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Old 12-27-2019, 03:28 PM   #21
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Tax cuts expire 12-31-2025.
https://taxfoundation.org/look-ahead...ax-provisions/
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Old 12-27-2019, 04:15 PM   #22
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And nobody has to go on record to "vote for a tax increase." They can just let the tax cuts expire without action, right?
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Old 12-27-2019, 04:23 PM   #23
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Originally Posted by Alan View Post
No, because all the extra is taxed at 24%. If you increase the amount to 210,000 in the calculator above the tax jumps to $33,357. In other words that $90k extra increases the tax by ~$20k
It may be a rare case, but converting now at 24% to avoid converting (or RMDs) later at 32% or more could be a thing.
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Old 12-28-2019, 06:56 AM   #24
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But what happens if one of you dies and the survivor files single instead of married filing jointly?

I decided to prioritize Roth conversions over ACA subsidies, but ours was a unique situation where the savings from subsidies was not all that great and the tax savings were much better.
After seeing my Mom's tax rate go up, I'm opting to move now. I have to keep repeating the mantra (so I'll truly adapt) "the enemy of a good plan is a perfect plan." I ran numerous scenarios and finally just did it, knowing I did my best and nothing is truly perfect.

I just pulled the trigger and wrote the second largest check in my life by choosing to convert 1/2 of the tIRA which put us at the top of the 24% bracket and needing to repay 7 months of ACA subsidy.

Future years will be 12 months of ACA and we'll convert to the top of the tax free and ACA eligible zone, around $83,000 for we three (which is basically taxing us marginally at 9.8% for the ACA subsidy and "medicaid" for the minor).

If we have to do anything else taxable (preventing a future conversion such as deciding to take capital gains to rebalance in the taxable account) and there's money left in the tIRA by the time RMDs hit, I plan to withdraw them all for QCDs unless truly necessary to live off them.
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Old 12-28-2019, 07:44 AM   #25
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It may be a rare case, but converting now at 24% to avoid converting (or RMDs) later at 32% or more could be a thing.
I and DW have been converting in the 24% band for the last few years. This is because we will move up a band from 20% to 40% in the UK with RMDs. Fortunately the tax treaty allows Roth conversions to be taxed only in the USA whereas IRA distributions are taxed in the UK. I am now 100% Roth and DW has about 3 years of conversions ahead of her.
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Old 12-28-2019, 08:42 AM   #26
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I and DW have been converting in the 24% band for the last few years. This is because we will move up a band from 20% to 40% in the UK with RMDs. Fortunately the tax treaty allows Roth conversions to be taxed only in the USA whereas IRA distributions are taxed in the UK. I am now 100% Roth and DW has about 3 years of conversions ahead of her.
I know this is a very personal decision. I am also a dual citizen but my home country does not tax me anything.

We have SS and RMD as income and not much else, so the slope of change for tax is gradual, after we start both. The wild card is the return on investment.

If we leave too much in, they could grow to larger amount. So we pay more tax by then, do we really lose out?

If I do a good chunk of Roth conversion paying taxes and losing ACA subsidy, we will lose the opportunity for larger gain, do we really gain much in the end?

My head hurts.
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Old 12-28-2019, 08:56 AM   #27
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Exactly. I gave up trying to move things around; especially now after the SECURE provisions are now in place. We're gonna pay 22% now, and/or 24% after one of us croaks. I am grateful to have the problem, but feel helpless that I can't engineer myself out of the situation.
Ditto. And that there's no clear answer! Drives me nuts.
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Old 12-28-2019, 09:48 AM   #28
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I know this is a very personal decision. I am also a dual citizen but my home country does not tax me anything.

We have SS and RMD as income and not much else, so the slope of change for tax is gradual, after we start both. The wild card is the return on investment.

If we leave too much in, they could grow to larger amount. So we pay more tax by then, do we really lose out?

If I do a good chunk of Roth conversion paying taxes and losing ACA subsidy, we will lose the opportunity for larger gain, do we really gain much in the end?

My head hurts.
Where do you live? Sounds like you live in the USA if you are buying HI with ACA subsidies.

When I lived in the USA the UK did not tax me anything, even on my UK pensions, but the USA did. Now that I live in the UK the USA still taxes me on everything including my UK pensions, it is almost the only country in the world that taxes its citizens no matter where they actually live or where their income comes from, even if they were born outside the USA and have never lived there.
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Old 01-03-2020, 05:06 PM   #29
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So if you are taking $120,000 out of your 401k and have no other income such as dividends or social security.



