Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 06-08-2020, 07:11 PM   #41
Thinks s/he gets paid by the post
ownyourfuture's Avatar
 
Join Date: Jun 2013
Posts: 1,373
Quote:
Originally Posted by SecondCor521 View Post
You've used two different terms: conversion in your first sentence and distributions in your second sentence.
Seriously ?
I asked exactly one question:
Do Roth distributions count towards your modified adjusted gross income ?
__________________
"No beast so fierce but knows some touch of pity, but I know none, therefore am no beast"
Shown @ The End Of The Movie 'Runaway Train'
ownyourfuture 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 06-08-2020, 07:41 PM   #42
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 6,770
Quote:
Originally Posted by ownyourfuture View Post
Seriously ?
I asked exactly one question:
Do Roth distributions count towards your modified adjusted gross income ?
Yes, seriously.

I answered the literal question you asked in the last sentence in my previous post.

But I also answered a different question that you didn't ask but you may have meant to ask, given that you used two different terms in your earlier post.

I'll stop trying to help you now.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Old 06-08-2020, 07:42 PM   #43
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 12,380
Quote:
Originally Posted by ownyourfuture View Post
Since Roth conversions are a huge part of this thread, I thought Id ask here, instead of starting a new one.

Do Roth distributions count towards your modified adjusted gross income ?
I have a HD healthcare plan & have to watch my income very closely.
Quote:
Originally Posted by ownyourfuture View Post
Seriously ?
I asked exactly one question:
Do Roth distributions count towards your modified adjusted gross income ?
Seriously? Paraphrasing your post:
"Since Roth conversions are a huge part of this thread, I thought I'd ask a totally unrelated question here, instead of starting a new one."

Start your own thread next time.
RunningBum is offline   Reply With Quote
Old 06-08-2020, 07:50 PM   #44
Recycles dryer sheets
 
Join Date: Oct 2007
Posts: 415
Quote:
Originally Posted by Alan View Post
The year I retired at age 55 I did a Roth conversion of my deductible IRA so only paid tax on the gains.

The following year I rolled my 401k into an IRA and have been doing Roth conversions every year since.
I understand you Roth converted your Non Deductible part of your IRA & paid taxes on the gains.

How did you calculate the gains on the non deductible portion in a co mingled IRA. ? Any Special Forms to complete at the Tax Time.?

Thanks in advance
rkser is offline   Reply With Quote
Old 06-08-2020, 08:03 PM   #45
Dryer sheet wannabe
 
Join Date: Feb 2017
Location: Seattle
Posts: 14
I see good people on both sides. (mops brow)

OK, so what I'm reading is the very first Roth IRA you open, that starts the clock for that account and any future Roth IRA accounts? Sounds good to me.

Me and my DW both have old 401k accounts of $300k each, a Fidelity and a "Merrill," and we each have older Schwab Roth IRA accounts so those are the subject of conversion.

This new wrinkle I learned today is that I can contribute to a work Roth IRA which is just added to the other conversions for tax purposes annually so I guess the decision is, is there any benefit to opening up a Roth IRA account at work and make contributions to it when I'm just gonna convert all that money to the Schwab Roth IRA eventually?
TonyClifton is offline   Reply With Quote
Old 06-08-2020, 09:21 PM   #46
Thinks s/he gets paid by the post
Out-to-Lunch's Avatar
 
Join Date: Jan 2020
Location: Milwaukee
Posts: 2,550
Quote:
Originally Posted by TonyClifton View Post
This new wrinkle I learned today is that I can contribute to a work Roth IRA
Here, you mean Roth 457, right? There is no such thing as a "work Roth IRA."

Quote:
which is just added to the other conversions for tax purposes annually
I don't know what you mean by this. By "added to the other conversions for tax purposes" do you mean that you need to pay tax on the income that you are directing to the Roth 457? If so, yes, you need to pay tax on those funds.

Quote:
so I guess the decision is, is there any benefit to opening up a Roth IRA account at work and make contributions to it when I'm just gonna convert all that money to the Schwab Roth IRA eventually?
Assuming I understood the earlier stuff correctly, everything depends on your tax rates vs. time. To first order, Roth contribution and conversion is driven by tax-rate arbitrage. (There are smaller higher-order effects, too.) So the answer to your last question mostly depends on the tax rate in the year of contribution (to the Roth 457) compared to a future (?) time when you would either convert or withdraw from a pretax account.

