Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 04-25-2018, 08:48 AM   #61
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,743
Quote:
Originally Posted by Dtail View Post
Just curious.
When people do their Roth conversions, do they typically pay the taxes from the converted amount, or pay from separate monies?
I suppose it is all the same in the end, unless the separate monies are not held in their investment portfolio assets and thus the the investment portfolio remains intact, even though the NW (temporarily) decreases.
We pay from cash in our taxable account. When cash is depleted we will sell equities in the taxable account to pay the conversion tax.
Corporateburnout is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-25-2018, 09:19 AM   #62
Thinks s/he gets paid by the post
 
Join Date: Aug 2014
Location: Chicago West Burbs
Posts: 1,940
We have very little left in our taxable/cash accounts, around 1%. We are in the "money is fungible" camp. Our plan is to pay the tax from our IRA's. Our goal is to lower the future RMD's, but only up to the top of the 12% bracket. Paying the taxes from that same IRA as being converted will help in that respect. We like having a few taxable/cash $$ left at our local bank.
CRLLS is offline   Reply With Quote
Old 04-25-2018, 12:56 PM   #63
Recycles dryer sheets
 
Join Date: Sep 2007
Location: Chicago
Posts: 221
1. What pct of conventional IRA do you/will you have converted to Roth by your RMD Year?
Most if not all probably. I'm 39 and planning on pulling the plug in under a month. This year I've withheld most of my income, and will convert a large lump to start a ROTH ladder. The total conversion will depend on returns, tax levels, and whether I decide to do something earning significant taxable income again. I will also likely accelerate conversions to the 12% bracket limit in the event of a serious market downturn.

2. Will you/ did you continue Roth conversion after your RMD’s start? Probably not, but at 30+ years out I have time to worry about it later.

3. Do you plan on converting 100% to Roth? See above - it depends on the chances to cherry-pick low tax payment on the conversions versus the growth.

4. How old were you when you started Roth conversions? I'll be doing my first one this year at 39.

5. Do you do Roth conversions every year and once per year? And pay the tax in the quarter that you convert? I intend to convert once per year in the 4th quarter so that any income from the year can be considered in the amounts for tax/ACA purposes.

6. Is your Roth IRA investment mix the same as in your traditional IRA?
fewer bonds, almost exclusively stocks or cash.

7. To what extent was/is your decision on delaying SS based on your Roth conversion strategy? SS will be started based on need or lack of as well as anticipated tax consequences.

8. Do you have reasons to not do Roth conversions? Yes, i may reside in Australia for a few years and I'm not yet aware of the tax consequences of performing a ROTH conversion while residing there. I may have a lull depending on the tax interactions.
seabourne is offline   Reply With Quote
Old 04-25-2018, 04:13 PM   #64
Recycles dryer sheets
 
Join Date: Jul 2014
Posts: 358
Quote:
Originally Posted by SecondCor521 View Post
...I did check and the IRS website does show that an estimated payment made on 1/15 of any year is for the last calendar quarter of the preceding year. I also checked the instructions for Form 1040 line 65 I believe it was, which is where you put in estimated payments, and it did refer to payments made for the previous calendar year, or something like that.

As to the ability to only make one quarterly payment (and not payments for the first three quarters of the year), all I know about that is that there is an IRS approved method where you can calculate your income by quarter and your payments by quarter in order to see if you have any underpayment penalties. I believe it is Form 2210 or something like that. Anyway, I think based on that, that you can vary your quarterly estimated payments, and logically if one's income for a quarter is zero then a zero payment should be permitted. But I admit I've never actually confirmed that with the IRS; I've just done it and have not yet gotten in trouble.

And then as far as avoiding penalties, I'd look at the instructions for Line 79 of Form 1040. I believe what it will say is that one of the ways to avoid penalties is if the amount owed (Line 78) is less than $1,000. There are other ways involving percentages that I won't quote here, but many people use those methods.
All of that is true, but the original implication (that a 4th quarter estimated payment is equivalent to - or better than - withholding in its ability to preclude underpayment penalties) is not.

E.g., assume your 2016 federal tax was $900, your 2017 federal tax was $5000, and you had neither withholding nor estimated tax payments during those years.

