There seems to be an advantage to Roth conversion now until 12/31/2025

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ochotona
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Sun Jul 01, 2018 6:12 pm

I just realized... if I convert my stash to Roth IRA now here in Texas, I can take it to Corrupt and Wasteful States later, and it will be immunized from taxes.

I asked Richard Rosso CFP about whether the Roth exemption is in danger of going away, here's what we wrote me:

RE: What is your assessment of risk to Roths?
Richard Rosso <richardrosso@myclarityfinancial.com>
Today, 1:07 PM

I think they love Roth. Anything to get tax money NOW over later as the government is myopic in focus. If anything I see them attempting to get a hold of tax-deferred money sooner. If they weren’t owned by Wall Street they’d have means tested Social Security a long time ago which would have included sizable balances in traditional IRA accounts.


Richard M. Rosso, MS, CFP®, CIMA©
Director of Financial Planning
Clarity Financial, LLC
11750 Katy Freeway, Suite 840
Energy Tower IV
Houston, TX 77079
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by pugchief » Mon Jul 02, 2018 8:46 am

ochotona wrote:
Sun Jul 01, 2018 6:12 pm
I just realized... if I convert my stash to Roth IRA now here in Texas, I can take it to Corrupt and Wasteful States later, and it will be immunized from taxes.
LOL. But why would you go from a tax friendly place like TX and go somewhere Corrupt and Wasteful? If I wasn't already in IL [they wrote the manual on waste and corruption] no way would I choose to live here. I'd probably be in TX or FL.

ochotona wrote:
Sun Jul 01, 2018 6:12 pm
If they weren’t owned by Wall Street they’d have means tested Social Security a long time ago which would have included sizable balances in traditional IRA accounts.
This is just scary. Very scary. Sure, penalize people who were responsible. Yet again. >:(
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Mon Jul 02, 2018 11:00 am

pugchief wrote:
Mon Jul 02, 2018 8:46 am
LOL. But why would you go from a tax friendly place like TX and go somewhere Corrupt and Wasteful? If I wasn't already in IL [they wrote the manual on waste and corruption] no way would I choose to live here. I'd probably be in TX or FL.
Most States have income taxes, only a few don't. To limit relocation choice only to non-income tax States is limiting. I like Texas, but I might not want to spend all of my days here.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Desert » Mon Jul 02, 2018 12:47 pm

Also, sometimes it's cheaper to retire in a state with income tax and lower property tax.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by pugchief » Mon Jul 02, 2018 12:50 pm

Desert wrote:
Mon Jul 02, 2018 12:47 pm
Also, sometimes it's cheaper to retire in a state with income tax and lower property tax.
I guess that would depend on your income and home size.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Desert » Mon Jul 02, 2018 5:22 pm

pugchief wrote:
Mon Jul 02, 2018 12:50 pm
Desert wrote:
Mon Jul 02, 2018 12:47 pm
Also, sometimes it's cheaper to retire in a state with income tax and lower property tax.
I guess that would depend on your income and home size.
Yeah.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Wed Jul 04, 2018 6:45 am

I'm going to convert up to the TOP of my current 22% tax bracket. In retirement, my income of all sources will put me into the 25% bracket, or maybe in the late 2020s we'll have higher ones.

Also,

Will Congress someday tax Roth IRAs?

https://www.kitces.com/blog/will-congre ... a-promise/
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by eufo » Wed Jul 04, 2018 9:40 am

ochotona wrote:
Wed Jul 04, 2018 6:45 am
Also,

Will Congress someday tax Roth IRAs?
I think it's only a matter of time. Hopefully it's a LONG time.
Don't agree with me too strongly or I'm going to change my mind
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by sophie » Wed Jul 04, 2018 11:42 am

eufo wrote:
Wed Jul 04, 2018 9:40 am
ochotona wrote:
Wed Jul 04, 2018 6:45 am
Also,

Will Congress someday tax Roth IRAs?
I think it's only a matter of time. Hopefully it's a LONG time.
Say not so....

I think it would be hard to do. What would you tax? Contributions are already taxed. If they decide to tax the gains then there is no difference between a Roth and a taxable account. Worse yet is if they decide to tax gains as ordinary income, which would make Roths WORSE than a taxable account. Effectively that would abolish them.

More likely they'll limit or even eliminate Roth conversions, which would mostly hit high income people doing back door contributions. However, that's if you think Congress would be happy to trade more taxes now/less later for less taxes now/more later. "Later" is not a concept that plays well in Congress, in general.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by eufo » Wed Jul 04, 2018 12:00 pm

I'm likely too negative on Congress, but it's in their nature to expand and take. Maybe it won't happen.

