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Old 02-07-2020, 06:44 AM   #21
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Yes, the single filing situation is what tips the conversion for me. It's probably a near certainty that ONE of us will be around without the other for at least one filing year, and that difference is huge. 5-10 years of it could be a real hit. And, in our case it's largely likely the kids will get substantial leftovers and the Roth is a nicer inheritance.
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Old 02-07-2020, 08:09 AM   #22
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I feel if I am not converting more than my IRA is earning, I am not getting in front of the issue. The tIRA will still grow faster than I will convert. That said, I did not convert >20% of my tIRA last year. Maybe my rule should be >7-10%, the average(ish) rate of the SP500?

I would like to add that there is nothing preventing Roth conversion wile in RMD time.
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Old 02-07-2020, 08:16 AM   #23
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I feel if I am not converting more than my IRA is earning, I am not getting in front of the issue. The tIRA will still grow faster than I will convert. That said, I did not convert >20% of my tIRA last year. Maybe my rule should be >7-10%, the average(ish) rate of the SP500?

I would like to add that there is nothing preventing Roth conversion wile in RMD time.
You can't Roth convert an RMD. You can convert an amount over and above your RMD.
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Old 02-07-2020, 08:19 AM   #24
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... I would like to add that there is nothing preventing Roth conversion wile in RMD time.
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You can't Roth convert an RMD. You can convert an amount over and above your RMD.
I think you are both saying the same thing... even when you are subject to RMDs you can still do Roth conversions... on top of RMDs.
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Old 02-07-2020, 08:38 AM   #25
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For people who say they aren't making progress because the tIRA keeps growing, think about how much bigger that tIRA and resulting RMDs would be if you weren't converting at all.

Also, are you keeping most or all of your bonds in the tIRA? The Bogleheads guide says to do this for tax efficiency, and it also slows the growth of your tIRA.
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Old 02-07-2020, 08:56 AM   #26
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For people who say they aren't making progress because the tIRA keeps growing, think about how much bigger that tIRA and resulting RMDs would be if you weren't converting at all.

Also, are you keeping most or all of your bonds in the tIRA? The Bogleheads guide says to do this for tax efficiency, and it also slows the growth of your tIRA.
It excites me to have this problem.....
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Old 02-07-2020, 09:01 AM   #27
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You can't Roth convert an RMD. You can convert an amount over and above your RMD.
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I think you are both saying the same thing... even when you are subject to RMDs you can still do Roth conversions... on top pf RMDs.
True
True

Sorry if I was unclear.
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Old 02-07-2020, 09:30 AM   #28
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True
True

Sorry if I was unclear.
You did say it. I understood you meant that conversion can happen even when subject to RMD.

I'm starting conversion this year. TurboTax what-if worksheet for 2020 is very informative. I found that it helps to set the balance due to zero by adding estimated withholding. Then you can add certain increments of conversion until tax owed is no longer divisible by 12 (for 12% bracket.)
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Old 02-07-2020, 12:29 PM   #29
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Also, are you keeping most or all of your bonds in the tIRA? The Bogleheads guide says to do this for tax efficiency, and it also slows the growth of your tIRA.
In accumulation phase, or age 59.5+, this makes a lot of sense.
If you are young, retired, and living off total return of a portfolio, this isn't practical. An asset allocation to mitigate SORR requires cash/bond/alts for safety.
After reading so much about tax optimization, I wonder if a major point is being missed.

Select your (reasonable) lifestyle, then optimize taxes within it. Don't optimize taxes, then fit your lifestyle to it.
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Old 02-07-2020, 12:44 PM   #30
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^^^ I think RB was saying that IF your AA includes an allocation to bonds that it is preferable to have your bond allocation in your 401k or tIRA... I woud think this would apply no matter what your allocation to bonds is.
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Old 02-07-2020, 01:06 PM   #31
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^^^ I think RB was saying that IF your AA includes an allocation to bonds that it is preferable to have your bond allocation in your 401k or tIRA... I woud think this would apply no matter what your allocation to bonds is.
I don't agree with the last statement. If under 59.5, and your bond income is not accessible, you put yourself at greater SORR with a higher allocation to equities in the taxable account. My asset mix is about 70% taxable, 30% IRA/Roth. I'm comfortable with 75/25 AA. However, if the 25% bonds is all deferred, then I'm essentially 100% equity in my available assets. Not good for preventing SORR.

