Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 11-24-2021, 11:51 AM   #101
Full time employment: Posting here.
googily's Avatar
 
Join Date: Jul 2013
Posts: 706
Anyone want to hazard a guess at what the income levels for the 15% and 25% brackets might be in 2026 when everything reverts? (both MFJ and single?)

I've been converting well into the 24% bracket the past few years (still working), and keep going back and forth as to whether to keep doing them that high until the brackets revert (which also happens to be the year I'll start survivor SS). I would likely be in the minimum 28% bracket when RMDs start, but that's way way down the road, and with no direct heirs, I don't want to get too wild with prepaying taxes.

No easy answers!
googily 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 11-24-2021, 12:16 PM   #102
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,601
Quote:
Originally Posted by patela6 View Post
Thank you so much for the detailed response!
Mom recently reduced her working hours/income and will likely retire altogether next year. Something else to factor. If we made a blanket statement that her income is $0 next year, is there some simple math I can explain this to her? She relies on us for decisions like this, last thing she would want to investigate herself

Thanks again!

Edit: she has about $400k cash and I think around $100k in Roth. Will have to double check, but itís roughly around those figures
I gave you the tool to do the calculations. Wouldn't it be better if you ran the numbers and told her the findings rather than say Some Guy On The Internet (SGOTI) gave you the numbers?

It's worth doing the numbers for this year too, since you still have time to do a conversion. It wouldn't be as much as next year, but since I'm almost certain it wouldn't work out to convert her entire account over the next few years, every little bit helps.
RunningBum is offline   Reply With Quote
Old 11-24-2021, 12:30 PM   #103
Thinks s/he gets paid by the post
Gotadimple's Avatar
 
Join Date: Feb 2007
Posts: 2,231
Quote:
Originally Posted by patela6 View Post
Thank you so much for the detailed response!

Edit: she has about $400k cash and I think around $100k in Roth. Will have to double check, but it’s roughly around those figures
In addition to the info you got from Runningbum, you need to consider your mother's tolerance for an increase in her Medicare Part B/Part D premiums. There is an income limit that drives these premiums higher. So the goal, overall is to manage RMDs and Conversions so that she doesn't hit IRMAA, or if she does it is tolerable.

https://www.medicare.gov/your-medica...s/part-b-costs
__________________
Only got A dimple, would have preferred 2!
Gotadimple is offline   Reply With Quote
Old 11-24-2021, 12:57 PM   #104
Recycles dryer sheets
 
Join Date: May 2010
Posts: 60
Thanks. Much appreciated. Will run the numbers
patela6 is offline   Reply With Quote
Old 11-24-2021, 12:58 PM   #105
Recycles dryer sheets
 
Join Date: May 2010
Posts: 60
Great point. She will not want to pay Medicare premiums at all…
patela6 is offline   Reply With Quote
Old 11-24-2021, 01:44 PM   #106
Thinks s/he gets paid by the post
 
Join Date: Feb 2012
Posts: 1,429
Quote:
Originally Posted by TheWizard View Post
I become 72 early next year so my last significant Roth conversion will be next month.
My Roth conversion amount this year will be ruffly the same as my RMD amount next year, so that keeps taxes and IRMAA tier about the same...
This is pretty much what my strategy has been. 70 now, and have been Roth converting the amount that would be our estimated SS and the estimated
RMD's ever since retired at 60. So things pretty much keep a smoothed tax cost and bracket. It has put us right up to the end of the 22%. I'm not good at predicting tax changes so it seemed as reasonable as anything. What's surprising is that while the Roth has grown substantially, the tIRA is still rocking along about at same level as when I started. Oh well. Good for the heirs, we spend all we can on things that have any meaning. When the RMD's kick in, it will start rebuilding our taxable account or increase charitable.
H2ODude is offline   Reply With Quote
Old 11-24-2021, 03:01 PM   #107
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,601
Quote:
Originally Posted by patela6 View Post
Great point. She will not want to pay Medicare premiums at allÖ
IRMAA should be a factor in the calculations, but if she can save $5000 but pay $1000 in IRMAA she should do it.
RunningBum is offline   Reply With Quote
At what point did you stop doing Roth conversions?
Old 11-24-2021, 04:51 PM   #108
Recycles dryer sheets
 
Join Date: Aug 2016
Location: Austin
Posts: 174
At what point did you stop doing Roth conversions?

Quote:
Originally Posted by eyenitnoy View Post
If the money being used to pay taxes is cutting into other priorities, that's an issue.

You need to enjoy your life NOW and not sacrifice too much for future marginal tax savings-savings that you might never see given the uncertainties of mortal existence.


Thanks for this... It's a balancing act, for sure. I'm convinced that paying the taxes today and letting the Roth grow tax-free is the optimal financial move but sending the IRS those quarterly tax payments is painful.

