Felix Mulier
Recycles dryer sheets
- Joined
- Feb 4, 2013
- Messages
- 99
I just spent the last week coming up to speed on the Retiree Portfolio Model from BigFoot48 on Bogleheads. I think it's a great tool (but my head hurts!).
My original goal was to see if we should stay under the ACA Cliff for the next few years while we convert our tIRAs and 401K to Roth IRAs. The answer, for us, turns out to be "no" - it's better if we convert more sooner than later.
Given that, I ran 2 more scenarios; 1 maxing out (i.e. 95% of) the 15% tax bracket, the other at 25%. I know I have to look into AMT and Medicare Part B Premium increases for Option #2, but here are some Pros and Cons for the 2 scenarios.
I'd appreciate any questions and/or comments as to which option you'd choose if you were me, and also if there are other things than those I already mentioned that I should investigate further. Thanks in advance!
Option #1 - Max out 15% Tax bracket
Pros
Pros
My original goal was to see if we should stay under the ACA Cliff for the next few years while we convert our tIRAs and 401K to Roth IRAs. The answer, for us, turns out to be "no" - it's better if we convert more sooner than later.
Given that, I ran 2 more scenarios; 1 maxing out (i.e. 95% of) the 15% tax bracket, the other at 25%. I know I have to look into AMT and Medicare Part B Premium increases for Option #2, but here are some Pros and Cons for the 2 scenarios.
I'd appreciate any questions and/or comments as to which option you'd choose if you were me, and also if there are other things than those I already mentioned that I should investigate further. Thanks in advance!
Option #1 - Max out 15% Tax bracket
Pros
- Total taxes will be 9% less than those we'd pay in Option #2 (and who wants to pay more taxes, right?)
- According to RPM, we would never have to "dip into" our Roth Conversion account. It would just continue to grow. (But we have no kids, so - hmmm!)
- Year-end Total Portfolio balances outpace Option #2's balances for the first 19 years (by as much as 8.5%)
- The final balance would be ever so slightly higher than Option #2 (<1%)
- We would pay income taxes for the next 16 years (Roth conversions would take that long), but then no taxes
- Our Social Security (at age 70) would be taxable for the first 7 years
Pros
- We would pay (BIG) income taxes for the next 8 years (half as long as option #1), but then no taxes
- Our Social Security would never get taxed
- While we'd only pay taxes for the next 8 years, we'd pay 9% more in Total Taxes than we would pay in Option #1
- The Total Portfolio takes a BIG hit in the first 8 years and doesn't catch up to Option #1's portfolio for 19 years
- The final balance would be ever so slightly lower than Option #1 (<1% if we live long enough!)
- We'd start using up Roth $'s 8 years sooner than Option #1
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