You wouldn't have any penalty for 2016 - just owe $900 when filing.

But, if the $5000 was all due from 1Q2017 income, even making a $5000 estimated payment on 1/1/18 would leave you with a penalty for 1Q, 2Q, and 3Q underpayments.

ETA: Sorry, missed the page where this was already covered.
SevenUp is online now   Reply With Quote
Old 04-25-2018, 04:37 PM   #65
Recycles dryer sheets
shortstop14's Avatar
 
Join Date: Aug 2012
Posts: 288
1. What pct of conventional IRA do you/will you have converted to Roth by your RMD Year?

Eight years away from RMDs now. It partly depends on when we start Social Security, which will reduce the headroom in the 12% bracket. Rough calculation looks like we might get to 50% converted. We're just over 71% in tax deferred accounts now.

2. Will you/ did you continue Roth conversion after your RMD’s start?

Haven't thought about that. It seems unlikely that they'll be much space with Social Security taken as RMD income, along with (very) small pensions and dividends in taxable accounts.

3. Do you plan on converting 100% to Roth?

Likely not possible.

4. How old were you when you started Roth conversions?

Started at 58 after two years flushing out some capital gains and exercising stock options following retirement.

5. Do you do Roth conversions every year and once per year? And pay the tax in the quarter that you convert?

The plan is every year, but keeping income to around $30,000 for ACA subsidy makes it tough to convert much. The subsidy is large enough to make RMD taxation a secondary concern. I convert in December when I know the actual amount of space under $30,000 available. Don't worry about estimated taxes because our tax rate is so low. No state income tax to worry about. Once we reach Medicare age and don't care about ACA, we'll have four or five years to convert more heavily - even if we take Social Security at FRA.

6. Is your Roth IRA investment mix the same as in your traditional IRA?

The overall allocation goes across all accounts, but the Roths are fully in equities.

7. To what extent was/is your decision on delaying SS based on your Roth conversion strategy?

It's partly a factor - having those years without SS gives more space for conversions.

8. Do you have reasons to not do Roth conversions?

As stated ACA subsidy reasons limit the conversions. Also, it's getting tougher to free up living cash from taxable accounts without taking capital gains, which reduces the space available for conversions.

I didn't realize I was going to have to turn into a tax accountant after retirement.
shortstop14 is offline   Reply With Quote
Old 04-25-2018, 08:31 PM   #66
Recycles dryer sheets
 
Join Date: May 2015
Location: NorCal
Posts: 228
Quote:
Originally Posted by Ronstar View Post

8. Do you have reasons to not do Roth conversions?
I've been thinking about doing conversions for several years now but this post finally motivated me to dig a little deeper and run some numbers using some online Roth conversion calculators. I entered my current marginal tax rate and expected future tax rate and was surprised to see that I am better off not converting. The incremental loss of ACA subsidy (approx. 10%) on top of my federal + State (CA) rate makes the conversion worse off than just staying put.
FIREd_2015 is offline   Reply With Quote
Old 04-25-2018, 09:23 PM   #67
Full time employment: Posting here.
 
Join Date: Jan 2013
Posts: 775
Quote:
Originally Posted by FIREd_2015 View Post
I've been thinking about doing conversions for several years now but this post finally motivated me to dig a little deeper and run some numbers using some online Roth conversion calculators. I entered my current marginal tax rate and expected future tax rate and was surprised to see that I am better off not converting. The incremental loss of ACA subsidy (approx. 10%) on top of my federal + State (CA) rate makes the conversion worse off than just staying put.
Are you staying below 400% FPL or 300% FPL or something else?
broadway is offline   Reply With Quote
Old 04-25-2018, 09:33 PM   #68
Recycles dryer sheets
 
Join Date: May 2015
Location: NorCal
Posts: 228
Quote:
Originally Posted by broadway View Post
Are you staying below 400% FPL or 300% FPL or something else?
I am trying to stay just below the ACA subsidy cliff which is around MAGI of $48k in NorCal for my plan.
FIREd_2015 is offline   Reply With Quote
Old 04-28-2018, 08:32 AM   #69
Full time employment: Posting here.
googily's Avatar
 
Join Date: Jul 2013
Posts: 660
Man, now you all really have me thinking about my current setup, eventual RMDs, Roths, etc.

