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

Posted: Wed Jul 04, 2018 6:45 am
by ochotona
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/

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

Posted: Wed Jul 04, 2018 9:40 am
by eufo
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.

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

Posted: Wed Jul 04, 2018 11:42 am
by sophie
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.

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

Posted: Wed Jul 04, 2018 12:00 pm
by eufo
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.

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

Posted: Sat Sep 08, 2018 10:01 am
by ochotona
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.

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

Posted: Fri Oct 12, 2018 2:04 pm
by I Shrugged
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.

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

Posted: Fri Oct 12, 2018 2:39 pm
by stuper1
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.

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

Posted: Fri Oct 12, 2018 3:42 pm
by ochotona
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.

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

Posted: Sun Oct 14, 2018 8:10 am
by Libertarian666
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/.

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

Posted: Sun Oct 14, 2018 9:46 am
by sophie
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!!)

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

Posted: Sun Oct 14, 2018 10:08 am
by Libertarian666
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.

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

Posted: Sun Oct 14, 2018 10:59 pm
by bedraggled
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.

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

Posted: Mon Oct 15, 2018 4:38 am
by ochotona
The move to a low tax State doesn't have to be permanent. After conversion is complete, you can move back

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

Posted: Mon Oct 15, 2018 9:15 am
by Libertarian666
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.

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

Posted: Mon Oct 15, 2018 11:37 am
by Libertarian666
MangoMan 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.

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

Posted: Mon Oct 15, 2018 2:50 pm
by ochotona
Oh gee. Well, I would not move back to the same higher tax State, then.

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

Posted: Mon Oct 15, 2018 7:24 pm
by Kbg
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.

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

Posted: Mon Oct 15, 2018 9:47 pm
by ochotona
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?

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

Posted: Tue Oct 16, 2018 8:07 am
by sophie
New York is well known for going after residents "moving" to other states but keeping an address in NY. I think if you move completely and have no address in the state there's nothing they can do. Not that they wouldn't try :-)

New York's tax structure is actually not bad for retirees, especially frugal ones. You get not only the $20K exemption on top of the standard one, but also SS is not taxed. And there are financial as well as quality of life benefits to living in NYC. Cars are an expensive hobby you know! So not such as simple question of whether to move. There would have to be a significant quality of life improvement, which involves things like being close to family.

Bedraggled, glad you're enjoying Florida!

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

Posted: Tue Oct 16, 2018 10:46 am
by Kbg
ochotona wrote:
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?
Och,

What they normally do is flag the tax year retired and then go from there based on what they find out. So in my case I had to provide everything for that tax year and answer a four page questionnaire of which all the questions were focused on citizenship stuff. I'm pretty sure I would have been fine either way, but fortunately my last assignment ended up being in Texas as well so I was pretty much bullet proof. I transitioned everything over to the new state the day after my official retirement and as I heard getting an audit was fairly common I kept a good Texas resident documentation trail over the years.

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

Posted: Tue Oct 16, 2018 1:01 pm
by Libertarian666
sophie wrote:
Tue Oct 16, 2018 8:07 am
New York is well known for going after residents "moving" to other states but keeping an address in NY. I think if you move completely and have no address in the state there's nothing they can do. Not that they wouldn't try :-)

New York's tax structure is actually not bad for retirees, especially frugal ones. You get not only the $20K exemption on top of the standard one, but also SS is not taxed. And there are financial as well as quality of life benefits to living in NYC. Cars are an expensive hobby you know! So not such as simple question of whether to move. There would have to be a significant quality of life improvement, which involves things like being close to family.

Bedraggled, glad you're enjoying Florida!
I would be astonished to learn that living in NYC could possibly be cheaper than living in Texas no matter what your tax status.

I do know that NYC real estate taxes are relatively low, but I can't see how that could possibly make up the difference in the cost of virtually everything else.

And of course the cost of real estate in NYC is so high that a large portion of your net worth must be tied up in your apartment. Of course that produces no income other than the imputed income of rent savings. Thus, for a fair comparison you would have to add the value of that apartment (less the cost of your new living space) to your net worth if you were to move.

I think if you include this, there is no way you are better off financially staying there.

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

Posted: Tue Oct 16, 2018 11:15 pm
by sophie
OK will grant that - in fact yes, if it were only about finances I'd very likely move.

I think you'd be surprised at relative costs in NYC and Texas. Cost of living comparisons usually cherry pick a few items, and end up with a wildly un-representative sample. I once pulled a sheet of average spending figures broken down into categories, intended to be comprehensive, published by BLS. I compared these to my #s plus figures from my coop's annual financial statement, since a lot of my expenses are buried in the monthly maintenance. My living costs were high in some categories, but lower in others and overall it came pretty close to balancing out. You can certainly spend a ton of money in this city if you want, but you don't have to by any means.

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

Posted: Wed Oct 17, 2018 6:21 am
by ochotona
sophie wrote:
Tue Oct 16, 2018 11:15 pm
OK will grant that - in fact yes, if it were only about finances I'd very likely move.

I think you'd be surprised at relative costs in NYC and Texas. Cost of living comparisons usually cherry pick a few items, and end up with a wildly un-representative sample. I once pulled a sheet of average spending figures broken down into categories, intended to be comprehensive, published by BLS. I compared these to my #s plus figures from my coop's annual financial statement, since a lot of my expenses are buried in the monthly maintenance. My living costs were high in some categories, but lower in others and overall it came pretty close to balancing out. You can certainly spend a ton of money in this city if you want, but you don't have to by any means.
Housing costs have gotten out of control in the nice areas of Houston, like the Heights. Egads. Might as well be Seattle. Midland? Forget trying to buy any house now

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

Posted: Wed Oct 17, 2018 7:20 am
by ochotona
MangoMan wrote:
Wed Oct 17, 2018 7:01 am
ochotona wrote:
Wed Oct 17, 2018 6:21 am
sophie wrote:
Tue Oct 16, 2018 11:15 pm
OK will grant that - in fact yes, if it were only about finances I'd very likely move.

I think you'd be surprised at relative costs in NYC and Texas. Cost of living comparisons usually cherry pick a few items, and end up with a wildly un-representative sample. I once pulled a sheet of average spending figures broken down into categories, intended to be comprehensive, published by BLS. I compared these to my #s plus figures from my coop's annual financial statement, since a lot of my expenses are buried in the monthly maintenance. My living costs were high in some categories, but lower in others and overall it came pretty close to balancing out. You can certainly spend a ton of money in this city if you want, but you don't have to by any means.
Housing costs have gotten out of control in the nice areas of Houston, like the Heights. Egads. Might as well be Seattle. Midland? Forget trying to buy any house now
Is that perhaps due to all the people fleeing CA for TX?
That's definitely a contributor.

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

Posted: Wed Oct 17, 2018 8:53 pm
by bedraggled
Sophie and I agree. The costs in Florida and New York can be comparable. We are not big spenders. I do miss public transportation more than I thought possible. The subways and buses are great, even if they are rotting at the moment. There isn’t much community and “neighborhood” here is concept. If a person wants to spend money in Manhattan, convene a HBPP lunch on West 181st Street down from the “A” train station.

Actually, the beer is a big part of the tab. Barrett and Goodasgold are currently out of town. I will be back to Manhattan in February for subway rides and bar food, if you(s) are interested.

BTW, one of the joys of Florida is that I-95 rarely has traffic and the airport drive offers no stress. The snow and ice do not tear up the road as much in Fort Lauderdale, also.