2020 Planned Spending (nothing like our first 65 years)

[Midpack]

I finished up our 2019 spending, an expensive year with moving south 750 miles, buying/selling a house, some reno/upgrades and 90%+ new furniture.
So I moved on to our 2020 plan, and it's so unlike anything that's come before I thought I'd share. It's because of Roth conversions, and much higher medical expenses now that we're both retired.
We paid some shockingly high taxes during our peak earning years when I couldn't do anything about it, but nothing like this - voluntarily this time!

I am sure others here are in the same spending boat, but it's new to me. And my spending after age 70 will be much improved, at least that's the plan.

 

[Golden sunsets]

Holy moly Midpack! Are you converting a huge amount to Roths, or just spending a lot less? We have been in the same boat vis a vis very high tax rate while working. But now, as retires over RMD age, between the Secure Act and acceptance that once one of us is a widower, the remaining widower will catapult into the 32% bracket, it's a calculation of "pay the man now" or pay the man more later while we have the choice. If choosing the former, IRMAA and diminishing State income tax Standard deductions are painful realities to consider.

 

[NW-Bound]

A high tax caused by Roth conversions should not be viewed as alarming. You pay now so you do not pay later, assuming that it is in a tax bracket that you will not be able to dodge if you do not do the conversion.

In that view, it should not feel painful, but I am sure you already know this.

 

[donheff]

We will be there when DWs RMDs kick in a few years from now because the RMDs will largely not be needed for spending. They will essentially be conversions to taxable.

 

[Perryinva]

It is indeed a mental stretch to not feel WTF!! at writing a big check voluntarily to the IRS. I certainty fully empathize, and will be in a similar boat in 2021 through 2026 minimum. Possibly through 2029. My checks will not be as large, as I will only convert in to about half (maybe 3/4) of the 22% bracket, (avoiding IRMAA) but it’s that same feeling when you didn’t have enough withholding and had to write a big check at tax time. But increased withholding the following year, and a small check written seems fine...even if you actually paid more taxes. Its all mental. I do have one question. How do you time when in the year to actually do the conversions and write the check? Luckily we have no large HI costs at all. DW is already on Medicare and I am on a subsidized HI from my Company retirement benefit.

 

[JoeWras]

I'm guessing you are dipping into the 22% bracket to the fullest?

I have a project to work on that looks at our future RMDs, versus our window now as to whether we should stick with the 12% bracket exclusively. I have to say that the cap gains and qualified dividends benefit of staying in the low bracket is intoxicating. I couldn't believe how low our fed taxes were this year.

 

[RunningBum]

This is why I don't include taxes on Roth conversion as an expense. A large conversion can skew your budget. A conversion is just moving money from one pocket to the other, while paying the deferred tax you should have already have factored in. My way of factoring it in is to reduce my tIRA by the estimated tax liability. That way a conversion has no effect on my investment net worth that I use for calculating amount of withdrawals based on my WR.

 

[bingybear]

This is why I don't include taxes on Roth conversion as an expense. A large conversion can skew your budget. A conversion is just moving money from one pocket to the other, while paying the deferred tax you should have already have factored in. My way of factoring it in is to reduce my tIRA by the estimated tax liability. That way a conversion has no effect on my investment net worth that I use for calculating amount of withdrawals based on my WR.

That is part of the reason I only use a mental budget. But we've lived that way after our first couple years of marriage.

 

[LRDave]

DS got engaged in December and we now have a wedding in November 2020. Relative to this thread, whatever we spend as the groom's parents will reduce our dry powder that could be used to pay Roth conversion taxes. How much do groom's parents usually spend?

DS and betrothed are coming to visit this weekend. This will give us an idea of what their vision for their wedding might be.

 

[Midpack]

A high tax caused by Roth conversions should not be viewed as alarming.

It's not alarming, it's just hard to wrap my head around after 45 years where minimizing taxes was an overriding priority for me.

