Those Who don't/didn't do Roth Conversions

[RobLJ]

I've posted earlier that for several reasons, instead of Roth rollovers, we have withdrawn to the top of the 12% tax limit and stuffed the extra amount in a taxable brokerage.
I'll probably take SS next year at SS full withdrawal (primarily to make it easier for DW to spend more).

But, my thinking is to move the brokerage account, which is now getting much bigger, to a couple index funds and municipals CEFs. This is an alternative to Roths, since selling the munis won't incur much tax, although if the index funds keep growing, selling them will eventually incur capital gains.

Comments? I realize the Roth rollover will be preferred by most here but for us it won't happen. Right now it's about 1/4 municipal CEFs, 1/4 index, 1/4 cash, and 1/4 CEF bond/REIT/infrastructure.

I think the correct move eventually is to move to muni CEFs and index funds as the brokerage pile gets bigger since we don't spend everything we withdraw. It's kind of an emergency fund/BTD pile. And it's kind of comforting, I have to admit. Unless an earthquake levels the house there isn't much I can project to drain it but it is there. (150k now).

 

[SecondCor521]

I've posted earlier that for several reasons, instead of Roth rollovers, we have withdrawn to the top of the 12% tax limit and stuffed the extra amount in a taxable brokerage.
I'll probably take SS next year at SS full withdrawal (primarily to make it easier for DW to spend more).

But, my thinking is to move the brokerage account, which is now getting much bigger, to a couple index funds and municipals. This is an alternative to Roths, since selling the munis won't incur much tax, although if the index funds keep growing, selling them will eventually incur capital gains.

Comments? I realize the Roth rollover will be preferred by most here but for us it won't happen. Right now it's about 1/4 municipal CEFs, 1/4 index, 1/4 cash, and 1/4 CEF bond/REIT/infrastructure.

I think the correct move eventually is to move to muni CEFs and index funds as the brokerage pile gets bigger since we don't spend everything we withdraw. It's kind of an emergency fund/BTD pile. And it's kind of comforting, I have to admit. Unless an earthquake levels the house there isn't much I can project to drain it but it is there. (150k now).

I don't understand the appeal, unless you're significantly under 59.5 and expect to need the money before then.

Otherwise, sure, the tax bill might be low in taxable, but it'd be zero in a Roth. Accessibility to the funds and investment options should be essentially the same.

I guess the other benefit would be tax loss harvesting, but that doesn't appeal to me much personally as a LTBH investor.

 

[RobLJ]

I'm 65 going on 66. I understand the Roth conversion, but the question is assuming you AREN'T doing Roth Conversions, where would you place the money. Just to be clear; I guess I wasn't clear.

 

[RunningBum]

I'm 65 going on 66. I understand the Roth conversion, but the question is assuming you AREN'T doing Roth Conversions, where would you place the money. Just to be clear; I guess I wasn't clear.

It's hard to give advice for the best thing to do when you continually ignore the advice on the best thing to do. In the time you've asked your questions you probably could've had a Roth account opened. Good luck to you, but as far as I'm concerned you are on your own.

 

[RobLJ]

OK then, RB. thanks for the help.

 

[carty1]

Those Who don't do Roth Conversions

It's hard to give advice for the best thing to do when you continually ignore the advice on the best thing to do. In the time you've asked your questions you probably could've had a Roth account opened. Good luck to you, but as far as I'm concerned you are on your own.

Not everybody falls in to the same basket "Bum".

 

[Out-to-Lunch]

I've posted earlier that for several reasons, instead of Roth rollovers, we have withdrawn to the top of the 12% tax limit and stuffed the extra amount in a taxable brokerage.

I'm sorry that I am too lazy to go through all the 28 pages of this thread. Would you mind pointing me to what post # you explained your rationale for forgoing the tax-free Roth option in favor of a taxable brokerage account? It is tough to advise in absence of knowing your reasons for doing so.

 

[RobLJ]

While I have indicated briefly a couple times, in this and other threads without the following details, to those who really want to know,
Basically,

1) We have been funding my AgedP from 6-15% (15% is max) of our withdrawals, which has been quite variable, along with DW's aunt. So how much we were spending was extremely variable, until the last year or so.

