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Old 09-17-2020, 02:43 AM   #61
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Originally Posted by RunningBum View Post
BigMoneyJim, what does cash flow have to do with this? Why not try and avoid the 10% penalty?
Because I can start an early pension in 4.5 years, and there is no sane SEPP that will work for both before and after that time. I don't *have* to start the pension then, but I can't imagine that hitting the IRA for all my expenses until I'm 59.5 makes sense when I can start the pension early.

Cash flow meaning I'll have income from the pension, and I may at some point have unpredictable and inconsistent income from ... whatever I feel like trying in retirement. And that would reduce my need to pull from the IRA.

My next 9 years just isn't predictable enough for me to feel confident that setting a rigid SEPP is worth that 10% penalty.
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Old 09-17-2020, 05:44 AM   #62
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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.

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.
Despite my earlier statement I'll provide some more info. Due to the fact i collect ss there is a tax savings in lumping income. Say I want to take 40k per year on avg. from my tIRA.

Rather than take 40k each year I will take 15k in Dec and 65k in Jan of next year. F&S taxes are (-1000) and 13000 for the second year. If I maxed out the 12% bracket every year with conversions it would result in 14k additional taxes for each two year period. Actually it would amount to 14x4= 56k due to some state tax credits.

On the plus side at the end of the 7 years (actually 8 years since I'm looking past 2020) i would have an additional 200k in conversions. However It would come at a cost of a 28% marginal tax rate (56/200).

The RMD factor would be minimal,say 5% of 200k or 10k of additional income. Even 30% F&S tax rate it would take 18 years to make up the 56 K I paid over the next 8 years. Neither DW and I will probably live to 90.

So we see no benefit. Pay me now or pay me later. I chose later. By the way we have already converted a ton into our Roths. I did not factor in growth as the tIRA's are largely the fixed portion while Roths hold growth investments. Figure out what works best for you.
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Old 09-17-2020, 11:10 AM   #63
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I am 75 yo. Since no RMD in 2020, I am considering a Roth conversion. I have much available cash in MMF yielding not much. Seems like a good use of cash as a long term play.
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Old 09-18-2020, 03:42 PM   #64
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Despite my earlier statement I'll provide some more info. Due to the fact i collect ss there is a tax savings in lumping income. Say I want to take 40k per year on avg. from my tIRA.

Rather than take 40k each year I will take 15k in Dec and 65k in Jan of next year. F&S taxes are (-1000) and 13000 for the second year. If I maxed out the 12% bracket every year with conversions it would result in 14k additional taxes for each two year period. Actually it would amount to 14x4= 56k due to some state tax credits.

On the plus side at the end of the 7 years (actually 8 years since I'm looking past 2020) i would have an additional 200k in conversions. However It would come at a cost of a 28% marginal tax rate (56/200).

The RMD factor would be minimal,say 5% of 200k or 10k of additional income. Even 30% F&S tax rate it would take 18 years to make up the 56 K I paid over the next 8 years. Neither DW and I will probably live to 90.

So we see no benefit. Pay me now or pay me later. I chose later. By the way we have already converted a ton into our Roths. I did not factor in growth as the tIRA's are largely the fixed portion while Roths hold growth investments. Figure out what works best for you.
Kind of surprised that someone called BS on my post can't come back for a further critic. I feel like I'm back in grade school "showing my work" in math class with no response.
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Old 09-26-2020, 10:40 AM   #65
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The fact that you already converted tons in to Roth says it all for me. No one has ever made the point it is always best to convert everything to Roth for the best net gain, so why are you surprised? I will be doing Roth conversions through 2025, at least while delaying SS, but I am already almost 63, & will get nowhere near it all converted, because, just as you point out, there is little point in paying the same amount now rather than later based on a hunch taxes will increase way down the road. It also depends on your age and income sources. Once I start my SS, we are solidly in the 25% bracket no matter what. At that point it makes little sense (for us) to convert after that as it only likely benefits heirs, all of whom are in much lower or non tax brackets. If I have 750k+ in Roth, plus plenty of fixed income, when/if I ever tap any tIRA for normal use, the taxes are the same. For any unexpected big expenditures I have the Roth. If I die first, DW will be in a lower tax bracket, so no worry there. If she dies first, I will be in a higher single bracket, but have little reason to tap tIRA at the higher rate. We live with more costs and expensive location because that’s what she wants. On my own, I’d sell the expensive place, move to something smaller in a less expensive area as that is more my style.
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Old 09-26-2020, 03:38 PM   #66
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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.
I don’t see how it is a wash now or ever? I pay nearly 10% in state taxes now. If I move to a 0% income tax state, I save 10% in taxes regardless of what the federal government does. That is one of the reasons I am not converting to a Roth IRA now.
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Old 09-27-2020, 12:47 AM   #67
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As you age, in retirement, and income is more fixed, it is a game or what is more important to you. We pay about 5% in state tax, but as it has been discussed here, how much that affects you net, vs your desire to live where you want, plays together to determine if the net cost is worth it.