I think I see what you are getting at though. I believe you have some ability to save some more money, shortly before retiring, and trying to figure out the best vehicle, given being so close, and also planning Roth conversions later, right?

I am in a not-so-dissimilar situation. Rightly or wrongly, I decided to not contribute to the Roth 4XX, and instead bank cash for a couple years before pulling the plug. I will use this cash to pay taxes on conversions from an TIRA to a Roth. The net result is about the same as contributing to a Roth 457 (or 401k or 403b), minus about 1 or 2 years of tax on gains and plus some much-desired liquidity.
Out-to-Lunch is offline   Reply With Quote
Old 06-09-2020, 03:23 AM   #47
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 31,688
Quote:
Originally Posted by rkser View Post
I understand you Roth converted your Non Deductible part of your IRA & paid taxes on the gains.

How did you calculate the gains on the non deductible portion in a co mingled IRA. ? Any Special Forms to complete at the Tax Time.?

Thanks in advance
Nothing was co mingled. The year I retired (March 2nd) was a low income year and I only had 1 IRA which was a non-deductible IRA so it is very easy to see the taxable portion. I converted the entire IRA leaving only a Roth in my account.

The following year I rolled over my very much larger 401k into an IRA. Now I had 1 Rollover IRA in my account that was 100% taxable. If I had not waited until the following year then I would have had co-mingled IRAs and it is not possible to selectively convert as any conversion looks at the cost basis of all IRAs and only a small portion of the non-deductible gets converted. In that case IRS form 8606? needs to be completed and that calculates the basis going forward for future tax years.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 06-09-2020, 09:26 AM   #48
Recycles dryer sheets
 
Join Date: Oct 2007
Posts: 415
OK, I understood, thanks for your reply Alan,

In my case Deductible & Non deductible Funds are co mingled in my IRA, so when I Roth convert, I pay taxes on the deductible (Pre Tax monies) portion of the conversion funds & file Form 8606 for that year.

I wish I had kept the IRAs separate, one for Deductible & one for Non deductible funds, smart planning & foresight Alan!!
rkser is offline   Reply With Quote
Old 06-09-2020, 09:30 AM   #49
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 31,688
Quote:
Originally Posted by rkser View Post
OK, I understood, thanks for your reply Alan,

In my case Deductible & Non deductible Funds are co mingled in my IRA, so when I Roth convert, I pay taxes on the deductible (Pre Tax monies) portion of the conversion funds & file Form 8606 for that year.

I wish I had kept the IRAs separate, one for Deductible & one for Non deductible funds, smart planning & foresight Alan!!
Everything I learned about the mechanics of Roth conversions I learned here. My thanks goes to the collective wisdom of this site.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 06-09-2020, 12:17 PM   #50
Recycles dryer sheets
PhrugalPhan's Avatar
 
Join Date: Jul 2014
Location: DC 'burbs
Posts: 133
Quote:
Originally Posted by TonyClifton View Post
I see good people on both sides. (mops brow)

OK, so what I'm reading is the very first Roth IRA you open, that starts the clock for that account and any future Roth IRA accounts? Sounds good to me.

Me and my DW both have old 401k accounts of $300k each, a Fidelity and a "Merrill," and we each have older Schwab Roth IRA accounts so those are the subject of conversion.

This new wrinkle I learned today is that I can contribute to a work Roth IRA which is just added to the other conversions for tax purposes annually so I guess the decision is, is there any benefit to opening up a Roth IRA account at work and make contributions to it when I'm just gonna convert all that money to the Schwab Roth IRA eventually?
As a participant in a 457 plan, here is my take on this.

The advantages to doing Roth in your 457 is:

1) There is no $7000 contribution limit like with a Roth (or traditional) IRA

2) If you think you will have plenty of low tax space to convert when you retire, then doing Roth now isn't a major need. However, if you have a pension (like I do) it is very possible you will be stuck with as high or higher tax rates once you have SS & pension coming in. (I worked out an estimate and I am in this situation) Due to that I am almost exclusively contributing to Roth 457 at this time as I expect tax rates to rise in the future.