I like the idea of scaling it back a bit, maybe for a year or two. Truth is that some of my "other priorities" probably aren't smart money, like replacing my 14-year old pickup truck with something newer. It runs fine and meets my needs.
Austin704 is offline   Reply With Quote
At what point did you stop doing Roth conversions?
Old 11-24-2021, 04:55 PM   #109
Recycles dryer sheets
 
Join Date: Aug 2016
Location: Austin
Posts: 174
At what point did you stop doing Roth conversions?

Quote:
Originally Posted by thefist View Post
Austin704Ö I seems we are in a similar situation. Both IORP and Pralana have suggested full conversion of IRA to Roth (in 24% bracket) before TCJA sunsets. So far Iíve only gone up to 22.

Hereís a few things to consider:

Great ideas. Thank you!
Austin704 is offline   Reply With Quote
Old 11-24-2021, 05:53 PM   #110
Recycles dryer sheets
 
Join Date: Oct 2020
Posts: 361
Quote:
Originally Posted by thefist View Post
Austin704Ö I seems we are in a similar situation. Both IORP and Pralana have suggested full conversion of IRA to Roth (in 24% bracket) before TCJA sunsets. So far Iíve only gone up to 22.
Hereís a few things to consider:
- run the calculations every year. After a few conversions the benefit of them will likely be reduced and you can then opt to stop. Or slow down.
- work backwards from RMD to determine when to stop. Estimate your SS and other income at 72 and how much of an RMD you can tolerate for tax purposes. Once you have that balance, determine how much you need to reduce your IRA balance to get there.
- hold your bonds in IRA to slow down the growth
- do a bunch of conversions in these early years, then after 59.5 you can then take small distributions later to keep it down. Or do small conversions.
- figure out the number where you get ďcontrolĒ over your IRA balance and work towards it. Control in this case means that you can withdraw or convert the gains each year, tax efficiently, and keep the balance from growing.
Converting everything by 2026 sounds like an odd recommendation. There will be zero/low tax brackets later that can be filled up with small conversions/RMDs. Check to make sure you are using the same stock/bond asset allocation in each account. Otherwise the programs simply favor the account with the highest stock percentage.

The only program I know of in the free/low cost tier that can handle different allocations in various types of accounts while holding the overall portfolio asset allocation constant is the beta of Bogleheads Retiree Portfolio Model spreadsheet. The tax model in RPM is not nearly as strong as Pralana Gold's though, so there is a trade-off.
Exchme is offline   Reply With Quote
Old 11-25-2021, 01:46 PM   #111
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 6,990
I just ran the numbers for 2021... we are over the 19% bracket. No Roth conversion this year as I would rather keep the 22% invested.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Old 11-25-2021, 02:44 PM   #112
Thinks s/he gets paid by the post
RetireBy90's Avatar
 
Join Date: Feb 2009
Location: Cville
Posts: 1,323
Quote:
Originally Posted by Brat View Post
I just ran the numbers for 2021... we are over the 19% bracket. No Roth conversion this year as I would rather keep the 22% invested.
Just another way to look at it, all we (you and I) are doing is running an investment fund for Uncle Sam. That 22% or whatever his claim is, is his money, not yours. I changed my net worth tracking to deduct 28% from my TIRA assets to account for federal and state tax claims Iím custodian for.

Just wish I could get them to pay me the 1% fee eac h year advisors charge.
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected
RetireBy90 is offline   Reply With Quote
Old 11-25-2021, 05:58 PM   #113
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 3,453
Unless I missed it, no one mentioned P/E ratio compared to historic norms as a conversion decision factor. If your tIRA is mostly invested in equities, and those equities are now priced above their historic P/E norms, if you convert now you are risking paying tax on an overly high valuation. Ideally, you want to convert more when your tIRA asset values are relatively lower, less when those values are higher. Getting in your time machine and converting lots more back in 2009 or 2010 would be even better.
GrayHare is offline   Reply With Quote
Old 11-25-2021, 11:04 PM   #114
Confused about dryer sheets
 
Join Date: Dec 2014
Posts: 2
Quote:
Originally Posted by RunningBum View Post
I gave you the tool to do the calculations. Wouldn't it be better if you ran the numbers and told her the findings rather than say Some Guy On The Internet (SGOTI) gave you the numbers?.
I scrolled back through this thread and don’t see that calculator that you referred to. Can you point me to it, please? I’m looking for a good one to help model what to do (or not) with conversions. This conversation is excellent and has given me a lot to think about.
tony554 is offline   Reply With Quote
Old 11-25-2021, 11:14 PM   #115
Thinks s/he gets paid by the post
 
Join Date: Nov 2016
Location: Washington State
Posts: 1,905
I will be converting the last $25K of my traditional IRA to my Roth in January. We expect to be in the same 12% tax bracket after retirement, but I would rather pay the taxes now. Tax rates will likely increase in the future, and lowering our taxable income will allow us to qualify for more Obamacare subsidies, as well as a reduction on our property taxes. It may also reduce the amount of SS that is taxable.
mountainsoft is offline   Reply With Quote
Old 11-25-2021, 11:28 PM   #116
Recycles dryer sheets
 
