bean29
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Post by bean29 on Sept 7, 2021 13:15:47 GMT -5
We are in the 24% bracket. I put 10% of my 401K "savings" into a Roth 401K at work. We have about 5 years to go until our mortgage on a rental and DH's office is paid off. Then I can try to "save" more for retirement, but at that point, I will be 62 and DH 61. Hopefully our income will remain high. If we have serious hiccups, we will unload a property, or start tapping the 401K balance.
It would give me some peace of mind if they would open Medicare access to those over 60, or even 62. Our biggest anticipated cost in retirement is going to be Healthcare, and our biggest cost in those final years until Medicare is available to us is going to be Healthcare.
My SIL brought her Sister and Brother in law and her Mother over to my MIL's yesterday to say "Goodbye" as they are moving to Oregon. My SIL looked at me and said her Sister L told her that by 2026 Medicare Payments could be reduced by 25%. I was like well, yeah, they have been saying that since I started working. I said, I am ok with that but I am not OK with it being 1/2 or even 0 of what I am counting on, as I did not budget for that.
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Tiny
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Post by Tiny on Sept 7, 2021 13:35:06 GMT -5
And because sometimes people (I love my relatives!) assume that if they are in the 24% bracket ALL their taxable income is taxed at 24% I'm sure everyone here is aware of how it works (but just in case): Here's a NerdWallet article that talks about how it works. I wasn't smart enough to be able to just grab the "table" and put it here. www.nerdwallet.com/article/taxes/federal-income-tax-brackets
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Value Buy
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Post by Value Buy on Sept 7, 2021 14:17:19 GMT -5
We are in the 24% this year, but next year when retired with zero income, we will convert to Roth enough to keeping us in the 12% bucket and qualifying for subsidized ACA coverage. I need an accountant to verify all this before next year, makes my head spin. Can you convert to roth after retirement? And when you do convert to roth, don't you have to pay federal and state tax on the entire amount converted to roth?
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jerseygirl
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Post by jerseygirl on Sept 7, 2021 15:00:04 GMT -5
Yes that’s a ‘back door ‘ Roth A traditional IRA can be converted to a Roth even when you have no earned income. State and Federal taxes will be paid. I do expect taxes to to increase in future years - even if we’re not making $400,000 . I saved too much in regular 401k then to IRA so now pay a lot of state and federal taxes on the RMDs. I play around with seeing maximum I can convert without increasing taxes too much. Last year when no RMDs needed to be taken, I converted the amounts of the RMDs to a Roth. Normally RMDs can’t be converted to Roth
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plugginaway22
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Post by plugginaway22 on Sept 7, 2021 16:35:36 GMT -5
Yes we will be able to convert, and will pay taxes on it, but with no other income that is the year to do it!
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Value Buy
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Post by Value Buy on Sept 7, 2021 22:51:05 GMT -5
Yes that’s a ‘back door ‘ Roth A traditional IRA can be converted to a Roth even when you have no earned income. State and Federal taxes will be paid. I do expect taxes to to increase in future years - even if we’re not making $400,000 . I saved too much in regular 401k then to IRA so now pay a lot of state and federal taxes on the RMDs. I play around with seeing maximum I can convert without increasing taxes too much. Last year when no RMDs needed to be taken, I converted the amounts of the RMDs to a Roth. Normally RMDs can’t be converted to Roth Agree about regular IRA Distributions hitting retirees hard in the pockebook. We both chose to pull more than minimum amounts out of our retirement accounts last year as I thought our minimum pulls in 2021 and 2022 would be much higher due to increased values of the funds, or IRS would require a catch up withdrawl for the year that was allowed no Minimum withdrawl. Didn't matter in the end, as over all value of our funds increased much more than we withdrawled last year. yeh, first world problems........
