Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 09-08-2021, 08:21 AM   #61
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 48,188
Quote:
Originally Posted by pb4uski View Post
Yup. Math is hard.
Yes, I heard somewhere that numbers is difficult.
__________________
Numbers is hard

Retired in 2005 at age 58, no pension
REWahoo 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 09-08-2021, 08:53 AM   #62
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,721
Quote:
Originally Posted by chassis View Post
@SecondCor521 thanks. I don’t want the last word on anything. I want to bring the ground truth to light on Roth conversions. It’s an element of my own retirement financial planning that I don’t think makes sense for me. I don’t understand how it can make sense for as many people as seem to be in support of Roth conversions on this site and bheads. McQuarrie’s work for me is one small piece of information in a large bucket of information. I briefly read some of his work and moved on.

I have used i-orp, RPM and my own spreadsheet and I don’t see the benefit for Roth conversions. To gain a wider perspective, I have asked HNW, UHNW individuals and a family office trustee (UUHNW families) and none of them are doing Roth conversions for themselves or their clients.

You said you are Roth converting with zero tax, correct? How does that work?
What gets less mention than it should is that whether a Roth conversion makes sense depends a lot of factors - marital status, number of children, life expectancy, relative percentage of assets in traditional IRA, opinion on future tax changes, estate planning approach, the rest of one's tax picture, etc. This is really what you might consider the "ground truth" on Roth conversions: It depends.

People often assume that others' factors are the same and arrive at the conclusion that since Roth conversions make sense (or don't make sense, or are a wash) for them, then this must be true for others. This is a fallacious conclusion based on a faulty assumption.

Roth conversions clearly make a lot of sense for me, given my particular set of factors. I fully accept that they may not make sense for you given your factors. I assume your factors differ, which explains the difference in our conclusions. Fine by me.

I suppose what you see as broad support for Roth conversions here is really a combination of two things: (1) the people here may have similar sets of factors - there are probably a number of us who are in our 50s/60s who are early retired with large traditional IRAs, and (2) there are a few posters who are pretty positive towards Roth conversions who post frequently on the topic (myself and @pb4uski are probably in this group).

And as for me - and I presume @pb4uski as well - I think we're generally saying that Roth conversions make sense for us. We often omit or leave unwritten the part about it may not make sense for others who may be in different situations.

Whether *HNW individuals or their offices are doing Roth conversions or not is perhaps only partially applicable to you or me anyway. Yes, they may be smart, capable people with money, but if their circumstances or goals differ too much from yours or mine, what makes sense for them to do may not make sense for us to do.

And yes, last year I did a low-five figure Roth conversion and had a total tax in the single digits on my Form 1040 line 24.(*) This happened because I had nonrefundable tax credits that almost equaled my tax liability (line 21 was just a little bit less than line 16). My nonrefundable credits included a dependent tax credit, the AOTC, and a residential energy tax credit.

It was that way by design. Every year I do volunteer tax preparation, which gives me access in December to a tax preparation program. I go in there, put in all my numbers, and then do a Roth conversion at the end of December to dial in my income exactly where I want it. The only reason I couldn't get my 1040 line 24 to exactly $0 has to do with the fact that the tax tables are in $50 increments.

Of course, federal income tax isn't the whole story. In my case, state income tax, ACA subsidy effects, and FAFSA EFC effects are part of the strategy as well.

(*) Which, I just realized, means I didn't actually pay zero federal income tax. I paid 0.012% federal income tax. Perhaps I rounded in my other post - rounding 1.2 basis points to zero seems OK in the larger context - I didn't want the forest to get lost for the trees.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 09-08-2021, 08:15 PM   #63
Recycles dryer sheets
 
Join Date: May 2010
Posts: 130
Similar here. $25k negative income on rental property. Convert $50k to create $25k positive income for max ACA subsidy but effectively zero tax
captain3d is offline   Reply With Quote
Old 09-09-2021, 07:25 PM   #64
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: 30,144
Quote:
Originally Posted by RetiredHappy View Post
That is how I look at it. Convert to ROTH now or not does not make a significant difference. So instead of messing with it now, I will worry about IRA taxes when they hit me. For estate planning, I plan to use disclaiming part of IRA inheritance to pass a part of the IRA to other beneficiary(ies) who maybe in a lower tax bracket. Problem solved!
It's very situational.

Where it does make a significant difference is where with SS, pensions and taxable account income you are near the top of the 12% tax bracket so RMDs push you into the 22% tax bracket so RMDs are taxed at 22% where you could have earlier converted at 0%, 10% or 12% or combinations thereof and you failed to do so because you stupidly thought that it doesn't make a significant difference.

Now if before RMDs you are near the top of the 22% tax bracket and RMDs push you into the 24% tax bracket and are taxed at 24% then you're right.

But there are a lot of people in the first category where it does make a significant difference.
__________________
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 offline   Reply With Quote
Old 09-09-2021, 07:58 PM   #65
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Location: St. Charles
Posts: 2,960
A few random thoughts on the topic:

- pb4uski has provided a mountain of evidence on the benefits of conversions. His post years ago are what started me on the path.