I agree the advice is generically sound, but not universally applicable. It's kinda like the decision the take SS early or wait. In a vacuum, if you think you'll live past age 78, the choice is clear. But that calculation ignores taxes, pensions, etc. The holistic view matters.
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Old 02-07-2020, 01:39 PM   #32
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No.... SORR is a principally a function of AA.... placement isn't relevant. Note that FIRECalc and many tools that assess SORR ask for AA but not tax placement.

In your example if you are 75/25 and 75 stocks in taxable and 25 bonds in tax-deferred and stocks take a 20% dive and you need to take 4 to spend then you have 56 in stock and 25 in bonds and 81 in total.

So to rebalance to 75/25 in your tax deferred you would sell 5 of bonds and buy 5 of stocks... you would have 61 in stocks (56 in taxable and 5 in tax-deferred) and 20 in bonds (all tax-deferred).
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Old 02-07-2020, 01:42 PM   #33
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I don't agree with the last statement. If under 59.5, and your bond income is not accessible, you put yourself at greater SORR with a higher allocation to equities in the taxable account. My asset mix is about 70% taxable, 30% IRA/Roth. I'm comfortable with 75/25 AA. However, if the 25% bonds is all deferred, then I'm essentially 100% equity in my available assets. Not good for preventing SORR.

I agree the advice is generically sound, but not universally applicable. It's kinda like the decision the take SS early or wait. In a vacuum, if you think you'll live past age 78, the choice is clear. But that calculation ignores taxes, pensions, etc. The holistic view matters.
You start with your bonds in the IRA. If there's a downturn, where you'd want to be selling off bonds rather than depressed stocks, you sell the stocks in your taxable account, and buy them back in your IRA, being careful to stay clear of wash sale rules.

In most cases there won't be such a downturn, so you won't have to do this. But you can, if you have to.
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Old 02-07-2020, 01:43 PM   #34
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Coincidentally, either this morning or last night I was reading a post from earlyretirementnow.com about the best LOCATION for bonds. The very first comment about the article was a request to analyze how to go from 100/0 AA in accumulation phase, to 60/40 retirement income and preservation phase. Ideally this is gradual, but not always, especially for the bond haters :-)
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Old 02-07-2020, 03:13 PM   #35
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You start with your bonds in the IRA. If there's a downturn, where you'd want to be selling off bonds rather than depressed stocks, you sell the stocks in your taxable account, and buy them back in your IRA, being careful to stay clear of wash sale rules.

In most cases there won't be such a downturn, so you won't have to do this. But you can, if you have to.
I see what you and pb4 are saying. Its just harder to get there if your asset location doesn't start that way. You do lose a little flexibility as well, if forced to sell highly appreciated stocks out of necessity, taking a bigger tax hit.

Thanks for the discussion.
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Old 02-07-2020, 03:25 PM   #36
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I guess this is an asset placement thread now...
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Old 02-07-2020, 03:27 PM   #37
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It's a guideline, and not a hard and fast rule. But selling high, at a 15% LTCG rate, doesn't seem like a bad thing. Probably better than letting it bloat your IRA and taking it later at 22%, 24%, or maybe even higher.

Unless you're trying for an ACA subsidy. I'm about 5% cash in my taxable account so that I don't have to sell appreciated stock, but I can do that and still keep my tIRA in all bonds, and keep my AA reasonable. You don't want to alter sound investment strategies too much just to get the subsidy while costing yourself more in tax liabilities or investment returns.
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Old 02-07-2020, 03:30 PM   #38
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I guess this is an asset placement thread now...
Sorry, but when people were talking about not making a dent in their tIRA with their conversions, I thought it was appropriate to mention keeping bonds in your tIRA. That led to what seems like a useful discussion about the mechanics of that, which is probably drawing to a close.
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Old 02-07-2020, 03:55 PM   #39
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I guess this is an asset placement thread now...
GOOD, I was wondering where I should have my Bond CEF and equity CEF
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Old 02-07-2020, 04:32 PM   #40
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Sorry, but when people were talking about not making a dent in their tIRA with their conversions, I thought it was appropriate to mention keeping bonds in your tIRA. That led to what seems like a useful discussion about the mechanics of that, which is probably drawing to a close.
I thought it was a good point. I have been pondering just that allocation issue as I contemplate my Roth conversion strategy. l'll tinker with my new spreadsheet a little.
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