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bookkeeper
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Post by bookkeeper on Sept 8, 2021 7:05:29 GMT -5
I work to keep us in the 22% bracket. We max our HSA account each year, since that is the only thing that lowers our adjusted gross income. I receive pass through income from my late father's trust each year, the rest of our money is in 401k/IRA accounts. DH started receiving social security this year. That puts us up to about $50,000 of income before we take any withdrawals from the retirement accounts.
We signed up for the healthcare marketplace in April which lowered our health insurance monthly premium by $1300 per month. I plan to keep our income on the low side for the next two years to take advantage of this lower health insurance premium. You don't need as much money every month if you are not bleeding it for health insurance. We were paying $1850/month previously which was more than my wages when I worked.
Another truth I have found, is that withdrawals from retirement accounts are a good value tax wise when compared to earned wages. Social Security and Medicare taxes add up to 7.65% of your paycheck. Those taxes do not apply to retirement account income. You only owe federal and state income tax on your retirement account withdrawals. We moved to a state with no income tax upon retirement which saved us another 5%.
The moral of the story is: it's not how much money you make, it's how much you keep.
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CCL
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Post by CCL on Sept 8, 2021 18:25:27 GMT -5
Didn't we already pay Social Security and Medicare taxes on 401k and traditional IRA funds back when we earned them?
Of course, I think most of us have accounts that have increased in value, so are still ahead.
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Deleted
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Post by Deleted on Sept 8, 2021 19:05:01 GMT -5
Didn't we already pay Social Security and Medicare taxes on 401k and traditional IRA funds back when we earned them? Of course, I think most of us have accounts that have increased in value, so are still ahead. We certainly did. I still wonder about the tax "advantages" when everything taken out is taxed as regular income with no lower rate for dividends or LT gains.
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Post by minnesotapaintlady on Sept 8, 2021 19:52:36 GMT -5
Didn't we already pay Social Security and Medicare taxes on 401k and traditional IRA funds back when we earned them? Of course, I think most of us have accounts that have increased in value, so are still ahead. We certainly did. I still wonder about the tax "advantages" when everything taken out is taxed as regular income with no lower rate for dividends or LT gains. Well for me, I was able to invest way more going the pre-tax route than taxable. Basically my entire Roth IRA is funded with tax refunds.
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Rukh O'Rorke
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Post by Rukh O'Rorke on Sept 9, 2021 8:03:23 GMT -5
We certainly did. I still wonder about the tax "advantages" when everything taken out is taxed as regular income with no lower rate for dividends or LT gains. Well for me, I was able to invest way more going the pre-tax route than taxable. Basically my entire Roth IRA is funded with tax refunds. Using today’s bracket of 24%, which is mine if I only have 20k after expenses to invest, I can do 20k into the 401k or 15200 into taxable, and pay whatever taxes come up on cap gain or dividends. So much more money is allowed to grow in the 401k over decades people forget how much smaller the pot would be without it. The security is that if you have very little other income, and a modest pot, the withdrawals will be low to no taxes. If otherwise, you are probably paying taxes at one or two tiers lower. At least for much of it. If not, you got 20 or more years of free growth on the additional money invested before paying the tax.
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Rukh O'Rorke
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Post by Rukh O'Rorke on Sept 9, 2021 8:22:03 GMT -5
Well for me, I was able to invest way more going the pre-tax route than taxable. Basically my entire Roth IRA is funded with tax refunds. Using today’s bracket of 24%, which is mine if I only have 20k after expenses to invest, I can do 20k into the 401k or 15200 into taxable, and pay whatever taxes come up on cap gain or dividends. So much more money is allowed to grow in the 401k over decades people forget how much smaller the pot would be without it. The security is that if you have very little other income, and a modest pot, the withdrawals will be low to no taxes. If otherwise, you are probably paying taxes at one or two tiers lower. At least for much of it. If not, you got 20 or more years of free growth on the additional money invested before paying the tax. oh - and I also have 5% state income tax, so a lot less than 15200 to put into taxable.
