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Old 06-16-2021, 10:56 AM   #21
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Is this chart for my specific case? (The numbers I posted)
That was my intent. Is it consistent with your findings?
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Old 06-16-2021, 11:00 AM   #22
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Yes, but!
I can understand how SS being taxed differently depending on income will cause the chart you posted.
What I don't get (using Dinkytown) is the last $100. $100 more income costs more than $12, $100 less income only saves $12. Are there two points where it costs $12, but more in between those two points? IF yes, then what am I supposed to look at?
Yes, see my post #17
https://www.early-retirement.org/for...ml#post2621102
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Old 06-16-2021, 11:05 AM   #23
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Yes, but!
I can understand how SS being taxed differently depending on income will cause the chart you posted.
What I don't get (using Dinkytown) is the last $100. $100 more income costs more than $12, $100 less income only saves $12. Are there two points where it costs $12, but more in between those two points? IF yes, then what am I supposed to look at?
Don't know. I'm not a fan of any of the web-based estimation programs (Dinkytown, mortgagecalculator, TaxCaster, etc.), although some are better than others.

If you don't mind Excel, you might give the case study spreadsheet a try. Spreadsheets aren't for everyone but it does allow one to "see the forest" instead of going tree by tree.

ETA: To clarify, by "Don't know" I mean "Don't know why Dinkytown gets a 12% marginal rate for a $100 reduction at the income amount you have been discussing. It would happen at the end of the 12% "trough" shown in the chart, but there the increased income would cost 27%."
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Old 06-16-2021, 01:19 PM   #24
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That was my intent. Is it consistent with your findings?

I don't know because, with my method I'd have to run many runs varying the income and graph it. What are you using to make this graph?
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Old 06-16-2021, 01:35 PM   #25
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Don't know. I'm not a fan of any of the web-based estimation programs (Dinkytown, mortgagecalculator, TaxCaster, etc.), although some are better than others.

If you don't mind Excel, you might give the case study spreadsheet a try. Spreadsheets aren't for everyone but it does allow one to "see the forest" instead of going tree by tree.

ETA: To clarify, by "Don't know" I mean "Don't know why Dinkytown gets a 12% marginal rate for a $100 reduction at the income amount you have been discussing. It would happen at the end of the 12% "trough" shown in the chart, but there the increased income would cost 27%."

Dinkytown is close at $55,600 vs the $58,000 I glean from the graph, with the numbers I provided. I don't know what the discrepancy is. I found Dinkytown matched perfectly with Turbo Tax this year. Although I do not get SS, it's possible Dinkytown has a problem calculating with SS.
I have used the CSS, but found the learning curve long, so much detail I didn't feel I needed. Dinkytown worked for me.
I don't get why the graph rises to about 13% when part of the income is taxed at 10% and the rest at 12%, where does the 13% come from?
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Old 06-16-2021, 01:43 PM   #26
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Try dinkytown with your original RMD number, then do +100 and -100. You'll see a larger than $12 difference, due to SS. This was explained before and I thought you got it, but I guess not.
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Old 06-16-2021, 01:50 PM   #27
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Try dinkytown with your original RMD number, then do +100 and -100. You'll see a larger than $12 difference, due to SS. This was explained before and I thought you got it, but I guess not.

I did get it, but I had a $12k IRA contribution that was in the program messing things up. When you are on the edge of the 12%/22% bracket that $100 up cause the program to display, This puts you in the 22% tax Bracket.
And doing the math on the taxes due also shows that.
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Old 06-16-2021, 02:00 PM   #28
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@Time2 I think you need to slow down and make one change at a time in your calculation tool.

What others are telling you, I think, and what I am for sure telling you is that no online tool or website will address all questions for your specific situation. Your options for this are to work with a tax professional or financial planner, or build a comprehensive Excel model yourself. I built my own Excel model.

When you build your own Excel model that takes into account today’s known tax rates, you will see what, if any, benefit you receive over your lifetime from Roth conversions.

The questions you are asking should be answered by someone making decisions for themselves such as Roth conversions.

The conclusion I came to using my detailed Excel model is that Roth conversions do not benefit me at all, or if I allow some tolerance for inaccuracy, benefit me to a very small degree. I think Roth conversions are financial wheel spinning and manufactured busyness. A chase after the wind.

Avoid solving the “future tax bullet” (fear mongering slogan by Roth conversion advocates) by piercing yourself with smaller but more harmful “current tax arrows”.
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Old 06-16-2021, 02:17 PM   #29
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I did get it, but I had a $12k IRA contribution that was in the program messing things up. When you are on the edge of the 12%/22% bracket that $100 up cause the program to display, This puts you in the 22% tax Bracket.
And doing the math on the taxes due also shows that.
I'm going to punt on this because I can't follow the different numbers you've given. It would seem that converting now to max out the 12%/0% QDivs rate is a no-brainer. Going beyond that is questionable, leaning towards a bad choice since it seems like you can have at least part of your RMDs taxed at 12%. Trying to figure out how much, if any, you are in that worst case SS tax hump is the only question. In any case there's probably not a lot of difference either way.
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Old 06-16-2021, 02:28 PM   #30
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@Time2 I think you need to slow down and make one change at a time in your calculation tool.

