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Old 01-06-2017, 09:45 PM   #41
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One is supposed to spend down the IRA in retirement and the government insists that you do so.

For those with no pension (like me) you get to buy yourself one. I got a nice one that will pay more than SS does and it's still growing strong.

I got the SS, I got the savings and investments and I got the IRA to buy myself a pension when the time comes.

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Old 01-06-2017, 09:50 PM   #42
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Originally Posted by Options View Post

Well, you might care if you leave money on the table (by paying more taxes than needed) if you failed to analyze your own personal situation sufficiently. It's amazing how different (as in lower) taxes can be in retirement when effective tax bracket management strategies are employed. For the duration of my PF life, I will only pay about $600 annually in taxes, and that's only because I'm doing roth conversions. The conversions will considerably reduce taxes after delayed SS and RMD's start at 70 1/2.
I've spent a lot of time analyzing my finances to minimize tax rate percentages by keeping income just below the start of higher rate brackets. Whether I did that optimally is another matter.

But now I'm at the point where shortly SS & RMD's both will kick in & I won't be able to impact income nor taxes much that I can see besides using tax-free investments. Neither could my former CPA.

Some talk about "spending down" their IRAs. I don't understand how spending helps. Less income because of fewer assets?
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Old 01-06-2017, 10:03 PM   #43
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One is supposed to spend down the IRA in retirement and the government insists that you do so.

For those with no pension (like me) you get to buy yourself one. I got a nice one that will pay more than SS does and it's still growing strong.

I got the SS, I got the savings and investments and I got the IRA to buy myself a pension when the time comes.

I got the tripod -
Wow! All this time I was trying to figure out how to move the most money to taxable accounts and the least to the government. I think I am starting to understand your "spend and have fun" policy. I will have to start adding bells and whistles to that F350 and camper I have been thinking about!
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Old 01-06-2017, 10:08 PM   #44
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I've spent a lot of time analyzing my finances to minimize tax rate percentages by keeping income just below the start of higher rate brackets. Whether I did that optimally is another matter.

But now I'm at the point where shortly SS & RMD's both will kick in & I won't be able to impact income nor taxes much that I can see besides using tax-free investments. Neither could my former CPA.

Some talk about "spending down" their IRAs. I don't understand how spending helps. Less income because of fewer assets?
Per your explanation above, it's too late for you. But as this is an early retirement forum, many of us are young enough that spending down/Roth converting a t-IRA to the top of the (usually) 15% bracket will help minimize our RMDs later in life, helping minimize taxes. If you draw from your t-IRA from age 59.5 (or earlier with a 72(t)) you can be drawing money from the IRA at a lower tax rate then you put it in. And by drawing the balance of the IRA down, you will have lower RMDs eventually. If you're lucky, you'll lower them enough to impact taxes. That's the reason.

Another advantage of this strategy is that it allows you to let your after tax investments grow. You never have to spend them, so (if interested) you can pass them on to your heirs without having to deal with the major tax hit of an inherited IRA.
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Old 01-06-2017, 11:11 PM   #45
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Roth conversions were my plan too but I made too much dough this year with dividends and capitol gains to do anything. It would have all been at 25%, so maybe next year.
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Old 01-06-2017, 11:37 PM   #46
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When I stopped working 4 years ago, our after-tax accounts were 1/2 of the before-tax accounts. After heavy expenses while not being able to tap the IRA/401k because we were not yet 59-1/2, the after-tax money is now down to less than 1/3 of the before-tax money. I don't like it!

IRA accounts are good for trading because I can do market timing without worrying about taxes. I make AA adjustments, option writing, and short-term trading all in there. It's great. So, the before-tax money grows, while I am more conservative with the after-tax money because of tax considerations, plus that is the money to be spent before the age of 60. So, that's why my after-tax money shrinks.

I have done as much Roth conversions as possible since my earned income stopped, but at this point it is still a measly 7.5% of investable assets. Roth money is a wonderful thing. It allows making big AA changes when the market condition calls for it with no concerns about taxes, and is like IRA in that aspect. Yet, it can be tapped for large expenses without worrying about taxes, unlike IRA withdrawals. It's just, well, wonderful.

