Best uses of a Roth

[pb4uski]

Quote:

Originally Posted by Sunset We are still in the conversion process. However, our plan is to leave a good sized chunk in IRA's in case of large medical/long term nursing home bills as those will be deductible and make the IRA withdrawal nearly tax free.

Given that when I retired in 2012 that tax-deferred was 53% of our retirement assets and despite aggressive Roth conversions for the last 10 years it is now 58%, I think there is no amount of sensible Roth conversions that can avoid leaving a good sized chunk in tIRAs.

When we become of age some will be used for QCDs and some will be available for large medical/nursing home bills.

[Romer]

Right now doing conversions. Reducing/eliminating RMDs is nice, but my main driver is what happens to tax rates when we go married to single due to one of us passing. If we have only ROTH IRAs at the point, it will be a negligible change.

[Octogirl]

Still converting, however Roth $$ will be the last account we 'll use.
My experience in paying for Long term care suggests holding it for that (just in case).
Relatives had to sell tIRA, pay taxes (at 22%), THEN pay nursing home bills for mom- Not good
But if DH and I never need it, its goes to the kids

[NgineER]

Always an interesting discussion.

Do you all have an end goal in your conversions with respect to Roth IRA/tIRA ratio?
50/50, 72/25, 90/10 or 100/0?

I see the benefit of being able to pay for medical expenses, QCD etc.

[Sunset]

Quote:

Originally Posted by pb4uski Given that when I retired in 2012 that tax-deferred was 53% of our retirement assets and despite aggressive Roth conversions for the last 10 years it is now 58%, I think there is no amount of sensible Roth conversions that can avoid leaving a good sized chunk in tIRAs. ......

Quote:

Originally Posted by NgineER .. Do you all have an end goal in your conversions with respect to Roth IRA/tIRA ratio? 50/50, 72/25, 90/10 or 100/0? ..

I never thought to see what our percentage was.. may try that going forward.

Does one count the 401K in the IRA group, since it can convert to an IRA and is like an IRA once retired, or leave it out. ?

[Alex The Great]

I have no kids or close relatives and plan to spend earnings/dividends in Roth to manage ACA cost in early retirement years, and reduce the tax bomb impact once I'm on Medicare and file for SS. However Roth conversions looks tricky at this point as they push ACA cost up in pre-Medicare. My plan is to make aggressive Roth conversions between 65 and 70 once I'm on Medicare but no SS yet (of course if no changes to SS and Medicare age).
But the amount of pre-tax money in 401K & tIRA is a challenge as I do have 2.7 ratio pre-tax to Roth. Probably would need to make donations at some time.

[tulak]

I consider 401k/IRA (or 403b) as the same. I categorize accounts using three buckets: tax deferred, taxable, and tax free.

I’m still contributing to a 401k and will likely have over 70% in tax deferred if I retire at 55. It doesn’t make sense for me to stop contributing, since I’m in a high tax bracket, but realize it’s going to be a challenge to draw down the tax deferred accounts before RMDs. I figure it’ll be a nice problem to have.

As for Roths (tax free), I will spend those last, except for the HSA. If I’m lucky, that money may never be spent and my heirs will be happy. I plan to convert as much as possible, but will see how that works out once I stop working.

[NgineER]

Quote:

Originally Posted by Sunset I never thought to see what our percentage was.. may try that going forward. Does one count the 401K in the IRA group, since it can convert to an IRA and is like an IRA once retired, or leave it out. ?

Maybe I should have stated tax deferred accounts tIRA and 401(k) vs tax free.

[FREE866]

Great thread as usual

Im 56 now and my plan is to start taking SS at 70. That will cover most of my expenses and I was actually planning on using the Roth account post 70 to cover any needed additional income above SS. This way everything would be tax free.

Is that not a good strategy?

[user5027]

Quote:

Originally Posted by FREE866 That will cover most of my expenses and I was actually planning on using the Roth account post 70 to cover any needed additional income above SS. This way everything would be tax free. Is that not a good strategy?

Up to 85% of SS is taxable depending on your amount of income.

[FREE866]

Quote:

Originally Posted by user5027 Up to 85% of SS is taxable depending on your amount of income.

Correct. And when I plug in up to 90k in ss income, as a nys resident and that is my only income my tax liability is zero.

