This novice needs help with tIRA’s

[Carol1862]

I do read this forum regularly and have spent a good deal of time learning finances. However, I am not able to get the answer I need. I-Orp, no matter how I’ve tried to use it, I can’t understand the answers! So, here’s the situation:

Married, 66&68, retired 9 years. Most of our portfolio is in tIRA’s. Some are in CD’s which come due very soon.

I receive SS and my DH is waiting until 70. Our income has us in the 12% bracket (SS, interest & dividend $40k)

We have kept cash for our living expenses until my DH reaches 70 and collects SS separately, but I’ve been reading that we should be using our tIRA money instead to help alleviate the tax burden at age 72 with RMDs. So, should we take this CD money and “convert” to Roth? Or to just cash? I’d transfer it from the tIRA CD just to a Roth or cash one.

If there is any easy to use calculator for this, please direct me to it.

Like to stay at 22%.

Thank you for any help and guidance

Carol

[Dash man]

Quote:

Originally Posted by Carol1862 I do read this forum regularly and have spent a good deal of time learning finances. However, I am not able to get the answer I need. I-Orp, no matter how I’ve tried to use it, I can’t understand the answers! So, here’s the situation: Married, 66&68, retired 9 years. Most of our portfolio is in tIRA’s. Some are in CD’s which come due very soon. I receive SS and my DH is waiting until 70. Our income has us in the 12% bracket (SS, interest & dividend $40k) We have kept cash for our living expenses until my DH reaches 70 and collects SS separately, but I’ve been reading that we should be using our tIRA money instead to help alleviate the tax burden at age 72 with RMDs. So, should we take this CD money and “convert” to Roth? Or to just cash? I’d transfer it from the tIRA CD just to a Roth or cash one. If there is any easy to use calculator for this, please direct me to it. Like to stay at 22%. Thank you for any help and guidance Carol

Have you calculated approximately what your RMDs will be to see what tax bracket you’ll probably be in. Depending on the size of your nest egg, beginning conversions this late may not make enough of a difference.

[sengsational]

The way I use i-orp to answer this question is to look at the bottom line annual spend number with and without Roth conversions.

If the difference is small, forget about Roth conversions. If the difference is big, look at how hard it "wants" you to convert now. If it's too much to stomach, you can limit the bracket and see how much the bottom line spend changes.

Say your bottom line spend with unlimited conversion is 100%, and with 22% bracket conversions is 99%. Go with 22% and rest in the fact that you're not leaving much on the table. If it drops to 90%, then that's a tough spot, but I doubt it will drop too much.

[SnowballCamper]

I'd say just take larger IRA withdraws ASAP (up to the tax bracket you'll be in at RMD time). With so few years until RMDs, the Roth conversion advantage is minimal. OTOH if you want heirs to get the Roth IRA, then conversions make more sense.

[pb4uski]

Quote:

Originally Posted by Carol1862 I do read this forum regularly and have spent a good deal of time learning finances. However, I am not able to get the answer I need. I-Orp, no matter how I’ve tried to use it, I can’t understand the answers! So, here’s the situation: Married, 66&68, retired 9 years. Most of our portfolio is in tIRA’s. Some are in CD’s which come due very soon. I receive SS and my DH is waiting until 70. Our income has us in the 12% bracket (SS, interest & dividend $40k) We have kept cash for our living expenses until my DH reaches 70 and collects SS separately, but I’ve been reading that we should be using our tIRA money instead to help alleviate the tax burden at age 72 with RMDs. So, should we take this CD money and “convert” to Roth? Or to just cash? I’d transfer it from the tIRA CD just to a Roth or cash one. If there is any easy to use calculator for this, please direct me to it. Like to stay at 22%. Thank you for any help and guidance Carol

You should estimate what your tax bracket will be once your DH starts SS and RMDs.... add to your estimated 2021 taxable income 85% of what your DH's SS statement says he would get at age 70 and ~4% of your tIRA... what tax bracket does that put you in? 22%?

If so, at a minimum I would convert to the top of 0% qualified income/capital gains tax bracket.... and you could even consider converting to the top of the initial IRMAA tier.

https://www.irscalculators.com/tax-calculator is a useful calculator.

[Exchme]

Carol1862:
First, when using i-orp, scroll down to the words Extended ORP and select that. That's where there is enough detail in the input to make a meaningful model.

Second, realize that the default in i-orp is to spend down your assets to zero at your assumed end of life. The withdrawal reports show the Disposable Income (DI) that is available to you during your life to spend your assets down. The use of Disposable Income gives a comparison basis for different strategies, but I doubt most people want to be broke at a certain age. The program keeps the real (inflation adjusted) DI constant during your lifetime.

If you would like to leave something to your heirs or have a cushion in case you live a long time, that is called Plan Surplus, enter a value there.

The first report is the withdrawal report and you can see the DI column on the far right.

The IRA2Roth column in the Withdrawal report is Roth conversions and the rest of the columns in that report represent where you are going to get the cash that makes up the disposable income.

The Asset Location Report just shows year by year account balances.

The Asset Allocation Report shows the stock/bond/cash asset allocation in each account.

When trying to get the program to set a plan for Roth conversions, then under Retirement Plans - IRA to Roth IRA conversions, select Unlimited Conversions, which lets the program decide.

Remember to enter stock and bond allocation as the same number for each account, so if you average say 60% stock/40% bonds, put that in for each account, regardless of how you actually hold the money (or the results are meaningless as the program will seek out strategies that ramp up stock holdings).

[SevenUp]

Quote:

Originally Posted by Carol1862 If there is any easy to use calculator for this, please direct me to it.

"Easy to use" is a relative term, so....

Take a look at the Using a spreadsheet section of that wiki artice. The first spreadsheet mentioned is probably the less easy of the two, but covers multiple years. The second does one year at a time, but can be useful (if using Excel) to show your actual marginal tax rates for different conversion amounts.

[Carol1862]

Thank you. I now have some articles, tools and info to start my search. Really appreciate the help

[pb4uski]

Quote:

Originally Posted by pb4uski .... If so, at a minimum I would convert to the top of 0% qualified income/capital gains tax bracket.... and you could even consider converting to the top of the initial IRMAA tier. https://www.irscalculators.com/tax-calculator is a useful calculator.

Just wanted to add that in 2021 for a married couple that is over 65, converting to the top of the 0% qualified income/capital gains tax bracket would be total income of $109,450... assuming that you make at least $600 of charitable contributions and included SS at 85%.

The top of the initial IRMAA tier would be ~$176,000 of income.

[bobbyr]

thanks for this thread - i had never used that site, how cool...helps me with pre accountant questions (really answers them) re: Roth conversions, RMDs

thank you!

[sengsational]

Quote:

Originally Posted by Exchme Carol1862: First, when using i-orp, scroll down to the words Extended ORP.....

Very well said...I agree with everything said about using i-orp. It's a good way to get a solid set of particulars, but it takes some fiddling to get inputs accurate and to understand what the output is telling you.