I only have 4 inputs MFJ, Dividends, SS and IRA withdrawals, 3 are fixed, so all I'm changing to find where I jump out of the 12% bracket is IRA withdrawals.
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What others are telling you, I think, and what I am for sure telling you is that no online tool or website will address all questions for your specific situation. Your options for this are to work with a tax professional or financial planner, or build a comprehensive Excel model yourself. I built my own Excel model.

When you build your own Excel model that takes into account today’s known tax rates, you will see what, if any, benefit you receive over your lifetime from Roth conversions.

The questions you are asking should be answered by someone making decisions for themselves such as Roth conversions.

Of course I have to make the decision for myself, I'm just trying to get the details needed to make that decision.



Quote:

The conclusion I came to using my detailed Excel model is that Roth conversions do not benefit me at all, or if I allow some tolerance for inaccuracy, benefit me to a very small degree. I think Roth conversions are financial wheel spinning and manufactured busyness. A chase after the wind.

Avoid solving the “future tax bullet” (fear mongering slogan by Roth conversion advocates) by piercing yourself with smaller but more harmful “current tax arrows”.

To each there own. I'm seeing some good reasons to do Roth Conversions.
1) My wife will be in a higher bracket when I die.
2) It is mostly likely that taxes will rise.
3) I will have a lot of forced income that I don't have know, We easily live on $45k now, After SS and RMDs it will be twice that much.
4) I think there are some benefit to heirs also.


What are the more harmful “current tax arrows”? I don't see the downside, I don't see how my income will every be lower, nor do I see taxes ever lower.
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Old 06-16-2021, 02:48 PM   #31
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To each there own. I'm seeing some good reasons to do Roth Conversions.
1) My wife will be in a higher bracket when I die.
2) It is mostly likely that taxes will rise.
3) I will have a lot of forced income that I don't have know, We easily live on $45k now, After SS and RMDs it will be twice that much.
4) I think there are some benefit to heirs also.

What are the more harmful “current tax arrows”? I don't see the downside, I don't see how my income will every be lower, nor do I see taxes ever lower.
@Time2 Thanks for the reply.

1. That's OK to be in a higher tax bracket.

2. You are speculating. Financial decisions should not be made on speculation. I speculate, and am right, that the Earth will collide with a meteor some day. I'm serious, not joking. What I don't know is when this will happen. It would be speculation on my behalf to make a guess when the meteor collision would happen, as well as the size of the meteor. So I do nothing with regard to meteors colliding with the Earth. I am not being facetious with the example.

3. Why do you care about forced income? A Roth conversion is forced income. You are doing the forcing in that case. Maybe that feels better to you? It's done on your terms?

4. I don't think your heirs will benefit from your Roth conversions. If they do benefit, it will be negligible. In my analysis, I don't benefit from Roth conversions, so I don't see that my heirs will benefit from my Roth conversions.

Current tax arrows are the income taxes paid on Roth conversions. It's tax that is not otherwise due in the year of conversion. Said differently, it's an investment in a future speculative endeavor - higher income tax rates. Leave the cake (money that would be Roth converted) in the oven to bake until it's time (RMD time). The cake will be better and not mushy in the middle or burned on the edges.

I use net worth as the singular parameter to maximize in my Excel model. Accelerating taxes by forcing income through Roth conversions results in a lower net work for me across each year of my life expectancy. Who cares if I bump into a higher tax bracket at age 72+? Net worth until "end of plan" is what matters to me. I am MFJ and assume my wife will outlive me, and her life expectancy is "end of plan".

Uncle Sam will get paid. Have no doubt about this. Forget about tax rates. You can even forget about income. If you have net worth in liquid instruments (i.e. not real estate), and you are older than 59.5, plus SS, income will take care of itself.
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Old 06-16-2021, 02:49 PM   #32
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I might be out of place here, but that's nothing new.

I think the problem is that the calculations done by others are based on the original post, looking at the future, with SS.

OP is now looking at his current situation (no SS), so his calculations seem to be correct.

FWIW, I have found the dinkytown calculator, and others, to be quite accurate, based on my own taxes.

To OP: This is not a science, so there is no perfect answer (well there could be if you know your date of death)

In your case I would max out the 12% bracket, depleting your tIRA first, since DW has 4 more years than you. If you want to be aggressive, you can go into the 22% bracket. You might find the effective tax rate on the conversion is still under 15%.
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Old 06-16-2021, 02:50 PM   #33
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I'm going to punt on this because I can't follow the different numbers you've given. It would seem that converting now to max out the 12%/0% QDivs rate is a no-brainer. Going beyond that is questionable, leaning towards a bad choice since it seems like you can have at least part of your RMDs taxed at 12%. Trying to figure out how much, if any, you are in that worst case SS tax hump is the only question. In any case there's probably not a lot of difference either way.

