Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Old 09-11-2020, 12:15 PM   #21
Thinks s/he gets paid by the post
RetireBy90's Avatar
 
Join Date: Feb 2009
Location: Cville
Posts: 1,600
Quote:
Originally Posted by Navigator View Post
Roth conversions do not make sense for everyone. I had an accountant do the numbers for me and he was able to show that it made little sense for my particular situation. For some people Roth conversions are a wash and for others they make sense. If you are not sure, ask an accountant to go over the numbers for you. The cost is far less than making a mistake.
This topic seems to be as dividing as the debate about owning rental property. If you convert enough that you are taxed at a higher rate than you plan for when doing withdraws then this would not be wise. However, unless you plan to be in a lower tax rate when you withdraw the funds how can it cost you ? I agree they may not be a big savings or may break even, and as mentioned there are several income cliffs that need to be considered but IMHO few situations where it would cost you.
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
RetireBy90 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 09-11-2020, 12:34 PM   #22
Thinks s/he gets paid by the post
 
Join Date: Aug 2010
Location: Back woods of Fennario
Posts: 1,170
Isn't it fairly safe to say that converting to the top of the 12% bracket is a no-brainer?
__________________
"Time wounds all heels...." - Groucho Marx
LRDave is offline   Reply With Quote
Old 09-11-2020, 01:19 PM   #23
Full time employment: Posting here.
 
Join Date: Jan 2014
Location: Austin
Posts: 661
Quote:
Originally Posted by LRDave View Post
Isn't it fairly safe to say that converting to the top of the 12% bracket is a no-brainer?
Maybe. Unless you're under 65 and benefitting from an almost $10K a year ACA subsidy for health insurance that you would most likely lose.
__________________
ER'd 6/1/2014 @ age 53. Wow, is it already 2022?
Looking4Ward is offline   Reply With Quote
Old 09-11-2020, 01:45 PM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 13,202
Quote:
Originally Posted by Looking4Ward View Post
Maybe. Unless you're under 65 and benefitting from an almost $10K a year ACA subsidy for health insurance that you would most likely lose.
Converting to near the ACA cliff is my target. It's pretty close as to whether it's better to convert some or get a bigger subsidy. I'm already pretty close to the cliff, so I can't convert much, so any difference between the two choices is pretty trivial.
RunningBum is offline   Reply With Quote
Old 09-11-2020, 01:53 PM   #25
Recycles dryer sheets
Navigator's Avatar
 
Join Date: Feb 2014
Location: Austin
Posts: 246
Quote:
Originally Posted by LRDave View Post
Isn't it fairly safe to say that converting to the top of the 12% bracket is a no-brainer?
It may seem like it, but there are actually several instances where this may not be a good idea, such as for those receiving SS or ACA subsidies.
Navigator is offline   Reply With Quote
Old 09-11-2020, 02:04 PM   #26
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 2,983
For us converting to the 12% bracket is not a nobrainer. We've already converted a significant amount. Now with both of us on SS, going to the top of the 12% bracket would result in another 45k in taxes to save about 2k per year in the future. I explained to DW that if I pass she would have an additional 10% per year in taxes. She said she's willing to accept the consequences. End of discussion in this household.
__________________
Took SS at 62 and hope I live long enough to regret the decision.
foxfirev5 is offline   Reply With Quote
Old 09-11-2020, 02:16 PM   #27
Thinks s/he gets paid by the post
 
Join Date: Aug 2013
Location: North
Posts: 4,031
Quote:
Originally Posted by pb4uski View Post
It depends. I don't think that converting make sense if your heirs are likely to have a much lower tax bracket than you do.... let them withdraw pay the lower tax rate.
Exactly... it depends on how long and how low the heirs tax bracket is predicted to be, assuming taxes usually go up, the conversion appears like a no-brainer if that estate plan is the goal and you can also avoid tax torpedo's while converting...

else, not probably for you or marginal if best savings. For my own DF I did some very complex math in spreadsheets, and you can come out with a $1 for $1 estimate of how much you are actually saving yourself and your heirs with some assumed death dates and other data points...