2) Our spending upper limit is the 12% tax and usually below. Yes, we will probably fall into the 22% bracket, eventually, but we will not fall into the bracket above that, unless the blessed return God blesses us with riches that I/we do not expect,
3) Yes, we could have peeled 100k in Roth in retrospect below the 12% bracket--if I had the eye of Odin and knew what we would have to spend given the above. Forgive me, Roth purists.

Is that enough, or do I have to bare all my expenses to you all?

The question was a good one, and I know that all of you Roth enthusiasts are right in what you are doing, but Jesus Christ, my question was a good one, in a thread that was Roth or Not.
I realize that all of you will whip me back and forth and cry shame, but the original question--assuming there is no Roth--was a good one.

I am not proposing that everyone on the thread follow my lead. And in fact, I regret even asking the damn question.

 

[pb4uski]

I've posted earlier that for several reasons, instead of Roth rollovers, we have withdrawn to the top of the 12% tax limit and stuffed the extra amount in a taxable brokerage.
I'll probably take SS next year at SS full withdrawal (primarily to make it easier for DW to spend more).

But, my thinking is to move the brokerage account, which is now getting much bigger, to a couple index funds and municipals CEFs. This is an alternative to Roths, since selling the munis won't incur much tax, although if the index funds keep growing, selling them will eventually incur capital gains.

Comments? I realize the Roth rollover will be preferred by most here but for us it won't happen. Right now it's about 1/4 municipal CEFs, 1/4 index, 1/4 cash, and 1/4 CEF bond/REIT/infrastructure.

I think the correct move eventually is to move to muni CEFs and index funds as the brokerage pile gets bigger since we don't spend everything we withdraw. It's kind of an emergency fund/BTD pile. And it's kind of comforting, I have to admit. Unless an earthquake levels the house there isn't much I can project to drain it but it is there. (150k now).

You asked for comments.

I think it's a bad strategy and doesn't make sense. If you withdraw and put the proceeds in taxable or do a Roth conversion, either way you're paying tax on the withdrawal or conversion, so no difference there. You can invest in all the same things in the Roth that you can invest in in a taxable account, so I don't see any difference there.

Seems to me that everything is the same except growth on the Roth is tax free without doing anything special to avoid taxes whereas in taxable the growth is taxable unless you jump through some unnecessary hoops, so overall a bad strategy. Sorry.

 

[Sunset]

I think it's a bad strategy and doesn't make sense. If you withdraw and put the proceeds in taxable or do a Roth conversion, either way you're paying tax on the withdrawal or conversion, so no difference there. You can invest in all the same things in the Roth that you can invest in in a taxable account, so I don't see any difference there.

Seems to me that everything is the same except growth on the Roth is tax free without doing anything special to avoid taxes whereas in taxable the growth is taxable unless you jump through some unnecessary hoops, so overall a bad strategy. Sorry.

I nearly fell into a mental trap.

I'll admit, just a month ago, I was thinking of pulling $40K out of my IRA and sticking it in my brokerage account as I may want to spend it..
I got into what I was going to buy with it prior to spending it.

Then suddenly it hit me , I was better doing a Roth Conversion, buying what I wanted, and if I spend some of it or all of it, I can pull it out of the Roth, even if it's only 4 months later. The benefit is whatever is earned also comes out tax free.

 

[pb4uski]

While I have indicated briefly a couple times, in this and other threads without the following details, to those who really want to know,
Basically,

1) We have been funding my AgedP from 6-15% (15% is max) of our withdrawals, which has been quite variable, along with DW's aunt. So how much we were spending was extremely variable, until the last year or so.

2) Our spending upper limit is the 12% tax and usually below. Yes, we will probably fall into the 22% bracket, eventually, but we will not fall into the bracket above that, unless the blessed return God blesses us with riches that I/we do not expect,
3) Yes, we could have peeled 100k in Roth in retrospect below the 12% bracket--if I had the eye of Odin and knew what we would have to spend given the above. Forgive me, Roth purists.

Is that enough, or do I have to bare all my expenses to you all?

The question was a good one, and I know that all of you Roth enthusiasts are right in what you are doing, but Jesus Christ, my question was a good one, in a thread that was Roth or Not.
I realize that all of you will whip me back and forth and cry shame, but the original question--assuming there is no Roth--was a good one.

I am not proposing that everyone on the thread follow my lead. And in fact, I regret even asking the damn question.