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Post by minnesotapaintlady on Sept 9, 2021 8:33:29 GMT -5
Well for me, I was able to invest way more going the pre-tax route than taxable. Basically my entire Roth IRA is funded with tax refunds. Using today’s bracket of 24%, which is mine if I only have 20k after expenses to invest, I can do 20k into the 401k or 15200 into taxable, and pay whatever taxes come up on cap gain or dividends. So much more money is allowed to grow in the 401k over decades people forget how much smaller the pot would be without it. The security is that if you have very little other income, and a modest pot, the withdrawals will be low to no taxes. If otherwise, you are probably paying taxes at one or two tiers lower. At least for much of it. If not, you got 20 or more years of free growth on the additional money invested before paying the tax. And then if you have state taxes to factor in and an employer match... This is one of the things about Dave Ramsey that drives me nuts. He's always screaming Roth, Roth, Roth and showing all this math about how much more in taxes you'll pay in retirement going traditional, but he completely ignores all the tax savings along the way as if that money no longer exists. If your tax rates are the same, then the numbers come out identical going either way assuming you invest the tax savings.
I'm in a crazy place between 19 and 48K AGI where earned income credit comes into play. I basically go from a +12% bracket investing taxable to a -20% one tax-deferred. Plus state taxes go from +5% to a negative number as well.
Easily 1/3 of my withdrawals in retirement will be tax-free because they'll fill the standard deduction. The early years when I still file HOH nearly half will be.
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Value Buy
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Post by Value Buy on Sept 9, 2021 8:39:59 GMT -5
Well for me, I was able to invest way more going the pre-tax route than taxable. Basically my entire Roth IRA is funded with tax refunds. Using today’s bracket of 24%, which is mine if I only have 20k after expenses to invest, I can do 20k into the 401k or 15200 into taxable, and pay whatever taxes come up on cap gain or dividends. So much more money is allowed to grow in the 401k over decades people forget how much smaller the pot would be without it. The security is that if you have very little other income, and a modest pot, the withdrawals will be low to no taxes. If otherwise, you are probably paying taxes at one or two tiers lower. At least for much of it. If not, you got 20 or more years of free growth on the additional money invested before paying the tax. So true. I had $18,000 in a three year certificate deposit in my IRA back when I locked in at 15% interest rate for three years in the 70's. When it came due, interest was back in the single digits so I split the money into three different funds. TR Price, Fidelity, and a Vanguard fund. Since I was now in a 401-k at work I could no longer add money to these funds. After four or five years I closed the TR Price fund and put it in the Vanguard fund, due to better performance results. Today the two accounts are in the hundreds of thousands not tens of thousands. After retirement in October of 2014 moved the 401-k to the Vanguard fund and have never looked back. Since 2015 we have been pulling money out of the accounts due to lifestyle decisions, such as two homes plus a campground lot and park model ownership. Lots of real estate taxes, house insurance, mortgage on second house, etc to pay for. Since 2016 regardless of our share selling amounts the accounts are much higher than previous year end numbers.......Since I turn 73 this year the amount of mfw will start increasing higher due to age, increasing our tax liability. I am surprised how the actuary tables do not drain the accounts faster than I thought they would so far..........but it has been a great run for us financially in our retirement accounts and glad I was not paying taxes every year on dividend and all taxable gains in regular fund accounts, as it would put those same accounts at a much lower total value unless you had enough outside yearly income to pay for those gains. Sort of a rob Peter to pay Paul situation, where we robbbed the treasury of income taxes and Paying them back now.
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teen persuasion
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Post by teen persuasion on Sept 9, 2021 9:57:58 GMT -5
Yes that’s a ‘back door ‘ Roth A traditional IRA can be converted to a Roth even when you have no earned income. State and Federal taxes will be paid. I do expect taxes to to increase in future years - even if we’re not making $400,000 . I saved too much in regular 401k then to IRA so now pay a lot of state and federal taxes on the RMDs. I play around with seeing maximum I can convert without increasing taxes too much. Last year when no RMDs needed to be taken, I converted the amounts of the RMDs to a Roth. Normally RMDs can’t be converted to Roth No, that's not a backdoor Roth, it's just a regular Roth conversion. A backdoor Roth is when your income is too high to be eligible for a direct, front door Roth IRA contribution. You can always do a non deductible tIRA contribution, as long as you have earned income. Then you can convert that tIRA contribution to Roth, cleanly (no tax except on growth, because the contribution was not pre-tax) if you have no other tIRA balances, or taxed pro rata across existing tIRA balances.
