Taxation of LTCGs during retirement

[cathy63]

My estimated 2034 situation, at an average 12% market growth, would be a standard brokerage account with $212,085 of tax free investments, earning $25,450 in LTCGs, limiting my additional IRA withdraws to only $246 with an annual tax savings of $3,054.

I am not understanding how you'll be taking only $246 from your IRA in 2034 when you'll be 83 years old. At that point, you'll be required to take 1/17.7 = 5.65% of the remaining balance as an RMD.

If your IRA balance is so low that your RMD can be only $246, it seems like you might as well just liquidate the enitre IRA and make the bookkeeping that much easier.

 

[aja8888]

I personally look at this from a different perspective.

I am currently withdrawing $25,696 from my IRA each year to pay $7,696 in Fed, State, and Local taxes so that I can use the remaining $18,000 to make my $1,500 monthly mortgage payments. My total mortgage payments for 2023 will be $16, 800. My December payment will only be $300 to pay off my mortgage.

Plan A in 2024 could be to do a Roth Conversion where I withdraw $25,696 from my IRA and add $18,000 to my Roth, while paying $7,696 in taxes each year for the remainder of my life!

Plan B in 2024 would be to deposit $1,500 a month into a standard brokerage account and invest the money. Then, in 2025, at an average 12% return on my investments, my LTCGs would be $2,160 and my taxes on those gains would only be $388. My IRA withdraw in 2025 would be reduced by the LTCGs, so I could only withdraw $23,536 and pay $7,049 in taxes. My total tax savings in 2025 would only be $259, $528 in 2026, etc.

My estimated 2034 situation, at an average 12% market growth, would be a standard brokerage account with $212,085 of tax free investments, earning $25,450 in LTCGs, limiting my additional IRA withdraws to only $246 with an annual tax savings of $3,054.

If all my extra money was in a Roth, and I needed an extra $20,000 to buy a new car, I could make the Roth withdraw, but I couldn’t just put the money back whenever I wanted. If the extra money was taken from a standard brokerage account, also tax free, I could replace the money in that account any time I wanted to.


This is just a personal choice, and I do enjoy "playing the market".

I'd sure love to now what you will be investing in to get guaranteed 12% growth in this overpriced stock market.

 

[Out-to-Lunch]

I am currently withdrawing $25,696 from my IRA each year to pay $7,696 in Fed, State, and Local taxes so that I can use the remaining $18,000 to make my $1,500 monthly mortgage payments. My total mortgage payments for 2023 will be $16, 800. My December payment will only be $300 to pay off my mortgage.

Plan A in 2024 could be to do a Roth Conversion where I withdraw $25,696 from my IRA and add $18,000 to my Roth, while paying $7,696 in taxes each year for the remainder of my life!

Plan B in 2024 would be to deposit $1,500 a month into a standard brokerage account and invest the money. Then, in 2025, at an average 12% return on my investments, my LTCGs would be $2,160 and my taxes on those gains would only be $388. My IRA withdraw in 2025 would be reduced by the LTCGs, so I could only withdraw $23,536 and pay $7,049 in taxes. My total tax savings in 2025 would only be $259, $528 in 2026, etc.

(Bolded by me.) You know that those numbers work exactly the same if you had put the money in a Roth, right? You could put the money into the Roth, and then take withdrawals according to your Plan B. That is, you could, in 2025, withdraw $23,536 from the tIRA, and withdraw $2160 from the Roth, and pay ZERO in taxes (instead of $388).

How do you figure your plan is better?

 

[Sandy & Shirley]

(Bolded by me.) You know that those numbers work exactly the same if you had put the money in a Roth, right? You could put the money into the Roth, and then take withdrawals according to your Plan B. That is, you could, in 2025, withdraw $23,536 from the tIRA, and withdraw $2160 from the Roth, and pay ZERO in taxes (instead of $388).

How do you figure your plan is better?

The biggest problem with Roth is the lack of flexibility. We are extremely dedicated to our families. If all of our money ends up in Roth, and someone needs to borrow, let’s say $30,000 for a short term, if we take that money out of a Roth account, we can’t put it back after the family member pays us back.

The same is true for any short term need for money.

Right now, about 70% of our retirement money is in Roth accounts, 30% in traditional IRA, and zero in a standard brokerage account.

We are remaining a domestic couple to avoid the Federal Retirement Marriage Penalty. And we are currently living a lifestyle that just barely fits within our current Federal Tax Humps when you have to include our $18,000 mortgage payments.

We are looking for some level of flexibility with our savings in the future. If everything is in a Roth, there is no flexibility, you can’t take money out, then put it back!

 

[Out-to-Lunch]

WADR, the flexibility aspect is a nonsense argument.

(A) If it is in a Roth, and you take it out for a lump-sum expenditure, then (as you say) you cannot put it back into a Roth, and you must put it in a taxable account.

(B) If it is in a taxable account, and you take it out for a lump-sum expenditure, then you cannot put it into a Roth, and you must put it in a taxable account.



Look, I don't care. If you want to give the governement more money by not taking advantage of the tax-advantaged space you have created over the years, that is certainly your prerogative.

 

[pb4uski]

+2 Total nonsense. Stick with the Roth. IF you need to withdraw and the borrower pays you back then put the money in a brokerage account, which is what your other alternative is. At WORST, the earnings are tax-free for the time it is in the Roth rather than at your marginal tax rate on preferenced income.