3) There is a rule that 457 plans *can* have a 3 year catch up rule. That is if you are within 3 years of your pension plan's retirement age, you can contribute up to 200% of the normal contribution limit for 3 years. My plan has this option and I started using it this year. I have already contributed $22k as Roth money this year and will do around $36k this year when its all said and done. If this interests you, check with your HR or plan administrator to see if this option exists for you.

4) My plan also allows for in plan Roth conversions. If you want to convert now before you retire, check with your HR to see if this option exists. Our plan added it two years ago, and I did a small conversion this April during the meltdown. I wish I had done a larger amount, but oh well....

And here is a possible disadvantage:

5) Check to see if your plan allows you to indicate what type of contributions you withdraw, or if you are forced to do so proportionally. My plan originally forced you to withdraw proportionally between pre and post tax (which would have been a problem). That rule was removed a few years ago, now I can pull out whatever type of money I want.
PhrugalPhan is offline   Reply With Quote
Old 06-09-2020, 12:42 PM   #51
Thinks s/he gets paid by the post
RetireBy90's Avatar
 
Join Date: Feb 2009
Location: Cville
Posts: 1,405
Interesting post by Phrugal. I read OP as looking at conversions not if he should contribute to the Roth version. Then when he posted that the 457 has a Roth I didn't think of current contributions.

My experience with 401K was final 4 years of work at top of my income, I contributed 25% to the Roth 401K. Company match and a kicker bonus at end of each year went into the traditional 401K.

My company plan didn't allow for partial distribution to an IRA so I waited till I retired and had the entire balance of both traditional and Roth transferred to my IRAs, then started doing conversions from tIRA to the Roth.

If I had done more years of Roth rather than traditional 401K I wouldn't be in the position I find myself today with extreme bump of my income in order to get funds converted. Or, if I had it to do over again I would have been contributing to the Roth 401K all along. I would have paid tax on contributions at the time and what ever I had in the account would be mine. Today I find that I'll be in 24% federal and 5.75% state so only 2/3 of the funds are really mine. Not to mention the hit on Medicare IRMAA and extra tax on SS and so on and so on. I figure about 60% of the funds in tIRA are mine, the rest will be claimed by others.
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
RetireBy90 is offline   Reply With Quote
Old 06-09-2020, 02:51 PM   #52
Recycles dryer sheets
 
Join Date: Sep 2016
Location: Way up North
Posts: 462
Quote:
Originally Posted by TonyClifton View Post
Am I seeing this correctly? I'm wondering why those without a 401k or other tax sheltered retirement account are disadvantaged compared to those who can make a rollover.
People without access to a "qualified" employer sponsored plan are very much at a disadvantage compared to those that do, given enough money to direct towards tax advantaged savings. Additionally, all employer plans are not even close to equal in the advantages they have.

You asked a bunch of questions about conversions from a 457 plan. The rules and potential benefits can get a more than a little convoluted, but are well worth some study. It is possible your 457 plan may allow a maneuver called the "mega-backdoor Roth". That is where you can deposit additional after tax money into your 457 in excess of the qualified limits and then immediately roll those funds into a Roth IRA. Not all plans allow the actions required. The plan has to allow non-Roth after tax contributions and in-service rollovers. If your plan allows this, you could potentially shuttle an additional ~$30K per year into a Roth IRA on top of other contributions and conversions. Because money is "fungible", the maneuver can be used to shuttle money held in taxable savings into a Roth even if you don't have enough current income to comfortably contribute the full amount from ongoing payroll.

Definitely worth a little investigation. I have moved ~$200K in regular savings into a Roth IRA on top of full annual contributions using this over the last 7 years.
bada bing is offline   Reply With Quote
Old 06-09-2020, 05:21 PM   #53
Dryer sheet wannabe
 
Join Date: Feb 2017
Location: Seattle
Posts: 14
Quote:
Originally Posted by bada bing View Post
People without access to a "qualified" employer sponsored plan are very much at a disadvantage compared to those that do, given enough money to direct towards tax advantaged savings. Additionally, all employer plans are not even close to equal in the advantages they have.

