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Old 09-12-2020, 08:36 PM   #41
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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.
I'm sure that Uncle Sam will appreciate your efforts.
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Old 09-12-2020, 08:49 PM   #42
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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.)
Thanks. I do have the Roth in VTSAX, and all stocks and cash in taxable, then 65-35 overall.

Wish I had done some converting in March and April, but I was doing way too good of a job refusing to look at my portfolio!
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Old 09-12-2020, 10:11 PM   #43
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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.

Can you quit working and start spending the pre tax money now?
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Old 09-12-2020, 10:25 PM   #44
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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.
I am sorry for your loss.

My crystal ball is likely no better than yours, but I agree with the notion of converting to the top of the 24% bracket. You say you will have other funding sources coming on line soon, which will push you high anyway. Future tax rates are speculation, but my speculation is that current tax law will stay in place, in which case your 22% becomes 25%. Seeing how 24% is not THAT different from 22%, I would take it to (possibly/probably) avoid 25% or 28% rates in the future.
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Old 09-12-2020, 10:34 PM   #45
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googily, I'm also in the camp that thinks that converting to the top of the 24% bracket seems like the right thing for you. As others have said, 24% is better than the 25/28% that might be coming back in the future, and converting to a Roth keeps future gains and dividends from being taxed, while RMDs have to go to your taxable account.
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Old 09-13-2020, 07:03 AM   #46
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Can you quit working and start spending the pre tax money now?
I had actually been gunning for the end of next year, but there pandemic actually brought a change in my job that has been really energizing and so I'm going to ride that out for a bit and see what happens.

As I mentioned, I'm starting to think about buying a second house in a few years, so I want to pile up money until then given how much it will cost me to get it set up.
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Old 09-13-2020, 07:10 AM   #47
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googily, I'm also in the camp that thinks that converting to the top of the 24% bracket seems like the right thing for you. As others have said, 24% is better than the 25/28% that might be coming back in the future, and converting to a Roth keeps future gains and dividends from being taxed, while RMDs have to go to your taxable account.
Thanks. I have gamed out income and tax scenarios and without Roth to draw on I would more likely be in the 28 or 33% brackets depending on withdrawal needs. So yeah, 24% is still better than that. I just turn into a wuss whenever I have to actually pay the taxes on conversions! (I've found the easiest way psychologically is to just withhold a huge chunk of my paycheck.) Am kind of hoping for a good old fashioned October panic in the market so I can convert shares "on sale", so to speak.

At least I did start the clock on Roth in 2018, so the money starts to become available in 2022, though of course I would be planning to not touch it until I hit 59.5 in 2026.
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Old 09-15-2020, 04:12 PM   #48
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Not only equal buying power but equal amounts also. Win-Win. Neither is promised anything. I know that "if this" and "if that" things could be less in the end than the whole before our demise, or it could be higher. My preference is that when we're gone, I don't want either of them repeating the Smother's Brothers argument. "Mom (and Dad) always liked you best."

My grandparents on my mother's side wanted to treat both families the same, so my mom and dad received $200 to spend on us kids for Christmas and my Aunt and Uncle received $200 for their kids for Christmas. The problem was, they had two kids and my parents had 4. My grandparents viewed this method as fair, while $50 per kid would have given my family twice as much as my cousins family.....
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Old 09-15-2020, 04:24 PM   #49
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^^^ That is a bit odd... if those grandparents had done their own shopping rather than schlepping it off on you parents I wonder if they would have spent $50 on each of you or $25?
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Old 09-15-2020, 05:28 PM   #50
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My grandparents on my mother's side wanted to treat both families the same, so my mom and dad received $200 to spend on us kids for Christmas and my Aunt and Uncle received $200 for their kids for Christmas. The problem was, they had two kids and my parents had 4. My grandparents viewed this method as fair, while $50 per kid would have given my family twice as much as my cousins family.....
Exactly my point. It could be a no-win/no-win situation. I can see by your response that you're not a fan of equality by family. At least that's what I felt when reading it. Our wills, which direct relatively little of our estate, are currently structured fairly complicated in order to address that in some small way. Outside of our wills, we're trying to address some of the inequality with Roth conversions.