So, a question: if you were 51, no kids, had a high six figure spousal inherited IRA (titled that way to allow me to take distributions before 59.5 without penalty), a very small all pre-tax IRA (rollover old 403b), a mid six figure 401k that has about $7k after tax just rolled over to an in-plan Roth, and a couple hundred thousand in an after-tax account, and likely a low six figure IRA inheritance coming from a parent in a few years, what would you do?

I will have early access to DH's SS when I'm 60 if I wish, a $30k non COLA pension at 65, and my own SS at 67, so there's no doubt that when I hit RMD time I'll be in the 22% bracket, as I am now while still working. But I could be in the 12% bracket when I retire early.

I'm not really looking for direct advice so much as just wondering how other people would approach this, since I don't think there is one right answer.

I think the short answer is that I'm just going to have a lot of taxes to pay, which I am mostly okay with, but I would love to go into it as well configured as possible.

Does anyone know if I could claim just a portion of the inherited IRA as my own? Then I could start converting some of it. I plan to claim all of it at 59.5 anyway.

And I am allowed to rollover into my current 401k. And everything is at Vanguard.

Sorry, that's a lot of info, but you can see why having so many scenarios is driving me nuts. (First world problems.) Analysis paralysis!
googily is offline   Reply With Quote
Old 04-28-2018, 08:56 AM   #70
Recycles dryer sheets
 
Join Date: Oct 2013
Location: Chicago
Posts: 102
Quote:
Originally Posted by googily View Post
Man, now you all really have me thinking about my current setup, eventual RMDs, Roths, etc.

So, a question: if you were 51, no kids, had a high six figure spousal inherited IRA (titled that way to allow me to take distributions before 59.5 without penalty), a very small all pre-tax IRA (rollover old 403b), a mid six figure 401k that has about $7k after tax just rolled over to an in-plan Roth, and a couple hundred thousand in an after-tax account, and likely a low six figure IRA inheritance coming from a parent in a few years, what would you do?

I will have early access to DH's SS when I'm 60 if I wish, a $30k non COLA pension at 65, and my own SS at 67, so there's no doubt that when I hit RMD time I'll be in the 22% bracket, as I am now while still working. But I could be in the 12% bracket when I retire early.

I'm not really looking for direct advice so much as just wondering how other people would approach this, since I don't think there is one right answer.

I think the short answer is that I'm just going to have a lot of taxes to pay, which I am mostly okay with, but I would love to go into it as well configured as possible.

Does anyone know if I could claim just a portion of the inherited IRA as my own? Then I could start converting some of it. I plan to claim all of it at 59.5 anyway.

And I am allowed to rollover into my current 401k. And everything is at Vanguard.

Sorry, that's a lot of info, but you can see why having so many scenarios is driving me nuts. (First world problems.) Analysis paralysis!
It appears that between the two IRA’s approaching 1 million at age 51, you’re in great shape. Preparing for the likely monster MRD at 70 would be my my main concern. Roth conversions make sense, so does planned giving. Finally, a 72T (SEPP) withdrawal before you turn 59.5 could make sense also. Although I did not have quite a million at 51, I did a SEPP at age 54. Timing could not have been better with how well the market has done over the past 8 years. I’ve not ERed but was able to pick a lower paying job but with lot less corporate BS. The SEPP was key. And RMD in 10 years won’t be as much of a tax hit as it would be without the SEPP.

Hope this is helpful.
free2020 is offline   Reply With Quote
Old 04-28-2018, 09:15 AM   #71
Dryer sheet aficionado
 
Join Date: Jun 2014
Location: seattle
Posts: 44
I haven't completely decided but am considering trying to convert approx 50% total of pre tax accounts to Roth to the top of the 22 or 24% brackets in a couple years when I retire. I could do this over 2-3 years. My theory of front loading the conversions is that with retirement in the early 50's it'll have a long to to grow and all the growth will be tax free.
Also - by lumping in a couple years I will just forgo any aca subsidy for a couple years when I'm relatively younger and get just get an as cheap as possible bare bones health plan for those 2-3 years.
newtoseattle is offline   Reply With Quote
Old 04-28-2018, 09:22 AM   #72
Thinks s/he gets paid by the post
mpeirce's Avatar
 
