Keep the Roths?

doneat54

Thinks s/he gets paid by the post
Joined
Mar 22, 2013
Messages
1,068
DW and I are going to empty our Roths to pay for a new house build next year. The combined value of them is a bit less than 5% of the overall portfolio. The majority of the portfolio is in our respective IRAs. I am 62, DW is 65, we are both retired, DW will start taking SS next year, I will wait until 70. We have hit the 24% Federal tax bracket this, and last year (which is why raiding the Roths is attractive). We live in a state with no income tax. I am wondering about leaving a couple hundred in them to keep them alive, but I am hard pressed to find a use for them going forward. If I push (convert) any money into them from the IRA(s), it's going to get taxed at 24% right? I have never been able to justify converting into them somehow.

Thoughts?
 
I had to close on a new home last week. Due to old Fido holding up a transfer, I had to dip into a Roth to complete the $2m closing in cash. I am going to do a 60 day rollover rule if I can replace the cash. Roth is our kids money, long term tax free growth. I would not cash out a Roth unless forced to for cash flow.
 
I'll be interested to hear other's thoughts on this subject. I've mentioned recently in these pages that I'm almost fanatical about keeping my Roths. I have about 1/3 of all my funds as Roths.

So far, I've flirted with IRMAA levels of income (taking primarily from 401(k)) to avoid using any of my Roth funds. I hope someone will respond and help me put Roths into perspective.
What do others think of Roths in terms of when to tap them vs other sources?

(Heh, heh, my first inclination when reading OP's thread title was: Yes, keep the Roths!! My "Yes" was before I read OP's explanation.) How sick is that? :facepalm: :cool:
 
If you are in the 24% tax bracket before any Roth conversions then you are right that Roth conversions would be taxed at 24%. Other than that, not enough info to go on.

I take it that you have no taxable account money... just tax-deferred and tax-free Roth's?

Generally, tax-free would be used last, especially if one is in a high tax bracket. So without more info to understand I would prefer not to touch the Roth's since they are tax free forever.

If you have stocks then in a Roth they are tax free but in an IRA they convert qualified dividends and LTCG into ordinary income.

Have you considered a loan and then make the payments with future IRA withdrawals instead of raising the Roths?
 
If your future withdrawal rate is the same as the rate for converting, then you are right there is no real tax savings. There could be some potential savings on inheritance basis if you and DW have each other as beneficiaries; since the single tax rates could make inherited IRA withdrawals fall into higher tax bracket.

Using the Roth as source of funds for the house seems good, I would probably leave a small amount in Roth to keep it active. In case you decide to do some additions in future years.
 
I had to close on a new home last week. Due to old Fido holding up a transfer, I had to dip into a Roth to complete the $2m closing in cash. I am going to do a 60 day rollover rule if I can replace the cash. Roth is our kids money, long term tax free growth. I would not cash out a Roth unless forced to for cash flow.
Yeah, when we bought our condo, it was essentially the same price as the town house we owned at the time. The town house was going to take a while to get ready to sell. SO, instead of taking from our Roths and pay cash for the condo, we took out a mortgage (which was a really interesting process for one without a j*b!) Of course, as soon as we sold the town house, we paid off the mortgage. It would have taken too long to do the roll over trick. Again, how sick is that?:blink:
 
Yeah, when we bought our condo, it was essentially the same price as the town house we owned at the time. The town house was going to take a while to get ready to sell. SO, instead of taking from our Roths and pay cash for the condo, we took out a mortgage (which was a really interesting process for one without a j*b!) Of course, as soon as we sold the town house, we paid off the mortgage. It would have taken too long to do the roll over trick. Again, how sick is that?:blink:
Similar situation, but instead of mortgage we opened a HELOC on the previous house. We maxed out the HELOC withdrawal plus some cash to pay for current home. Then when previous house sold, the HELOC got paid back automatically as part of closing.
 
Thanks for all the responses.

