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Old 06-12-2020, 04:12 PM   #61
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I can't see where this has been addressed but maybe it has already been said.

In the recent tax law, non spousal beneficiaries have to take distributions from the total account within ten years of the death of the original account holder.

So, if you have $2M in pretax accounts and have two beneficiaries, they would have to take $100k out each per year for ten years. This will definitely impact their tax brackets.

Having too much in pretax is definitely a problem.

I remember calling my dad after I read this and asked him how much he has in pre-tax...luckily he only has about $100k left since he has been doing Roth conversions all along.

https://www.marketwatch.com/story/th...les-2019-12-27
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Too much of a good thing
Old 06-12-2020, 04:18 PM   #62
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Too much of a good thing

Quote:
Originally Posted by Montecfo View Post
I know what you mean.

When I pass, I am sure my heirs will react poorly upon learning that I have left them tens or hundreds of thousands of dollars that are UNTAXED, including the money to pay those taxes.

" This was no man, this was a monster!", they will surely exclaim!
Iím working at converting ALL of my traditional IRA to Roth. With the Secure Act provision that the account must be emptied in 10 years (for a non-spouse), a taxable account may well be a burden. Suppose that your heir inherits $1M and at the time, she/he is in a peak earning zone, with $300K in salaries. The 10 year rule has them adding $100K to their taxable income, taxed at their marginal rate. Ouch! I WELL understand that Iím paying (or prepaying) those same taxes, but itís just a cleaner package to leave the money as Roth with all taxes paid.

They may not call you a monster, but they may lament the lack of tax planning for them.
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Old 06-12-2020, 04:29 PM   #63
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I didn't see this mentioned and it could be important for a few.... the IRS counts Roth Conversions as income and the IRS reports that income to the Medicare Folks...

The Medicare folks can go back 2 years for income ... so if you are going on medicare when you reach 65, like most, then they will look back two years and determine how much they are going to charge you for your monthly medicare premiums... don't forget, medicare is a single payer plan... so you could end up with you and your spouse getting a huge monthly premium each month... don't be surprised...
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Old 06-12-2020, 05:02 PM   #64
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Originally Posted by dixter View Post
I didn't see this mentioned and it could be important for a few.... the IRS counts Roth Conversions as income and the IRS reports that income to the Medicare Folks...

The Medicare folks can go back 2 years for income ... so if you are going on medicare when you reach 65, like most, then they will look back two years and determine how much they are going to charge you for your monthly medicare premiums... don't forget, medicare is a single payer plan... so you could end up with you and your spouse getting a huge monthly premium each month... don't be surprised...
That is a good point.

Though I can't say I should have saved less than I did, I did not set out intending to have to deal with upper end tax complications, I assumed a drawdown of retirement funds like a regular old annuity.

Obviously something has to give here. It's not possible to make large transfers over a number of years to a Roth IRA and still enjoy the Medicare premiums available to those with less income to declare. Although I fully expect to chafe at higher Medicare costs, I am guessing it will pencil out that I need to be more concerned about not paying 37% or 39% in federal tax when 22% or 24% is available now.

I'm trying to not step over dollars to save pennies but all one can do is create spreadsheets with scenarios that seem reasonable, allowing for best and worst cases, and make decisions.

Something that I haven't seen mentioned much is the powerful compound interest function of a Roth. Investment returns from the time of conversion not being taxed is very powerful over a number of years as compared to "normal" distributions from a retirement plan. Even at a 24% federal tax rate at conversion, the compounding can recover quite a lot of the "loss" if invested for 10-30 years.
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Old 06-12-2020, 07:03 PM   #65
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I do my taxes like this... My income is fixed... I know exactly how much money I want/need each year... so on Jan1 I withdraw the money I need for the next years expenses... Property Tax's, Home Insurance, Health Insurance, Car Insurance...and all of the other bills that will need to be paid... water, electric...ect..ect.. and I budget for travel and lesure... from this distribution I know exactly how much taxes I will owe for this withdraw and so next year on Jan 1 I also take a distribution for the Taxes owed for the previous year draw down... I never touch the Roth funds as it just seems a waist to take those funds until later down the road if tax rates go up... I also don't touch the HSA accounts as you might need that money when you get older and possibly sick .... so those accounts just sit and grow.. you need to take into account as to when you plan on passing away... in most cases, not all, you might retire at 65 and there seems to be a whole lot of folks not making it past 85... thats only 20 yrs...so my fixed income for those years are in bonds... and I chose the bonds with a maturity date so when they mature I get the $1000/bond value back and that becomes my yearly draw... I will have plenty to last till at least 95yrs... but I don't think the 95yr will be obtained... so money wise... some will be left behind... either for the kids or the wife if she lasts longer than I do... so as to taxes again... they are paid via the draw down each yr... you just have to budget for it each year and pay it when it comes due...who knows, when those bonds mature and I start to draw those funds down then I'll use the roth funds to pay the taxes on those...seems to be working so far...
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Old 06-12-2020, 07:32 PM   #66
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Quote:
Originally Posted by samcat View Post
In the recent tax law, non spousal beneficiaries have to take distributions from the total account within ten years of the death of the original account holder.

