Long term asset allocation strategies/account types & taxes

[Rukh O'Rorke]

I've been trying to figure this out for a while. 

so on to the thread topic!

Rip's thread had me digging into this more and I found these:

www.kitces.com/wp-content/uploads/2019/04/Tax-Efficient-Withdrawal-Strategies-In-Retirement-IWI-May-6-2019-Handouts.pdf
www.kitces.com/blog/tax-efficient-retirement-withdrawal-strategies-to-fund-retirement-spending-needs/

the pdf I posted on rip's thread, but not sure if anyone looked into it or had any thoughts. The pdf has some issues as maybe there was annimation on slides and now some have 2 numbers in the same spot so can't read. The blog post has most of the same info in narrative, but I don't see much about articulating a withdrawal strategy, so I wanted to ask you fine people:

have you seen this, or this type, of info before?
do you have a withdrawal strategy?
if so, will you share what it is and how you determined that to be best?

And feel free to freestyle and philosphize and add in any and all tangential thoughts you might have on this!

[Rukh O'Rorke]

In my case, I don’t have a whole lot of flexibility. I have considerably less than 100k in taxable source, mostly my I bonds. Roth balance currently is about 125k, so again, not something that can be planned for significant sums on an annual basis. Will keep these sources as back for a low to no tax reserve monies for large irregular expenses such as new car, new roof, etc. So, in this respect the Kitces strategy isn't really helping me out much. While I could ration the Roth and taxable to provide 10k of nearly/tax free income, it is really just going to increase tax liability later on, so I’ve abandoned the balanced approach.

But those things may be good for you fine people who did better advance tax planning than I.



The Roth conversion piece is something I could use, so I’ve developed the plan below. In a higher cost of living area and entering retirement with some significant debt payments still in play and a lot of pets! I’ll be well into the 24% tax rate for the day-to-day budget for all of my retirement years, which – I’ve tried and tried to figure out how people stay in the 12% living a nice lifestyle, and I think it is really down to really low COL areas and/or MFJ. So, different strategies are needed for the singleton. My plan is just to bite the bullet and shell out some fairly substantial taxes on the annual.


The plan for your review and critique!

Pre-retirement:

• Target a balance of 2M in 401k to retire
• About 200-300k in all other sources (Roth, I bonds, taxable, etc.)
• Assume modest 6% market gain average

Age 61/2/3/4 to 69

• Convert 150k out of my 401k to Roth annually
• 7.5% initial withdrawal increasing to nearly 10% at 69
• Use the converted amount for expenses with maybe 10k retained in the Roth if possible
• Retain >10k as car and various student loans paid off one by one over the first 3-7 years (depending on age at retirement)

Age 70 to 72

• Take social security
  
• 401k balance projected at about 1.55M
• Reduce 401k Roth conversion to 100k (resetting at about 6.5% withdrawal)

Age 73 to 94

• Continue 100k withdrawal
  
• RMD to taxable, remainder to Roth conversion

Age 95

• RMD is now > 100k so no more Roth conversions
• 401k balance projected to be 800k
• 10k average retained Roth conversions should be about 800k
• 125k starting Roth balance should have increased to about 700k
  
• Projected NW 2.3M, about the same as the starting balance
  

Age 96 to infinity and beyond!

• Apply the YOLO method! Spend whatever from wherever whenever
  

[resolution]

I haven't developed a real strategy yet, but I will share my thoughts.

I retired last Christmas and have two retirement income streams, my pension and my rental income. I plan to take social security in 16 years, but my other income will make it fully taxable, so I haven't done any strategizing on how to manage that. My husband is still working, so I am not drawing on any retirement funds, and we are still maxing out our Roth IRAs and putting money into our brokerage account. My husband is considering retiring in 7 years, when he turns 50, but the timing is very flexible. 

We have about $300k in a pre tax 457 plan, and a traditional IRA. I haven't taken any steps to convert it into a Roth since our tax bracket is currently at its all time high, and I don't want to drive up the cost of our health insurance on the exchange. Once he retires, I will take a look at the tax brackets and may start moving some of it into a back door Roth. We have more in our Roths than we do pre-tax or taxable.

