Looking for advice on Roth conversion

[pb4uski]

^^^ No taxable account purchase lots with a greater than $300 loss?

[rkser]

I am preparing my taxes by myself for the first time, not using a CPA anymore.

I am curious how you prepare your yearly taxes ? Do you use Tax Prep Software, which one ? or hire a CPA ?

How do you do yearly tax planning eg Roth Conversions, Tax Loss Harvesting, etc ?


Thanks

[Sunset]

Quote:

Originally Posted by RetireBy90 I am about $300 into next Level of IRMAA due to some assets I inherited this year, so I figure probably best to add some to my conversion this year since I’m already over the line.

You can't make some loss, by selling some stock ??
$300 is a small hurdle.

[SecondCor521]

Quote:

Originally Posted by rkser I am preparing my taxes by myself for the first time, not using a CPA anymore. I am curious how you prepare your yearly taxes ? Do you use Tax Prep Software, which one ? or hire a CPA ? How do you do yearly tax planning eg Roth Conversions, Tax Loss Harvesting, etc ? Thanks

See this thread for what people seem to be using (TurboTax and H&R Block are popular I think):

http://www.early-retirement.org/foru...re-100896.html

As for tax planning, I have a number of Excel spreadsheets that I use to help with some calculations, but I do it mostly manually. Some people use online tools like iorp or income strategies.

[Dalmore]

With all the talk about Roth conversions, I have a question:

If I am 58 and don't have an Roth account and make a Roth conversion, that money is locked up for 5 years. If on the other had, I have a Roth account that was created when I was in my 40s, the money from that Roth conversion is available at 59 1/2.

[RunningBum]

Quote:

Originally Posted by Dalmore With all the talk about Roth conversions, I have a question: If I am 58 and don't have an Roth account and make a Roth conversion, that money is locked up for 5 years. If on the other had, I have a Roth account that was created when I was in my 40s, the money from that Roth conversion is available at 59 1/2.

https://fairmark.com/retirement/roth...ra-conversion/
seems to indicate that you can withdraw after penalty after 59 1/2 even if you haven't satisfied the 5 year rule.
https://fairmark.com/retirement/roth...distributions/ is the starting page for Roth distributions.

[Midpack]

Quote:

Originally Posted by rkser I am preparing my taxes by myself for the first time, not using a CPA anymore. I am curious how you prepare your yearly taxes ? Do you use Tax Prep Software, which one ? or hire a CPA ? How do you do yearly tax planning eg Roth Conversions, Tax Loss Harvesting, etc ? Quote: Originally Posted by SecondCor521 See this thread for what people seem to be using (TurboTax and H&R Block are popular I think): http://www.early-retirement.org/foru...re-100896.html As for tax planning, I have a number of Excel spreadsheets that I use to help with some calculations, but I do it mostly manually. Some people use online tools like iorp or income strategies.

I've used TurboTax for about 15 years and been very happy with it, not that there's anything wrong with others. TurboTax offers an interview style so you just answer questions and it prompts you for data, it uses all forms necessary for your situation and fills them out in the background. You can see any and all forms any time, or fill them in manually if you like. TurboTax can upload all your tax info from brokerages, banks, etc. IF you choose as well, or you can fill them in manually. TurboTax is highly evolved IME.

As for tax planning I have an Excel spreadsheet I use, but I use TurboTax for next year tax planning as well. E.g. I have my 2018 tax return file in TT2018, and another file that's my 2019 estimated return based on this years income. Not exactly right, but it's easy enough to look up changes in the tax law and account for those. If nothing else, a good way to double check any spreadsheet you develop - if your spreadsheet results are substantially different than TurboTax, you probably have a miscalc in your spreadsheet...

[RetireBy90]

Quote:

Originally Posted by Sunset You can't make some loss, by selling some stock ?? $300 is a small hurdle.

Started looking at that this morning. I may have some carryover losses from previous years.

[rkser]

WHEN do Vanguard Mutual Funds make their final dividend distributions ??

Is there a way to find their timeline, would we have enough time to make some Roth Conversions before the year end ? How can I find out the dates ?

Using the Turbo Tax 2019, in trying to project the year end Income & taxes, we have to make assumptions about the projected dividends & other calculations.
I am getting close to the higher margin of 22% Tax Bracket & MAGI is getting too close for comfort of the IRMAA line.

How do you (or would you) project reasonably close year end income ? Any pointers ?

