feeling like a roth is a waste now

[noppenbd]

I wonder if a future Congress might start counting Roth withdrawals as "other income" for purposes of figuring the amount of Social Security that is taxable. Kind of a sneaky back door way of taxing them.

[pb4uski]

Quote:

Originally Posted by noppenbd I wonder if a future Congress might start counting Roth withdrawals as "other income" for purposes of figuring the amount of Social Security that is taxable. Kind of a sneaky back door way of taxing them.

Pretty irrelevant for most of us since 85% of SS will be taxable based on income before any consideration of Roth withdrawals as income.

[imnontrad]

Well, I would be that if Roth withdrawals were used to determine how much of SS was taxable, all the accounts will be emptied the day before that would take effect.

[Sanbenito1]

Seems it would be difficult to change the rules on the Roth retroactively, given that we’ve already paid taxes on it. Still, our politicians are a sneaky bunch of bottom-feeders, so good to keep an eye on them in case you need to withdraw your Roth before they pull any tricks. They did just pull the rug on us regarding inherited IRAs

[Time2]

Quote:

Originally Posted by Andre1969 I found this statistic on the Motley Fool's website... Just over 13,000,000 taxpayers contributed to IRAs in 2015, the most recent year for which complete data is available. 4,305,106 contributed to traditional IRAs (33%) 1,093,512 contributed to SEP-IRAs (8%) 1,865,777 contributed to SIMPLE IRAs (14%) 6,363,335 contributed to Roth IRAs (49%)

I'm rather disappointed in those numbers, and it's probably worse, because people that contribute often use more than one of those at a time.
Mikek

[Doc0]

I'm living on cash and doing partial Roth conversion to get my TIRA down to about 500K. 500K will grow slow enough to keep me in the 12% (or 15%) ordinary income bracket when added to SS for 15 years or more, and cap gains from my brokerage sales will be zero. So I'll live on SS, RMD, brokerage up to the top of zero cap gains and add a little dab of Roth money and my taxes will be based on SS + a small RMD ordinary income. The bulk of my wealth will be in Roth and brokerage, paid out tax free. My conversions are at a rate that converts enough to get me down to 500K TIRA, but optimizes IRMAA and taxes over the course of 5 (now 7) years.

I won't hit the Roth very hard and let it grow as end of life insurance, and later as inheritance if any is left. If I get a big medical bill or something I'll spend down the TIRA if the amount reaches the tax free threshold else I'll spend down the Roth as needed for something like 24/7 memory care or the occasional new car.

The chances of Alzin are 1/10 at 60 but 1/3 at 85 so that gives the Roth 25 years to compound relatively unmolested and free from SORR since I'm not withdrawing from it, as the risk of needing it continually increases in old age. I think the added hedge for end of life care is worth the Roth conversion hassle for the opportunity to compound an extra 25 years completely tax free. I've already converted 80% for this year and I'll convert the rest in Dec. If the market crashes I will still convert the same cash amount. In other words if my conversion is 100K/yr and my portfolio is 2M and the market falls in half I'll still convert 100K because the effect is I can transfer more property for the same tax dollar. 100k/2M = a 5% conversion at say an $8500 tax bill but if the market dumps in half my conversion will be 100K/1M or a 10% property transfer for the same $8500 tax bill. I'm also converting my riskiest assets first and leaving my less risky assets in the TIRA for later conversion, over the years of conversion. This way if the market does well (as it has done), the riskiest assets are already in the Roth compounding tax free and the less risky assets are compounding at a slower rate and thus generating a smaller overall tax load when they do get called up in the que for conversion.

One you make a plan, Roth conversion is a 10 minute per year proposition. Hardly constitutes any hassle. I've been pulling money out of the brokerage to turn into cash to live on, on a buy low sell high basis and I've been writing off those taxes using tax loss harvest from 2000 and 2008 crashes. I'm letting SS ride to age 70 to get the max compounding on that annuity till I pull the trigger. so during conversion I'm living off sales of brokerage stock + cash loss harvest (essentially using the brokerage as a Roth) and upon pulling the trigger on SS and RMD my income will be SS + a small RMD for a small tax bill, some brokerage at 0% cap gain to fill in the cracks and the Roth for pin money or a new car or a big wad in case of disaster.

[pb4uski]

^^^^ My plan is fairly similar. Once we have become FL residents and are no longer subject to state income taxes on Roth conversions I'll get real aggressive with Roth conversions for about 5 years..... to the top of the 22% tax bracket. Then once I start SS at 70, I'll back down to about 28% into the 22% tax bracket annually to try to drain my tIRA by the time I'm 90.... from age 72 on it will be a combination of RMDs and Roth conversions..... at age 90 I should be about 17% taxable accounts in equities that will get a stepped-up basis and 83% in tax-free Roths.

In the initial phase I'll be paying about 16-17% of the amount converted and in the second phase I'll be paying 12-15% of the RMD and amount converted. Given that the income was deferred at much higher marginal rates.... 28%+ later in my career... so I'm happy that I decided to defer. The cherry on top is that I avoided ~5% state income tax so the savings have been even better.... in total ~33% when deferred vs 12-17% when converted/withdrawn.

What could disrupt my plan is if investment results exceed my assumptions, but I can then make mid-course adjustments to still have the tIRA drained by the time I'm 90.

And as Mike Tyson said "everyone has a plan until they get punched in the mouth".