In theory when we start drawing on retirement funds, we would want to spend a balance of our taxable and pre-tax and keep the Roth's growing. But a lot will depend on politics. Right now there is no income limit on the ACA subsidies, which Harris plans to extend. If the "no income limit" gets extended, we will probably stay on the ACA insurance, and may hit up the Roths for large purchases, like cars or repainting the house, so we don't create big lump sums of income and spike up the cost of our health insurance. If the Republicans get elected for a few cycles and manage switch things out from an income tax to a national sales tax, then I am better off keeping it all pre tax. 

[Rukh O'Rorke]

at 5% returns, the 401k is exhausted at 92
at 4%, exhausts at 86.

Will aim for 2 years of withdrawals in cash rather than in stocks in the 401k to buffer in case of early stock market trumbles. Not a lot of protection there, but could withstand an early 30% market drop if the 6% average increase continues thereafter. But it would exhaust the 401k at 86 similar to the level 4% average return.

In either case, I think I can roll with it. If I can make it to 86 with the 401k, then can design a life on social security and 4% of whatever is in the other accounts. Could then sell the house and go into senior living.

On the flip side!

Averaged annual returns of 7 or 8% will leave me with huge RMD in my later years on which I will very happily pay the extra tax bills! But as happy as that all sounds, trying to plan toward a not disasterous market and able to absorb a few hiccups along the way situation...

[Rukh O'Rorke]

Sept 14, 2024 13:06:16 GMT -5 resolution said:

I haven't developed a real strategy yet, but I will share my thoughts.

I retired last Christmas and have two retirement income streams, my pension and my rental income. I plan to take social security in 16 years, but my other income will make it fully taxable, so I haven't done any strategizing on how to manage that. My husband is still working, so I am not drawing on any retirement funds, and we are still maxing out our Roth IRAs and putting money into our brokerage account. My husband is considering retiring in 7 years, when he turns 50, but the timing is very flexible. 

We have about $300k in a pre tax 457 plan, and a traditional IRA. I haven't taken any steps to convert it into a Roth since our tax bracket is currently at its all time high, and I don't want to drive up the cost of our health insurance on the exchange. Once he retires, I will take a look at the tax brackets and may start moving some of it into a back door Roth. We have more in our Roths than we do pre-tax or taxable.

In theory when we start drawing on retirement funds, we would want to spend a balance of our taxable and pre-tax and keep the Roth's growing. But a lot will depend on politics. Right now there is no income limit on the ACA subsidies, which Harris plans to extend. If the "no income limit" gets extended, we will probably stay on the ACA insurance, and may hit up the Roths for large purchases, like cars or repainting the house, so we don't create big lump sums of income and spike up the cost of our health insurance. If the Republicans get elected for a few cycles and manage switch things out from an income tax to a national sales tax, then I am better off keeping it all pre tax. 

having a lot in roth is really good!

are they really looking at a national sales tax? is that in additional to the current income taxes? or a replacement?


I thought this wasn't a seriouc consideration...not sure how I would roll in that case. Haha! Just when i thought I had it all figured out.

[resolution]

Sept 14, 2024 13:26:49 GMT -5 Rukh O'Rorke said:

Sept 14, 2024 13:06:16 GMT -5 resolution said:

I haven't developed a real strategy yet, but I will share my thoughts.

I retired last Christmas and have two retirement income streams, my pension and my rental income. I plan to take social security in 16 years, but my other income will make it fully taxable, so I haven't done any strategizing on how to manage that. My husband is still working, so I am not drawing on any retirement funds, and we are still maxing out our Roth IRAs and putting money into our brokerage account. My husband is considering retiring in 7 years, when he turns 50, but the timing is very flexible. 

We have about $300k in a pre tax 457 plan, and a traditional IRA. I haven't taken any steps to convert it into a Roth since our tax bracket is currently at its all time high, and I don't want to drive up the cost of our health insurance on the exchange. Once he retires, I will take a look at the tax brackets and may start moving some of it into a back door Roth. We have more in our Roths than we do pre-tax or taxable.

In theory when we start drawing on retirement funds, we would want to spend a balance of our taxable and pre-tax and keep the Roth's growing. But a lot will depend on politics. Right now there is no income limit on the ACA subsidies, which Harris plans to extend. If the "no income limit" gets extended, we will probably stay on the ACA insurance, and may hit up the Roths for large purchases, like cars or repainting the house, so we don't create big lump sums of income and spike up the cost of our health insurance. If the Republicans get elected for a few cycles and manage switch things out from an income tax to a national sales tax, then I am better off keeping it all pre tax. 

having a lot in roth is really good!

are they really looking at a national sales tax? is that in additional to the current income taxes? or a replacement?