You seem to think that spending has some relevance to whether doing Roth conversions makes sense or not. Spending has NOTHING to do with it

 

[Out-to-Lunch]

The question was a good one, and I know that all of you Roth enthusiasts are right in what you are doing, but Jesus Christ, my question was a good one, in a thread that was Roth or Not.

Well, I guess if you put it that way, I would put the funds into taxable brokerage account and hope that any gains on the funds were LTCG, which are taxed at a favorable rate.

I want to point out that this was my response in post NUMBER 5 of this now 550+ post thread:

I am a conversion advocate, trying to use all the tools at my disposal.

That having been said, it is a small lever! In most cases, it won't make a great deal of difference. Don't want to use it? Don't use it! Don't worry, be happy.

 

[LateToFIRE]

I nearly fell into a mental trap.

I'll admit, just a month ago, I was thinking of pulling $40K out of my IRA and sticking it in my brokerage account as I may want to spend it..
I got into what I was going to buy with it prior to spending it.

Then suddenly it hit me , I was better doing a Roth Conversion, buying what I wanted, and if I spend some of it or all of it, I can pull it out of the Roth, even if it's only 4 months later. The benefit is whatever is earned also comes out tax free.

Hold up, I thought you had to wait 5 years in order for a Roth withdrawal to be a qualified distribution, otherwise the earnings become taxable + 10% penalty. Can someone set me straight on that?

 

[MdaPetralia]

Hold up, I thought you had to wait 5 years in order for a Roth withdrawal to be a qualified distribution, otherwise the earnings become taxable + 10% penalty. Can someone set me straight on that?

Roth IRA Distribution Table

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-Yes (Taxable Portion)
Conversions: Tax-No ;Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-Yes

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-Yes

OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

Contributions: Tax-No ;Penalty-No
Conversions: Tax-No; Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-No

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified
No Taxes
No Penalties

 

[LateToFIRE]

Roth IRA Distribution Table

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-Yes (Taxable Portion)
Conversions: Tax-No ;Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-Yes

UNDER AGE 59.5
FIVE YEAR CONVERSION HOLDING PERIOD MET

Contributions: Tax-No; Penalty-No
Conversions: Tax-No; Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-Yes

OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

Contributions: Tax-No ;Penalty-No
Conversions: Tax-No; Penalty-No (Taxable Portion)
Conversions: Tax-No; Penalty-No (Nontaxable Portion)
Earnings: Tax-Yes; Penalty-No

OVER AGE 59.5
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA

All Distributions Are Qualified
No Taxes
No Penalties

Perfect - Thank you!!! Tried googling the topic but only led to more confusion.

 

[Exchme]

While I have indicated briefly a couple times, in this and other threads without the following details, to those who really want to know,
Basically,

1) We have been funding my AgedP from 6-15% (15% is max) of our withdrawals, which has been quite variable, along with DW's aunt. So how much we were spending was extremely variable, until the last year or so.

2) Our spending upper limit is the 12% tax and usually below. Yes, we will probably fall into the 22% bracket, eventually, but we will not fall into the bracket above that, unless the blessed return God blesses us with riches that I/we do not expect,
3) Yes, we could have peeled 100k in Roth in retrospect below the 12% bracket--if I had the eye of Odin and knew what we would have to spend given the above. Forgive me, Roth purists.

Is that enough, or do I have to bare all my expenses to you all?

The question was a good one, and I know that all of you Roth enthusiasts are right in what you are doing, but Jesus Christ, my question was a good one, in a thread that was Roth or Not.
I realize that all of you will whip me back and forth and cry shame, but the original question--assuming there is no Roth--was a good one.

I am not proposing that everyone on the thread follow my lead. And in fact, I regret even asking the damn question.

Folks aren't trying to attack you, they are trying to tell you that it looks like you are missing out on easy money. Maybe that's not the case, perhaps you can re-post your circumstances. Without that context, I feel like I am not understanding why you are focusing on your spending, what you wife's aunt has to do with it, why variations in your spending make it hard to know your tax bracket, etc.

Since you estimate that you will be in the 22% (25% once TCJA expires) bracket, then converting at least to the bottom of the LTCG phase-in is an easy win, at least prior to claiming SS. More sophisticated analysis requires using a calculation tool-if you haven't done so, I highly recommend it.

