Retirement Tax Planning - Income Optimization?

[Perryinva]

Quote:

Originally Posted by RetireBy90 One thing I have going for me if I convert to ROTH now and they start talking seriously about it I could just take a complete withdraw and add to the cash account. Risk I'm willing to take.

An innately obvious answer and exactly why they can never tax Roth withdrawals. Thanks for pointing that out.

[pb4uski]

Quote:

Originally Posted by RetireBy90 One thing I have going for me if I convert to ROTH now and they start talking seriously about it I could just take a complete withdraw and add to the cash account. Risk I'm willing to take.

Quote:

Originally Posted by Perryinva An innately obvious answer and exactly why they can never tax Roth withdrawals. Thanks for pointing that out.

Yup... I figure that like most tax changes that we'll see it coming ahead of time and can take preemptive action to avoid it.... unless they made it retroactive.

[donheff]

Quote:

Originally Posted by Midpack Thank you very much. I've watched quite a few of the Heritage Wealth Planning YouTube videos. He's kind of quirky, but he seems knowledgeable and no nonsense, so worthwhile watching. I may try that.

Never heard of this guy before but I like him.

[SnowballCamper]

This article is a good discussion of conventional wisdom on tax strategy vs. the optimal case. It gets to the convert or not discussion at the end. The more I read about this, the more I'm inclined to skip the conversions.

https://www.i-orp.com/modeldescripti...gatedtaxes.pdf

[rayvt]

Quote:

Originally Posted by Perryinva An innately obvious answer and exactly why they can never tax Roth withdrawals.

You guys don't think deviously enough. You are thinking like a normal person and not like a tax-hungry bureaucrat.

Currently you can take unlimited Roth IRA distributions without having any impact on the taxation of your Social Security benefits.

Does that give you any hints on how they could effectively put a tax on Roth withdrawals?
A: They could include them in the calculation for how much of your SS benefit is taxed (up to the present 85%). So: No direct tax on Roth withdrawal, but another tax goes up based on that withdrawal.

[rayvt]

Quote:

Originally Posted by pb4uski Yup... I figure that like most tax changes that we'll see it coming ahead of time and can take preemptive action to avoid it.... unless they made it retroactive.

Which they did in the 1993 tax bill.

From the first google hit: "Congress has been adopting retroactive tax increases for a very long time, essentially since the 1930s. The 1913 Revenue Act was the first one with an effective date before the date of the actual enactment."

[pb4uski]

Quote:

Originally Posted by rayvt You guys don't think deviously enough. You are thinking like a normal person and not like a tax-hungry bureaucrat. Currently you can take unlimited Roth IRA distributions without having any impact on the taxation of your Social Security benefits. Does that give you any hints on how they could effectively put a tax on Roth withdrawals? A: They could include them in the calculation for how much of your SS benefit is taxed (up to the present 85%). So: No direct tax on Roth withdrawal, but another tax goes up based on that withdrawal.

Many people are already at 85% so the impact of your scheme is probably not substantial.

[RetireBy90]

Quote:

Originally Posted by rayvt You guys don't think deviously enough. You are thinking like a normal person and not like a tax-hungry bureaucrat. Currently you can take unlimited Roth IRA distributions without having any impact on the taxation of your Social Security benefits. Does that give you any hints on how they could effectively put a tax on Roth withdrawals? A: They could include them in the calculation for how much of your SS benefit is taxed (up to the present 85%). So: No direct tax on Roth withdrawal, but another tax goes up based on that withdrawal.

I could see that, if I understand correctly they have you add back in some non-taxable stuff to figure how much of SS is taxable. Impact may not be a lot but can’t believe they would pass up “free” money.

[Theo]

Quote:

Originally Posted by rayvt You guys don't think deviously enough. You are thinking like a normal person and not like a tax-hungry bureaucrat.

Of course the tax hungry beurocat doesn't need your taxes to spend. You should only worry about this scenario if we have a sustained period of price inflation as raising taxes can be an effective way of reducing inflation by taking money out of the economy.

[teejayevans]

TLDR
My plan (theory) is to wait for a downturn, let’s assume at least 20%. I will withdraw up to the 24% limit, instead of my normal 12% limit. When the market comes back, I will have paid a higher amount on the 80% but now the 20% I have is capital gains which in the 12% tax bracket are tax free.

A simple example for easy math:
Market drops 25%.
I withdraw $120,000.
I pay tax of $25,000 on above.
Market returns, my $120,000 is now back to $160,000
My CGs are tax free, so effectively I paid 15.6% on $160,000.