I thought this wasn't a seriouc consideration...not sure how I would roll in that case. Haha! Just when i thought I had it all figured out.

It is pie in the sky fantasizing for the Republican party, I don't think it would ever happen unless they hold all the offices for several cycles, but its the ultimate end game for passing on the tax burden to the lower classes. They occasionally create legislation for it, but it never comes close to passing. In theory it would replace the income tax. 

www.cnbc.com/2023/01/27/the-fair-tax-act-explained-what-to-know-about-the-republican-plan-.html

[resolution]

The most recent version of it was called a 23% national sales tax, but it was really a 30% tax.

What they were doing was to add 30% on to each transaction, so a $1.00 transaction would cost $1.30, with $1 cost of goods and 30 cents tax. Then they would say that 30 cents is 23% of $1.30, so its just a 23% tax.

[Rukh O'Rorke]

Sept 14, 2024 13:40:55 GMT -5 resolution said:

The most recent version of it was called a 23% national sales tax, but it was really a 30% tax.

What they were doing was to add 30% on to each transaction, so a $1.00 transaction would cost $1.30, with $1 cost of goods and 30 cents tax. Then they would say that 30 cents is 23% of $1.30, so its just a 23% tax.

oh dear, that would be difficult for most of the population! they had bettr exempt food at least?

[resolution]

Sept 14, 2024 14:43:26 GMT -5 Rukh O'Rorke said:

Sept 14, 2024 13:40:55 GMT -5 resolution said:

The most recent version of it was called a 23% national sales tax, but it was really a 30% tax.

What they were doing was to add 30% on to each transaction, so a $1.00 transaction would cost $1.30, with $1 cost of goods and 30 cents tax. Then they would say that 30 cents is 23% of $1.30, so its just a 23% tax.

oh dear, that would be difficult for most of the population! they had bettr exempt food at least?

There would be a tax rebate every month that should cover the taxes people pay on food. Similar to the advanced earned income credit, except it would be a rebate, and the EITC would go away.

I think the biggest problems would be that they wouldn't bring in nearly enough money to cover what is lost from the income tax, so they would have to raise the rates even higher, or bring back income taxes in addition. And it is highly regressive, as lower income families spend a much higher percentage of their income on necessities than higher income families.

Anyway sorry to have derailed your thread. It's not something that I consider likely, unless the conservatives completely take over the government for an extended period of time. If for some reason it ever happened, it would change the calculation on how we would withdraw from retirement accounts, and I would be pissed that I put so much in our Roths.

[haapai]

I tried to power through that power point presentation. 

The only things that seem to have stuck with me are the stylized image of two elderly persons and zip mention of widowhood.  I might not have read too carefully.  My eyes might have glazed over.  I still have no memory of any mention of how being widowed might change the situation dramatically.  

This pisses me off even though I am single and have no intention of marrying.  It rang my balderdash bell.  I'm generally annoyed when financial advice assumes that the intended audience is married, but this advice seems to assume both that the person receiving the advice is married and that they don't need to think about the financial implications of being widowed.  Good grief!  If this advice doesn't even serve married folks well, why should I bother studying it and adapting it for my unmarried self? 

[Rukh O'Rorke]

I'm confused! I didn't find the material to be couple focused at all. 

It was just a cartoon picture I didn't even pay attention to. I can't find anything on the slides that even mention filing status.

[MN-Investor]

It's been too long ago to remember the details, but I do remember, in about 1980, there being a proposal for a national sales tax, or a European style Value Added Tax, to replace the current Federal income tax. It's an idea that will forever pop up, get batted around, and never go anywhere. Trust me. It won't. Our economy is based on our current tax system and upending it would be a nightmare which no politician would ultimately vote for.

[The Walk of the Penguin Mich]

Sept 14, 2024 12:52:10 GMT -5 Rukh O'Rorke said:

In my case, I don’t have a whole lot of flexibility. I have considerably less than 100k in taxable source, mostly my I bonds. Roth balance currently is about 125k, so again, not something that can be planned for significant sums on an annual basis. Will keep these sources as back for a low to no tax reserve monies for large irregular expenses such as new car, new roof, etc. So, in this respect the Kitces strategy isn't really helping me out much. While I could ration the Roth and taxable to provide 10k of nearly/tax free income, it is really just going to increase tax liability later on, so I’ve abandoned the balanced approach.

