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Old 11-19-2019, 01:31 PM   #241
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I apologize if that was mentioned already - I did go through the entire thread but forgot some details: does Income Strategy have access to my banks/brokerages/CC accounts logins and can update dynamically if I'm subscribed to it? I just watched a demo for the Right Capital software and unless I missed something it requires manual input. A drag. Another thing: of all the financial tracking websites (Personal Capital, Mint etc. my favorite is Fidelity Full View - powered by eMoney - it looks clean and tracks individual holdings within accounts, a great help if you're looking for rebalancing suggestions. Provided Income Strategy can pull the data from outside sources, would that include holdings or just totals?
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Old 11-19-2019, 01:36 PM   #242
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Yes, Income Strategy can link to your investment accounts... or you can enter in tickers and counts or aggregate amounts.
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Old 11-20-2019, 11:31 AM   #243
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That was my first and biggest reservation as well. IMO no one in their right might would wholesale sell all their holdings and buy other holdings (some in the same asset classes), much less in one fell swoop - the cap gains tax hit is mind boggling of course.

It took me almost two weeks to figure out how to stop that “feature,” so I can save you some time, though there may be a better way.

Sounds like you have your initial profile, inputs and settings done.

Go to Manage>Investment Management. You'll see four top level options - Premium, Vanguard, Custom and None. Just choose None and your holdings will remain as is throughout your retirement, only selling to meet spending, tax and distribution-conversions $ needs if any.

That's still not ideal, but it stops the silly first year cap gains taxes.

FWIW.
I signed up for the $20 Income Strategy and have been playing around with it for a couple of days. I have inputted my assets and straightened out some of them. I followed your Settings from one of your previous posts. I tried the Investment Management - None - but still end up with the crazy first year excessive capital gains. What I did find was that by changing the Setting from rebalancing Annually to Never, I was able to greatly reduce the first year capital gains.

I have 1/3 assets in taxable and pretty much 2/3 in TIRA. I do have a relatively small Roth. I have 4 years until Medicare and I am looking at Cobra for next year and then 3 years of ACA tax credits. I am in pretty good shape with cash to keep my MAGI below $65k for my wife and I. My debate is what to do next year in terms of Roth conversion or depleting an Inherited IRA in order to make more room under the $65k. I am also debating whether it is better to do Roth conversions in lieu of the ACA tax credit.

I was considering having one of the $125 sessions with one of the Income Strategy experts but from everything I know/read, the math says to do big early Roth conversions but the mind says no way. I'm curious as to what they will say, I just don't know if it will really make that much of a difference in the long run.
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Old 11-21-2019, 07:03 AM   #244
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I just don't know if it will really make that much of a difference in the long run.
I do not see how it could make a difference in the long run.

The IRS has a claim on X% of your IRA. It's either X% of your account today, or X% of the (presumably grown) account in the future.
Either way, your after-tax account value in the future will be the same.

Paying the tax on a conversion with outside money doesn't change this. It's just adding money to the account and pretending that you didn't add money.
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Old 11-21-2019, 07:14 AM   #245
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I do not see how it could make a difference in the long run.

The IRS has a claim on X% of your IRA. It's either X% of your account today, or X% of the (presumably grown) account in the future.
Either way, your after-tax account value in the future will be the same.

Paying the tax on a conversion with outside money doesn't change this. It's just adding money to the account and pretending that you didn't add money.
If tax rates stay the same you’re probably right, but I don’t think there’s any chance they’ll stay the same. The more confiscatory they become in the long run, the more you could save in taxes and increase your final ending balance. In addition (from a previous post of mine in another thread):

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I just went through all this, and I think the advice above is sound. But even if your ending portfolio value doesn’t change much with or without Roth conversions, there are other reasons to consider conversions:
  • You think tax rates will increase for your bracket at withdrawal time.
  • A Roth has advantages for your heirs to inherit.
  • The extra income from RMDs of a traditional IRA will push you into higher tax Brackets.
  • If one spouse dies, traditional IRA RMDs would push the remaining spouse to a higher bracket.
  • Phaseouts and benefits based on AGI and MAGI could push you into a higher bracket with a Traditional IRA.
  • More money in a Roth lowers your AGI which may make less of your social security taxable.
If none of these apply, then you probably don’t have any reason to convert...
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Old 11-21-2019, 07:56 AM   #246
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I am not considering a future change in tax rates. They may go up and they may go down. 5 years ago, I doubt anyone would have predicted the reduction that took place. For my analysis, I assume that they will stay as they are now, knowing that they will most likely change one way or the other. Also, if they do go up, I assume that one will have at least one tax season to take action before the effect of the new rates.