In DF case, and likely in mine, we have a bit of an opportunity or a lost opportunity if he does not convert on a multi-generational scale.

IF you are in one of the lower 10, 15, even 22% brackets converting becomes a bit more of a game of what-if's when analyzing, but well worth doing the math on the napkin. In DF case it is LITERALLY 100s of thousands in 1. Compounded Roth gains tax free with the advantage of time working its magic, and 2. Better tax rate per dollar over the lifetime of the taxpayer+heirs, assuming a break-even death date of X...
__________________
Time > $$$ ~ 100% equities ~ FIRE @2031
kgtest is offline   Reply With Quote
Old 09-11-2020, 05:22 PM   #28
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: 36,266
Quote:
Originally Posted by foxfirev5 View Post
.... Now with both of us on SS, going to the top of the 12% bracket would result in another 45k in taxes ...
Given that for a couple if you have $105,050 of ordinary income less $24,800 standard deduction, so you're at the $80,250 top of the 12% tax bracket you would only have $9,235 of taxes... how in the world could Roth conversions to the top of the 12% bracket result in "another 45k in taxes"?

I concede that there may be some obscure scenario that does that but it seems unlikely, so show me the numbers, otherwise I call bullsh!t.
__________________
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 09-11-2020, 05:24 PM   #29
Recycles dryer sheets
Navigator's Avatar
 
Join Date: Feb 2014
Location: Austin
Posts: 246
Quote:
Originally Posted by RetireBy90 View Post
This topic seems to be as dividing as the debate about owning rental property. If you convert enough that you are taxed at a higher rate than you plan for when doing withdraws then this would not be wise. However, unless you plan to be in a lower tax rate when you withdraw the funds how can it cost you ? I agree they may not be a big savings or may break even, and as mentioned there are several income cliffs that need to be considered but IMHO few situations where it would cost you.
One way it can cost you is with SS, which has a certain percentage taxed, based on income. Another way it can hurt you is by losing income-based benefits, such as ACA subsidies.
Navigator is offline   Reply With Quote
2 Additional Factors
Old 09-11-2020, 08:51 PM   #30
Dryer sheet aficionado
 
Join Date: Jul 2009
Posts: 45
2 Additional Factors

2 more factors to consider. These stopped me from making Roth conversions.

1. LTCG’s are taxed at $0 up the $80K or so. If you have $80K Or more of LTCG’s each Year as I do, any Roth conversion adds 25-27% in taxes on the first $80K or so. That is a pretty big hill to climb. That is because you end up paying an extra 15% on top of the 10-12% bracket. I just can’t do it.

2. Live in high tax state and might move to low tax state later. Hate to pay high now, when I might pay low later.
sdfire is offline   Reply With Quote
Old 09-12-2020, 06:32 AM   #31
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: 36,266
Quote:
Originally Posted by foxfirev5 View Post
.... Now with both of us on SS, going to the top of the 12% bracket would result in another 45k in taxes ...
Quote:
Originally Posted by pb4uski View Post
Given that for a couple if you have $105,050 of ordinary income less $24,800 standard deduction, so you're at the $80,250 top of the 12% tax bracket you would only have $9,235 of taxes... how in the world could Roth conversions to the top of the 12% bracket result in "another 45k in taxes"?

I concede that there may be some obscure scenario that does that but it seems unlikely, so show me the numbers, otherwise I call bullsh!t.
Yes, as I thought, there is no way one can get $45k in taxes by adding Roth conversion to the top of the 12% tax bracket to SS... even if each person gets the maximum SS benefit of $3,790/month.... no matter what the total tax is $9,235 (or $9,241 if using the tax tables).