But those things may be good for you fine people who did better advance tax planning than I.



The Roth conversion piece is something I could use, so I’ve developed the plan below. In a higher cost of living area and entering retirement with some significant debt payments still in play and a lot of pets! I’ll be well into the 24% tax rate for the day-to-day budget for all of my retirement years, which – I’ve tried and tried to figure out how people stay in the 12% living a nice lifestyle, and I think it is really down to really low COL areas and/or MFJ. So, different strategies are needed for the singleton. My plan is just to bite the bullet and shell out some fairly substantial taxes on the annual.


The plan for your review and critique!

Pre-retirement:

• Target a balance of 2M in 401k to retire
• About 200-300k in all other sources (Roth, I bonds, taxable, etc.)
• Assume modest 6% market gain average

Age 61/2/3/4 to 69

• Convert 150k out of my 401k to Roth annually
• 7.5% initial withdrawal increasing to nearly 10% at 69
• Use the converted amount for expenses with maybe 10k retained in the Roth if possible
• Retain >10k as car and various student loans paid off one by one over the first 3-7 years (depending on age at retirement)

Age 70 to 72

• Take social security
  
• 401k balance projected at about 1.55M
• Reduce 401k Roth conversion to 100k (resetting at about 6.5% withdrawal)

Age 73 to 94

• Continue 100k withdrawal
  
• RMD to taxable, remainder to Roth conversion

Age 95

• RMD is now > 100k so no more Roth conversions
• 401k balance projected to be 800k
• 10k average retained Roth conversions should be about 800k
• 125k starting Roth balance should have increased to about 700k
  
• Projected NW 2.3M, about the same as the starting balance
  

Age 96 to infinity and beyond!

• Apply the YOLO method! Spend whatever from wherever whenever
  

You might want to see what doing this contributes to IRMAA.  SS starts looking at your income at 63 for Medicare rates at 65.  $103-129k + $245/14, $129-161k $350/33, $161- 194k $454/54.  These are Part B/Part D increases over basic charges.  

[jerseygirl]

and that’s monthly!!

[teen persuasion]

I generally like Kitces' take on stuff, and agree with the general concept, but this (probably reworked) article is a hot mess. Lots of hand waving, take my numbers on faith. His two charts on how the income spans various tax brackets under the different withdrawal strategies are wildly different - one has $30k SS, the other has $46,700, with no explanation as to why the difference is valid.

Its also old, using a different tax paradigm (15, 25% brackets). Those might come back, still waiting and watching, but they aren't in use now. As Mich mentioned, no acknowledgement of IRMAA. Was before the death of the stretch IRA, so now there's a greater incentive to Roth convert for heirs.

He's made a bunch of simplifying assumptions, like SS is out of the tax torpedo and fully 85% taxable, no IRMAA, no NIIT. All of those affect your marginal rate, which is the basis for deciding whether/how much to Roth convert. And, yeah, planning for the survivor in a couple - suddenly switching from MFJ brackets and standard deduction to S ones at half the size, but likely nearly the same income (lose the smaller SS, but inherit the tIRA and RMDs).

[teen persuasion]

My personal plan, refined using RPM from bogleheads: 
Current - ~2026: Defer roughly half my income to my SIMPLE IRA, leaving enough taxable w2 wages to be fully phased in for EITC. Convert from DH's tIRA only up to where our AGI would begin to phaseout EITC (max EITC!). AGI in good range for DS5 and max financial aid, eligible for Medicaid as family of 3. Spending from net income, tax credits, withdrawal from past Roth contributions.

When no longer have tax dependent or FAFSA concerns, I retire. Convert up to roughly the top of the 10% bracket. For state tax purposes, it breaks down to convert $20k + state standard deduction from DH's tIRA, plus convert up to $20k from my IRA - state tax free! Should be eligible for Essential plan (no premium, low costs) at that income. So only cost is a few $k for federal taxes annually. All spending from Roth.

At age 70, begin SS. Convert only enough to keep federal taxes roughly level. SS taxation rules will push our marginal rate up to 18.5%, ignoring that - just looking at $$ amount. Spending from SS, supplemented with Roth $$ as needed.