Perhaps a prelude to it would be reducing the advantages to a traditional IRA, pushing more people into Roths. Herd people together to do the most damage.

Wow... I'm very negative on Independence Day! Seriously, though, I have a lot of hope for the future, but I'm a natural skeptic to the motives of governments and would put NOTHING past them.
Don't agree with me too strongly or I'm going to change my mind
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Sat Sep 08, 2018 10:01 am

If the Trump 2018 tax cuts are made permanent for individuals, then I may stop or slow my Roth IRA conversions, and my Roth 401(k) contributions. This is now being floated out in the press.

But, there's another way to look at it... more tax cuts now maybe means more tax increases later due to a possible future US debt crisis.

Maybe we should all be tax-agnostic. 1/3 Roth IRA / 401k, 1/3 Traditional IRA / 401k, 1/3 taxable gold and brokerage and bank accounts, oh, and as much I-Bond as you can get.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by I Shrugged » Fri Oct 12, 2018 2:04 pm

I am having the same difficulty trying to figure out whether to convert or not. Maybe at least doing it up till a given bracket is filled.

We are already early retired. Income from investments: 200K. Much of which is tax favored in some way or other, so our taxes are usually only 4 figures. In other words, a very low tax bracket.

We have 1.5 million in IRAs, and will have to begin RMD's in 8 & 10 years. And start taking SS. Family histories suggest we could both live another 30 years or more.

The basic question is, do we just continue as is, paying minimal taxes, until we have an explosion of new taxable income at age 70?
Or do we convert to Roth at least up through some tax bracket?

Our CPA is somewhat appalled by that idea. Namely, "Well, you'd be writing a tax check for (big dollars)! That seems like a bad move."

My answer is, "Maybe it is and maybe it isn't. There must be a way to do the math." I mean, it seems like we should at least convert up through a low 20s tax bracket, doesn't it?

I found a website, incomestrategy.com, which purports to do the math. And it seems to, although it is too "black box" for my liking. I have subscribed in order to run the numbers. Their results definitely support ROTH conversion, and deferring SS until age 70. I need to get back on there, then seek some help from them in interpreting the results. They seem to only have (expensive) paid help, not free. But I have a contact at the company, and I think I can ask him in general so I can feel sure that they are considering all of the relevant factors.

Anyway, comments welcome.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by stuper1 » Fri Oct 12, 2018 2:39 pm

Do you ever look at the forum at bogleheads.org? They have many discussions about Roth conversions. If you search past threads, you will find links to many online calculators that can help. I think one of the ones often recommended is at i-orp.com. There are actually two calculators there, one is simple, and one is complicated. You probably need the complicated.

I would definitely max out Roth conversions through the 12% tax bracket. The calculator may well recommend going through the 22% or 24% brackets also.

You also need to consider what would happen if one of you dies early. In that case, the tax hit may be even bigger.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Fri Oct 12, 2018 3:42 pm

If the tax cuts for individuals get made permanent, this whole scheme goes out the window. So I'm holding back.

One thing I did is I make a pie chart of my holdings by what kind of tax treatment they received. For example for tax-deferred, tax-free, and taxable. In the absence of knowing what the heck the government might do, it isn't a bad idea to have one 1/3 in each category. Kind of like a government madness agnostic permanent portfolio of tax.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Libertarian666 » Sun Oct 14, 2018 8:10 am

ochotona wrote:
Fri Oct 12, 2018 3:42 pm
If the tax cuts for individuals get made permanent, this whole scheme goes out the window. So I'm holding back.

One thing I did is I make a pie chart of my holdings by what kind of tax treatment they received. For example for tax-deferred, tax-free, and taxable. In the absence of knowing what the heck the government might do, it isn't a bad idea to have one 1/3 in each category. Kind of like a government madness agnostic permanent portfolio of tax.
My retirement analyzer allows you to try out different combinations of tax locations. It's free to download and use: http://rhino-retirement-analyzers.com/.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by sophie » Sun Oct 14, 2018 9:46 am

I've got about 70% in tax-deferred savings, which is annoying but can't do much about it - it's a testament to how much tax I've avoided paying :-) There will surely be a reckoning someday. Unfortunately i-ORP doesn't address state taxes, and doesn't know about the NY state $20,000 annual exemption for IRA/401K withdrawals if you're age 59.5+.