Also, in a prior post, you mentioned buying Municipals in closed end funds and their yields? Muni bonds yields are priced by the market to make sense to high tax bracket investors, not folks in the 12% bracket, so that's another puzzle. I would also be very sensitive to the fees and transaction costs of an actively managed fund.

 

[Winemaker]

RobLJ, DW and I have some pension money and DW's SS (and previously, rental income)coming in to meet expenses, but it's not enough. I withdraw enough from my 401k to meet those expenses and Roth convert to just under $250k to avoid NIIT.

 

[Gumby]

We have been blessed in not needing to take money from our tIRA's to support our expenses, so we just Roth convert and leave it there. However, even if we needed to use some of that money for current spending, I would still first convert to the Roth every year, then take money out of the Roth as and when I needed it. The IRS ordering rules for Roth withdrawals mean that my oldest contributions would come out first, so I can leave the conversion in the Roth to meet the five year holding period(s) and avoid any penalties, because I am actually taking out money I contributed in the past.** In a sense, the Roth account is like a conveyor belt car wash machine - new money comes in one side and eventually goes out the other side cleaned of any tax or penalty obligation.

**In our case, we are over 59.5 and we opened our first Roth way more than 5 years ago, so it is irrelevant, but younger people may want to consider this.

 

[pb4uski]

+1. We have the same thing. Lucky to have sufficient taxable account money to meet our spending needs but if we didn't then I would Roth convert to top of 0% bracket for LTCG and qualified dividends and then simply withdraw from Roth as needed for spending. If money round trips in a given year (is converted and withdrawn for spending) then it is effectively a traditional IRA withdrawal, which is fine

Back a while ago when I had a few years of withdrawals locked up in i-bonds, I thought we would be doing that, but as i-bond yields moderated I transferred that money back into our taxable brokerage accounts.

And we are over 59-1/2 and have had our Roths for more than 5 years.

 

[RunningBum]

Not everybody falls in to the same basket "Bum".

This wasn't the normal "Should I do Roth conversions or leave in the tIRA" question. Please explain who fits in the basket of withdrawing tIRA funds they don't need for spending instead of converting those funds to a Roth.

 

[RetireBy90]

For RobLJ, I think OP, when I posted some early questions and got lots of comments that didn’t answer my question I was easily offended. Now I’m not anymore.
I agree Roth isn’t for everyone and while I respect and appreciate the number crunchers analysis. I have done my conversions primarily to simplify our estate. Roth funds go to our kids and TIRA go to charities. Also simplified any inheritance as no concerns about tax hit when having to empty in 10 years. To us, some things are more important than the numbers

 

[pb4uski]

RobLJ, DW and I have some pension money and DW's SS (and previously, rental income)coming in to meet expenses, but it's not enough. I withdraw enough from my 401k to meet those expenses and Roth convert to just under $250k to avoid NIIT.

^^^ Good approach. It is the same thing as converting to just under $250k to avoid NIIT and then withdrawing from the Roth as needed for spending.

 

[SecondCor521]

While I have indicated briefly a couple times, in this and other threads without the following details, to those who really want to know,
Basically,

1) We have been funding my AgedP from 6-15% (15% is max) of our withdrawals, which has been quite variable, along with DW's aunt. So how much we were spending was extremely variable, until the last year or so.

2) Our spending upper limit is the 12% tax and usually below. Yes, we will probably fall into the 22% bracket, eventually, but we will not fall into the bracket above that, unless the blessed return God blesses us with riches that I/we do not expect,
3) Yes, we could have peeled 100k in Roth in retrospect below the 12% bracket--if I had the eye of Odin and knew what we would have to spend given the above. Forgive me, Roth purists.

Is that enough, or do I have to bare all my expenses to you all?

The question was a good one, and I know that all of you Roth enthusiasts are right in what you are doing, but Jesus Christ, my question was a good one, in a thread that was Roth or Not.
I realize that all of you will whip me back and forth and cry shame, but the original question--assuming there is no Roth--was a good one.

I am not proposing that everyone on the thread follow my lead. And in fact, I regret even asking the damn question.

It would help us help you if you respond to my and @pb4uski's responses to your question in post #552 and post #559 of this thread. I think we both had similar responses to your question.

The following posts, #560 and #561, and maybe more after those might also help clarify the feedback to you.