Why am I hesitant to withdraw from my Roth?

[MdaPetralia]

Withdrawals from tax-deferred for whatever reason are taxed as Ordinary Income...

Note that under Net Unrealized Appreciation (NUA), LTCG tax treatment can apply to the gains from employer stock in retirement accounts.

 

[almost there]

Have built the Roth up to about 50% now, or about the same amount of $$ as the Trad. IRA / over the past 8 years.
Roth funds will be the last to go (at this point) Either for personal old folk care, or more than likely tax free inheritance.
No reason for me to re-think it now. That I can think of.... Our current tax bracket does not make conversions as nice as they had been in the past. So, this might be it on conversions. But was shooting for 100% Roth. Made it 1/2 way. Maybe if SS goes Tax Free, might start up again. But for now, no more conversions in the foreseeable future. .Did a couple big ones in 2023 and 2024 prior to taking SS. As it looked like the 2018 tax plan might expire, but now it looks like it will continue.
Couple years were not much fun Tax wise. And am glad they are behind me.

 

[Koolau]

Have built the Roth up to about 50% now, or about the same amount of $$ as the Trad. IRA / over the past 8 years.
Roth funds will be the last to go (at this point) Either for personal old folk care, or more than likely tax free inheritance.
No reason for me to re-think it now. That I can think of.... Our current tax bracket does not make conversions as nice as they had been in the past. So, this might be it on conversions. But was shooting for 100% Roth. Made it 1/2 way. Maybe if SS goes Tax Free, might start up again. But for now, no more conversions in the foreseeable future. .Did a couple big ones in 2023 and 2024 prior to taking SS. As it looked like the 2018 tax plan might expire, but now it looks like it will continue.
Couple years were not much fun Tax wise. And am glad they are behind me.

One thing I realized as I went through the process of Roth conversions: You'll never get it completely right. There are too many variables. BUT, you can get close and you can arrive at a manageable and w*rkable ratio of Roth and traditional (or, as in my case) 401(k). I'm long past conversions, but feel very comfortable with my mix.

Sounds like you too are comfortable with your efforts toward conversion to Roths. Congratulations!

 

[Out-to-Lunch]

Well done!

Roth funds will be the last to go (at this point) Either for personal old folk care, or more than likely tax free inheritance.

But shouldn't you plan to use your tax-deferred funds for "personal old folk care," since medical expenses (>7.5% AGI) are tax-deductible?

 

[almost there]

The plan was not to have any tax deferred funds at that age. HA HA
Will know for sure in 30 yrs. Assisted living is tax deductible? I think some / but not all.
Medical related yes.

Well done!




But shouldn't you plan to use your tax-deferred funds for "personal old folk care," since medical expenses (>7.5% AGI) are tax-deductible?

 

[Out-to-Lunch]

The plan was not to have any tax deferred funds at that age. HA HA
Will know for sure in 30 yrs. Assisted living is tax deductible? I think some / but not all.
Medical related yes.

That may have been your plan (haha), but that is/waslikely not an optimal plan. I plan to keep a chunk of change in tax-deferred for medical expenses and/or charitable donations.

 

[almost there]

Heck, It might all still be there? As my ret. was planned to be 401k/IRA / Roth based.
But as its turning out, have not gotten into it over the past 12 yrs. And might not have to
in the future. Over planning has been a way of life. LOL LOL

 

[pb4uski]

In the next 1-2 years, our taxable account funds will be gone (this was our plan) but after starting SS next year out gap will be pretty low. My plan is to continue doing tIRA withdrawals with 100% withholding for taxes and then Roth conversions to the top of the 0% tax bracket. We'll then use Roth withdrawals as necessary for spending above my modest pension and SS.

 

[Mulligan]

In the next 1-2 years, our taxable account funds will be gone (this was our plan) but after starting SS next year out gap will be pretty low. My plan is to continue doing tIRA withdrawals with 100% withholding for taxes and then Roth conversions to the top of the 0% tax bracket. We'll then use Roth withdrawals as necessary for spending above my modest pension and SS.

I plan to leave my Roth alone and hoard it to let it grow. But could very likely leave a fair amount of HSA money for daughter to deal with. After 15 years of keeping medical receipts I barely have $1000 available to withdraw tax free. Although I will be able to use HSA for Medicare premiums, the dividend income from HSA is annually twice as much as premium cost, so it will continue to grow. I dont want to withdraw as income after 65 because 30% plus will be clipped for income taxes.
About the only way I can meaningfully whittle it down is by going to “The Home” for several years. That method of withdrawing doesnt sound appealing at all!

 

[treeofpain]

My understanding is that HSA money is the least advantageous for heirs to inherit, so maybe find a way to spend it down?

 

[Mulligan]

My understanding is that HSA money is they least advantageous for heirs to inherit, so maybe find a way to spend it down?

I am only aware of spending down tax free via medical expenses. I just dont simply incur any, which is a good problem. And my health insurance until medicare is such, that I really wont have any expenses. Unless something like my teeth falling out and needing implants, there just wont be a reason to withdraw it just to pay 30% plus in income taxes. So for me its only rational to let it grow until death as a nursing home insurance policy so to speak.
Yes, she will get hit with taxes on it, but its still free money to her after paying Uncle Sam.

 

[Koolau]

I am only aware of spending down tax free via medical expenses. I just dont simply incur any, which is a good problem. And my health insurance until medicare is such, that I really wont have any expenses. Unless something like my teeth falling out and needing implants, there just wont be a reason to withdraw it just to pay 30% plus in income taxes. So for me its only rational to let it grow until death as a nursing home insurance policy so to speak.
Yes, she will get hit with taxes on it, but its still free money to her after paying Uncle Sam.