- conversions are NOT a game changer. I can't think of any way conversions will help if your portfolio does not currently support your spending

- while conversions may not ultimately be very beneficial to some, there are very few downsides. I guess the biggest would be if you converted at market highs, the market dropped a lot, and then never recovered. You can make up your own minds on the probability of that possibility.

- Roth IRA's are one of the most tax efficient ways to pass an inheritance.

- you don't need to convert everything. Going into high tax brackets may not make sense

- conversely, going into higher brackets might make sense if you can stay below the IRMAA brackets, if only for a few years, when RMD's start (ultimately they will bite any one with a large tIRA, unless you die before they kick in)

Finally, there is no one size fits all answer. As pb4uski said, "It's very situational."
__________________
If your not living on the edge, you're taking up too much space.
Never slow down, never grow old!
CardsFan is offline   Reply With Quote
Old 09-10-2021, 07:53 AM   #66
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: 30,144
Thanks, CardsFan. I'm less concerned about the:
Quote:
Originally Posted by CardsFan View Post
... if you converted at market highs, the market dropped a lot, and then never recovered. You can make up your own minds on the probability of that possibility. ...
When I convert I usually sell ticker XXX in my tIRA and buy ticker XXX in my Roth so it is as if I held ticker XXX the whole time.... I do this because I don't want the conversion to change my AA.

The taxes are paid by increased withholdings from my pension since I can do those over the year despite the bulk of my Roth conversions being done in January with a top-up in December.
__________________
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 offline   Reply With Quote
Old 09-10-2021, 08:53 AM   #67
Recycles dryer sheets
 
Join Date: Jul 2020
Posts: 173
Something else that Roth gives you is flexibility. Say you have/want to make a large purchase in the future, either for health problems, that perfect vacation house, that dream car or other BTDs. With Roth money you'll have the ability to do so without going into the next tax bracket, say from 22/24 to 34 (or whatever they happen to be in the future). All other things being equal, why not give yourself that flexibility in the future?
cat4ever is offline   Reply With Quote
Old 09-10-2021, 08:56 AM   #68
Thinks s/he gets paid by the post
 
Join Date: Sep 2014
Location: The Great Wide Open
Posts: 2,852
Quote:
Originally Posted by pb4uski View Post
Thanks, CardsFan. I'm less concerned about the:


When I convert I usually sell ticker XXX in my tIRA and buy ticker XXX in my Roth so it is as if I held ticker XXX the whole time.... I do this because I don't want the conversion to change my AA.

The taxes are paid by increased withholdings from my pension since I can do those over the year despite the bulk of my Roth conversions being done in January with a top-up in December.
Fidelity allows me to do in kind transfers for not only conversions, but also for RMDs. We did a conversion this year because of a rental sale, and my mom does the RMDs.
__________________
Give me Liberty or give me Death. Patrick Henry
Winemaker is offline   Reply With Quote
Old 09-10-2021, 08:59 AM   #69
Recycles dryer sheets
 
Join Date: Jul 2020
Posts: 173
Quote:
Originally Posted by pb4uski View Post
The taxes are paid by increased withholdings from my pension since I can do those over the year despite the bulk of my Roth conversions being done in January with a top-up in December.
Interesting. And yet another reason to take a pension instead of a lump sum. This kind of math can get very hard
cat4ever is offline   Reply With Quote
Old 09-11-2021, 04:06 PM   #70
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: 30,144
Quote:
Originally Posted by Winemaker View Post
Fidelity allows me to do in kind transfers for not only conversions, but also for RMDs. We did a conversion this year because of a rental sale, and my mom does the RMDs.
I could do an in kind transfer of the same ticker but I can do the exchange with just a few clicks and I don't have to call, so it's actually easier.
__________________
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 offline   Reply With Quote
Old 09-12-2021, 02:05 PM   #71
Full time employment: Posting here.
 
Join Date: Jan 2016
Posts: 771
I may have asked this here before- I really can't remember.



But why not just withdraw money from your Traditional IRA's while you are waiting to collect SS at age 70 instead of doing the Roth conversions? Doesn't it attain the same result- lowering your balances in Traditional IRA's and therefore lowering your RMDs?
meleana is offline   Reply With Quote
Old 09-12-2021, 02:20 PM   #72
Recycles dryer sheets
 
Join Date: Jul 2014
Location: Undisclosed
Posts: 369
Quote:
Originally Posted by meleana View Post
I may have asked this here before- I really can't remember.

But why not just withdraw money from your Traditional IRA's while you are waiting to collect SS at age 70 instead of doing the Roth conversions? Doesn't it attain the same result- lowering your balances in Traditional IRA's and therefore lowering your RMDs?