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Deleted
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Post by Deleted on Sept 9, 2021 11:00:39 GMT -5
OK, I did a simple simulation and you're right- unless you're taxed at a MUCH higher rate in retirement you're better off even paying on withdrawals as ordinary income rather than paying taxes on gains as they're realized in an after-tax account. I feel better!
It's still gonna hurt when I have to take RMDs but I have a few years.
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tallguy
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Post by tallguy on Sept 9, 2021 11:28:08 GMT -5
Using today’s bracket of 24%, which is mine if I only have 20k after expenses to invest, I can do 20k into the 401k or 15200 into taxable, and pay whatever taxes come up on cap gain or dividends. So much more money is allowed to grow in the 401k over decades people forget how much smaller the pot would be without it. The security is that if you have very little other income, and a modest pot, the withdrawals will be low to no taxes. If otherwise, you are probably paying taxes at one or two tiers lower. At least for much of it. If not, you got 20 or more years of free growth on the additional money invested before paying the tax. And then if you have state taxes to factor in and an employer match... This is one of the things about Dave Ramsey that drives me nuts. He's always screaming Roth, Roth, Roth and showing all this math about how much more in taxes you'll pay in retirement going traditional, but he completely ignores all the tax savings along the way as if that money no longer exists. If your tax rates are the same, then the numbers come out identical going either way assuming you invest the tax savings.
I'm in a crazy place between 19 and 48K AGI where earned income credit comes into play. I basically go from a +12% bracket investing taxable to a -20% one tax-deferred. Plus state taxes go from +5% to a negative number as well.
Easily 1/3 of my withdrawals in retirement will be tax-free because they'll fill the standard deduction. The early years when I still file HOH nearly half will be.
While that is correct as far as it goes, it is not the entire picture. Other factors come into play, as they do for you now. For example, I am limiting my income for tax purposes. I do not want to go over a certain amount because I can save a small fortune in property taxes by staying under the limit. By having a lot more in Roth, I can bump up my "unofficial" income quite a bit without losing that savings if I wish to spend more. Other people might try to limit theirs the same way to qualify for a higher health insurance subsidy, or some other benefit such as not running afoul of IRMAA. I did a six-figure conversion a couple years ago, with a much higher tax rate on that money than I would have paid over time, simply to get my IRA balance lower. I may do it again. I am still a long way from having to take RMDs, but I don't want them to push my income too high when I do have to take them. The idea is to save me the most money in the long run, not the most money this year.
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Rukh O'Rorke
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Post by Rukh O'Rorke on Sept 9, 2021 15:22:35 GMT -5
Using today’s bracket of 24%, which is mine if I only have 20k after expenses to invest, I can do 20k into the 401k or 15200 into taxable, and pay whatever taxes come up on cap gain or dividends. So much more money is allowed to grow in the 401k over decades people forget how much smaller the pot would be without it. The security is that if you have very little other income, and a modest pot, the withdrawals will be low to no taxes. If otherwise, you are probably paying taxes at one or two tiers lower. At least for much of it. If not, you got 20 or more years of free growth on the additional money invested before paying the tax. And then if you have state taxes to factor in and an employer match... This is one of the things about Dave Ramsey that drives me nuts. He's always screaming Roth, Roth, Roth and showing all this math about how much more in taxes you'll pay in retirement going traditional, but he completely ignores all the tax savings along the way as if that money no longer exists. If your tax rates are the same, then the numbers come out identical going either way assuming you invest the tax savings.