At 75, RMDs begin. Hopefully we have Roth converted enough that RMDs are no larger than we want to use to supplement SS for spending. Still trying to keep federal taxes level; if there's more room after RMDs, continue smaller conversions. Spending from SS + RMDs, Roth if needed.

Ultimate plan is to get enough tIRA funds converted so that the single survivor never gets hit with a tax bomb, and taxes are a nice, level couple thousand $ per year, inflation adjusted. Bonus if everything gets Roth converted, likely $0 tax then.

Not terribly worried about a tax bomb for heirs - first, there's 5 kids, so split 5 ways. Second, our tax deferred is currently only 60% of our retirement stash. Third, there's 10 years to withdraw, so not a huge tax bomb for anyone.

[Rukh O'Rorke]

Sept 15, 2024 4:44:25 GMT -5 The Walk of the Penguin Mich said:

Sept 14, 2024 12:52:10 GMT -5 Rukh O'Rorke said:

In my case, I don’t have a whole lot of flexibility. I have considerably less than 100k in taxable source, mostly my I bonds. Roth balance currently is about 125k, so again, not something that can be planned for significant sums on an annual basis. Will keep these sources as back for a low to no tax reserve monies for large irregular expenses such as new car, new roof, etc. So, in this respect the Kitces strategy isn't really helping me out much. While I could ration the Roth and taxable to provide 10k of nearly/tax free income, it is really just going to increase tax liability later on, so I’ve abandoned the balanced approach.

But those things may be good for you fine people who did better advance tax planning than I.



The Roth conversion piece is something I could use, so I’ve developed the plan below. In a higher cost of living area and entering retirement with some significant debt payments still in play and a lot of pets! I’ll be well into the 24% tax rate for the day-to-day budget for all of my retirement years, which – I’ve tried and tried to figure out how people stay in the 12% living a nice lifestyle, and I think it is really down to really low COL areas and/or MFJ. So, different strategies are needed for the singleton. My plan is just to bite the bullet and shell out some fairly substantial taxes on the annual.


The plan for your review and critique!

Pre-retirement:

• Target a balance of 2M in 401k to retire
• About 200-300k in all other sources (Roth, I bonds, taxable, etc.)
• Assume modest 6% market gain average

Age 61/2/3/4 to 69

• Convert 150k out of my 401k to Roth annually
• 7.5% initial withdrawal increasing to nearly 10% at 69
• Use the converted amount for expenses with maybe 10k retained in the Roth if possible
• Retain >10k as car and various student loans paid off one by one over the first 3-7 years (depending on age at retirement)

Age 70 to 72

• Take social security
  
• 401k balance projected at about 1.55M
• Reduce 401k Roth conversion to 100k (resetting at about 6.5% withdrawal)

Age 73 to 94

• Continue 100k withdrawal
  
• RMD to taxable, remainder to Roth conversion

Age 95

• RMD is now > 100k so no more Roth conversions
• 401k balance projected to be 800k
• 10k average retained Roth conversions should be about 800k
• 125k starting Roth balance should have increased to about 700k
  
• Projected NW 2.3M, about the same as the starting balance
  

Age 96 to infinity and beyond!

• Apply the YOLO method! Spend whatever from wherever whenever
  

You might want to see what doing this contributes to IRMAA.  SS starts looking at your income at 63 for Medicare rates at 65.  $103-129k + $245/14, $129-161k $350/33, $161- 194k $454/54.  These are Part B/Part D increases over basic charges.  

thanks, I'll definitely be on the hook for IRMAA and need to consider that.

 Current plan would have me on 2nd tier of extra charges and in today's dollars could go up to 163k in income to stay in the seond tier.

I was also looking yesterday at a different scenario of completely filling out the 24% bracket to more intentionally exhaust the 401k earlier on. But that would take the IRMAA up a notch as well. Althought this strategy could result in a lot less taxes over the lifespan (expecially if I live to 100+ like my mother), I'm not sure paying a bunch more taxes over the next 20 or so years, IRMAA included, and then trust that 20 years from now the tax landscape is similar enough to be a big benefit. 