Sounds very rational to me. To have HSA funds left over is a wonderful "problem" to have.

 

[imjustawarrior]

Our HSA is sitting at ~$300k invested 100% equities. I'm still almost a decade away from Medicare and my DW even further away. We still max out our HSA every year. I'm sitting on about $50k in receipts. Once I hit 65, we will start spending it down. I have always assumed that if we don't spend it all on medical expenses, then we are blessed.

People say medical expenses are so large in retirement. I probably should have looked into that statement more closely. We may end up with a crazy amount in our HSA.

 

[almost there]

Probably not the place for it, but never dreamed of using an HSA in that way?
Always felt there were too many restrictions.

 

[Koolau]

People say medical expenses are so large in retirement. I probably should have looked into that statement more closely. We may end up with a crazy amount in our HSA.

Between MC premiums, Medigap, deductibles, and co-pays, I would plan for up to $10K/year for each person of a couple. If you are healthy, cut that in half.

Yes, it can be a fair chunk of money, but considering what you get, it's a bargain and relatively predictable. I wouldn't worry about it going much over those two

 

[Mulligan]

Our HSA is sitting at ~$300k invested 100% equities. I'm still almost a decade away from Medicare and my DW even further away. We still max out our HSA every year. I'm sitting on about $50k in receipts. Once I hit 65, we will start spending it down. I have always assumed that if we don't spend it all on medical expenses, then we are blessed.

People say medical expenses are so large in retirement. I probably should have looked into that statement more closely. We may end up with a crazy amount in our HSA.

Being I am only 5 years away and no longer contribute you will be in even a “worse” situation than me. And apparently this is one of those situations in which the “solution to the problem” is worse than the actual problem itself, ha.

 

[audreyh1]

I am only aware of spending down tax free via medical expenses. I just dont simply incur any, which is a good problem. And my health insurance until medicare is such, that I really wont have any expenses. Unless something like my teeth falling out and needing implants, there just wont be a reason to withdraw it just to pay 30% plus in income taxes. So for me its only rational to let it grow until death as a nursing home insurance policy so to speak.
Yes, she will get hit with taxes on it, but its still free money to her after paying Uncle Sam.

You can also use your HSA to cover Medicare Part B and Part D premiums.

 

[almost there]

You can also use your HSA to cover Medicare Part B and Part D premiums.

I was just looking at that. Will know in a year what mine will be. But ave is $185 and $46 a month.

 

[pb4uski]

Our HSA is sitting at ~$300k invested 100% equities. I'm still almost a decade away from Medicare and my DW even further away. We still max out our HSA every year. I'm sitting on about $50k in receipts. Once I hit 65, we will start spending it down. I have always assumed that if we don't spend it all on medical expenses, then we are blessed.

People say medical expenses are so large in retirement. I probably should have looked into that statement more closely. We may end up with a crazy amount in our HSA.

I think you will end up with a crazy amount in your HSAs and your heirs will end up with a big tax bill. By sitting on that $50k of receipts you risk it not being taken out tax free if you die and your heirs don't know about them or forget to do it or delay (has to be done within a year).

 

[pb4uski]

You can also use your HSA to cover Medicare Part B and Part D premiums.

And deductibles, vision, dental.

 

[imjustawarrior]

I think you will end up with a crazy amount in your HSAs and your heirs will end up with a big tax bill. By sitting on that $50k of receipts you risk it not being taken out tax free if you die and your heirs don't know about them or forget to do it or delay (has to be done within a year).

Thank you for your input. When I turn 65, I will be aggressive in depleting the HSA. My DW is 7 years younger than I. Hopefully, we don't both expire too early.

Maybe I will think about taking the $50k soon to slow HSA growth and free up $50k more for Roth conversions.

I like kicking the can down the road and hope things turn out okay. I still have it in my head that if we don't spend the HSA on qualified medical expenses, then we will have so much money that it won't matter what happens to the HSA. I would probably leave the HSA to charity.

 

[pb4uski]

^^^ Leaving it to charity would avoid the tax.

 

[indiajust]

An embarrassingly large number of folks end up trying to live off their main accounts and never end up spending down the principal. Michael Kitces covered this recently, in an article on the merits of using an annuity.

Seems folks with defined payouts (like pension or annuity) tend to be happier and spendier, leave less on the table, in comparison with frugal defined contribution folks that end up trying to live off the taxable stuff entirely and never get around to the retirement account principal at all.

Gist of the article was more psych than science.

 

[audreyh1]

I was just looking at that. Will know in a year what mine will be. But ave is $185 and $46 a month.

We don’t have combined $300K HSAs, and are also subject to IRMAA, so it may take a while, but I’m fairly confident of spending ours down via Medicare premiums.

 

[Mulligan]

You can also use your HSA to cover Medicare Part B and Part D premiums.

Yes, I was kind of eye balling those costs of the add on parts of Medicare I would also get. Plus I will have to pay an income premium surcharge also. But my income being generated from the investments inside HSA are likely double all the premiums I will pay out. So it should still likely keep growing unless one of the really bad things occur to me. And I would include that being my teeth falling out. Implants arent cheap from what I have read, and I wont get dentures, ha!
There just isnt a real pathway out of the situation that I want to happen to me to eliminate the problem. So hopefully the pile is still there at my demise and my daughter can be patriotic and pay a lot of taxes that year.