I'm in a crazy place between 19 and 48K AGI where earned income credit comes into play. I basically go from a +12% bracket investing taxable to a -20% one tax-deferred. Plus state taxes go from +5% to a negative number as well.
Easily 1/3 of my withdrawals in retirement will be tax-free because they'll fill the standard deduction. The early years when I still file HOH nearly half will be.
Dave ramsey ignores a lot of stuff for show. ugh - just read up on him on wikipedia.
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Post by minnesotapaintlady on Sept 10, 2021 8:26:17 GMT -5
RMDs can screw everything up, but I'll admit, part of me is looking forward to being forced to just let the chips fall as they may and not worrying about trying to control things by lowering taxable income. I might explore doing some Roth conversions in early retirement, but not sure how necessary it will be. If I only have a million or so in pre-tax I'll be withdrawing up to the RMD amount from them anyhow.
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bookkeeper
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Post by bookkeeper on Sept 10, 2021 8:44:43 GMT -5
DH and I have been thinking about converting some IRA account money to Roth IRA. Alternatively, I am considering gifting our two sons the money to max their Roth IRA accounts. The whole purpose of the conversion would be to get the asset to the next generation with the tax free feature of the Roth account. $6000 is the max for 2021.
I am mulling around the idea of $10,000 gift to each son. Max the Roth IRA for the year and put the rest into a S&P 500 fund taxable account. They are around 30 years old. They have time on their side and they both understand how they will need money for their "future selves".
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azucena
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Post by azucena on Sept 10, 2021 10:22:03 GMT -5
DH and I have been thinking about converting some IRA account money to Roth IRA. Alternatively, I am considering gifting our two sons the money to max their Roth IRA accounts. The whole purpose of the conversion would be to get the asset to the next generation with the tax free feature of the Roth account. $6000 is the max for 2021. I am mulling around the idea of $10,000 gift to each son. Max the Roth IRA for the year and put the rest into a S&P 500 fund taxable account. They are around 30 years old. They have time on their side and they both understand how they will need money for their "future selves". Book - if you gift it in Jan-Feb 2022, couldn't they make Roth contributions for 2021 and 2022?
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tallguy
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Post by tallguy on Sept 10, 2021 10:40:19 GMT -5
RMDs can screw everything up, but I'll admit, part of me is looking forward to being forced to just let the chips fall as they may and not worrying about trying to control things by lowering taxable income. I might explore doing some Roth conversions in early retirement, but not sure how necessary it will be. If I only have a million or so in pre-tax I'll be withdrawing up to the RMD amount from them anyhow. The problem though is that the RMD percentage goes up every year, along with the likelihood that your account balance is increasing even with the RMDs taken out for at least the initial years. That can pretty quickly make your RMDs onerous. My hope was to get my traditional IRA balances down to about $300,000 by the time RMDs hit. I'm not going to get anywhere close to that for a couple reasons, but I'll still try (within reason) to get it lower. Doing so will keep most of my Social Security benefits tax-free and keep me below the limits where I can qualify for other programs. Roth monies make up the rest of your income without screwing you up in those areas. If everything you hold is in tax-deferred accounts, it can hit pretty hard on taxes when you take the money out. You have fewer options, and it is always better to have more options available to you.
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Post by minnesotapaintlady on Sept 10, 2021 10:50:45 GMT -5
The problem though is that the RMD percentage goes up every year, along with the likelihood that your account balance is increasing even with the RMDs taken out for at least the initial years. That can pretty quickly make your RMDs onerous. But the actuarial tables they use for calculating RMDs are set up for a lot longer than life expectancy and I don't care about leaving an inheritance. I guess I'm just thinking if after age 72 I'm "forced" to make say double (or more) than what I need and pay the associated taxes I won't really care at that point. If I'm not going to run out of money, it seems like a win to be in this position.