Since NY tax rates are far greater than the 3% differential in federal tax rates we're talking about here, probably my best strategy is not to Roth convert before age 59.5, then convert the $20K annually as long as I'm in the 24% bracket or below. Anyone considering this, definitely check to see if something like this applies (I think it might in Illinois). (And I don't want to hear about the lack of income tax in Texas Ochotona! Yes I know! Argh!!)
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Libertarian666 » Sun Oct 14, 2018 10:08 am

sophie wrote:
Sun Oct 14, 2018 9:46 am
I've got about 70% in tax-deferred savings, which is annoying but can't do much about it - it's a testament to how much tax I've avoided paying :-) There will surely be a reckoning someday. Unfortunately i-ORP doesn't address state taxes, and doesn't know about the NY state $20,000 annual exemption for IRA/401K withdrawals if you're age 59.5+.

Since NY tax rates are far greater than the 3% differential in federal tax rates we're talking about here, probably my best strategy is not to Roth convert before age 59.5, then convert the $20K annually as long as I'm in the 24% bracket or below. Anyone considering this, definitely check to see if something like this applies (I think it might in Illinois). (And I don't want to hear about the lack of income tax in Texas Ochotona! Yes I know! Argh!!)
You really need to move to a state with lower taxes. It doesn't have to be Texas, although we would welcome you here.
Having lived in NY for over a decade, I can't imagine how you could possibly get your money's worth from their absurdly high taxes.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by bedraggled » Sun Oct 14, 2018 10:59 pm

Florida seems to be working for us recent ex-New Yorkers. I, also, am pondering that IRA conversion situation.

Sophie, there are several decent possibilities for home and tax situations in Florida that are probably similar to Texas. If you want a PM, I can suggest. Both NY and FL have their plussesw.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Mon Oct 15, 2018 4:38 am

The move to a low tax State doesn't have to be permanent. After conversion is complete, you can move back
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Libertarian666 » Mon Oct 15, 2018 9:15 am

ochotona wrote:
Mon Oct 15, 2018 4:38 am
The move to a low tax State doesn't have to be permanent. After conversion is complete, you can move back
Not necessarily. I understand New York State in particular may try to come after you even after you leave because you are "stealing their money", but I can't find substantiation for that online right now.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by pugchief » Mon Oct 15, 2018 10:30 am

Libertarian666 wrote:
Mon Oct 15, 2018 9:15 am
ochotona wrote:
Mon Oct 15, 2018 4:38 am
The move to a low tax State doesn't have to be permanent. After conversion is complete, you can move back
Not necessarily. I understand New York State in particular may try to come after you even after you leave because you are "stealing their money", but I can't find substantiation for that online right now.
California tried that as retirees fled to Nevada and Texas. The courts ruled they had no jurisdiction or claim on the money.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Libertarian666 » Mon Oct 15, 2018 11:37 am

pugchief wrote:
Mon Oct 15, 2018 10:30 am
Libertarian666 wrote:
Mon Oct 15, 2018 9:15 am
ochotona wrote:
Mon Oct 15, 2018 4:38 am
The move to a low tax State doesn't have to be permanent. After conversion is complete, you can move back
Not necessarily. I understand New York State in particular may try to come after you even after you leave because you are "stealing their money", but I can't find substantiation for that online right now.
California tried that as retirees fled to Nevada and Texas. The courts ruled they had no jurisdiction or claim on the money.
Sure, but if you move back there they can hassle you unmercifully even if it is illegal.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Mon Oct 15, 2018 2:50 pm

Oh gee. Well, I would not move back to the same higher tax State, then.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Kbg » Mon Oct 15, 2018 7:24 pm

I recently had an audit from my state on my military retirement (left, became a Texan for many years and moved back). States definitely do this stuff and you need to have your ducks lined up and be familiar with your state's specific tax law on these things...I had my ducks in a row so other than sending off lots of tax return copies it was uneventful.

However, do not do tax moves like this lightly and make sure you are well informed.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Mon Oct 15, 2018 9:47 pm

Kbg wrote:
Mon Oct 15, 2018 7:24 pm
I recently had an audit from my state on my military retirement (left, became a Texan for many years and moved back). States definitely do this stuff and you need to have your ducks lined up and be familiar with your state's specific tax law on these things...I had my ducks in a row so other than sending off lots of tax return copies it was uneventful.

However, do not do tax moves like this lightly and make sure you are well informed.
How many years did they go back in the investigation?
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