHappy's Avatar
 
Join Date: Jun 2021
Posts: 138
Quote:
Originally Posted by Sunset View Post
For us, the problem was the type of investment.

We also had lots of tax surprises from various mutual funds, they always sent us a statement of (surprise) declared capital gains.
They never sent a statement of declared capital loss.

We over a number of years sold off the mutual funds and bought ETF's of the same funds.
Now we get hardly any tax surprises, no declared capital gains (that I can think of) and can control when we have a capital gain. We do still get dividends, but they are not a surprise and never were.
You are absolutely right. Our situation is a little more complicated as our investments are managed by a wealth management firm. Some years they throw out alot of capital gains and other years aren't too bad. There is also an instrument which I bought directly through the firm which generates 6-digit capital gains every 5 years when it matures.
RetiredHappy is online now   Reply With Quote
Old 07-23-2021, 03:52 PM   #54
Recycles dryer sheets
 
Join Date: Feb 2019
Posts: 100
I've been doing them for 4-5 years with no regrets. Well, my only regret is I can't do a conversion within my 401k and I can't access that 401k for another 4 years to do more conversions.
Paulz is offline   Reply With Quote
Old 07-23-2021, 04:08 PM   #55
Dryer sheet aficionado
 
Join Date: May 2017
Posts: 30
Only regret is being too aggressive with conversions for the past 3 years. I retired at 55 and have been filling the 24% bracket, following i-orp extended version recommendation. But I have now realized that my tax rate in later years even after starting SS and RMDs will likely be below that figure. It does not make sense to me to convert now at a higher tax rate than later, unless you are seriously worried about the widow tax trap. I am now modeling to flatten the tax rate for rest of life using smaller roth conversions. I have found RightCapital software very helpful in this exercise.
fishfactory is offline   Reply With Quote
Old 07-23-2021, 05:25 PM   #56
Dryer sheet wannabe
 
Join Date: Oct 2017
Posts: 17
I hold over 100 different equities. Back in March of 2020 I moved all of the most serious losers in my portfolio into a Roth from my IRA. The Roth is up 250% since that time. They are not the same companies I held in that portfolio since the move other than about 20% of them. I sold and bought other tickers if I saw a quicker path to a recovery with another company. There will be another serious drop in the not too distant future. That's the time to do it.
egleys is offline   Reply With Quote
Not doing any Roth rollovers
Old 07-23-2021, 05:29 PM   #57
Dryer sheet wannabe
 
Join Date: Jun 2007
Posts: 18
Not doing any Roth rollovers

I wish I had contributed more to Roth’s when I was working, but the reduced tax bracket was too good to overlook (at that time). Spending as much or more annually in the 6 years since I retired, so Roth rollovers are out of the question. The market has been good for all of us, but we are looking to withdraw less to stay in a lower tax bracket. I HOPE the new administration does not change tax policies on both Roth and IRA accounts 😬
Joe1954 is offline   Reply With Quote
Old 07-23-2021, 05:36 PM   #58
Dryer sheet wannabe
 
Join Date: Nov 2016
Posts: 20
Okay, I must be dense. What is the issue with the stimulus checks. They take the money back. I left off the one payed Dec. through Feb. (I got mine in Feb. 2021) so I did not count it for my 2020 taxes. I got a nice letter asking for that exact amount of money more from me. It is just a loan. The Feb. stimulus check was for one month before the IRS asked for it back.
rathail is offline   Reply With Quote
Old 07-23-2021, 05:42 PM   #59
Recycles dryer sheets
RetiredHappy's Avatar
 
Join Date: Jun 2021
Posts: 138
Quote:
Originally Posted by rathail View Post
Okay, I must be dense. What is the issue with the stimulus checks. They take the money back. I left off the one payed Dec. through Feb. (I got mine in Feb. 2021) so I did not count it for my 2020 taxes. I got a nice letter asking for that exact amount of money more from me. It is just a loan. The Feb. stimulus check was for one month before the IRS asked for it back.
Stimulus check is not a loan. Did you make too much 2019? I have not heard of people getting asked to return stimulus check.
RetiredHappy is online now   Reply With Quote
Old 07-23-2021, 05:47 PM   #60
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,146
Quote:
Originally Posted by rathail View Post
Okay, I must be dense. What is the issue with the stimulus checks. They take the money back. I left off the one payed Dec. through Feb. (I got mine in Feb. 2021) so I did not count it for my 2020 taxes. I got a nice letter asking for that exact amount of money more from me. It is just a loan. The Feb. stimulus check was for one month before the IRS asked for it back.
How is this in any way related to Roth conversions? Start a new thread and be a little clearer with your info.
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
Did any of you regret early retirement or is anyone worried about leaving too early? JoseSantiago Young Dreamers 125 03-04-2021 01:43 PM
Roth 401K hardship withdrawal, to 60 day rollover to Roth IRA workburnout FIRE and Money 5 09-29-2017 06:49 AM
Roth now or Roth rollover later? PhrugalPhan FIRE and Money 5 07-26-2014 12:10 AM
"I'm doing good or "I'm doing well" David1961 Other topics 32 07-16-2014 04:33 PM
anyone ever REGRET doing a 72T? retiringat50 FIRE and Money 2 01-14-2008 06:00 PM

» Quick Links

 
All times are GMT -6. The time now is 08:43 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.