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Tiny
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Post by Tiny on Sept 10, 2021 11:17:47 GMT -5
The problem though is that the RMD percentage goes up every year, along with the likelihood that your account balance is increasing even with the RMDs taken out for at least the initial years. That can pretty quickly make your RMDs onerous. But the actuarial tables they use for calculating RMDs are set up for a lot longer than life expectancy and I don't care about leaving an inheritance. I guess I'm just thinking if after age 72 I'm "forced" to make say double (or more) than what I need and pay the associated taxes I won't really care at that point. If I'm not going to run out of money, it seems like a win to be in this position. I think the "going" strategy would be to do some Roth conversions early in one's retirement. Not with the intent to drain the 401K completely - but to manage the RMDs/income because of the effect of increased income (from RMDs) on medicare costs and SS being taxed. There's also how any money from retirement accounts you do leave to your heirs will play with their situation - I think right now - it's better to leave Roth money to your heirs than IRA money... I do think it all depends on when the accounts are accessed (59.5? 62? 65? 67?) as in when "retirement" starts and how all the various accounts (and benefits) play together. (retirement apparently is not for the financial feint of heart )
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Tiny
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Post by Tiny on Sept 10, 2021 11:25:40 GMT -5
DH and I have been thinking about converting some IRA account money to Roth IRA. Alternatively, I am considering gifting our two sons the money to max their Roth IRA accounts. The whole purpose of the conversion would be to get the asset to the next generation with the tax free feature of the Roth account. $6000 is the max for 2021. I am mulling around the idea of $10,000 gift to each son. Max the Roth IRA for the year and put the rest into a S&P 500 fund taxable account. They are around 30 years old. They have time on their side and they both understand how they will need money for their "future selves". I think my oldest sibling (70yo) is doing something where he gifts money to his kids with the stipulation it goes to their Roths (or other retirement account). I think he has also done some Roth conversions in the last few years - because he's looking at some big RMDs in a few more years - and he is thinking about what he will be leaving to his kids. He's got pension(s) and SS that pretty much cover his yearly expenses AND he's got a sizable tax advantage retirement account.
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tallguy
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Post by tallguy on Sept 10, 2021 11:30:22 GMT -5
The problem though is that the RMD percentage goes up every year, along with the likelihood that your account balance is increasing even with the RMDs taken out for at least the initial years. That can pretty quickly make your RMDs onerous. But the actuarial tables they use for calculating RMDs are set up for a lot longer than life expectancy and I don't care about leaving an inheritance. I guess I'm just thinking if after age 72 I'm "forced" to make say double (or more) than what I need and pay the associated taxes I won't really care at that point. If I'm not going to run out of money, it seems like a win to be in this position. Sure, but why not make things even better? I am already set to have significantly more money each year in retirement than I made while I was working, so I'm fine even though I retired relatively early. By having more in Roths and less in T-IRAs, I should be able to lower my normal and necessary expenses to around $15,000 and spend anything over that on whatever I want. If all of my money was in tax-deferred accounts, that expenses number would be about double due to income and property taxes. If I have the option for an extra $15,000 per year every year, it's a little hard to pass that up. Yes, I prepaid a certain amount of income tax to do it via Roth conversion, but the payoff for me is huge. You may not have the same benefit available to the same degree as I do, since the property tax benefit making up much of my savings is state-specific, but I'd guess there is something available to make it worth your while. Again, though, more options is always better.
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bookkeeper
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Post by bookkeeper on Sept 10, 2021 11:31:23 GMT -5
DH and I have been thinking about converting some IRA account money to Roth IRA. Alternatively, I am considering gifting our two sons the money to max their Roth IRA accounts. The whole purpose of the conversion would be to get the asset to the next generation with the tax free feature of the Roth account. $6000 is the max for 2021. I am mulling around the idea of $10,000 gift to each son. Max the Roth IRA for the year and put the rest into a S&P 500 fund taxable account. They are around 30 years old. They have time on their side and they both understand how they will need money for their "future selves". Book - if you gift it in Jan-Feb 2022, couldn't they make Roth contributions for 2021 and 2022? They both already have Roth IRA's, but I don't know what they have contributed on their own this year. We would need to huddle up and make a plan together going forward.