[The Walk of the Penguin Mich]

Sept 15, 2024 13:16:37 GMT -5 Rukh O'Rorke said:

Sept 15, 2024 4:44:25 GMT -5 The Walk of the Penguin Mich said:

You might want to see what doing this contributes to IRMAA.  SS starts looking at your income at 63 for Medicare rates at 65.  $103-129k + $245/14, $129-161k $350/33, $161- 194k $454/54.  These are Part B/Part D increases over basic charges.  

thanks, I'll definitely be on the hook for IRMAA and need to consider that.

 Current plan would have me on 2nd tier of extra charges and in today's dollars could go up to 163k in income to stay in the seond tier.

I was also looking yesterday at a different scenario of completely filling out the 24% bracket to more intentionally exhaust the 401k earlier on. But that would take the IRMAA up a notch as well. Althought this strategy could result in a lot less taxes over the lifespan (expecially if I live to 100+ like my mother), I'm not sure paying a bunch more taxes over the next 20 or so years, IRMAA included, and then trust that 20 years from now the tax landscape is similar enough to be a big benefit. 

IRMAA is only for a single year. So it might be worthwhile to bite the bullet for a year or 2 and take advantage of a conversion to fill as much of the bracket as you can. But then again, you would be paying an extra $4000 in what is essentially an additional tax.

[Rukh O'Rorke]

Sept 15, 2024 11:06:27 GMT -5 teen persuasion said:

My personal plan, refined using RPM from bogleheads: 
Current - ~2026: Defer roughly half my income to my SIMPLE IRA, leaving enough taxable w2 wages to be fully phased in for EITC. Convert from DH's tIRA only up to where our AGI would begin to phaseout EITC (max EITC!). AGI in good range for DS5 and max financial aid, eligible for Medicaid as family of 3. Spending from net income, tax credits, withdrawal from past Roth contributions.

When no longer have tax dependent or FAFSA concerns, I retire. Convert up to roughly the top of the 10% bracket. For state tax purposes, it breaks down to convert $20k + state standard deduction from DH's tIRA, plus convert up to $20k from my IRA - state tax free! Should be eligible for Essential plan (no premium, low costs) at that income. So only cost is a few $k for federal taxes annually. All spending from Roth.

At age 70, begin SS. Convert only enough to keep federal taxes roughly level. SS taxation rules will push our marginal rate up to 18.5%, ignoring that - just looking at $$ amount. Spending from SS, supplemented with Roth $$ as needed.

At 75, RMDs begin. Hopefully we have Roth converted enough that RMDs are no larger than we want to use to supplement SS for spending. Still trying to keep federal taxes level; if there's more room after RMDs, continue smaller conversions. Spending from SS + RMDs, Roth if needed.

Ultimate plan is to get enough tIRA funds converted so that the single survivor never gets hit with a tax bomb, and taxes are a nice, level couple thousand $ per year, inflation adjusted. Bonus if everything gets Roth converted, likely $0 tax then.

Not terribly worried about a tax bomb for heirs - first, there's 5 kids, so split 5 ways. Second, our tax deferred is currently only 60% of our retirement stash. Third, there's 10 years to withdraw, so not a huge tax bomb for anyone.

sounds good! I am assuming you have a paid off house to keep expenses (and taxes) so low?

Under my current plan, my fed tax bill looks to be about 25k/year. If I up within the 24% tax bracket to the 163k staying within current IRMAA level fed taxes are 28k (which I think is withdrawal of 177 with standard deduction?) and then if totally fill out 24% will be 3rd tier up on irma and a little over 39k in fed taxes.

A pretty hefty price tag! But if I did going higher into the 24% bracket I could retain more in the roth and then exhaust the 401k by about 81-83, and then have a good balance in the roth. Which would be great! If they don't change things too much to make the earlier sacrifice in taxes worth it! But if things stay the same then it would work out to much lower taxes and no IRMAA from 84 on.....based on the 6% returns in my assumption. But if the returns are higher, then it takes a bit longer to much longer to impossible to exhaust without a whole lot of taxes. If I am rolling it in by 80, hopefully I won't be too put out by it!


So then RMDs don't start until 75? I thought it ws 73? Not that it affects my plans too much I don't think as I need to live off the 401k completely. Unless growth exceeds expectations.

I didn't even know about NIIT tax - but assuming this is only for taxable? So if for example I had 3k from taxable, and 200k magi out of 401k, then I'd pay 15% LTCG, plus an extra percent on the 3K? I doubt that would ever affect me. but who knows if they lower the threshold a lot of something.

So much more to think about!