Obviously I’m assuming the market returns as it always has. Hope that makes sense.

So yes, this means I will be happy when the market drops...weird eh?

[Midpack]

Well that’s timely on two counts. I may just pay Josh to do an analysis for me.

https://heritagewealthplanning.com/w...rsions-part-1/

[fishfactory]

Midpack
You can do the analysis yourself. Go to Josh's website and pay $150 one time fee for access to the RightCapital software. On the website, click on "connect" tab, then fill out personal info and under "select and option" choose "get access to software". You will have access for as long as he uses it - no additional fee beyond the one time $150.
https://heritagewealthplanning.com/contact/

[CardsFan]

Quote:

Originally Posted by Midpack Well that’s timely on two counts. I may just pay Josh to do an analysis for me. https://heritagewealthplanning.com/w...rsions-part-1/

WADR, I think the article has cherry picked a perfect scenario. Moderate to low value in the tIRA (at least compared to many here, including myself), low expenses, and living beyond "average" life expectancy. Which leads to all taxes being paid in the 12% bracket, or lower, and a longer time in the no tax zone. In the scenario presented it makes perfect sense to convert. But, then again, converting in the 12% bracket, appears to be a no-brainer, at least to me.

It's when you get to converting in the 22-24% brackets that the benefit appears to diminish, if that is where you expect to be after SS and RMD's. The wild cards are the "widow's tax trap" and changes to tax law (such as the SECURE Act).

If you decide to do it, please tell us if you think the excersize has value. For $150 I'm willing to reconsider my plan.

[Midpack]

Quote:

Originally Posted by fishfactory Midpack You can do the analysis yourself. Go to Josh's website and pay $150 one time fee for access to the RightCapital software. On the website, click on "connect" tab, then fill out personal info and under "select and option" choose "get access to software". You will have access for as long as he uses it - no additional fee beyond the one time $150. https://heritagewealthplanning.com/contact/

I did, and it said ‘we will reply within 24 hours.’ I’m not sure that’s what I wanted, but we’ll see. Thanks.

[fishfactory]

Mid, he will reply with payment instructions thru paypal, then he will set you up with a RightCapital account. I did it in order to have a second confirmation of the i-orp conversion optimization, and was pleased at how close they were. I found it to be worth $150, since I plan to use it for years to come. I especially like the 1040 tax forms for all years.

[Midpack]

It took more than a week to hear back from Heritage for some reason. I would love to have access to right capital but directly it's priced for advisors ($150/mo 1 yr commitment). And I refuse to use PayPal anymore so I can't take advantage of the Heritage access to right capital either. I would have paid Josh to do a retirement spending plan for me, but his only packages were $2500 for a complete analysis (I'm already retired so I don't need any front end analysis) or $500 for investment analysis only (which is not what I want). So I was hopeful but I'm back to square one...

[fishfactory]

Mid,
I paid Josh $150 and have access for as long as he keeps using it, and will not have to make any more payments. I didn't have an issue using paypal. I don't know what issues you have with paypal, but I am glad to have access to the software for such a low price.

[BeachOrCity]

I don't see how you can write a credible article about retirement tax planning and Roth conversions and not discuss extensively the ACA subsidy cliff. His examples show folks under 65, the majority of which don't have access to non-aca medical plans thru a previous employer or the gov't.

For a married couple in late 50's / early 60's this subsidy can easily be 10K plus per year.

[bingybear]

Quote:

Originally Posted by BeachOrCity I don't see how you can write a credible article about retirement tax planning and Roth conversions and not discuss extensively the ACA subsidy cliff. His examples show folks under 65, the majority of which don't have access to non-aca medical plans thru a previous employer or the gov't. For a married couple in late 50's / early 60's this subsidy can easily be 10K plus per year.

I wouldn't say that it needs extensive coverage. It is simple enough once you show what it is. I would agree it should be covered for the uninitiated. But there are bigger issues for some later in retirement if they are not careful.

[Midpack]

Though rightcapital looked like a very helpful tool and I was anxious to give it a go, I just couldn't find a cost effective way to use it. [fishfactory: I got burned by PayPal a while back and I refuse to use them for the foreseeable future].

So I signed up for https://www.incomestrategy.com/ today, and it looks interesting. It doesn't just give me the optimal plan (that I've found) but it lets me compare as many withdrawal schemes as I want, lets me model Roth conversions anyway I want, and lots of variables/flexibility. Worst case I'm out $20 (it's $20/mo but no contract), but if it works well I may upgrade to the $50/mo plan and even use their $125/hr consulting to confirm my results.

We'll see how it goes, so far so good.