We have a good bit of taxable account $$ that is already committed to the project. We are going to take out loan for about 40% of the cost of the project. But we need that Roth $$ to close the gap. We do have an untapped HELOC (that I guess ideally I should close since the project is a demo and rebuild, and the existing house is the lien for the HELOC, but I think I am not going to close it) that has never been used, and I think it's max is a bit more than the combined Roths, but I don't like the idea of paying that interest and there is no slug of money coming from anywhere that could be used to pay it off quickly.

The one regret I have after 30+ years and retirement planning is not having pumped up those Roths more.
 
IMO a ROTH is just another source of funds... I have been tapping my ROTH for years to keep the income down for ACA credits...

I am not trying to figure out what I will leave the kids... they will get what is left when DW passes.. whatever it happens to be at that time...

The big question in my mind is the same as when the money was going in... when do you want to pay taxes? But at 24% rate I would look hard at using some other funding source than an tIRA... unless that is what I will be living with the rest of my life... if that is so then it goes back to the question... when?
 
Thanks for all the responses.

We have a good bit of taxable account $$ that is already committed to the project. We are going to take out loan for about 40% of the cost of the project. But we need that Roth $$ to close the gap. We do have an untapped HELOC (that I guess ideally I should close since the project is a demo and rebuild, and the existing house is the lien for the HELOC, but I think I am not going to close it) that has never been used, and I think it's max is a bit more than the combined Roths, but I don't like the idea of paying that interest and there is no slug of money coming from anywhere that could be used to pay it off quickly.

The one regret I have after 30+ years and retirement planning is not having pumped up those Roths more.
Will you be selling your existing house after you move into the new build? If so, I would use a HELOC on the existing house rather than the Roths and then just pay off the HELOC when you sell the existing house.

We demolished and rebuilt our lake house back in 2010/2011. It wasn't until the rebuild ws almost done that it dawned on me that perhaps I should have let the lienholder know that we temporarily destroyed their collateral (though in reality the land was probably worth more than the loan).

BTW, if you will be selling the existing home and your taxable account includes highly appreciated securities you could take a loan using the appreciated securities as collateral and pay back the loan from the proceeds from the sale of the existing home. We did exactly that earlier this year... used the taxable brokerage account for pledged asset line of credit, bought our new home, then a few months later closed on the sale of the old home and paid off the pledged asset line of credit.

Don't forget that if you take a loan that while you are paying interest on the loan you are also earning on the securities that would have been sold if you didn't take the loan, so your real cost is only the net of the two.
 
Will you be selling your existing house after you move into the new build? If so, I would use a HELOC on the existing house rather than the Roths and then just pay off the HELOC when you sell the existing house.

We demolished and rebuilt our lake house back in 2010/2011. It wasn't until the rebuild ws almost done that it dawned on me that perhaps I should have let the lienholder know that we temporarily destroyed their collateral (though in reality the land was probably worth more than the loan).

BTW, if you will be selling the existing home and your taxable account includes highly appreciated securities you could take a loan using the appreciated securities as collateral and pay back the loan from the proceeds from the sale of the existing home. We did exactly that earlier this year... used the taxable brokerage account for pledged asset line of credit, bought our new home, then a few months later closed on the sale of the old home and paid off the pledged asset line of credit.

Don't forget that if you take a loan that while you are paying interest on the loan you are also earning on the securities that would have been sold if you didn't take the loan, so your real cost is only the net of the two.
The existing house is on the same lot as the new one to be built (and not the same location/footprint) so no, we are not selling the existing house. And we will be getting a "Construction Loan" for the new build. We have just paid off the mortgage on the existing home.
 
I believe important question is: if you keep building your Roth IRA, what is a goal? How do you plan to spend these money? Many people want it to leave for their heirs and this is a great goal. What if someone doesn't have any heirs, or they don't need your money? There are plenty of situations when Roth can help and I don't see any problem to spend it. One way could be to spend just dividends and keep principal there and this is what I plan to do at some point.
 