What does happen is that the effective tax rate on your Roth conversion increases and is higher than if you didn't have SS and if you had a married couple where each person had the maximum benefit it peaks at 33%. The average annual benefit for a married couple is about $28,000, so even a couple with double the average annual benefit would benefit from Roth conversions.

Roth conversionSSTaxable SSTotal incomeStandard deductionTaxable incomeTaxEffective tax rate on Roth conversion
105,05000105,05024,80080,2509,2358.8%
96,55010,0008,500105,05024,80080,2509,2359.6%
88,05020,00017,000105,05024,80080,2509,23510.5%
79,55030,00025,500105,05024,80080,2509,23511.6%
71,05040,00034,000105,05024,80080,2509,23513.0%
62,55050,00042,500105,05024,80080,2509,23514.8%
54,05060,00051,000105,05024,80080,2509,23517.1%
45,55070,00059,500105,05024,80080,2509,23520.3%
37,05080,00068,000105,05024,80080,2509,23524.9%
27,73490,96077,316105,05024,80080,2509,23533.3%
__________________
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 09-12-2020, 06:44 AM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2003
Location: Florida's First Coast
Posts: 7,666
Quote:
Originally Posted by pb4uski View Post
It depends. I don't think that converting make sense if your heirs are likely to have a much lower tax bracket than you do.... let them withdraw pay the lower tax rate.
Or your heirs like ours, are 3 of your favorite charities.
__________________
"Never Argue With a Fool, Onlookers May Not Be Able To Tell the Difference." - Mark Twain
ShokWaveRider is offline   Reply With Quote
Old 09-12-2020, 06:47 AM   #33
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: 36,266
Quote:
Originally Posted by ShokWaveRider View Post
Or your heirs like ours, are 3 of your favorite charities.
In that case, if you darn tootin sure that you'll never need that money you may want to do QCDs in place of your RMDs while you are alive and can enjoy seeing those favoriate charities receive the money and see what they do with it and enjoy the accolades of being one of their big donors.
__________________
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 09-12-2020, 08:53 AM   #34
Full time employment: Posting here.
 
Join Date: Oct 2013
Posts: 511
Using my 2019 return for an estimate of my future taxable interest and qualified dividend income, with my projected pension, puts me just into the 22% tax bracket (single.) Nuts. Considering that the top of the 24% tax bracket is $160k, there doesn't appear to be a significant opportunity for me under the current tax code. Now I begin to understand why people seek to minimize their ordinary interest and dividends.
NoiseBoy is offline   Reply With Quote
Old 09-12-2020, 09:07 AM   #35
Thinks s/he gets paid by the post
 
Join Date: Jun 2014
Posts: 1,188
Quote:
Originally Posted by MichaelB View Post
One advantage that is often mentioned here is a Roth IRA is not subject to RMDs and one can withdraw when/as needed. A taxable IRA is subject to RMDs and the account holder must withdraw yearly without regard to need.
This is certainly one, we expect that if for some reason we have a spike in spending needs one year, we can draw from our Roth to cover and not think twice about the tax ramifications. With ACA subsidies and such if you are planning to be close to the cliffs, the Roth sure comes in handy to ensure you don't go over, yet have plenty of money you can access.
karen1972 is offline   Reply With Quote
Old 09-12-2020, 04:17 PM   #36
Full time employment: Posting here.
googily's Avatar
 
Join Date: Jul 2013
Posts: 792
Speaking as one of those widows who now has to file single on a nest egg that was planned to support two of us, I can never decide what to do. We had no Roth money when DH died, and I have managed to get about $160k built up through conversions and after-tax 401k rollovers, but that's still only about 10% of my holdings. I'm at the very very very top of the 22% bracket, still working, but with a future of two pensions, starting survivor SS at 60 and my own at 70, and big RMDs if I don't do anything (and a strong belief that taxes will go up for me probably even before 2026), I feel like I should be converting to the top of 24%. Especially if maybe I want to buy a second home in a few years, since as of now about 85% of my stash is in pre-tax, and I'd get clobbered with a big tax bill.