Join Date: Jul 2014
Posts: 392
Quote:
Originally Posted by tony554 View Post
I scrolled back through this thread and donít see that calculator that you referred to. Can you point me to it, please? Iím looking for a good one to help model what to do (or not) with conversions. This conversation is excellent and has given me a lot to think about.
Don't know which one was referenced, but there are several decent ones. See the "using a spreadsheet" section of Roth IRA conversion - Bogleheads for a couple.
SevenUp is offline   Reply With Quote
Old 11-26-2021, 07:42 AM   #117
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,601
Quote:
Originally Posted by tony554 View Post
I scrolled back through this thread and donít see that calculator that you referred to. Can you point me to it, please? Iím looking for a good one to help model what to do (or not) with conversions. This conversation is excellent and has given me a lot to think about.
Whoops, I forget to post the link!
https://www.irscalculators.com/tax-calculator is a very easy to use tax calculator.
RunningBum is offline   Reply With Quote
Old 11-26-2021, 09:45 AM   #118
Recycles dryer sheets
 
Join Date: Feb 2014
Posts: 75
Quote:
Originally Posted by Exchme View Post
Converting everything by 2026 sounds like an odd recommendation. There will be zero/low tax brackets later that can be filled up with small conversions/RMDs. Check to make sure you are using the same stock/bond asset allocation in each account. Otherwise the programs simply favor the account with the highest stock percentage.
.
I think itís more of a coincidence rather than odd. The amount in there can be done by then. I read the results as get it done quickly for the highest benefit. I asked the Pralana author about the result, specifically the lost years of zero-12% bracket, and he just stood by the optimization algorithm.

The warning about asset allocation is correct. The software is quite sensitive to this. I donít use the same AA in tax favored and taxable. Also, with all bonds in IRA, the conversions alter the AA quickly, rather than the glide path the software would use. Iím not sure how to fix this other than a rerun at the beginning of each year. Iíll try a case with Roth and IRA AA the same and see what it does.
thefist is offline   Reply With Quote
Old 11-26-2021, 03:17 PM   #119
Recycles dryer sheets
 
Join Date: Oct 2020
Posts: 361
Quote:
Originally Posted by thefist View Post
I think itís more of a coincidence rather than odd. The amount in there can be done by then. I read the results as get it done quickly for the highest benefit. I asked the Pralana author about the result, specifically the lost years of zero-12% bracket, and he just stood by the optimization algorithm.

The warning about asset allocation is correct. The software is quite sensitive to this. I donít use the same AA in tax favored and taxable. Also, with all bonds in IRA, the conversions alter the AA quickly, rather than the glide path the software would use. Iím not sure how to fix this other than a rerun at the beginning of each year. Iíll try a case with Roth and IRA AA the same and see what it does.
With a great deal of fiddly effort, you can manually adjust the asset allocation of each type of account up to 4 times in Pralana, so you could start with the program a few percent low on the overall stock percentage and let it rise for several years until stocks are the same amount too high, then adjust. I would not recommend trying to do a lot of case study work this way, it takes forever and you can't use the program's Roth optimizer, you have to set a rule for Roth Conversions (tax bracket or IRMAA tier).

I believe the Pralana developer is working on adding the tax efficient asset allocation option and more Roth Conversion choices, so you can change strategies at different times. That's needed in order to be able to do big Roth Conversions at first and then taper off.
Exchme is offline   Reply With Quote
Old 11-26-2021, 04:04 PM   #120
Thinks s/he gets paid by the post
RetireBy90's Avatar
 
Join Date: Feb 2009
Location: Cville
Posts: 1,323
Quote:
Originally Posted by Exchme View Post
Converting everything by 2026 sounds like an odd recommendation. There will be zero/low tax brackets later that can be filled up with small conversions/RMDs. Check to make sure you are using the same stock/bond asset allocation in each account. Otherwise the programs simply favor the account with the highest stock percentage.

.
We are in situation where we will have income throughout with 3 small pensions and SS so no chance for zero or low for us. Converting a substantial portion before current rates expire will allow us to avoid large RMDs. Plan is to use QCD for remaining TIRA. I guess my point is many different situations so each needs to be considered on individual situation.
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected
RetireBy90 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
What tax bracket should I stop doing Roth Conversions Time2 FIRE and Money 144 06-28-2021 12:07 PM
Roth Conversions... When to stop? thefist FIRE and Money 41 02-29-2020 01:11 PM
Capture Zero Tax LTCG Instead of Doing Roth Conversions? Huston55 FIRE and Money 30 02-04-2018 08:39 AM
What is the point in doing a Roth IRA conversion all at one time? swampwiz FIRE and Money 12 03-30-2010 04:36 PM

» Quick Links

 
All times are GMT -6. The time now is 12:53 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.