It is indeed a mental stretch to not feel WTF!! at writing a big check voluntarily to the IRS.

That was all I was getting at, a big change after 45 years of the opposite.

I'm guessing you are dipping into the 22% bracket to the fullest?

Almost this year, and fully for the next 5-6 years.

This is why I don't include taxes on Roth conversion as an expense. A large conversion can skew your budget.

I look at "normal expenses" for analysis, but taxes are certainly an expense and something I have to budget for with withdrawals etc. My stacked bar includes normal expenses, apart from taxes and accruals (where I segregate unusual expenses like buying houses, cars, major reno, etc.). Excel makes it very easy to slice and dice to see exactly what you want to see.

 

[Teacher Terry]

Dave, I think the groom’s parents traditionally pay for the rehearsal dinner. Between us we have 5 boys and the two that are married didn’t have one so we gave each one a check.

 

[GravitySucks]

When we married off DD1 her new in-laws paid for the rehearsal dinner and the alcohol for the reception. ( I paid for the last two hours of drinks as the party was still going strong.)
The inlaws also gave airline and hotel nights for a week in Europe, as they had enough Hilton points and air miles. DW and I chipped in a few hundred for the honeymoon.

DS got engaged in December and we now have a wedding in November 2020. Relative to this thread, whatever we spend as the groom's parents will reduce our dry powder that could be used to pay Roth conversion taxes. How much do groom's parents usually spend?

DS and betrothed are coming to visit this weekend. This will give us an idea of what their vision for their wedding might be.

 

[RunningBum]

It is indeed a mental stretch to not feel WTF!! at writing a big check voluntarily to the IRS.

Sorry for repeating myself, but I don't feel this at all, because I've already discounted the IRA money by the deferred taxes that will be due. $100K in an IRA is not worth $100K, just like a $100K salary doesn't mean I'll have $100K to spend.

Another way to view it is that the taxes paid are the cost to unleash the IRA money so it can be used. Until I pay the taxes, I cannot use the IRA money. So no WTF feeling for me.

 

[SumDay]

DS got engaged in December and we now have a wedding in November 2020. Relative to this thread, whatever we spend as the groom's parents will reduce our dry powder that could be used to pay Roth conversion taxes. How much do groom's parents usually spend?

DS and betrothed are coming to visit this weekend. This will give us an idea of what their vision for their wedding might be.

We did this very thing last Fall with one of our sons. The bride's family were not in any position to do much more than pay for their own hotel room and travel for the wedding weekend. The bride & groom paid for 99% of the wedding, God love 'em both. It was a small wedding, and they did a lovely, sane job.

They had a pizza rehearsal dinner at a brew pub, and we surprised them by picking up the tab. And, they're currently across the pond on their honeymoon, which we also paid for, as a wedding gift. I think all in all, it was all about $10K. I've heard of $25K rehearsal dinners, so I felt pretty fortunate. He married a keeper.

 

[Perryinva]

Denial is not just a river in Egypt. You are exceptionally well grounded. I would be naive to think that when I start writing big checks to the IRS and watch a million dollars in a tIRA become $820k in a Roth, that I will STILL wonder if it was smart and feel like I have less, when I know perfectly well I don’t and in fact have more!!

 

[RunningBum]

Denial is not just a river in Egypt. You are exceptionally well grounded. I would be naive to think that when I start writing big checks to the IRS and watch a million dollars in a tIRA become $820k in a Roth, that I will STILL wonder if it was smart and feel like I have less, when I know perfectly well I don’t and in fact have more!!

Assume you're referring to me, though it's hard to say when you don't quote anyone for reference. I don't think I'm in denial, I just face up to the reality that my IRA has a tax liability associated with it since the day I put it in there.

I may do calculations 12 times every way I can to figure out how much to convert, but once I do, I'm glad to have more of the liability taken care of. Maybe it helps that I've never converted more than $105,000 in one year, but that's because it didn't make sense to convert at a higher rate rather than displeasure at paying the tax. I've had a few urges to just convert the whole thing and be done with it, but resist it because it makes bad financial sense.