Simple "Per stirpes" and "per Capita" both have their own issues with fairness IMO. It is a complicated. All we can do is try. In the end, whether one child or grandchild feels slighted or not, is not in our hands. All we can do is to try.
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Old 09-15-2020, 06:23 PM   #51
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I'm going to move a bit more to Roth since I didn't have to take RMDs this year but in general I'm holding tight with my mix right now. My Roths are for a dual purpose, we will use them instead of long term nursing home insurance if needed and part of our estate will be tax free to our Son someday. I resisted moving larger portions of our 401K to Roth because I figured if government decides to eliminate or lower the income tax and institute a national sales tax I didn't want to have all my money converted at a higher tax. Probably would never happen but you never know.
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Old 09-15-2020, 06:29 PM   #52
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This conversation has been helpful.
I just converted $100K.
Paid 24% + 4.6% taxes.
US Treasury is happy.
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Old 09-15-2020, 08:13 PM   #53
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I think its about your tax rate and where you are each year. If you have low income years and can do some conversions at that low rate that's possibly a good time to take advantage.


Also, you can do a little market timing and convert when stocks are getting hammered so you pay the one time tax at a low basis and pick up the gains tax free when the market bounces. I converted a portion in late March with the market at down around 30% and now those conversions have gone back 50% or more in value. That whole gain is tax free.



Numbers:
Old IRA: 100K at 24% tax = 76,000 net


Convert when market is down: 70K at 24% tax = 53,200

Gain: 30K tax free = 30,000
Total 53,200 + 30,000 = 83,200 net


The same 100K is in play but you get a nice gain by using the swings in the market to your tax advantage. You don't have to catch the bottom, just convert when it's low and win!
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Old 09-15-2020, 09:47 PM   #54
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Exactly my point. It could be a no-win/no-win situation. I can see by your response that you're not a fan of equality by family. At least that's what I felt when reading it. Our wills, which direct relatively little of our estate, are currently structured fairly complicated in order to address that in some small way. Outside of our wills, we're trying to address some of the inequality with Roth conversions.

Simple "Per stirpes" and "per Capita" both have their own issues with fairness IMO. It is a complicated. All we can do is try. In the end, whether one child or grandchild feels slighted or not, is not in our hands. All we can do is to try.
I realize there is some significant "thread drift" here. Both you and pb4uski are putting your fingers on two ends of the problem I have. My wife and I have many siblings, and we are both the youngest, with no children of our own. Our wills, to date, have been per stirpes, treating each sibling's family unit the same. But now, as we (all) approach retirement age, I recognize a desire/need to divvy up things differently. Some families have no children, some have 1, some have many. Moreover, some siblings need no help in retirement, others may need a lot.

I want to change my will from a sibling-based approach to an approach that treats each niece/nephew equitably. But, I am not yet willing to just write a will that gives money to dividing among nieces/nephews, and thereby cuts out siblings who do not have children! Aaack!
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Old 09-16-2020, 05:41 AM   #55
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2 more factors to consider. These stopped me from making Roth conversions.

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.
This isn't a cut and dry deal breaker. My Federal tax bracket is currently 4% lower through 2025, which is almost exactly my state income tax rate. That is a factor for 2026 forward, but for right now it's almost a wash.
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Old 09-16-2020, 07:07 AM   #56
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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.
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foxfirev5- 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.


I find the bolded parts an odd response.
It seems you have a fixed position and don't want have to think about the facts.
If you convert in the 12% bracket and it costs you $6,400 additional tax,($45k/7yrs) I doubt you are staying the 12% tax bracket.

I haven't run the numbers with SS income, but, we are doing as much in Roth Conversions as we can in the 12% bracket before I start SS. You say your wife will pay an additional 10% per year in taxes, does that mean going from 12% to 13.2% or 12% to 22%? I suspect the latter. That's something to consider.
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Old 09-16-2020, 07:53 AM   #57
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I find the bolded parts an odd response.
It seems you have a fixed position and don't want have to think about the facts.
If you convert in the 12% bracket and it costs you $6,400 additional tax,($45k/7yrs) I doubt you are staying the 12% tax bracket.
Could be the additional SS that becomes taxable if they add more income. Instead of 1x the conversion being taxed at 12%, but instead 1.85x the conversion being taxed. That's the SS tax hump. Of course they'll face the same thing down the line when they hit MRDs, if tax laws stay the same.