So, if you have $2M in pretax accounts and have two beneficiaries, they would have to take $100k out each per year for ten years. This will definitely impact their tax brackets.[/url]
The SECURE Act requires beneficiaries to withdraw all inherited funds within 10 years but they can do it however they want. They can take all funds out on day 1, they can wait and withdraw all funds on the last day (10 years minus 1 day), or they can withdraw various amounts throughout the 10 years. The only thing that is required is that all funds are withdrawn within the 10 year period.
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Old 06-12-2020, 07:39 PM   #67
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Originally Posted by dixter View Post
I do my taxes like this... My income is fixed... I know exactly how much money I want/need each year... so on Jan1 I withdraw the money I need for the next years expenses... Property Tax's, Home Insurance, Health Insurance, Car Insurance...and all of the other bills that will need to be paid... water, electric...ect..ect.. and I budget for travel and lesure... from this distribution I know exactly how much taxes I will owe for this withdraw and so next year on Jan 1 I also take a distribution for the Taxes owed for the previous year draw down... I never touch the Roth funds as it just seems a waist to take those funds until later down the road if tax rates go up... I also don't touch the HSA accounts as you might need that money when you get older and possibly sick .... so those accounts just sit and grow.. you need to take into account as to when you plan on passing away... in most cases, not all, you might retire at 65 and there seems to be a whole lot of folks not making it past 85... thats only 20 yrs...so my fixed income for those years are in bonds... and I chose the bonds with a maturity date so when they mature I get the $1000/bond value back and that becomes my yearly draw... I will have plenty to last till at least 95yrs... but I don't think the 95yr will be obtained... so money wise... some will be left behind... either for the kids or the wife if she lasts longer than I do... so as to taxes again... they are paid via the draw down each yr... you just have to budget for it each year and pay it when it comes due...who knows, when those bonds mature and I start to draw those funds down then I'll use the roth funds to pay the taxes on those...seems to be working so far...
Sounds like you've applied the proper energy to the topic...good plan. If you shoot for 95, well, if you go longer, it's time to contact the kids and say, "Remember that down payment on your house me and your mom made?"

In all seriousness, a 95 year old guy can get away with anything.
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Old 06-12-2020, 10:23 PM   #68
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401K's are 100% federally protected VS IRA's are protected by the state up to some amount like $150K. You cannot buy this type of insurance so for that reason I will always keep as much of my money as possible in a 401K until the RMD kicks in.

Otherwise a in-plan roth conversion is a great option if it's available and doesn't have ridiculous fees.

Good luck!
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Old 06-13-2020, 08:03 AM   #69
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Originally Posted by wildbilly View Post
401K's are 100% federally protected VS IRA's are protected by the state up to some amount like $150K. You cannot buy this type of insurance so for that reason I will always keep as much of my money as possible in a 401K until the RMD kicks in.

Otherwise a in-plan roth conversion is a great option if it's available and doesn't have ridiculous fees.

Good luck!
Nah.... anyone can easily buy that type of insurance.

Never sued anyone and never been sued. Only car claims have been minor fender benders. Plus $2m umbrella.

IMO the benefit of having greater control over my money and access to a wider variety of investment options far exceed the remote risk of loss from a lawsuit, especially with a multi-million umbrella in place.
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Old 06-13-2020, 11:51 AM   #70
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Real estate investments can offer a lot of tax saving opportunities via depreciation, book losses and such. You can generate good cash flow without minimal tax impact if you pick the right investment. I invested in a RE venture that has delivered exactly that. I never wanted to be a landlord, too much work and too many horror stories - this has given the benefits without the headache.
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Old 06-13-2020, 12:16 PM   #71
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But they nail you with taxes via depreciation recapture and capital gains when you sell.

Besides, I think the topic is tax deferred accounts so why stretch to put a tax efficient investment in a tax deferred account.

When all you have is a hammer every problem looks like a nail.
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Old 06-14-2020, 06:40 AM   #72
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Say you have $100k in an after tax account and $50k is cap gains. If you sold today you would pay taxes taxes on $50k. If you died today your heirs would get $100k. No taxes.
Just to further clarify, the heirs cost basis steps up to 100K on day of death.
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