Join Date: Feb 2012
Location: Northern Ohio
Posts: 2,603
Quote:
Originally Posted by newtoseattle View Post
I haven't completely decided but am considering trying to convert approx 50% total of pre tax accounts to Roth to the top of the 22 or 24% brackets in a couple years when I retire. I could do this over 2-3 years. My theory of front loading the conversions is that with retirement in the early 50's it'll have a long to to grow and all the growth will be tax free.
Especially if you are paying the taxes on the conversions with after tax money (not from the IRA), getting as much converted early makes a lot of sense. This gets the extra money into the ROTH for tax free compounding earlier.
mpeirce is online now   Reply With Quote
Old 04-28-2018, 06:03 PM   #73
Full time employment: Posting here.
googily's Avatar
 
Join Date: Jul 2013
Posts: 660
Quote:
Originally Posted by free2020 View Post
It appears that between the two IRA’s approaching 1 million at age 51, you’re in great shape. Preparing for the likely monster MRD at 70 would be my my main concern. Roth conversions make sense, so does planned giving. Finally, a 72T (SEPP) withdrawal before you turn 59.5 could make sense also. Although I did not have quite a million at 51, I did a SEPP at age 54. Timing could not have been better with how well the market has done over the past 8 years. I’ve not ERed but was able to pick a lower paying job but with lot less corporate BS. The SEPP was key. And RMD in 10 years won’t be as much of a tax hit as it would be without the SEPP.

Hope this is helpful.
Thanks! I am "lucky" (ahem) to not have to do the SEPP, since I can withdraw from the spousal inherited IRA without penalty before 59.5.

That's why I was wondering if it's possible to maybe split the iIRA, and keep half of it as inherited and claim the other half as my own, and then start Roth conversions from there.

I also need to start spending more money.
googily is offline   Reply With Quote
Old 04-29-2018, 09:43 AM   #74
Moderator
sengsational's Avatar
 
Join Date: Oct 2010
Posts: 8,511
I'm left wondering how many of those reporting in this thread have run i-orp and if that agrees with their plan. A warning for using i-orp: put the same percent equities for all buckets, or it will preferentially spend out of the lower equity percent bucket and mess up the analysis.
sengsational is online now   Reply With Quote
Old 04-29-2018, 10:17 AM   #75
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 30,062
I have run i-orp. It recommended way more Roth conversions than I am comfortable with... they would recommend converting into the 22% tax bracket now which would make some of my conversions at a 27% marginal tax rate followed by 22%... and that is only federal tax... add another 7-8% for state income taxes and that is 34-30% total tax.

I concede that economically they may be right but I just have a real hard time writing a huge check for taxes. Once we redomisticate to a no income tax state in a few years I may reconsider it.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 04-29-2018, 11:23 AM   #76
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,743
Quote:
Originally Posted by sengsational View Post
A warning for using i-orp: put the same percent equities for all buckets, or it will preferentially spend out of the lower equity percent bucket and mess up the analysis.
But isn't it the function of I-ORP to tell me which account to spend from and how much to convert based on actual allocation?
Corporateburnout is offline   Reply With Quote
Old 04-29-2018, 11:46 AM   #77
Recycles dryer sheets
 
Join Date: Feb 2015
Posts: 291
8. Do you have reasons to not do Roth conversions?[/QUOTE]


Yes. Most definitely. Since there is a chance myself or my wife will need assistance later in life and this assistance remains tax deductible as a medical expense...we can offset taxes due from RMD's on a Trad. IRA with future medical/ assisted living/nursing home expenses as a medical deduction on Sch. A. If you convert all to a Roth....you may not be able to offset taxes due on RMD's. For 2018 and 2019 medical/dental expenses that exceed 7.5% of AGI will be tax deductible. After 2019 , medical expenses that exceed 10.0% of AGI will be tax deductible. Something to consider.