You asked a bunch of questions about conversions from a 457 plan. The rules and potential benefits can get a more than a little convoluted, but are well worth some study. It is possible your 457 plan may allow a maneuver called the "mega-backdoor Roth". That is where you can deposit additional after tax money into your 457 in excess of the qualified limits and then immediately roll those funds into a Roth IRA. Not all plans allow the actions required. The plan has to allow non-Roth after tax contributions and in-service rollovers. If your plan allows this, you could potentially shuttle an additional ~$30K per year into a Roth IRA on top of other contributions and conversions. Because money is "fungible", the maneuver can be used to shuttle money held in taxable savings into a Roth even if you don't have enough current income to comfortably contribute the full amount from ongoing payroll.

Definitely worth a little investigation. I have moved ~$200K in regular savings into a Roth IRA on top of full annual contributions using this over the last 7 years.
Though I just discovered my work 457 plan allows me to make either or both untaxed contributions to the 457 and taxed contributions to the 457 Roth, I first need to deal with the two 401k accounts from previous employers (me and DW.) Since there is ~$550k in there now, converting them to the Roth IRA would seem to require several years of conversions before I can turn my attention to the 457. A bit of urgency is felt because the tax rates a few years from now will be quite likely higher.

Here's a question: If one is making withdrawals from a 457 post-retirement and doesn't have an ongoing need for some or all of the money, wouldn't it make sense, if federal tax needs to be paid either way, to have the withdrawal sent to a Roth IRA instead of a direct payment? For the direct payment, any investment return from that point on such as dividends and CG needs to be dealt with each year tax-wise. For the Roth, all these returns are tax free, forever. Why would anyone NOT funnel the withdrawals through the Roth?
TonyClifton is offline   Reply With Quote
Old 06-10-2020, 03:53 AM   #54
Thinks s/he gets paid by the post
RetireBy90's Avatar
 
Join Date: Feb 2009
Location: Cville
Posts: 1,405
I would say you have the answer correct according to my thinking. No reason to take a withdraw and move to taxable account rather than move to Roth.
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
RetireBy90 is offline   Reply With Quote
Old 06-11-2020, 01:27 AM   #55
Thinks s/he gets paid by the post
 
Join Date: Jul 2004
Posts: 1,524
Quote:
Originally Posted by PhrugalPhan View Post
As a participant in a 457 plan, here is my take on this.

The advantages to doing Roth in your 457 is:

1) There is no $7000 contribution limit like with a Roth (or traditional) IRA

2) If you think you will have plenty of low tax space to convert when you retire, then doing Roth now isn't a major need. However, if you have a pension (like I do) it is very possible you will be stuck with as high or higher tax rates once you have SS & pension coming in. (I worked out an estimate and I am in this situation) Due to that I am almost exclusively contributing to Roth 457 at this time as I expect tax rates to rise in the future.

3) There is a rule that 457 plans *can* have a 3 year catch up rule. That is if you are within 3 years of your pension plan's retirement age, you can contribute up to 200% of the normal contribution limit for 3 years. My plan has this option and I started using it this year. I have already contributed $22k as Roth money this year and will do around $36k this year when its all said and done. If this interests you, check with your HR or plan administrator to see if this option exists for you.

4) My plan also allows for in plan Roth conversions. If you want to convert now before you retire, check with your HR to see if this option exists. Our plan added it two years ago, and I did a small conversion this April during the meltdown. I wish I had done a larger amount, but oh well....

And here is a possible disadvantage:

5) Check to see if your plan allows you to indicate what type of contributions you withdraw, or if you are forced to do so proportionally. My plan originally forced you to withdraw proportionally between pre and post tax (which would have been a problem). That rule was removed a few years ago, now I can pull out whatever type of money I want.
Wow - that is one nice Roth perk! Wish TSP would get off their a$$ and allow Roth conversions (they have the lowest fees) .....although I can and do contribute the max (catch up for me as I'm over 50) to the Roth as well as the max to the tax deferred. As it is, I will have to rollover into an IRA and then convert when I pull the plug. My tax deferred is in high 6 figures and I'm single, so the tax bite BITES....with all of my late night i-ORP, FireCalc and personal model calculations, it will be best for me to convert before SS. I will also always blow past any of those IRRMA and other gates. I will be taking the hit (once again) for many....a life of service, I tell ya, a life of service I've had....
;-)
__________________
Deserat aka Bridget
We sleep soundly in our beds because rough men stand ready in the night to visit violence on those who would do us harm.
deserat is offline   Reply With Quote
Old 06-11-2020, 12:24 PM   #56
Dryer sheet wannabe
 
