OK Got Some Money - Now What?

[pb4uski]

Thank you Helen - I already have a small Roth IRA that I would love to add to. The research I have done so far though says that you are only eligible to make a Roth contribution if you have earned income.

There is no earned income needed for Roth conversions.... in theory you could convert the entire $1.8m if you wanted to... but you would not want to because the tax bill on that large a Roth conversion would be high. But depending on your tax situation you could do as much as $100k and pay less than $9k in federal income tax (assumes MFJ... cut the amounts in half for a single).

ETA: For a single with no other income you could convert $52,225 in 2020... after the $12,400 standard deduction your taxable income would be $40,125... the top of the 12% tax bracket... and your tax would be $4,618 (8.8% of the $52,225).

 

[RunningBum]

OP should be acquainted with Roth conversions since they opened a topic on the mechanics of it last year.

http://www.early-retirement.org/forums/f28/roth-conversion-mechanics-98271.html

 

[kgtest]

almost_there do roth conversions. Don't squander the opportunities...have that money work smarter and harder for ya!

 

[almost_there]

Why withdraw it if you are going to reinvest it? I think that is what is throwing most people for a loop!

I am going to use some of it. I would like to reinvest most of it though (more than half). My thinking is that I will reinvest in a shorter-term less risky investment. The original mutual fund that was sold was an expensive mid-cap growth fund (LTFAX) that I have been thinking about unloading for a while now. I will probably reinvest in a bond fund or maybe even a CD. So the benefit that I think that I'm getting is some re-balancing/de-risking while I am benefiting from paying the taxes at current tax rates while I am in a low bracket.

 

[Oakster]

I am going to use some of it. I would like to reinvest most of it though (more than half). My thinking is that I will reinvest in a shorter-term less risky investment. The original mutual fund that was sold was an expensive mid-cap growth fund (LTFAX) that I have been thinking about unloading for a while now. I will probably reinvest in a bond fund or maybe even a CD. So the benefit that I think that I'm getting is some re-balancing/de-risking while I am benefiting from paying the taxes at current tax rates while I am in a low bracket.

OK, that makes sense. I was picturing a larger sale that would put you in a higher tax bracket, not staying in a low one.

 

[jayanu]

I retired at the end of last year and am heading into a brave new world in 2020 (no more paycheck!!). I just sold a mutual fund in my IRA and withdrew the proceeds. Had them withhold 20%. After all the years of putting in this is the first time I have ever taken out. I got a nice big check and deposited into my checking account. So the question is: Now What? Looking to see what people that have lots of experience taking out do. I don't need all the money for immediate expenses. Do I spend some (splurge a little) and just re-invest the rest in an existing after-tax account? Is there any benefit to opening a new account with this money? Do I reinvest in the same security or could this be an opportunity to do some re-balancing? I know there is no single correct answer for this. Just looking for some opinions since I'm brand new at the taking money out part (although it seems like a lot more fun than the putting money in part)

20% withholding for income may not be enough depending on how much you withdrew.
If you are below 70.5 then you may have to pay penalty also.

 

[NW-Bound]

The OP said his income for 2020 will be very low. When your total income is low enough to be in the 0% cap gain and qualified dividend tax rate, you might as well keep the money invested in a taxable account. It is even better than Roth.

 

[CyclingInvestor]

I convert all my accumulated dividends each quarter from my IRA (99% of my $$) into my Roth (1%), set aside enough cash plus $10k for next quarters expenses, then buy more stock in the Roth with the excess. Restock checking account from Roth as needed. Takes about 5 minutes each quarter.

 

[jazz4cash]

20% withholding for income may not be enough depending on how much you withdrew.

If you are below 70.5 then you may have to pay penalty also.

What is this penalty you speak of?