[LRDave]

Quote:

Originally Posted by Doc0 My conversions are at a rate that converts enough to get me down to 500K TIRA, but optimizes IRMAA and taxes over the course of 5 (now 7) years.

Thanks for providing your tIRA target value after conversion. This matches my back-of-the-napkin calculation and I'm glad to see another here coming to a similar conclusion.

[Doc0]

Good plan. I decided to keep my least risky assets in the TIRA so it's mostly bonds with a small stock part, about a 15/85 ratio, with an expected return of 5%. This will grow slowly and essentially turns the TIRA into a quasi inflation adjusted annuity because of the progression of the RMD schedule. Because it's small and a slow grower it throws off very predictable money but it wont RMD me into 22% for a long time about 15-17 years. By then I'll likely be dead. In a down turn since it's mostly bonds the chances of loss are small. In a 15/85 if the 15 drops in half you still have a 7.5/85 still capable of providing the majority of the expected annuity income plus you can re-balance as necessary. After the initial SORR danger period the annuity becomes essentially bullet proof. I have multiple durations in the bonds. Smart move on deferring state taxes. I already live in FL so I tax arbitraged 30 years ago moving from IL, so I have 30 years of DCA tax arbitrage already compounded somewhere in that mix I do have a plan for the widow tax, by then the Roth should have grown substantially and should easily support the tax increase on my wife when I kick the bucket as well as whatever end of life care she requires.

The solution to the punch in the mouth is DUCK!

[Time2]

Please define SORR.
Thanks

[Doc0]

I look at at the mean fido TIRA and it worked out to be around 500-600K. I then worked the tax code and found despite the rhetoric, the tax code is completely designed to soak the rich, so the idea was to turn myself into something tax wise that looks very plain vanilla SS + small TIRA in terms of my ordinary income. To the top of the 12% is the best you're going to do from a maximum tax efficiency perspective. After the top of the 12% the government considers you rich and therefore quite liable for a good soaking.

[braumeister]

Quote:

Originally Posted by Time2 Please define SORR. Thanks

Sequence Of Returns Risk
Standard Acronyms You May Find on the Forum

[capjak]

Per current Law:

2020-2025 tax rates are lower than
2026-forward

So I am thinking it may be better to convert sooner than later...

[Ferd]

Quote:

Originally Posted by badatmath since the passage of the secure act I am feeling a little like the roth will change down the road too and why bother. . . Is it hard for the rest of you to stick to the original game plan?

I don't see them taxing a Roth, that would amount to double taxation. So if they can't tax it then why would they care how long you keep it?



So I'm doubling down on Roths. 100% of my 401k is going to Roth this year and I plan on starting IRA conversions to Roth this year as well. I'm less than 2 years away from retirement and want to get a lot of money converted before I start taking SS. I hope to leave a fair amount of Roth money in my estate.

[truenorth418]

I will continue doing Roth conversions as I am in a low(er) bracket situation currently and I like the flexibility that comes with more money across the various account types.

But.... I don’t share the conviction that our politicians will not change the Roth tax rules in the future. They just changed the Roth inheritance rules. A couple of years ago they eliminated two Social Security claiming strategies (restricted application and file/suspend).

Seems to me that they make these retroactive changes all the time. All the more reason to diversify your options.

[BeachOrCity]

The key is tax diversification so you can optimize your drawdown based on the law and your needs at the time you need the money.

[ncbill]

Quote:

Originally Posted by Ferd I don't see them taxing a Roth, that would amount to double taxation. So if they can't tax it then why would they care how long you keep it? So I'm doubling down on Roths. 100% of my 401k is going to Roth this year and I plan on starting IRA conversions to Roth this year as well. I'm less than 2 years away from retirement and want to get a lot of money converted before I start taking SS. I hope to leave a fair amount of Roth money in my estate.

I can see Roth withdrawals being taxed in some way...but only if your other income is "too high" e.g. you pay more in Medicare premiums.

Our entire tax system here in the U.S. is setup to track and tax based on income, not assets.

So I figure those of us who can "manage" their annual mAGI to be low enough won't be affected regardless of how much they have in a Roth.

And that's easier for those of us in a MCOL/LCOL area versus those who choose to stay in or retire to HCOL/VHCOL areas.

[Out-to-Lunch]

Quote:

Originally Posted by Jeb-NY I consider our ROTH as the source for money we will need if either or both have to go into long term care. That way we will not go into a higher tax bracket just to spend it on our care.

I take just the opposite view. Likely, your LTC medical expenses would be tax-deductible (above 7.5% AGI). So you would get a deduction that would largely wipe out the tax burden due to TIRA withdrawals. So my plan (like Doc0's) is to convert/spend the TIRA down to about $500k, then keep that in tax-deferred for possible LTC expenses.

[RunningBum]

Quote:

Originally Posted by BeachOrCity The key is tax diversification so you can optimize your drawdown based on the law and your needs at the time you need the money.

I don't agree. That may be the result, but it's not the key. While you are working, you want to defer income as much as possible. In retirement, you'd like to have as much tax-free as possible. The balance between the two often leads to tax diversification, but that doesn't make it a goal.

[jollystomper]

Quote:

Originally Posted by BeachOrCity The key is tax diversification so you can optimize your drawdown based on the law and your needs at the time you need the money.

I agree with this. All the modeling I did showed that, assuming tax rates stayed the same, Roth conversions are a wash for me. But that is a big assumption. Then factor in, as a couple, the surviving spouse's tax rate, and having a Roth just makes more sense, if for nothing else diversification.