Before age 59.5, there can be a 10% tax penalty for withdrawing from an T-IRA but not for doing a Roth Conversion.
After age 59.5, if you have enough money in a taxable account to live on and pay the taxes on the withdrawal or Roth conversion, then the Roth conversion has a slight advantage. By paying the taxes from the taxable account, you are basically moving the taxes on the IRA into a Roth that will never be taxed again under the current rules. By spending the taxable instead of the IRA, you are reducing future distributions from the taxable account. Distributions from taxable accounts add to one's AGI whereas Roth earnings do not add to AGI. If these taxable distributions push you above (or if you are already above) the 12% tax bracket you will owe more taxes on the larger taxable distributions so the Roth conversion and spending from taxable saves you some tax money.
N02L84ER is online now   Reply With Quote
Old 09-12-2021, 02:36 PM   #73
Full time employment: Posting here.
 
Join Date: Jan 2016
Posts: 771
Quote:
Originally Posted by N02L84ER View Post
Before age 59.5, there can be a 10% tax penalty for withdrawing from an T-IRA but not for doing a Roth Conversion.
After age 59.5, if you have enough money in a taxable account to live on and pay the taxes on the withdrawal or Roth conversion, then the Roth conversion has a slight advantage. By paying the taxes from the taxable account, you are basically moving the taxes on the IRA into a Roth that will never be taxed again under the current rules. By spending the taxable instead of the IRA, you are reducing future distributions from the taxable account. Distributions from taxable accounts add to one's AGI whereas Roth earnings do not add to AGI. If these taxable distributions push you above (or if you are already above) the 12% tax bracket you will owe more taxes on the larger taxable distributions so the Roth conversion and spending from taxable saves you some tax money.

Thanks.


Right now we are 65 and 67 and living off cash in bank accounts. We do also have a brokerage account with mostly tax efficient bond funds and 2 stock funds (dividend and value).
meleana is offline   Reply With Quote
Old 09-12-2021, 03:30 PM   #74
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: 30,144
Good answer by N02L84ER above. We are in similar situation to meleana... lots of taxable account money to use for spending and paying Roth conversion taxes... so I prefer Roth conversions over spending tIRA withdrawals... I want to get as much as possible into tax-free Roth at a reasonable tax cost.
__________________
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 offline   Reply With Quote
Old 09-12-2021, 03:52 PM   #75
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,382
Quote:
Originally Posted by meleana View Post

But why not just withdraw money from your Traditional IRA's while you are waiting to collect SS at age 70 instead of doing the Roth conversions? Doesn't it attain the same result- lowering your balances in Traditional IRA's and therefore lowering your RMDs?
Capital gains and dividends in a Roth are not taxable, but are in your taxable account where it would go if you withdrew.
RunningBum is offline   Reply With Quote
Old 09-14-2021, 04:47 PM   #76
Recycles dryer sheets
GoodWishes's Avatar
 
Join Date: Jul 2013
Posts: 154
Looked into Roth conversion a couple years ago. Based on our situation, it didn't seem to worth the trouble. Might look into it again some day.
GoodWishes is offline   Reply With Quote
Old 09-14-2021, 04:57 PM   #77
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 11,382
Quote:
Originally Posted by GoodWishes View Post
Looked into Roth conversion a couple years ago. Based on our situation, it didn't seem to worth the trouble. Might look into it again some day.
Other than showing that conversions aren't for everyone, which I don't think is in dispute, this really doesn't help anyone. A short description of your situation and why there apparently is little or no gain would be helpful. Are you still working? Already taking SS and RMDs? Is your income bracket as high as you expect it to be when RMDs start? And what is the "trouble" you see with doing conversions?
RunningBum is offline   Reply With Quote
Old 09-14-2021, 07:03 PM   #78
Recycles dryer sheets
 
Join Date: Aug 2013
Location: Pebble Beach & Cocoa Beach
Posts: 274
There are a couple of IRA>ROTH conversion calcs online that will determine if it is worth it or not. Found that it was a toss up for me, and didn't want to hassle with it after that.
gooddog is offline   Reply With Quote
Old 09-15-2021, 04:50 AM   #79
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: 30,144
Care to provide a couple links to the online calculators that you used?
__________________
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 offline   Reply With Quote
Old 09-15-2021, 05:45 AM   #80
Recycles dryer sheets
 
Join Date: Feb 2019
Posts: 102
Quote:
Originally Posted by Markola View Post
Doing nothing is often the best course, when it comes to money and investing. Since I donít anticipate being in a higher bracket later in life, I see no advantage to Roth conversions now. YMMV.
So you are single? What I have seen is that people often forget that when one spouse dies the other falls into the higher tax bracket just from going from joint to single. One of the largest benefits of roth conversions is if one can do it while both spouses are living and while in a lower tax bracket.
Paulz 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
Roth Conversion - not worth it? dixonge FIRE and Money 11 03-01-2020 12:50 AM
Roth IRA conversion not worth is because higher SS tax ? Delawaredave5 FIRE and Money 14 12-30-2016 04:21 PM
Can I do a Roth IRA conversion if my AGI is over the Roth limit? starsfan18 FIRE and Money 20 01-03-2012 03:39 PM
Roth - Traditional - Roth Conversion??? CorporateSoldier FIRE and Money 4 03-10-2011 10:07 PM
Strategy for Roth 401k to Roth IRA conversion and withdrawals sweng85 FIRE and Money 9 04-21-2009 10:28 PM

» Quick Links

 
All times are GMT -6. The time now is 09:41 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.