Thanks in advance

[Gumby]

Quote:

Originally Posted by rkser WHEN do Vanguard Mutual Funds make their final dividend distributions ?? Is there a way to find their timeline, would we have enough time to make some Roth Conversions before the year end ? How can I find out the dates ? Using the Turbo Tax 2019, in trying to project the year end Income & taxes, we have to make assumptions about the projected dividends & other calculations. I am getting close to the higher margin of 22% Tax Bracket & MAGI is getting too close for comfort of the IRMAA line. How do you (or would you) project reasonably close year end income ? Any pointers ? Thanks in advance

This might help. It is from the Vanguard website.

http://www.vanguard.com/pdf/FA116120_112019.pdf

[SecondCor521]

Quote:

Originally Posted by rkser WHEN do Vanguard Mutual Funds make their final dividend distributions ?? Is there a way to find their timeline, would we have enough time to make some Roth Conversions before the year end ? How can I find out the dates ? Using the Turbo Tax 2019, in trying to project the year end Income & taxes, we have to make assumptions about the projected dividends & other calculations. I am getting close to the higher margin of 22% Tax Bracket & MAGI is getting too close for comfort of the IRMAA line. How do you (or would you) project reasonably close year end income ? Any pointers ? Thanks in advance

I asked Vanguard about this about a week ago. They said they would publish the dates for their December dividends tomorrow (12/10) at the following URL:

https://investornews.vanguard/mark-y...stributions-3/

I personally keep a list throughout the year of all of my taxable sources of income. In December, I go around and get those numbers myself.

Since I own a Vanguard fund in a taxable account, I wait until it distributes it's last dividend in December. I then figure out and make the Roth conversion that I want to make. Since the Vanguard dividend is usually before Christmas, I have time to make the Roth conversion.

I do my transactions as soon as I reasonably can; I'd rather not leave a conversion to the last day or two, even if that is technically feasible.

Also, since my traditional IRA is in Vanguard mutual funds and Roth conversions are done at the end of day prices, I usually do my Roth conversions in two steps. I do the first one to get about 90% or 95% of the amount converted, then the next one I do the rest. This way I can fine tune the second conversion and get my target a little closer.

Finally, since we can no longer do recharacterizations and I am converting up to a cliff, I usually leave myself short of the cliff by a bit because the consequences for going over the cliff by $1 are way worse than the consequences of being short of the cliff by $200 or whatever.

[rkser]

Thanks SecondCore & Gumby for your helpful input -

My & DW Mutual Funds are not mentioned on the List, they are -

1) VTSAX - Total Stock Market Index Fund Adm.

2) VTIAX - Vanguard Total International Stock Index Fund Adm.

3) VWIUX - Vanguard Intermediate-Term Tax-Exempt Fund Adm.

4) VBTLX - Vanguard Total Bond Market Index Fund Adm.

5) VTABX - Vanguard Total International Bond Index Fund Adm.

6) VTMGX - Vanguard Developed Markets Index Fund Adm.

I wonder what this means, They will not be distributing or they may be in the list coming out tomorrow.

From your post I gather there is enough time to do the Roth Conversions before the year end.

I am new at this Roth Conversion game & am doing my taxes by myself for the first time, please help me understand this a little better.

Thanks again

[SecondCor521]

The list that Gumby posted was for capital gains distributions. That applies more to active funds; doesn't look like you own too many of those.

The list that Vanguard will publish tomorrow is for dividend distributions. These are generally paid quarterly. These will apply to index funds like VTSAX I'm sure, and probably VTIAX and VTMGX.

I think VBTLX pays interest at the end of every month. I'm not sure if it'll be in the list tomorrow or if you're just supposed to know that it pays interest at the end of every month. VWIUX and VTABX are probably in this category as well?

What you could do is go to each fund's individual fund page at Vanguard and look at the historical distributions over the last few years to get an idea of what each fund normally does. Here is the one for VTSAX as an example: https://investor.vanguard.com/mutual...ibutions/vtsax. That should at least tell you what to expect for each of your funds.

I know there's enough time for Roth conversions for me, because I just have VFIAX in a taxable account and I can wait for that distribution to take place. Some of the funds you own might distribute closer to the end of the year (especially the bond funds), so for those you might just have to rely on the estimated dates and amounts from Vanguard.