Join Date: Feb 2017
Location: Seattle
Posts: 14
As I've mentioned, my 401a and 457 plan are administered by ICMA-RC which I'm guessing is a big outfit with lots of government clients. I sent ICMA an email with two specific questions: upon retirement (1) will I be able to convert 401a funds into a Schwab Roth IRA and (2) will I be able to convert 457 funds into a Schwab Roth IRA. Here is their reply in total:

"Yes, upon retirement, you will be able to transfer your funds to another provider."

I am unsure if this is a good answer. I do note that these companies are not in the business of making it easy to withdraw funds. For example, there is no problem getting all the information and forms you need to transfer money INTO the account (they are enthusiastic about you "consolidating" your retirement accounts) but information about taking money out is literally in fine print here and there.

I guess I will call them and ask a person my questions again.
TonyClifton is offline   Reply With Quote
Old 06-11-2020, 12:36 PM   #57
Moderator
braumeister's Avatar
 
Join Date: Feb 2010
Location: Flyover country
Posts: 21,716
Quote:
Originally Posted by TonyClifton View Post
I do note that these companies are not in the business of making it easy to withdraw funds.
Unlikely to be a problem for you. Just open the Roth at Schwab, give them the phone number of your current provider, and let them jump through the hoops. They do this every day and since the money will be coming to them, they will be motivated to get it done quickly.
__________________
I thought growing old would take longer.
braumeister is offline   Reply With Quote
Old 06-11-2020, 12:48 PM   #58
Thinks s/he gets paid by the post
RetireBy90's Avatar
 
Join Date: Feb 2009
Location: Cville
Posts: 1,405
Quote:
Originally Posted by braumeister View Post
Unlikely to be a problem for you. Just open the Roth at Schwab, give them the phone number of your current provider, and let them jump through the hoops. They do this every day and since the money will be coming to them, they will be motivated to get it done quickly.

Fidelity did same for me. I just told them account number and they got funds transferred.
__________________
FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected or Due
RetireBy90 is offline   Reply With Quote
Old 06-12-2020, 03:28 PM   #59
Confused about dryer sheets
 
Join Date: Mar 2010
Posts: 7
Quote:
Originally Posted by RunningBum View Post
It sounds like you either aren't yet 72 (age at which RMDs are required), or you are taking out over and above your RMD. Rather than withdrawing the funds, why don't you convert them to a Roth IRA, where they will grow untaxed? You may have to do the intermediate step of rolling the 401K to an IRA first, but that shouldn't be a big deal. The conversion is taxed just like your withdrawal, but you don't have to worry about investing with low taxes in mind inside the Roth.
If I die and have money in my Roth IRA will my beneficiaries have to pay taxes when they close my Roth IRA? Or does it somehow pass to my beneficiaries without them having to pay taxes on it? Would I be better off if I close it now?
eddiegorniakjr is offline   Reply With Quote
Old 06-12-2020, 03:36 PM   #60
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 6,770
Quote:
Originally Posted by eddiegorniakjr View Post
If I die and have money in my Roth IRA will my beneficiaries have to pay taxes when they close my Roth IRA? Or does it somehow pass to my beneficiaries without them having to pay taxes on it? Would I be better off if I close it now?
Typically your beneficiaries would get their portions transferred to an inherited Roth IRA. They would have to drain the account within 10 years but would pay no taxes on their withdrawals.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 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
Can someone give me a wash sale avoidance green light? Quantum Sufficit FIRE and Money 21 04-03-2020 03:24 PM
High 401K Balance, RMD's and Withdrawal Strategies RIGM FIRE and Money 98 08-21-2019 10:11 AM
Tax avoidance/mitigation query gregory r. FIRE and Money 31 03-23-2017 04:21 PM
Uncle Sam avoidance and large vehicles IRS 179... kgtest Other topics 2 11-18-2014 05:21 PM
Define approach-avoidance conflict: calmloki Other topics 8 12-24-2007 10:56 AM

» Quick Links

 
All times are GMT -6. The time now is 10:24 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.