But on the kitces webpage, in the comments, someone mentioned having their clients switch to roth 401k 6 years before retirement.  And you were so right about my future taxes. Based on my 401k balance today and 6% annual returns and my potentially flawed spreadsheet, it seems that I've already filled up to the 22% tax bucket for life. So all gains and future contributions or roth conversions3 are going to come out in the 24% tax bucket, or even higher. 

[Rukh O'Rorke]

Sept 15, 2024 11:06:27 GMT -5 teen persuasion said:

Not terribly worried about a tax bomb for heirs - first, there's 5 kids, so split 5 ways. Second, our tax deferred is currently only 60% of our retirement stash. Third, there's 10 years to withdraw, so not a huge tax bomb for anyone.

so for 401k or IRAs they have 10 years to withdraw? and pay normal income taxes on the amount? is their an RMD schedule where they have to take x% of account?

This is another reason to start pushing more into roths. Just in case I kick the bucket earlier than anticipated.

[teen persuasion]

Sept 15, 2024 14:31:58 GMT -5 Rukh O'Rorke said:

Sept 15, 2024 11:06:27 GMT -5 teen persuasion said:

Not terribly worried about a tax bomb for heirs - first, there's 5 kids, so split 5 ways. Second, our tax deferred is currently only 60% of our retirement stash. Third, there's 10 years to withdraw, so not a huge tax bomb for anyone.

so for 401k or IRAs they have 10 years to withdraw? and pay normal income taxes on the amount? is their an RMD schedule where they have to take x% of account?

This is another reason to start pushing more into roths. Just in case I kick the bucket earlier than anticipated.

There are RMD schedules (depends on stuff like did decedent already start RMDs, or not) but heirs probably want to roughly level out their inherited IRA withdrawals: 1/10, 1/9, 1/8, etc. You need to take at least the RMD, but can withdraw more.

Roth accounts also need to be emptied in 10 years, but the IRS has finally made it official there are no RMDs on Roth accounts, so you can just leave it in Roth until the deadline.

Yes, we paid off the mortgage 15 years ago, which allowed us to ramp up retirement savings.

[teen persuasion]

RMD age: 

Another way to look at it is the beginning age for RMDs is 73 for those born from 1951 through 1959 and is 75 for those born in 1960 or later.

Secure act 2.0 - when does RMD begin

[Rukh O'Rorke]

Sept 15, 2024 15:06:27 GMT -5 teen persuasion said:

RMD age: 

Another way to look at it is the beginning age for RMDs is 73 for those born from 1951 through 1959 and is 75 for those born in 1960 or later.

Secure act 2.0 - when does RMD begin

thanks! 

I am in the 75 group then.

[minnesotapaintlady]

I'm 80/20 Pre-Tax/Roth.  No significant taxable account. I really wish I could just create a withdrawal/conversion plan so I have a road map to follow, but having a kid at home still and not knowing what he is going to do after high school makes that almost impossible.  The tax difference between HOH, eligible for multiple credits and single is huge so I'll just have to take each year as it comes and decide what makes the most sense tax-wise.  It's possible I don't do much of any conversions.  Besides possible FAFSA considerations from ages 57-61, I'll want to keep AGI low until 65 to qualify for ACA subsidies so conversions during those years would probably be minimal.  I guess 65-75 will be the prime possible conversion years for me.

Asset allocation though.  That one I need to get on top of.  My accounts are such a cluster in three different places and are 92% stocks still.  I was really tempted to just move all IRA accounts to Fidelity.  Put all Traditional in FBALX, all Roth in S&P 500 (what it is currently), and leave 401K investments as they are (S&P 500), but put new contributions into the stable value fund and/or bond fund, but then I did the math on that and it only takes me down to 89% stocks...so maybe not a solution after all.  I'm really hindered by a 401K with poor choices of funds. 

[Rukh O'Rorke]

yeah AA stuff also messing with my head.

And just when I'm well satisfied with the plan and even if low 3% average market gains all looking not terrible for me with reduced budgets, etc, think I'm good - I put the spanner in the works of a 40% drop in the early years and it's like - oh just shut up and go back to work already.....

Maybe a 60/40 AA is the way to go?

Maybe just start with 60/40 until my excess debts are paid off (28/30/31) and then I take social security in 34. Then I think clear sailing for sure! Mortgage in play till 2051 so just need to deal with that one!