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

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stuper1
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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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ochotona
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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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technovelist
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by technovelist » 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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sophie
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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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technovelist
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

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

Post by technovelist » 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

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

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

pugchief wrote:
Mon Oct 15, 2018 10:30 am
technovelist 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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ochotona
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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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Kbg
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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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