 

[Lsbcal]

Midpack, you are doing the right thing ... probably. I'm taking RMD's now and we both have SS and the tax rates are fairly high. But our Roth's are 30% of the nest egg. So we can spend a lot if we want without tax hits.

 

[W2R]

Between RMD's, delayed-to-age-70-SS, and high capital gains due to the terrific stock market the past few years, my taxes are staggering. Well, to me they seem pretty high anyway, compared with the first few years of retirement.

But really all I can do about that is do whatever I can think of to minimize them, and then just go ahead and pay them. I can easily afford to do that and I try not to obsess over taxes even though I don't like paying them any more than anybody else does. Mine are a smaller percentage of my spending than what Midpack reported in the pie chart so I guess I should consider myself to be lucky (but I don't). Anyway I do try to remember that, as the saying goes, nothing is certain in life but death and taxes.

Now if I could just accept the inevitability of death, as easily as I have accepted taxes! That's a bit harder to do.

 

[aja8888]

Now if I could just accept the inevitability of death, as easily as I have accepted taxes! That's a bit harder to do.

You can avoid paying taxes (some drastic moves on your part), but you can't avoid.....leaving.

 

[JDARNELL]

Now if I could just accept the inevitability of death, as easily as I have accepted taxes! That's a bit harder to do.

I think I have accepted death however I can’t get over paying taxes as I have a fundamental disagreement with how the country keeps it financial house in order. I expect this year to be brutal due to some property sales. I have a huge ticking tax liability that gets bigger each day with traditional accounts that I will never touch. I may or may not start chiseling at it next year. Perhaps I’ll wait til RMDs having started a 501 (c) and then set up a legacy that I want where at least I would hope the money would be better used than paying taxes.

 

[Bamaman]

I was facing RMD's this year that I had no plans to spend, but I guess that's been put off 2 years by the Omnibus spending bill at the end of the year.

We moved 3 months ago, and are still cleaning and renovating our last house before putting it on the market. All the cars are in good shape, and we're in need of not much.

So we're probably going to have a more conservative spending year than in years past. After 6 operations last year, hopefully the DW has fixed every broken part.

 

[Lsbcal]

Death and taxes. This year is unfortunately a massive tax year because of selling an inherited house.

So if I pay the taxes does this mean I get a pass on death? (Death OR taxes)?

 

[RunningBum]

I think I have accepted death however I can’t get over paying taxes as I have a fundamental disagreement with how the country keeps it financial house in order. I expect this year to be brutal due to some property sales. I have a huge ticking tax liability that gets bigger each day with traditional accounts that I will never touch. I may or may not start chiseling at it next year. Perhaps I’ll wait til RMDs having started a 501 (c) and then set up a legacy that I want where at least I would hope the money would be better used than paying taxes.

That's a very constructive attitude. I'm not sure about setting up a 501(c) as an individual or family. I set up a DAF to contribute while avoiding cap gains taxes on some big gainers, and will probably leave some of the tIRA alone and make QCDs from it. Both avoid taxes and required no legal advice or costs to set up. Well, Fido may have a small yearly fee for the DAF.

 

[RunningBum]

Death and taxes. This year is unfortunately a massive tax year because of selling an inherited house.

So if I pay the taxes does this mean I get a pass on death? (Death OR taxes)?

No step up basis on the house? Or have you been holding it for awhile since inheriting it?

 

[NW-Bound]

It's not alarming, it's just hard to wrap my head around after 45 years where minimizing taxes was an overriding priority for me.

That was all I was getting at, a big change after 45 years of the opposite...

It's still a tax minimizing endeavor, but instead of operating locally or in the short term, you are now doing "global optimization" or in the long term.

I have to remind myself often that the money I see at the bottom left of the Quicken screen is not all mine. What I have left after the tax haircut is yet to be determined, and it depends on my course of action.