Your federal tax rate would as follows:


Income = $120,000
Standard Deduction for married filing jointly = $-24,500


Taxable Income = $95,500
2019 Fed Tax = $15,055


Net Income = $80,445


Tax Rate = 15.76%


If you have excel I can send you a spreadsheet that calculates this.


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Old 01-03-2020, 05:18 PM   #30
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And nobody has to go on record to "vote for a tax increase." They can just let the tax cuts expire without action, right?
That’s why I’m converting and why I think the rates will go back to their previous levels. If congress needed to go on record with a vote, it may make me feel different. But if all they have to do is let it expire, I think there’s a good chance that will happen.
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Old 01-03-2020, 05:34 PM   #31
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That’s why I’m converting and why I think the rates will go back to their previous levels. If congress needed to go on record with a vote, it may make me feel different. But if all they have to do is let it expire, I think there’s a good chance that will happen.


Can you provide a link to what the tax rates and brackets were at the previous levels? I’m not sure where to access this information. Thank you.
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Old 01-03-2020, 05:42 PM   #32
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Can you provide a link to what the tax rates and brackets were at the previous levels? I’m not sure where to access this information. Thank you.
https://www.kdpllp.com/2017-vs-2018-...-tax-brackets/

2018 column are current.... 2017 were former. Tax rates will revert to 2017 percentages in 2026 if Congress doesn't act to make the low rates permanent.
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Old 01-03-2020, 07:14 PM   #33
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https://www.kdpllp.com/2017-vs-2018-...-tax-brackets/

2018 column are current.... 2017 were former. Tax rates will revert to 2017 percentages in 2026 if Congress doesn't act to make the low rates permanent.


Thank you.
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Old 01-03-2020, 07:15 PM   #34
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Look not only your tax bracket but also how it will affect Medicare premiums. If you are single, anything over 87K modified AGI will cause an increase and anything over 109K will cause even more - and that is an increase for both B and D!
The Modified AGI amounts are double for married couples but I think couples should plan their Modified AGI for the time that one of them dies. The last thing someone would want to leave their spouse is higher expenses because of their decisions.
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Old 01-03-2020, 07:20 PM   #35
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Look not only your tax bracket but also how it will affect Medicare premiums. If you are single, anything over 87K modified AGI will cause an increase and anything over 109K will cause even more - and that is an increase for both B and D!
The Modified AGI amounts are double for married couples but I think couples should plan their Modified AGI for the time that one of them dies. The last thing someone would want to leave their spouse is higher expenses because of their decisions.
But IRMAA isn't all that bad, at least in the first tier... $57.80/month in 2020... so $1,387.20 for a married couple... often a proverbial nit with respect to the tax savings for early retirees.
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Old 01-03-2020, 08:03 PM   #36
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Originally Posted by pb4uski View Post
https://www.kdpllp.com/2017-vs-2018-...-tax-brackets/

2018 column are current.... 2017 were former. Tax rates will revert to 2017 percentages in 2026 if Congress doesn't act to make the low rates permanent.
I don’t see how “we” can keep this up indefinitely, but I’ve been wrong many times before...

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Old 01-03-2020, 09:10 PM   #37
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Simple. Taxes don't fund spending. Congretional appropriations do.
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Old 01-04-2020, 07:26 PM   #38
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Are we typically paying the tax on these roth conversions from outside money or are we withholding from the conversion? I didn't start conversions till my first RMD. I withheld enough from the RMD to cover the tax on the conversion. Theoretically I could have started conversions sooner but there was not extra cash on hand to pay the tax.
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Old 01-04-2020, 08:05 PM   #39
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While it is slightly preferable to use taxable funds to pay the tax if you have it, since Roth conversions are really a tax arbitrage play, it is benefal en if the taxes are paid from the tIRA (assumes you are over 59 1/2).
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Old 01-04-2020, 08:13 PM   #40
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Are we typically paying the tax on these roth conversions from outside money or are we withholding from the conversion? I didn't start conversions till my first RMD. I withheld enough from the RMD to cover the tax on the conversion. Theoretically I could have started conversions sooner but there was not extra cash on hand to pay the tax.
Better to use outside money if you can because you are moving the full amount to the tax free Roth.

Are conversions really advantageous at RMD age? You know you can't convert the RMD portion, only anything over that, right? You can pay taxes from the RMD part though, just do it as a separate step. It seems to me your tax rate is probably as high now as it will be in the future, though it's not unreasonable to believe taxes might increase in the future.
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