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When can I or When should I spend my Roth
Old 09-25-2019, 02:37 PM   #1
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When can I or When should I spend my Roth

I am almost up to the point of taking RMD distributions. This year I took money out of taxable account to pay off mortgage. ( Honestly not sure if that was a good plan but..done deal) It will take 5years of no interest on house to make up for the tax bill I created this year.

I have 300k in Roth account, 600K in TIRA and 250K in trade account. My RMD and SS are enough to cover expenses for now. Should I use the Roth to fund those things that would be nice to have or take more each year from the TIRA. I don't have kids and don't really like anybody very much that I am leaving money to so that is not a factor to me.

My one big thing I want to do is sell this place and buy a condo. The opportunity of a specific unit being available while my townhouse sells is a problem and I might need to get money from portfolio then replace it when the townhouse sells. Where would you look first for those dollars?
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Old 09-25-2019, 03:34 PM   #2
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We do not know your SS. We can guess that your RMD is about $20k rounded. So, we cannot estimate your tax consequences.

Some advice based on first hand experience is when you draw that RMD, take it out in equal monthly installments so if you need to get a loan to buy that beautiful condo overlooking the mountains and the ocean, that your income will qualify you.

And, I bet more people like you than like me.
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Old 09-25-2019, 03:37 PM   #3
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Obviously it would've been better to keep the money you used to pay off the house to buy the townhouse, and get rid of your loan when you sell the house, but that's water under the bridge. It's more than the interest savings, it's that you no longer have that money invested. Hopefully it was all LTCGs that would eventually be taxed at 15% anyway.

Since you don't care about heirs, you could take more from your taxable account, or your Roth. Make sure you don't kicked into paying anymore than 15% on LTCGs. There's another 3.8% I think that kicks in at some point. I prefer to leave the Roth for last because everything like dividends grow tax free inside it, but it probably doesn't matter too much unless you invest in high dividend stocks in taxable.

I wouldn't take extra from the TIRA, at least not too much, because it could kick you into a higher tax bracket.

I guess IRMA would be another factor in taking from the Roth and keeping total income lower.
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Old 09-25-2019, 05:24 PM   #4
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Sigh. I figured the one big move I made would be wrong, . I thought I would be happy with cash flow being lower but honestly while I am making a transfer for cash and insurance reserves it just doesn't feel any different.
My SS is around 21,000 so with dividends of 10k and the new RMD next year I really don't have a good window to adjust taxes anymore.
Good idea about showing an income stream for a loan. My rant from 20 years ago is that no one wanted to loan me money when I came to Virginia. Even when I was willing to put 100k into the house (about 50%) A few years later they were loaning money to everybody and their dog. If I had bought the townhouse in Reston for $$ more then mine I would have a half a million dollar house.
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Old 09-25-2019, 07:05 PM   #5
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Maybe sell and move to a short term rental while looking for the right condo. Kinda depends on the condo market and how adventurous you want to be...
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Old 09-26-2019, 06:29 AM   #6
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I need a bumper sticker that says "I heart misanthropy"

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I don't have kids and don't really like anybody very much...
Honesty like this is a cool, refreshing breeze.
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Old 09-26-2019, 07:06 AM   #7
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You don't say how much the condo will cost. I said you wanted a $250k condo with 20% down. Would an income of $50k qualify you for a 30 year loan? Yes.

So, get qualified, get ready to put 20% down and wait for the right condo to become available. When you close on the condo, list the debt free townhouse.

Another option would be to put a line of credit on the townhouse to fund the down payment.
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Old 09-26-2019, 07:26 AM   #8
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Do you have a reasonable idea the house will sell within a few months? Is the condo you want available? I got a bridge loan for my last move. I paid only interest for the loan during that time. The townhouse I wanted had come on the market...zero clearance/handicap assessable, the right size, and area I wanted to live in. The house I was selling was in a desirable neighborhood so I was reasonably certain it would sell. My bridge loan was good for up to five years. Then I would have had to do something else.

It was also nice because I slow moved. Took seasonal clothes over, seldom used but wanted to keep dishes. Etc. it also gave me time to see what furniture would really work
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Old 09-26-2019, 09:55 AM   #9
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Renting is possible but really expensive and I don't really know if you can do a month to month in most places. Most landlords want a year long commitment. I think my current home would sell quickly. 3 month close at best.
Mostly I posted the title out of frustration. Everyone seems to want to pour money into a Roth but no one wants to take it out.
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Old 09-26-2019, 02:20 PM   #10
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Quote:
Originally Posted by lemming View Post
...

I have 300k in Roth account, 600K in TIRA and 250K in trade account. My RMD and SS are enough to cover expenses for now. Should I use the Roth to fund those things that would be nice to have or take more each year from the TIRA. I don't have kids and don't really like anybody very much that I am leaving money to so that is not a factor to me.

...
I think this is a tax efficiency question. It interests me because our Roth's are about 1/2 of our TIRA's too. I assume by "trade account" you mean taxable money. If you are in a low enough bracket that trade account can be useful provided you stick with a 12 month holding period.

As to spending from the Roth, I'd imagine this depends a bit too on how you invest. For instance, if you are heavy in equities and do some market timing then the Roth is very useful to avoid tax issues.

So if you take more spending money from the TIRA what is your marginal tax rate on that? I'd imagine you'd want to draw down the TIRA before dipping into the Roth but again it depends on your AA, your investing profile (market timing or buy hold), and your tax bracket.

For us I think the order of draw downs is taxable and then Roth's. We too are taking RMD's now and combined with SS this pushes us into a high marginal tax rate. The marginal rate actually declines as one reaches the max taxation on the SS limit (when 85% of your SS is taxed).

I'd like to hear from others about how they parse the above thoughts.
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Old 09-26-2019, 03:50 PM   #11
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I-ORP will give you the plan that maximizes income over your projected years. It isn’t the usual retirement calculator and takes some reading to understand. In my case there is a slight improvement if I do conversions to Roth. But they result in a hefty tax bill for a few years earlier in retirement. For me, it’s too much money for the possibility that I’ll live to get the small advantage (about 1k a year in “maximum disposable income”).
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