I've got to get meself more Roth money.
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Old 01-07-2017, 06:18 AM   #47
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Not sure if spending down an IRA or getting it out of the IRA are the same thing?
I also never understood why folks think you have to spend the money if you take SS at 62? If you want to take SS at 70, why not take it at 62 and bank it for 8 yrs. till 70? And have an extra $150-200k in the bank at 70? I plan to spend SS at 62, rather than money in my existing accounts. I am even thinking about doing a 72T now at 55. Have 500k in the IRA and might pull 24k a year out of it possibly forever. If I make 2% on it, it will take me to 90+ yrs old. Stay in a good tax rate, and bank the excess.
Just not able to warm up to paying the Tax's up front on Roth conversions. Its a mental block or something. LOL LOL. My roth, while not huge at 150k will probably be the last thing I use.......... If ever
But in my case as it turns out, the IRA or Roth do not play a major role in my retirement income. Everyone's case is different....... While my plan may not be perfect, its what I am going with. And seems to be working. Time will tell.
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Old 01-07-2017, 06:52 AM   #48
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I have never bought into the idea that delaying SS is a 6-8% "return". At best, it grows based on COLA only. A return implies that the asset grows each year and at any point in time, the full amount, principal plus growth is available for you or your heirs to use. And while different than investment risks, there are also downside risks to SS amounts as well in the future (100% taxation for example) .

Delaying SS would be better characterized as a 6-8% increase in monthly payment amount, not growth of an asset. And when you consider smaller monthly payments over a longer time vs. larger monthly payment over a shorter time, then the cross over point is around 11-13 years. So, taking SS at age 70 means there is no financial gain til at least age 81. And the percentage gain compared to taking SS early will be very low even at life expectancy of around 85 yrs.

This is just my view, but I took SS early (since I have no control over changes in SS or yearly COLA) and maximized investment assets that I at least have some possibility of adapting to market changes.

Not following your logic that "at best your payment grows at the rate of cola only". My payment when I reach 70 will be 132% of my PIA at full retirement age plus the inflation rate between full retirement age and age 70. True if I die before the crossover date, I've left money on the table. Also true if I live beyond the crossover date, I'll make out better. There are many reasons why deciding when to take SS is a highly individual process, which is not a one solution fits all. In my case the lower earning spouse claimed at 62, the higher earning spouse claimed spousal at FRA and will claim on his/her own record at 70, providing some cheap longevity insurance.


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Old 01-07-2017, 07:32 AM   #49
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Exactly. And tax-gain harvest in the process!
This year I will debate on Roth conversions to the top of the 15% bracket or just below the PTC cliff. However, I do not due tax gain harvesting since I believe in my case the roth conversion is more valuable than harvestinglosses. In fact I continuously work on harvesting capital losses and have banked about 100k... so little need for LTCG harvesting. Yes I realize that someday I will have to realize these.
To the OP, what is best really depends on your situation. I am about 55%/45% after tax/tax preferenced. I hold most of my equities in taxable accounts mostly in ETFs. I do not hold MF in taxable account since they can have large unexpected distributions (broad index funds may be an exception). Much of the equity distributions have tax advantages (Q-divy). I mostly put fixed income in T-IRA. fixed income mostly is taxes as normal income which is the same rate as tIRA withdraws. It also tends to grow slower than equities in general. I use my limited Roths for higher risk/return investments (not that I take extreme risks).
Dividing it up this way, the tIRA may not out grow the conversions in the long run. I am also considering if to take larger roth conversions.

One must also consider that the rules/laws may change. So all these plans may change with the flick of a pen in Washington. I'm not trying to anger the moderator gods, but one must stay somewhat flexible as tax laws and benefits can change almost as fast as our situations.

Maybe I'm a little different having more after tax $ than total IRA $ which may lead me to different thinking. Or maybe I just don't have a clue as the right thing to do.

Good luck
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Old 01-07-2017, 09:01 AM   #50
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Not following your logic that "at best your payment grows at the rate of cola only". My payment when I reach 70 will be 132% of my PIA at full retirement age plus the inflation rate between full retirement age and age 70. True if I die before the crossover date, I've left money on the table. Also true if I live beyond the crossover date, I'll make out better.
The real point is that the increase in payment amount is not "extra or bonus money or asset growth", it is simply paying you later for money you could have taken earlier. Without that increase, crossover would never happen. As someone stated, the crossover point is very close to life expectancy so unless you die very early or live very long, then the +/- impact of either decision will be minimal.
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Old 01-07-2017, 09:01 AM   #51
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... I am about 55%/45% after tax/tax preferenced...