I think the best approach is to have some in taxable, some in tax deferred, and some in tax free. Then withdraw on a tax efficient basis for whatever needs may arise later in life.
MrLoco is offline   Reply With Quote
Old 04-29-2018, 05:26 PM   #78
Thinks s/he gets paid by the post
 
Join Date: Oct 2012
Location: Colorado Mountains
Posts: 3,071
Quote:
Originally Posted by sengsational View Post
I'm left wondering how many of those reporting in this thread have run i-orp and if that agrees with their plan. A warning for using i-orp: put the same percent equities for all buckets, or it will preferentially spend out of the lower equity percent bucket and mess up the analysis.
i-orp recommended I transfer all assets to Roth at considerable tax ratios. I plan to do charitable distributions using QCDs after 70.5. I don't recall QCDs being considered by i-orp. I also don't think i-orp considers state taxes or Medicare premiums in its calculations both of which can be very big annual hits when they apply to you. Please let me know if I am wrong on these areas.
Hermit is offline   Reply With Quote
Old 04-29-2018, 07:08 PM   #79
Dryer sheet wannabe
whaleknives's Avatar
 
Join Date: Apr 2018
Posts: 19
Quote:
Originally Posted by sengsational View Post
I'm left wondering how many of those reporting in this thread have run i-orp and if that agrees with their plan. A warning for using i-orp: put the same percent equities for all buckets, or it will preferentially spend out of the lower equity percent bucket and mess up the analysis.
The thing to remember about i-ORP is that it maximizes your spending or your final balance:
"If you fix your estate ORP will maximize your annual, after tax, disposable income. If you put an upper bound on your spending ORP will maximize your final total asset balance."
https://i-orp.com/GOPtax/faq.html
__________________

Maritime signal flag W-Whiskey, "I require medical assistance."

Technically not early retirement in 2015 at 64-1/2. 32% of men and 37% of women who claimed Social Security that year were 62. (Annual Statistical Supplement, 2016, Table 6.B5)
whaleknives is offline   Reply With Quote
...it’s called an “individual” retirement account
Old 04-29-2018, 08:53 PM   #80
Recycles dryer sheets
 
Join Date: Dec 2016
Posts: 237
...it’s called an “individual” retirement account

Quote:
Originally Posted by googily View Post
Thanks! I am "lucky" (ahem) to not have to do the SEPP, since I can withdraw from the spousal inherited IRA without penalty before 59.5.

That's why I was wondering if it's possible to maybe split the iIRA, and keep half of it as inherited and claim the other half as my own, and then start Roth conversions from there.

I also need to start spending more money.
Sorry, Googily

an IRA, even an inherited one, is an individual account...and you CANNOT split it

with your original info, I would max conversions from YOUR IRA up to the top of the (now) 12% limit, paying tax from your taxable account

since you have a while, continue doing so for the next years and don’t convert all of your IRA, as you will have 0 and 12% brackets to fill later
By not going too high, you can determine which years you need to “tax gain harvest” at 0 long term capital gains

obviously, take the surviving spouse SS at 60, and still convert to the top of the 12%. consider if it is best to continue doing Roth conversions at 67 and waiting until 70 for your SS to delay the higher tax limit... you’ll have to wait until you get there with your then current values to know.
(for us, I’ll be converting until the January after FRA and then starting SS , it’s almost break even and I’ve got the slightly lower PIA, and it leaves the max in the taxable accounts for whoever survives) for us, there’s no way we could possibly convert all the IRA’s without going way up the tax table, as our IRA’s are over a mil combined, but we also have more than that in taxable ...plus a pension... and hefty SS for both as well. couldn’t do conversions before retirement when in 33% bracket, as it made no sense.


(I wouldn’t even consider any future inherited IRA from parents, they might use them for long term care and not have tax consequences if enough costs above 10% MAGI)
FI_RElater is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Ruh-roh: Roth IRA conversions-- the IRS way. Nords FIRE and Money 14 06-03-2006 06:36 PM
Roth Conversions for Retirees mickeyd FIRE and Money 5 03-12-2006 10:35 AM
Roth IRA Conversions for Retirees mickeyd FIRE and Money 4 12-17-2005 11:38 AM
Roth Conversions?? stevelb FIRE and Money 18 02-28-2005 05:46 PM
ER Roth conversions unclemick FIRE and Money 8 03-05-2004 11:25 PM

» Quick Links

 
All times are GMT -6. The time now is 01:44 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.