The majority of the portfolio is in our respective IRAs. I am 62, DW is 65, we are both retired, DW will start taking SS next year, I will wait until 70. We have hit the 24% Federal tax bracket this, and last year....
To be in the 24% bracket your AGI must be above ~$230K. With that much cash flow (pensions?) can you pay off a loan quickly while leaving the Roth money alone?
 
To be in the 24% bracket your AGI must be above ~$230K. With that much cash flow (pensions?) can you pay off a loan quickly while leaving the Roth money alone?
We have no pensions/annuities. We are around $200k (lots of travel) drawn this year from the portfolio and just a tiny bit into the 24% bracket as a result.
 
I believe important question is: if you keep building your Roth IRA, what is a goal? How do you plan to spend these money? Many people want it to leave for their heirs and this is a great goal. What if someone doesn't have any heirs, or they don't need your money? There are plenty of situations when Roth can help and I don't see any problem to spend it. One way could be to spend just dividends and keep principal there and this is what I plan to do at some point.
That's kind of my logic now. If we aren't spending it now, when? We do not intend to leave those accounts to heirs after we pass. And this house build is clearly the biggest, and last financial venture of our lifetimes... or so we think.
 
That's kind of my logic now. If we aren't spending it now, when? We do not intend to leave those accounts to heirs after we pass. And this house build is clearly the biggest, and last financial venture of our lifetimes... or so we think.
I tend to agree. A Roth is a great tool for special situations, and this may be one. I will be emptying my Roth before my taxable, but that is mostly because my taxable is mostly 2 funds with large unrealized gains. Overall my heirs and I come out ahead with me spending from the Roth rather than paying taxes that they wouldn't have to pay on my taxable holdings.
 
  • Like
Reactions: jj
So you are only in the 24% bracket for this year?

if so, I would borrow the money and take money out next year to move the taxable amount to 2025.
 
Maybe not your plan but having the Roth allows you to take a larger than expected sum without having to worry about the tax or other impacts of a large jump in income.
 
Similar situation, but instead of mortgage we opened a HELOC on the previous house. We maxed out the HELOC withdrawal plus some cash to pay for current home. Then when previous house sold, the HELOC got paid back automatically as part of closing.
Really wish that had been an option for us. Glad it w*rked for you.
 
One consideration to keep pushing into the Roth would be a survivor consideration. What tax bracket will the survivor of your marriage be in when one dies? If more than 24%, keeping the Roth to do some conversions in that light might be worthwhile.
 
So you are only in the 24% bracket for this year?

if so, I would borrow the money and take money out next year to move the taxable amount to 2025.
No, we hit it (barely) last yer as well, and given our near term travel budget, we will likely always bump into it a bit. So I see no solution to take a loan, and have the bandwidth to pay it off in a subsequent year.
 
My wife and I used all of my inherited Roth IRA money to fund the down payment of buying a home while trying to sell our existing one. We got an Asset Based loan based on our retirement funds, and paid off the Asset Based loan with the net proceeds from the home sale. The one stipulation we had for the Asset Based loan was that we had to keep it open for 6 months so the bank could recoup their initial costs.
 
(though in reality the land was probably worth more than the loan).
I doubt they would have loaned you the money if they knew that. Both of the houses we bought we couldn't borrow money on because the land was worth more than the structures. goes back to rules that came out of the Whitewater Scandal...
 
Too many unknowns here. Would need to know pre-tax savings and desire to actual spend it. Have you forecasted balances 10 years from now when RMDs kick in with regard to tax bracket and IRMAA? Someone mentioned impact if spouse dies. Valid. Also tax brackets are lower right now due to legislation. Politically, I see them higher in the future. Do you have good LTC? We don't, but will rely on Roth's for this. About half of our retirement investments are now in Roth's. We are about your ages, and just built a new house and didn't touch our Roth's. Yes, we paid some taxes and will even pay a little Irmaa in a few years but used a short term construction loan, sold-home proceeds, and Trad IRA withdrawals. Finally, I would add that the concern of going into the 24% bracket when your already maxing the 22 isn't a deal breaker. The long term tax saving and potentially irmaa-saving power and flexibility of the Roth is considerable.
 
Back
Top Bottom