MFJ, $12k dividends qualified, $45k SS, and $55,600 of IRA distributions.


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probably not a lot of difference either way.
If I converted $300k over the next 6 years at 12% That's $36k in taxes.
If I wait and have to pay 22% on $300,000 that's $66k, so I save $30k for my work and that is spread out over many years. Not life changing, but when I was 26, that was a lot of money!
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Old 06-16-2021, 02:55 PM   #34
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......
4. I don't think your heirs will benefit from your Roth conversions. If they do benefit, it will be negligible.

.......
Wrong in many cases.

In my case, with a rather large tIRA, my son would need to deplete it within 10 years. The money he takes out, with 2 of them working at jobs paying over $100k/yr each, would be at least in the 24% bracket, and some in the 32%.

If I convert today, at an effective 15%+/-, that's a 10% gain, plus all the gains going forward are tax free.
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Old 06-16-2021, 02:58 PM   #35
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Wrong in many cases.

In my case, with a rather large tIRA, my son would need to deplete it within 10 years. The money he takes out, with 2 of them working at jobs paying over $100k/yr each, would be at least in the 24% bracket, and some in the 32%.

If I convert today, at an effective 15%+/-, that's a 10% gain, plus all the gains going forward are tax free.
@CardsFan What are the many cases?

What is the difference in your net worth at end of plan, with and without Roth conversions? A percentage figure is fine. At end of plan does it benefit you by 1%? 10%? 100%? More?
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Old 06-16-2021, 02:59 PM   #36
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I might be out of place here, but that's nothing new.

I think the problem is that the calculations done by others are based on the original post, looking at the future, with SS.

OP is now looking at his current situation (no SS), so his calculations seem to be correct.

FWIW, I have found the dinkytown calculator, and others, to be quite accurate, based on my own taxes.

To OP: This is not a science, so there is no perfect answer (well there could be if you know your date of death)
Also need to know future tax rates and brackets.


Quote:
In your case I would max out the 12% bracket, depleting your tIRA first, since DW has 4 more years than you. If you want to be aggressive, you can go into the 22% bracket. You might find the effective tax rate on the conversion is still under 15%.

Yes, I need to get a handle on effective and cumulative tax rate and what important. It seems I could use effective rate and just keep that below the effective rate I expect to pay in the future.
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Old 06-16-2021, 03:08 PM   #37
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@CardsFan What are the many cases?

What is the difference in your net worth at end of plan, with and without Roth conversions? A percentage figure is fine. At end of plan does it benefit you by 1%? 10%? 100%? More?
Well, I gave you a case. Not affecting MY net worth, but the benefit to the heir regarding taxes.

I paid a tax rate of about 15%. DS inherits it tax free (and tax free until he is required to deplete, I forget if it is 5 years or ten years for a Roth).

If he inherited it today, and took 10% per year (tIRS's need to be depleted in 10 years), the withdrawal would at least be in the 24% bracket, with some folding into 32%.

Just one example.
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Old 06-16-2021, 03:17 PM   #38
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If I converted $300k over the next 6 years at 12% That's $36k in taxes.
If I wait and have to pay 22% on $300,000 that's $66k, so I save $30k for my work and that is spread out over many years. Not life changing, but when I was 26, that was a lot of money!
Right. As I said, converting at 12% is a no-brainer. The questionable part, as I also said, is converting beyond that.

I agree, $30K is low hanging fruit and quite worthwhile for most of us, no matter what someone else says.
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Old 06-16-2021, 03:40 PM   #39
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Ya, I found a $12k IRA deduction, that should not have been in there.
So, I find I can have about $55.6k of tIRA distribution and stay in the 12% bracket.
MFJ, $12k Dividends Qualified, $55.6k Taxable IRA distribution, $45k SS.
I get $7,843 of tax.
If I add $100 to the $55.6k it cost me $20 in tax.
If I subtract $100 from the $55.6k It lowers my tax $12.
Here is what I get using both irscalculators and dinkytown (I like both but slightly prefer the former). For 2021, MFJ both under 65, $45k SS and $12k qualified dividends. No idea why/how dinkytown gets such a large jump in tax from $55,600 to $55,700.

 Tax Incremental tax rate 
Roth convirscalculatorsdinkytownirscalculatorsdinkytown
55,5007,8407,843  
55,6007,8527,85512%12%
55,7007,8647,87512%20%
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Old 06-16-2021, 03:43 PM   #40
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Wrong in many cases.

In my case, with a rather large tIRA, my son would need to deplete it within 10 years. The money he takes out, with 2 of them working at jobs paying over $100k/yr each, would be at least in the 24% bracket, and some in the 32%.

If I convert today, at an effective 15%+/-, that's a 10% gain, plus all the gains going forward are tax free.
+1 ditto for me with DD and DSIL.
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