A few of my neighbors maintain a home in Florida and live there 6 months of the year, because the savings in state tax is worth it to them. My one friend has on the order of $1M/yr income, so his place in Boca, bought years ago when prices were depressed, is already paid for by his income tax savings, and increases his NW every year. They can’t stand FL in the summer, and their kids/grands all live up here so they trek back & forth. Plus they have a mountain/ski place when it’s too hot here and to enjoy the grands there and let them use it in winter. He also worked until he was 66, and has health issues, now at 70.

Roth conversions never made any sense financially for him. But the toll of trekkng back and forth with their health issues seems futile to me. They used to take lavish vacations (twice a year, $100k+ each time), so they aren’t afraid to spend money on what they want, but between waiting for Covid fears to pass and mobility issues, their travel days are over. Just snowbirding is hard enough.

Their kids will inherit a large fortune, but only a part of it is that; knowing their greed quotient, the idea of not making and keeping as much money as possible drives them all the time. Probably the same for some here.

In our case, with our under $120k taxable income, it makes no sense to move anywhere simply to save state income taxes of under $4k in retirement, as property taxes & other costs are low, so the net cost overall makes staying here more sensible especially since we really wouldn’t enjoy living in any of the State Income tax free states. In addition, since my tax burden is so much less now compared to when w*rking, it feels like winning the lottery!

We are in much better health, but in our mid to late 60’s can tell already that time is short in general, especially for remaining travel dreams. We can rent anywhere we want to stay for a few months if desired and not waste the time, energy & costs to maintain a second home. Are the savings ginormous? Heck no, but where $50k is chicken feed to my friend (his tax refund this year was over $70k), it is substantial enough to me that it is worth a few mouse clicks and a safe bet to make savings down the road more likely.
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Old 09-27-2020, 06:49 AM   #68
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.... In our case, with our under $120k taxable income, it makes no sense to move anywhere simply to save state income taxes of under $4k in retirement, as property taxes & other costs are low, so the net cost overall makes staying here more sensible especially since we really wouldn’t enjoy living in any of the State Income tax free states. In addition, since my tax burden is so much less now compared to when w*rking, it feels like winning the lottery! ...
Our numbers are similar as are the savings. Savings are obviously state income tax... and surprisingly to me Medigap premiums... offset by much higher car insurance for the car we will have registered in FL. Property taxes and homesteading credits combined are about a wash... but in our case we already have and plan to keep both properties so it comparing holding two properties and snowbirding in each case... but in once case as a VT resident and the other case as a FL resident.

Since we have been snowbirding for years now and already spend about 6 months in each place it is an easy decision for us as it is ~$4k of savings vs shifting where spend our time by a couple weeks and where we vote, declare homestead, register vehicles, etc. ... not substantive change in our lifestyle.

If the choice was one or the other, then taxes, car registrations, car insurance, etc.would be slightly less than 1/2 in Florida they are in Vermont... but I willingly pay the extra since Florida summers are way too hot and humid for my liking.
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Old 09-27-2020, 08:06 AM   #69
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I don’t see how it is a wash now or ever? I pay nearly 10% in state taxes now. If I move to a 0% income tax state, I save 10% in taxes regardless of what the federal government does. That is one of the reasons I am not converting to a Roth IRA now.
This is something that I fumbled into while doing conversion analysis; I had left off the state tax column in my formula and thought the I struck Roth gold! Then I realized all this shuffling Roth money was peanuts compared to what my BIL is always posting (MTF ... Move To Florida). Where he lives, the state and local taxes and fees and insurance are all about the same as where I live now, so it's all gravy. The problem is that I can't convince DW it's my turn to live near my family (her family is here). My only possibility is in the distant future a DD or two will MTF, then I would be chasing DW across the state line
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Old 09-27-2020, 08:33 AM   #70
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I would hope that for us tax would only be one of many considerations. In northern VA we are far enough from ocean that day trips are not in the cards or not worth it to me. In Fla keys we could fish and spend time on the water when we wanted, enjoy warmer temps in winter, avoid the snow shoveling, and the taxes. Of course we would have to run north in summers which means two trips a year or more, cost of maintaining two homes or a condo fee, lots to consider for us.
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Old 09-28-2020, 07:39 AM   #71
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I’m originally from New England, and fully understand the no desire for 6 months of winter, salt, snow removal, etc. I also lived in Denver & Detroit. I had my fill. Central VA was the compromise. Last 2-3 winters never shoveled once. Air is brisk, not lung collapsing. We get 3-4 weeks of humid hot, weather, where we normally go someplace North or the mountains for getaways. Works for us. But back on topic, DW is from FL, both have family down there, we’ve been there enough to know not for us, so waiting for a move to do conversions ain’t happening. But I can see for sure how that can be a deal maker, if the locations are already set up & in process In my neighbors case, it was planned and well worthwhile, financially. My pension provides a Medigap allowance for both of us for life as long as we purchase through the company broker. That’s an extra almost $3k/yr, so not a factor. And in the very unlikely event I wanted to pick up some nice change by w*rking a project, In an easily make a few calls to my friends still there. Very unlikely at this point.
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