IRA WR Question

[street]

Here is the scenario.
The market starts to drops (-40%) would it a bad idea to start withdrawn money from an IRA/401K if you know you were in the 33% tax bracket before the markets started to drop or wouldn't it be a good idea?

The withdrawal amounts would go right back into the markets at a down time in the market and reinvested.

Would it be an advantage to do this, so I can get the IRA/401K amounts down and I could get in a lower tax bracket in the future.

With the markets down my gains would be down, so I would have less amount to withdraw to get it in manageable tax bracket.

I know this would be an easy answer for most of you that are savvy with finances.

 

[RobbieB]

It's always good to have a lot of dough on hand me thinks and now is a great time to hit that IRA and lock in those gains no matter what happens next.

 

[GrayHare]

Well, low valuations are a good time to convert to Roth.

 

[street]

Ya, I'm thinking about that also. I hope someone can give me some insight on the question I asked. I can change my AA in IRA & 401K but I don't want tp sell any for a few reasons now. I won't withdrawal anything till after I'm 65 that is my plan but then I will work those retirement accounts down in hopes to get in a loser tax bracket before RMD time.

 

[GrayHare]

Not sure what you are asking. It sounds like you want to remove assets from a tIRA/t401k while those assets are highly valued, which probably means you'll pay lots of ordinary income tax, hold the money aside waiting for market prices to drop 40%, so you can then buy back the assets at the lower price, then pay cap gains tax on them when you later sell. If that's what you want, Uncle Sam will be happy because you'll be paying lots of tax.

 

[street]

No, it markets drop my retirement accounts drop also. So, my question is would it be a bad move to sell from those non taxed accounts and reinvest right back into the markets. I will pay tax on those withdrawals but my thinking is do it while markets are low so my taxable amount in those account would be down in value with less money there to tax. I would be sell low but buying back low.
My plan is to lower those accounts before RMD age. I wouldn't do anything withdrawals till after 65.

 

[pb4uski]

Well, low valuations are a good time to convert to Roth.

I'd probably combine this with my new approach of not doing tIRA withdrawals.... only Roth conversions (in my case to the top of the 12% tax bracket) ant then withdrawals as needed for spending. For me it is just easier than a combination of tIRA withdrawals and Roth conversions.

I would just adjust the timing of my Roth conersions if markets decline.

 

[TheWizard]

First of all, being in the 33% bracket in retirement means a rather high income to start with, so congratulations.
Secondly, I would do Roth conversions of modest amounts from your 401k and IRA.
And thirdly, I would do these modest Roth conversions every year in retirement prior to age 72, not just when markets are down.

By "modest", I mean with an eye to levelizing your AGI before and after age 72 and the other eye on Medicare IRMAA thresholds...

 

[TheWizard]

Actually, the 32% marginal tax bracket for income this year goes from around $163k to $207k per person, and then the 35% bracket after that.
This means you're already in the next to highest IRMAA tier before any 401k/IRA withdrawals or Roth conversions with lots of headroom before hitting the highest IRMAA threshold.
So just do Roth conversions to levelize your AGI and you'll be fine...

 

[RetireBy90]

Well, low valuations are a good time to convert to Roth.

I’m actually doing a version of this with some BA stocks. With it down some 30% I moved it from TIRA to Roth so less tax would be due and I have same asset in my Roth. My plan calls for converting to Roth for next 8 years till I hit RMDs but if asset values drop in bear market even at planned amounts I’ll move up my schedule as there will be less to convert.
After this years move with BA I’ll be looking at any TIRA assets that are down in price to look for which assets to convert.

 

[finnski1]

You seem to be talking 2 different things.
In your first post you talk about removing(selling) assets "before a market drop" then in a subsequent reply you talk about doing the same when asset already have dropped (40%). Can't have the best of both worlds. Also sounds like a market timing exercise. That doesn't always work out well

 

[street]

Thanks for all your knowledge once again I really do appreciate your help. I'm terriable with money strategies and how some of this works, so I do appreciate your patience and willing to help me understand some of my concerns.

finnski1 >> I tried to explain my issue and meant both posts to be the same explanation but then again I'm stupid when it comes to finance things. Sorry about that.

 

[finnski1]

No worries. Just trying to clarify what you are attempting to do.
I appreciate the dilemma.

 

[RetireBy90]

One point for street, in doing a conversion from Traditional IRA to a Roth, Fidelity allows me to move a security, so no need to sell in my IRA, convert, then buy back again. This removes the question of buying back in to a down market after conversion. I would take this as 2 questions as suggested by finnski1.

1) Selling at market highs and buying back in at market lows. This seems very logical and doesn't seem all that difficult to me but then when I have tried I find I'm not good market timing. Research shows that individual investors tend to sell too late and then miss getting back in below sell prices. In theory it is buy low sell high, simple but individual investors don't execute well.

2) Doing conversions from TIRA to Roth. I won't tell you how to do this, but what I'm doing is to move a planned amount from my TIRA to my Roth every year. As mentioned in previous post, I have tried to move assets that have declined in value (in my case Boeing stock). I moved 100 shares when price was $332 when I purchased at $355. That means the conversion amount that will be reported is $33,200 rather than $35,500, saving me taxes on $22,000 of income otherwise would have been due. With this market timing approach I still get me conversion done and worst case if BA declines say to $300 then I may have to pay taxes on $3,200 that I didn't need to. I'm OK with leaving some money on the table as long as I get some of it. ;-)

 

[pb4uski]

.... I moved 100 shares when price was $332 when I purchased at $355. That means the conversion amount that will be reported is $33,200 rather than $35,500, saving me taxes on $22,000 of income otherwise would have been due. ....

$22,000? Can you provide the details of that calculation? I'm confused.

 

[finnski1]

$22,000? Can you provide the details of that calculation? I'm confused.

Was trying to figure that one out myself.

 

[street]

One point for street, in doing a conversion from Traditional IRA to a Roth, Fidelity allows me to move a security, so no need to sell in my IRA, convert, then buy back again. This removes the question of buying back in to a down market after conversion. I would take this as 2 questions as suggested by finnski1.

I need to check on this to see if I can convert with the FI I'm with. I asked a question relating to that a while ago about that processes and I really never got a clear answer. Again I might not have worded and explained it well enough to get a clear answer. Lol

 

[RetireBy90]

$22,000? Can you provide the details of that calculation? I'm confused.

Ok, caught me. $2,200 better ?? We are in Fla keys and trying to pretend I’m paying attention [emoji847]

 

[finnski1]

Ok, caught me. $2,200 better ?? We are in Fla keys and trying to pretend I’m paying attention [emoji847]

 

[pb4uski]

Ok, caught me. $2,200 better ?? We are in Fla keys and trying to pretend I’m paying attention [emoji847]

No.... I get $2,300 [($355-332)*100]

Have you started on margaritas a little early today? Or bloody marys?

 

[RetireBy90]

Was on my way to fishing so thinking 2 things at once