This is calculator I used:


https://www.irscalculators.com/tax-calculator

[bada bing]

Quote:

Originally Posted by NgineER Always an interesting discussion. Do you all have an end goal in your conversions with respect to Roth IRA/tIRA ratio? 50/50, 72/25, 90/10 or 100/0? I see the benefit of being able to pay for medical expenses, QCD etc.

While working, I worked out for my situation that percentages aren't what is important. What is important is tax deferred balance. For my personal single filer situation, anything above a $1.1M-$1.2M balance in tax deferred defeats the tax arbitrage advantage. I saved too much in tax deferred because it looks unlikely I'll be able to efficiently whittle my tax deferred balance down prior to RMDs.

As far as best use of Roth, I likely won't use mine at all and it will end up in estate. I intend to leave Roth to family and remaining tIRA to charity. Most of my Roth balance came from backdoor and mega-backdoor conversions while working, so there wasn't much benefit. The money now in Roth would have ended up in regular taxable, which would have gotten the stepped up basis anyway to my estate.

[Sunset]

Quote:

Originally Posted by FREE866 Great thread as usual Im 56 now and my plan is to start taking SS at 70. That will cover most of my expenses and I was actually planning on using the Roth account post 70 to cover any needed additional income above SS. This way everything would be tax free. Is that not a good strategy?

Once you are at RMD age (probably 75) you will have to take out IRA/401K money, unless you have converted all of it before then.

[FREE866]

Quote:

Originally Posted by Sunset Once you are at RMD age (probably 75) you will have to take out IRA/401K money, unless you have converted all of it before then.

Yeah, thought about that. Plan for now is to keep doing conversions every year to bring the trad IRA balance down.

[MarieIG]

Quote:

Originally Posted by NgineER Always an interesting discussion. Do you all have an end goal in your conversions with respect to Roth IRA/tIRA ratio? 50/50, 72/25, 90/10 or 100/0? I see the benefit of being able to pay for medical expenses, QCD etc.

The "plan" is very loose. It would be approximately 90/10 (for QCD of mine). We plan to empty DH's IRA before he turns 70 and triggers his SS but we'll see how that goes. DH has a 401k that allows conversions, and that is in the "we'll do what we can category" depending on tax rates.

[ImThinkin2019]

We are doing Roth conversions up to as much income tax as my DW is comfortable with, before we take SS at 70. We probably will do smaller conversions after we start SS.

Our plan is to leave the Roths to the kids, with the taxes already paid. So when they take out that money it will not be reduced by Uncle Sam.

We probably will also leave some tIRA money and some taxable to them, if our plans actually work out. We'll see on this. One thing we've learned in over 40 years of investing is that we are not good at predicting the future :-)

[TheWizard]

Quote:

Originally Posted by FREE866 Great thread as usual Im 56 now and my plan is to start taking SS at 70. That will cover most of my expenses and I was actually planning on using the Roth account post 70 to cover any needed additional income above SS. This way everything would be tax free. Is that not a good strategy?

Good but not optimal.
You pay taxes to do Roth conversions or Roth contributions instead of tax sheltered contributions during working years.

Optimal is lower, levelized AGI and taxes both pre-70 and post-70...

[Markola]

Like others, the plan is to use the Roths last. Therefore, the Roths hold the most volatile risk assets of our portfolio.

[FREE866]

Quote:

Originally Posted by TheWizard Good but not optimal. You pay taxes to do Roth conversions or Roth contributions instead of tax sheltered contributions during working years. Optimal is lower, levelized AGI and taxes both pre-70 and post-70...

I'm retired now....I know I pay taxes to do Roth conversions...I do them up to the top of the 12% bracket.......

[mountainsoft]

Quote:

Originally Posted by davidfin Having bitten the tax bullet and converted a substantial sum from my tIRA to my Roth I’m wondering how folks utilize their Roth account.

The primary reason I converted all of my traditional IRA to a Roth was to reduce our taxable income in retirement. We should remain in the same 12% tax bracket after retiring, so that didn't really factor in to our decision.

1. Qualify for greater ACA healthcare subsidies.

2. Qualify for "low income" senior discounts on our property taxes.

3. Potentially reduce how much of our social security benefits will be taxed.

4. Avoid RMD's.

As others mentioned, our Roth accounts will be the last money we tap into.