Due to the stepped nature of the tax brackets, I believe that by recognizing income to bring one up to the bottom of the next tax bracket may reduce taxes in the RMD years. This is why the change in brackets from married to single is probably the biggest thing to think about.
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Old 11-21-2019, 08:20 AM   #247
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Originally Posted by RME1958 View Post
I am not considering a future change in tax rates. They may go up and they may go down. 5 years ago, I doubt anyone would have predicted the reduction that took place. For my analysis, I assume that they will stay as they are now, knowing that they will most likely change one way or the other. Also, if they do go up, I assume that one will have at least one tax season to take action before the effect of the new rates.

Due to the stepped nature of the tax brackets, I believe that by recognizing income to bring one up to the bottom of the next tax bracket may reduce taxes in the RMD years. This is why the change in brackets from married to single is probably the biggest thing to think about.

I have to agree with your last point about change in brackets from married to single. If you disregard all the other points quoted in midpack's recent post this is enough for me to convert. Bold in quote is my doing.
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Old 11-21-2019, 08:48 PM   #248
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I read through the learning center on the Income Strategy page (https://www.incomestrategy.com/wp/learningcenter/) and the case under: Roth Conversion: Single, Age 62 with $1,500,000 of assets makes it pretty clear that the best strategy for ROTH conversions would be an occasional conversion of some funds.
And to slightly change the subject, I'm also eyeing access to the RightCapital software. It's a one time expenditure of $150 (and the risk that the guy using it will shut his business down along with the access) but using the software seems fairly well documented on youtube. So between $20/month + $125 phone call and $150 + youtube tutorials it looks like a wash.
BUT... as I was watching the video explaining how to calculate ROTH conversion, comment below stated: "the software doesn't allow you to pick from which account to pull income from, which stinks. It'll default to taxable first, tax deferred second and then Roth."
That's 70% of what I want to learn from financial software. How does Income Strategy deal with that? Ideally I was thinking about something like this: https://www.fidelity.com/viewpoints/...vy-withdrawals
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Old 11-21-2019, 08:53 PM   #249
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Can Income Strategy create different withdrawal strategies and shows the effect of them on taxes? (https://www.fidelity.com/viewpoints/...vy-withdrawals)
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Old 11-22-2019, 03:25 AM   #250
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I read through the learning center on the Income Strategy page (https://www.incomestrategy.com/wp/learningcenter/) and the case under: Roth Conversion: Single, Age 62 with $1,500,000 of assets makes it pretty clear that the best strategy for ROTH conversions would be an occasional conversion of some funds.
And to slightly change the subject, I'm also eyeing access to the RightCapital software. It's a one time expenditure of $150 (and the risk that the guy using it will shut his business down along with the access) but using the software seems fairly well documented on youtube. So between $20/month + $125 phone call and $150 + youtube tutorials it looks like a wash.
BUT... as I was watching the video explaining how to calculate ROTH conversion, comment below stated: "the software doesn't allow you to pick from which account to pull income from, which stinks. It'll default to taxable first, tax deferred second and then Roth."
That's 70% of what I want to learn from financial software. How does Income Strategy deal with that? Ideally I was thinking about something like this: https://www.fidelity.com/viewpoints/...vy-withdrawals
There are several options with Income Strategy:
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Old 11-22-2019, 06:44 AM   #251
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I am not considering a future change in tax rates. They may go up and they may go down. 5 years ago, I doubt anyone would have predicted the reduction that took place. For my analysis, I assume that they will stay as they are now, knowing that they will most likely change one way or the other. Also, if they do go up, I assume that one will have at least one tax season to take action before the effect of the new rates.

Due to the stepped nature of the tax brackets, I believe that by recognizing income to bring one up to the bottom of the next tax bracket may reduce taxes in the RMD years. This is why the change in brackets from married to single is probably the biggest thing to think about.
I agree with you that the potential change in rate schedule to single is a big issue. On rates on general, I expect them to rise but not dramatically.

I think filling up your low brackets while you can is least risky. If you prepay taxes aggressively over several years and then have a big market decline, you would probably wish you had some of the tax money back.

Predictions are hard. Especially about the future.
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Old 11-22-2019, 07:40 AM   #252
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I agree with you that the potential change in rate schedule to single is a big issue. On rates on general, I expect them to rise but not dramatically.

I think filling up your low brackets while you can is least risky. If you prepay taxes aggressively over several years and then have a big market decline, you would probably wish you had some of the tax money back.

Predictions are hard. Especially about the future.
You nailed it.
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Old 11-22-2019, 07:55 AM   #253
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I have to agree with your last point about change in brackets from married to single. If you disregard all the other points quoted in midpack's recent post this is enough for me to convert. Bold in quote is my doing.
There are estate planning ways to mitigate the effect of a surviving spouse’s tax burden, especially if a couple is well off enough that they can direct tax sensitive funds to heirs on the death of the first spouse such as having multiple beneficiaries on an IRA. Plus stepped up basis on taxable accounts can really. Whenever we look into the issue, we find options significantly improving the tax situation for the surviving spouse.