Quote:
I haven't run the numbers with SS income, but, we are doing as much in Roth Conversions as we can in the 12% bracket before I start SS. You say your wife will pay an additional 10% per year in taxes, does that mean going from 12% to 13.2% or 12% to 22%? I suspect the latter. That's something to consider.
Yes, I'm doing the same. It's one of the factors for me to defer SS when I am eligible.
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Old 09-16-2020, 07:26 PM   #58
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I retired almost a year ago, I have 10 years to go before I'm 59.5, and the vast majority of my money is in IRAs (having been rolled over from 401ks).

I'm planning on selling my house and spending down the equity rather than draw more from IRAs. (Well, that's not the driving factor, but....) One of my worries is will I ever be able to buy a house again?

Roth IRA to the rescue. I have no income this year, so convert a ton now, use some of my equity to pay the tax bill, and in 10 years and beyond I'll be able to take as much of that Roth as I want to buy a house or any other large purchase, no extra tax hit.

Also, if I have some urgent need of immediate funds in 5 years, I can take the principal out if I want, but I'm really hoping to let it grow.

(Incidentally, I'm just going to take the 10% penalty on any IRA withdrawals in the next 10 years because my cash flow will be too unpredictable for SEPPs, and with the home equity and a pension kicking in about 2025 I won't be hitting the IRAs too hard the next 10 years.)

Edit: Actually I guess it's 9 years for me now to penalty-free IRA access. Woo! Yay getting older?
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Old 09-16-2020, 08:33 PM   #59
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I retired almost a year ago, I have 10 years to go before I'm 59.5, and the vast majority of my money is in IRAs (having been rolled over from 401ks).

I'm planning on selling my house and spending down the equity rather than draw more from IRAs. (Well, that's not the driving factor, but....) One of my worries is will I ever be able to buy a house again?

Roth IRA to the rescue. I have no income this year, so convert a ton now, use some of my equity to pay the tax bill, and in 10 years and beyond I'll be able to take as much of that Roth as I want to buy a house or any other large purchase, no extra tax hit.

Also, if I have some urgent need of immediate funds in 5 years, I can take the principal out if I want, but I'm really hoping to let it grow.

(Incidentally, I'm just going to take the 10% penalty on any IRA withdrawals in the next 10 years because my cash flow will be too unpredictable for SEPPs, and with the home equity and a pension kicking in about 2025 I won't be hitting the IRAs too hard the next 10 years.)

Edit: Actually I guess it's 9 years for me now to penalty-free IRA access. Woo! Yay getting older?
I would guess you already know this, but the following may be of interest. Your IRA is probably too much and the allowed withdrawal too low, but who knows? It allows penalty free withdrawals before 59 1/2.
************************************************** *********
You donít have to pay the 10% penalty if you start a series of distributions from your IRA that are spread equally over your life expectancy.

If you turn this fire hose on, you canít turn it back off ó you must take at least one distribution each year.

The fine print: If you turn this fire hose on, you canít turn it back off ó you must take at least one distribution each year, and you canít modify the schedule of payments until five years have passed or youíve reached age 59Ĺ, whichever is later.

The amount of the distributions must be based on an IRS-approved calculation that involves your life expectancy, your account balance and interest rates.
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Old 09-16-2020, 09:13 PM   #60
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I would guess you already know this, but the following may be of interest. Your IRA is probably too much and the allowed withdrawal too low, but who knows? It allows penalty free withdrawals before 59 1/2.
************************************************** *********
You donít have to pay the 10% penalty if you start a series of distributions from your IRA that are spread equally over your life expectancy.

If you turn this fire hose on, you canít turn it back off ó you must take at least one distribution each year.

The fine print: If you turn this fire hose on, you canít turn it back off ó you must take at least one distribution each year, and you canít modify the schedule of payments until five years have passed or youíve reached age 59Ĺ, whichever is later.

The amount of the distributions must be based on an IRS-approved calculation that involves your life expectancy, your account balance and interest rates.
Guess what, Dave? You just described a SEPP. And in the post you quoted, they said:
Quote:
my cash flow will be too unpredictable for SEPPs
Now, maybe they should reconsider that decision, but you didn't come up with a new idea. BigMoneyJim, what does cash flow have to do with this? Why not try and avoid the 10% penalty?
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