[RunningBum]

Quote:

Originally Posted by rkser Thanks SecondCore & Gumby for your helpful input - My & DW Mutual Funds are not mentioned on the List, they are - 2) VTIAX - Vanguard Total International Stock Index Fund Adm. 5) VTABX - Vanguard Total International Bond Index Fund Adm.

Be ware of these funds. The estimate they give you, and what you're going to receive, is the dividend after foreign taxes are paid. But on the 1099-DIV, the foreign taxes are part of your income. For VTIAX, this typically increases the dividend by about 7%. I'm not sure about VTABX and possibly it doesn't behave this way but I'd guess it does. So multiply the dividends you've received all year by 1.07 to get the actual dividend amount that'll be reported on 1099. For a safety buffer, I use 1.08.

[pb4uski]

+1 you need to gross up the amount you received for an estimate of foreign taxes paid and 7-8% is about what it averages.

[rkser]

Vanguard did not have the Year End Dividend/Cap Gain Estimates out today as scheduled.

They say maybe tomorrow, I am waiting.

[SecondCor521]

Quote:

Originally Posted by rkser Vanguard did not have the Year End Dividend/Cap Gain Estimates out today as scheduled. They say maybe tomorrow, I am waiting.

Yes they did. See here:

http://www.early-retirement.org/foru...ml#post2336716

[allan21]

I'm not sure I'm posting correctly. I have a different question that is pertinent to this thread. I'm 65 and doing yearly Roth conversions to the top of the 22% bracket I don't have any non-IRA money to pay the taxes on the conversions, so I'm paying the tax with money from the conversion or Roth IRA money that has already been converted.
* is there any advantage to either method?

Converting to the top of the 22% bracket will not allow me to convert all of my non-roth IRA. I don't mind going into the 24% bracket but I'll still have to pay the taxes with money from the conversion or previously converted Roth money. When it comes time for RMD is is unlikely that my income will go into the 32% bracket.
* Does it make any difference if I pay 24% on the yearly conversions or pay 24% on the RMD amount?

I realize I don't know what the tax brackets will be in the future but I'm guessing the lower brackets will not be drastically higher.

[kgtest]

Quote:

Originally Posted by allan21 I'm not sure I'm posting correctly. I have a different question that is pertinent to this thread. I'm 65 and doing yearly Roth conversions to the top of the 22% bracket I don't have any non-IRA money to pay the taxes on the conversions, so I'm paying the tax with money from the conversion or Roth IRA money that has already been converted. * is there any advantage to either method? Converting to the top of the 22% bracket will not allow me to convert all of my non-roth IRA. I don't mind going into the 24% bracket but I'll still have to pay the taxes with money from the conversion or previously converted Roth money. When it comes time for RMD is is unlikely that my income will go into the 32% bracket. * Does it make any difference if I pay 24% on the yearly conversions or pay 24% on the RMD amount? I realize I don't know what the tax brackets will be in the future but I'm guessing the lower brackets will not be drastically higher.

I was told you always want to try and avoid paying the tax from the conversion. You would effectively reduce your principle, increase the basis etc. IF you had cash, you could just pay using EFTPS via a quarterly tax payment, protecting more of your principle and allowing that extra little bit you didn't need to use to pay taxes to grow tax free.

[RetireBy90]

Quote:

Originally Posted by allan21 I'm not sure I'm posting correctly. I have a different question that is pertinent to this thread. I'm 65 and doing yearly Roth conversions to the top of the 22% bracket I don't have any non-IRA money to pay the taxes on the conversions, so I'm paying the tax with money from the conversion or Roth IRA money that has already been converted. * is there any advantage to either method? Converting to the top of the 22% bracket will not allow me to convert all of my non-roth IRA. I don't mind going into the 24% bracket but I'll still have to pay the taxes with money from the conversion or previously converted Roth money. When it comes time for RMD is is unlikely that my income will go into the 32% bracket. * Does it make any difference if I pay 24% on the yearly conversions or pay 24% on the RMD amount? I realize I don't know what the tax brackets will be in the future but I'm guessing the lower brackets will not be drastically higher.

I'm no expert and so please apply a grain of salt here,

However if you convert say $10,000 and have 24% withheld, you get total of $7,600 added to Roth. If you convert $10,000 and pay with a distribution of $2,400 from your Roth then you have same amount in the Roth and tax liability from the conversion should be the same. Maybe someone can help us but I see it as the same outcome.