Of course if funds are tight, then the surviving spouse will need to inherit everything.
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Old 11-22-2019, 08:42 AM   #254
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^^^^ I guess if some tIRAs were inherited by the kids rather than DW it would reduce DW's taxes, but increase the kids taxes.... since they kids are still working they are already in moderate tax brackets to begin with so it might just be pushing the tax obligation from DW to the kids in which case the benefit might not be so great.

If one of us kicks once RMDs begin we'll jump from the 22% bracket to the 24% bracket... meanwhile, DD and DSIL are already in the 22% bracket and DS is in the 12% bracket... so the savings would not be all that significant... 2% on some and 14% on some. The 14% might be worth the effort.
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Old 11-22-2019, 10:02 AM   #255
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In early retirement (we are both 61), I am trying to maximize spending for my wife and I with no plan to give any of it away to our kids. So I am not looking at any solutions that would minimize taxes by giving assets away as long as one of us is still around. Down the road, I will start looking at making withdrawals that will take into account the taxes of our heirs.
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Old 11-22-2019, 10:42 AM   #256
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I agree with you that the potential change in rate schedule to single is a big issue. On rates on general, I expect them to rise but not dramatically.

I think filling up your low brackets while you can is least risky. If you prepay taxes aggressively over several years and then have a big market decline, you would probably wish you had some of the tax money back.

Predictions are hard. Especially about the future.
I keep thinking that we all seriously entertain the idea of living past 90 while the more realistic number is probably way lower. At 56 and fairly fit, I give myself 10-15 years of active life followed by a gradual decline where I eventually spend most of my time Netflixing and such. And that is if I'm lucky. I'm not genetically blessed so I can expect either cancer, dementia or RA hitting me rather sooner than later. It may not happen and I don't live worrying about it but it puts into perspective all those calculation where I pay taxes up front to avoid them later. There might be nothing to avoid or I won't care because my standard of living will get lower.

So while I'm definitely into optimizing I think that as long as even the worst strategy leaves me with enough money to cover my expenses, I'll be good.
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Old 11-22-2019, 02:19 PM   #257
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I keep thinking that we all seriously entertain the idea of living past 90 while the more realistic number is probably way lower. At 56 and fairly fit, I give myself 10-15 years of active life followed by a gradual decline where I eventually spend most of my time Netflixing and such. And that is if I'm lucky. I'm not genetically blessed so I can expect either cancer, dementia or RA hitting me rather sooner than later. It may not happen and I don't live worrying about it but it puts into perspective all those calculation where I pay taxes up front to avoid them later. There might be nothing to avoid or I won't care because my standard of living will get lower.

So while I'm definitely into optimizing I think that as long as even the worst strategy leaves me with enough money to cover my expenses, I'll be good.
A decision we all have to make individually. I've planned on age 96 because a) MIL lived to 88, Mom to 93 and Dad to 96 without taking care of themselves, and b) I'd rather go poof with some money left over - than have our money go poof before we do...
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Old 11-22-2019, 04:12 PM   #258
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One thing I will need to consider is to moving to a lower or no income tax state before RMDs hit. Having to pay little or no state tax on the forecasted RMDs will be helpful, regardless of what happens to the Federal rates. Of course there will be tradeoffs, which is why we are looking at it as a consideration and not an automatic.
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Old 11-23-2019, 02:00 AM   #259
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Great link/read thanks, though mostly about where to put IRA money initially - trad vs Roth, not conversions per se. Some applies, some doesn’t.
If the taxes are paid from cash on hand, the analysis for conversions is effectively identical to the analysis for initial contributions.

Leaving the money in the traditional and taxable accounts is the equivalent of making a traditional contribution, while converting to Roth is the equivalent of making a Roth contribution. The math works the same.

Or was there something else that didn't apply?
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Old 11-23-2019, 02:11 AM   #260
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I do not see how it could make a difference in the long run.

The IRS has a claim on X% of your IRA. It's either X% of your account today, or X% of the (presumably grown) account in the future.
Either way, your after-tax account value in the future will be the same.

Paying the tax on a conversion with outside money doesn't change this. It's just adding money to the account and pretending that you didn't add money.
It's not always X%. It could be X% now but Y% later. How Y compares to X will determine whether a current or future withdrawal will be better.

And paying the tax on a conversion with outside money can affect the Y to X comparison. See how paying the...tax with money that would otherwise have been invested in a taxable account affects the math.
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