Maybe I'm a little different having more after tax $ than total IRA $ which may lead me to different thinking...
I prefer to have more after-tax money myself. The cap gains and dividends from it are tax-free for the 15% bracket, which is nearly 100K for a couple after personal exemptions and standard deduction. What's not to like? If one has a few mils of after-tax money sitting in a brokerage account, he can live very comfortably while paying not much tax.

Of course if one is sitting on a lot of former employer shares with a lot of cap gains, then it is not easy to sell for diversification without paying taxes. It is still a lot better than the tax levied on IRA withdrawals.

I have always been diversified, and been doing gain harvesting to reset the basis of my shares. As mentioned earlier, I have been selling them to cover heavy expenses prior to 59-1/2 (several hundred $Ks), hence do not have as much as before. Not much I could do there.
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Old 01-07-2017, 09:31 AM   #52
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Originally Posted by larrytbm View Post

Delaying SS would be better characterized as a 6-8% increase in monthly payment amount, not growth of an asset. And when you consider smaller monthly payments over a longer time vs. larger monthly payment over a shorter time, then the cross over point is around 11-13 years. So, taking SS at age 70 means there is no financial gain til at least age 81. And the percentage gain compared to taking SS early will be very low even at life expectancy of around 85 yrs.
.
One thing to keep in mind is that some people can still take SS payments from a spouse's account at 66 while letting their own SS payments increase until they are 70. That can tilt the playing filed towards delaying one's own SS payments.


The fate of SS/Roth/tIRA accounts is a big question in my mind. Congress can change things anytime. Recently they just closed the 'loophole' that lets some collect off of the spouse's account while allowing one's personal account payment to increase until 70 (mentioned above). I can see SS payments possibly being taxed more heavily in the future at the higher income levels. I can also see Roth withdrawals possibly being used to push people into a higher tax bracket without technically taxing the Roth withdrawal itself. Of course, taxable IRA's already lose any tax breaks from capital gains.

The best thing is to have multiple sources of income so that one change can't sink the ship.
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Old 01-07-2017, 12:03 PM   #53
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Not sure if spending down an IRA or getting it out of the IRA are the same thing?
I also never understood why folks think you have to spend the money if you take SS at 62? If you want to take SS at 70, why not take it at 62 and bank it for 8 yrs. till 70? And have an extra $150-200k in the bank at 70? I plan to spend SS at 62, rather than money in my existing accounts. I am even thinking about doing a 72T now at 55. Have 500k in the IRA and might pull 24k a year out of it possibly forever. If I make 2% on it, it will take me to 90+ yrs old. Stay in a good tax rate, and bank the excess.
Just not able to warm up to paying the Tax's up front on Roth conversions. Its a mental block or something. LOL LOL. My roth, while not huge at 150k will probably be the last thing I use.......... If ever
But in my case as it turns out, the IRA or Roth do not play a major role in my retirement income. Everyone's case is different....... While my plan may not be perfect, its what I am going with. And seems to be working. Time will tell.
Impossible, 500K won't last forever at a 4.8% withdrawal rate.

I view spending down and getting the $$ out of IRA as the same, doesn't mean I spend every penny I get out of IRA.
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Old 01-07-2017, 12:10 PM   #54
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Old 01-07-2017, 12:18 PM   #55
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This year I will debate on Roth conversions to the top of the 15% bracket or just below the PTC cliff. However, I do not due tax gain harvesting since I believe in my case the roth conversion is more valuable than harvestinglosses. In fact I continuously work on harvesting capital losses and have banked about 100k... so little need for LTCG harvesting. Yes I realize that someday I will have to realize these.
To the OP, what is best really depends on your situation. I am about 55%/45% after tax/tax preferenced. I hold most of my equities in taxable accounts mostly in ETFs. I do not hold MF in taxable account since they can have large unexpected distributions (broad index funds may be an exception). Much of the equity distributions have tax advantages (Q-divy). I mostly put fixed income in T-IRA. fixed income mostly is taxes as normal income which is the same rate as tIRA withdraws. It also tends to grow slower than equities in general. I use my limited Roths for higher risk/return investments (not that I take extreme risks).
Dividing it up this way, the tIRA may not out grow the conversions in the long run. I am also considering if to take larger roth conversions.