No heirs, so that's not really even a consideration. I don't have any real objections to paying taxes, but would be aggravated if down the road I get some huge bills that I had known how to anticipate and mitigate but didn't bother.

If anyone feels like imagining what they'd do in this scenario, feel free to opine.
googily is offline   Reply With Quote
Old 09-12-2020, 04:49 PM   #37
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: 36,266
You say no heirs, but what will happen with your money when you die? Charities?
__________________
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 09-12-2020, 05:07 PM   #38
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 2,983
Quote:
Originally Posted by pb4uski View Post
Given that for a couple if you have $105,050 of ordinary income less $24,800 standard deduction, so you're at the $80,250 top of the 12% tax bracket you would only have $9,235 of taxes... how in the world could Roth conversions to the top of the 12% bracket result in "another 45k in taxes"?

I concede that there may be some obscure scenario that does that but it seems unlikely, so show me the numbers, otherwise I call bullsh!t.
Over the course of 7 years it would add up to the above numbers. I feel No need to go further in discussing the issue with you.
__________________
Took SS at 62 and hope I live long enough to regret the decision.
foxfirev5 is offline   Reply With Quote
Old 09-12-2020, 06:10 PM   #39
Full time employment: Posting here.
googily's Avatar
 
Join Date: Jul 2013
Posts: 792
Quote:
Originally Posted by pb4uski View Post
You say no heirs, but what will happen with your money when you die? Charities?
I should have said no children. There are nieces and nephews and friends and charities, though of course my main plan is to bounce the check to the cemetery. [emoji16]
googily is offline   Reply With Quote
Old 09-12-2020, 08:05 PM   #40
Thinks s/he gets paid by the post
2017ish's Avatar
 
Join Date: Apr 2012
Location: Nashville
Posts: 2,504
Quote:
Originally Posted by googily View Post
Speaking as one of those widows who now has to file single on a nest egg that was planned to support two of us, I can never decide what to do. We had no Roth money when DH died, and I have managed to get about $160k built up through conversions and after-tax 401k rollovers, but that's still only about 10% of my holdings. I'm at the very very very top of the 22% bracket, still working, but with a future of two pensions, starting survivor SS at 60 and my own at 70, and big RMDs if I don't do anything (and a strong belief that taxes will go up for me probably even before 2026), I feel like I should be converting to the top of 24%. Especially if maybe I want to buy a second home in a few years, since as of now about 85% of my stash is in pre-tax, and I'd get clobbered with a big tax bill.

No heirs, so that's not really even a consideration. I don't have any real objections to paying taxes, but would be aggravated if down the road I get some huge bills that I had known how to anticipate and mitigate but didn't bother.

If anyone feels like imagining what they'd do in this scenario, feel free to opine.
Unless there are strong state tax reasons to the contrary, I'd think using the 24% bracket to the utmost for conversions would be prudent. Plus, whatever your portfolio equity allocation is, I'd put 100% of Roth in stocks and overweight income/bonds in the tax deferred accounts to reach your allocation.

(This is our approach, as we choose to convert to top of 24% even in these years where we'd otherwise pay no taxes. We believe the underweighting of equities in deferred accounts should help in the long run in getting as much as possible in the roths.)
__________________
OMY * 3 2ish Done 7.28.17
2017ish is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
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
PORTAL VIEW and NEW POSTS VIEW not in sync? ERD50 Forum Admin 5 03-08-2015 09:28 PM
401(k): To convert, or not to convert, that is the question jnojr Young Dreamers 21 04-10-2012 03:58 PM
Contrarian Investment - Which Sectors have the Greatest Beat-Down? Culture FIRE and Money 20 01-10-2009 06:41 PM
contrarian portfolios? kevink FIRE and Money 9 11-22-2005 07:13 AM

» Quick Links

 
All times are GMT -6. The time now is 03:26 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.