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jerseygirl
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Post by jerseygirl on Sept 10, 2021 11:56:49 GMT -5
I put too much into 401k/tIRAs and RMDs are more than we need or want. Moving some to Roth would decrease the RMDs. RMDs are also causing Medicare payments to increase due to the dreaded IRMAAs.
We are gifting our kids every year. One family we give to kids for college. We try to equalize over the years but not each year. One year gave one family a big amount to help with house down payment. So far not taking much from the tax deferred accounts, don’t want the added taxes. They can pay the taxes with inheritance. They all vote for the party that wants to increase taxes - ok
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Post by minnesotapaintlady on Sept 10, 2021 12:08:07 GMT -5
But the actuarial tables they use for calculating RMDs are set up for a lot longer than life expectancy and I don't care about leaving an inheritance. I guess I'm just thinking if after age 72 I'm "forced" to make say double (or more) than what I need and pay the associated taxes I won't really care at that point. If I'm not going to run out of money, it seems like a win to be in this position. Sure, but why not make things even better? I am already set to have significantly more money each year in retirement than I made while I was working, so I'm fine even though I retired relatively early. By having more in Roths and less in T-IRAs, I should be able to lower my normal and necessary expenses to around $15,000 and spend anything over that on whatever I want. If all of my money was in tax-deferred accounts, that expenses number would be about double due to income and property taxes. If I have the option for an extra $15,000 per year every year, it's a little hard to pass that up. Yes, I prepaid a certain amount of income tax to do it via Roth conversion, but the payoff for me is huge. You may not have the same benefit available to the same degree as I do, since the property tax benefit making up much of my savings is state-specific, but I'd guess there is something available to make it worth your while. Again, though, more options is always better. The problem for me is that I'm in the years when it's most beneficial to limit my income right now. I have two kids that qualify for the EIC and except for a few year break (2023-2025), I could potentially be filling out the FAFSA for college for the next 10 years...until I'm 63! A big conversion would mess things up and small ones don't seem worth the bother considering the tax hit I would take (about 32% when you factor in the EIC). I don't know. There's a possibility of just "blowing" one of those non-FAFSA years on a big conversion and paying a fortune in taxes in one sweep, but the thought of that makes my tummy hurt.
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tallguy
Senior Associate
Joined: Apr 2, 2011 19:21:59 GMT -5
Posts: 14,147
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Post by tallguy on Sept 10, 2021 12:12:23 GMT -5
Sure, but why not make things even better? I am already set to have significantly more money each year in retirement than I made while I was working, so I'm fine even though I retired relatively early. By having more in Roths and less in T-IRAs, I should be able to lower my normal and necessary expenses to around $15,000 and spend anything over that on whatever I want. If all of my money was in tax-deferred accounts, that expenses number would be about double due to income and property taxes. If I have the option for an extra $15,000 per year every year, it's a little hard to pass that up. Yes, I prepaid a certain amount of income tax to do it via Roth conversion, but the payoff for me is huge. You may not have the same benefit available to the same degree as I do, since the property tax benefit making up much of my savings is state-specific, but I'd guess there is something available to make it worth your while. Again, though, more options is always better. The problem for me is that I'm in the years when it's most beneficial to limit my income right now. I have two kids that qualify for the EIC and except for a few year break (2023-2025), I could potentially be filling out the FAFSA for college for the next 10 years...until I'm 63! A big conversion would mess things up and small ones don't seem worth the bother considering the tax hit I would take (about 32% when you factor in the EIC). I don't know. There's a possibility of just "blowing" one of those non-FAFSA years on a big conversion and paying a fortune in taxes in one sweep, but the thought of that makes my tummy hurt. Okay, that's new information and does impact your decision. Just reinforces that personal finance is just that...personal.
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