One must also consider that the rules/laws may change. So all these plans may change with the flick of a pen in Washington. I'm not trying to anger the moderator gods, but one must stay somewhat flexible as tax laws and benefits can change almost as fast as our situations.

Maybe I'm a little different having more after tax $ than total IRA $ which may lead me to different thinking. Or maybe I just don't have a clue as the right thing to do.

Good luck
Converting roths while tapping taxable and delaying SS is one strategy for what is known as tax bracket management, in an attempt to smooth out taxes over the PF life. Regarding future tax law changes, the idea is to take advantage of today's tax laws in utilizing tax management strategies as we have no idea what changes will occur in the future. What is not suggested is to ever convert if your future taxes will be lower than your taxes today, because you are accelerating taxes unnecessarily. For most people, this favors roth conversions due to the SS/RMD's "tax torpedo". Further, roths will fall outside of future tax reforms (unless of course roth RMD's become required which is a distinct possibility) in that they are tax-free, which is a very good reason to convert and get money out of those retirement vehicles that will be subject to reforms (taxable, tax-deferred).

Michael Kitces has an excellent post on roth conversions which I'm too lazy to go dig up. here:

https://www.kitces.com/blog/using-sy...acket-buckets/

This year I got really fancy, and did what is known as the roth conversion "horse race" (see the BH forum for excellent explanations on how to do this): did 3 roth conversions in 3 different asset classes (stock/int'l stock/bond) in January. In December, recharacterized the two losing roths, and kept the winning roth worth the most money (thus converting the most shares).

At the same time, I tax gain harvested about $7K at the time I pulled out next year's expenses from taxable, and it did not increase my taxes. Again, I am only doing roth conversions up to the 15% tax bracket. I'll pay less than $600 in taxes this year for my trouble.

None of this was as hard as I thought it would be and I was really proud of myself for having pulled it off successfully. If I can figure it out, anyone can.
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Old 01-07-2017, 12:22 PM   #56
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How much were you able to convert?
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Old 01-07-2017, 12:46 PM   #57
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I converted 3 funds at $20K each for a total conversion of $60K in January, and recharacterized the two losing funds each at $20K, which left me with my original intended conversion of $20K (plus market gains). Modelling in tax software in late 2015 before executing the conversions in Jan 2016, I intentionally targeted having to pay no more than $600K total taxes for tax year 2016, to include the tax gain harvesting.

In the interest of simplicity (and to hedge my bets), I wasn't interested in optimizing the roth conversions (that is figuring out to the exact penny what to convert in order to save on taxes), but instead targeted a 2016 tax year due amount I was comfortable paying. In my case, conversions are a no-lose proposition because I know my taxes will be higher in the future due to delaying SS until 70 combined with RMD's (the surprise age 70 1/2 tax torpedo).
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Old 01-07-2017, 01:12 PM   #58
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The real point is that the increase in payment amount is not "extra or bonus money or asset growth", it is simply paying you later for money you could have taken earlier. Without that increase, crossover would never happen. As someone stated, the crossover point is very close to life expectancy so unless you die very early or live very long, then the +/- impact of either decision will be minimal.
+1
As for SS decisions I use a cash flow calculation with PV on each possible stream and determine required equivalent IRR. Should be about 4% for age 85. Depending on tax rate assumptions. Beyond 85, I won't care about the small change in total NW. Neither one of us is concerned about the spousal benefit, they are not additive. Bird in hand though more to gift!
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Old 01-07-2017, 01:27 PM   #59
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One thing to keep in mind is that some people can still take SS payments from a spouse's account at 66 while letting their own SS payments increase until they are 70. That can tilt the playing filed towards delaying one's own SS payments.

Yes this is us. The extra spousal funds for us in excess of $40,000 plus the longevity insurance make waiting until 70 an easy choice for us.
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