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

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

Post by I Shrugged » Sat Oct 20, 2018 10:24 am

I've been basically retired since my early 40s. I built and sold a business. Building and running it stressed me a lot and burned me out, so I didn't have the appetite to do it again. I retained some modest rental commercial real estate until last year. Now I'm really retired.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by barrett » Sat Oct 20, 2018 10:26 am

InsuranceGuy wrote:
Sat Oct 20, 2018 8:57 am
I Shrugged wrote:
Fri Oct 19, 2018 3:50 pm
The closer I look, the more I think we will be in the 33% bracket (barely) in 8-10 years, what with RMDs and SS. My wife and I both agree that we would bet on the rates going back up.
Why not retire early then? Start living on your taxable savings and start your Roth conversions now in a much lower tax bracket to reduce future RMDs that would only give more to the taxman.

Could be preference, but I'd guess that your standard of living won't be much different.

IG
Interesting thought. Have you run a few scenarios on the extended i-orp calculator?

Here is a link:

https://www.i-orp.com/LumpSum/extended.html

And I know that technovelist has a calculator as well... just not familiar with his version yet. It could be the case that an extra few years of work just mean that you are giving more total money to the government in terms of taxes... and that your SS PIA is not really getting bumped up at this point due to the effect of bend points.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by sophie » Sat Oct 20, 2018 10:47 am

technovelist wrote:
Fri Oct 19, 2018 10:27 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.
My 2000 sf (+garage) 20 year old house on 6 acres in East Texas is worth about $175,000.

How much is your apartment worth?

If you invested the difference, how much could you earn after taxes, assuming 7% nominal?

You have to add that amount to your expenses to make a meaningful comparison between NYC and rural Texas.
A LOT more than $175K :-). However, my apartment has turned out to be the best investment I have. It's appreciated about 20% in the 3 years since I bought it, plus my investment return is higher because I only have about 60% equity in it. I made out like a bandit with my last apartment too. That one went up almost 30% in price in 7 years. Less than the stock market or the mythical 7% to be sure, but not shabby either.

You could argue that this doesn't matter as long as I don't sell though. In that case yes, I am paying a premium equal to the annual investment return on the difference in the amount I have tied up in equity to live here. Let's say that's $15,000...is that worth it to be here instead of East Texas? Heck yeah! :)
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by sophie » Sat Oct 20, 2018 10:55 am

I Shrugged wrote:
Sat Oct 20, 2018 10:24 am
I've been basically retired since my early 40s. I built and sold a business. Building and running it stressed me a lot and burned me out, so I didn't have the appetite to do it again. I retained some modest rental commercial real estate until last year. Now I'm really retired.
Retired and in the 32% bracket? I Shrugged, you are to be congratulated!!!

You could take the view that even if you don't squeeze every last cent out of tax optimization, you are in an outstanding financial position. How about making the decision based on whether you would prefer to maximize the amount of money under your direct control, vs. setting up RMDs + SS at age 70 and having a stress-free, worry-free, automatic income that will cover your expenses without your having to arrange for periodic fund withdrawals?

That's actually my plan. I'm going to Roth-convert only part of my retirement savings, and at age 70 put the rest into an annuity. Presumably I'll be able to set up the various income streams to deposit automatically. Then no worries about having to remember to make potentially complicated portfolio withdrawals to cover routine expenses.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Sat Oct 20, 2018 6:01 pm

Sophie, are you going to buy your annuity with IRA money or with after-tax money? I haven't thought much about it, my purchase is still 13 years away, but it seems risky to take a big huge distribution in one tax year in order to buy an annuity with after-tax money, because you might blow yourself into the next tax brackets. Maybe one could use after "after retirement but pre-70" low income years to take IRA distributions needed to buy the annuity. Of course, you could buy one after-tax, one pre-tax. Good idea to buy from two providers anyway...

Annuitization using IRA money seems to be another way to reduce the RMD hump. In fact, it's front-end loaded in real terms, which is good if you think nominal tax rates are going up over a long period of time.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by sophie » Sun Oct 21, 2018 9:58 am

The money earmarked for the annuity is in 403b accounts at TIAA-CREF, separate from the Vanguard/Fidelity retirement accounts. I figure I'll decide exactly how to do it when the time comes, but most likely I'll wait until age 70 then plow it all into a fixed annuity that stays in tax-deferred space. The payments will be subject to federal tax, but will mostly or completely avoid state tax. And yes, a tax-deferred annuity is exempt from RMD rules.

Technovelist I will definitely be asking for your advice at some point! I know annuities aren't necessarily ideal, but it's a bit of extra insurance against outliving my core savings, not to mention against having problems managing finances, getting confused and making a mistake or being swindled by online crooks preying on the elderly, etc. A danger of being too clever and inventive about finances.

I realize my last few posts have been about planning for old age...a bit morbid but I guess that's where my mind is at right now. Sorry all!
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by technovelist » Mon Oct 22, 2018 9:31 pm

sophie wrote:
Sun Oct 21, 2018 9:58 am
The money earmarked for the annuity is in 403b accounts at TIAA-CREF, separate from the Vanguard/Fidelity retirement accounts. I figure I'll decide exactly how to do it when the time comes, but most likely I'll wait until age 70 then plow it all into a fixed annuity that stays in tax-deferred space. The payments will be subject to federal tax, but will mostly or completely avoid state tax. And yes, a tax-deferred annuity is exempt from RMD rules.
Yes, that is one of their benefits.
sophie wrote:
Sun Oct 21, 2018 9:58 am
Technovelist I will definitely be asking for your advice at some point!
Any time you want to talk, I'm available. My calculator isn't really designed for you, as it is focused on smoothing the expected real spending of married people if one of them dies at the worst time. You don't have that problem as a single person, and can concentrate on maximizing expected real spending. It also doesn't cover state taxes, as that would be another big investment of time that I'm not interested in doing at this point.
sophie wrote:
Sun Oct 21, 2018 9:58 am
I know annuities aren't necessarily ideal, but it's a bit of extra insurance against outliving my core savings, not to mention against having problems managing finances, getting confused and making a mistake or being swindled by online crooks preying on the elderly, etc. A danger of being too clever and inventive about finances.
Actually, fixed annuities are ideal for the task they are designed for: making sure you don't run out of (nominal) spending power before you die. Did you know that they are by far the oldest financial instrument? There are records of what we would today refer to as life annuities hundreds of years B.C.!
sophie wrote:
Sun Oct 21, 2018 9:58 am
I realize my last few posts have been about planning for old age...a bit morbid but I guess that's where my mind is at right now. Sorry all!
Old age isn't necessarily great, but then you have to consider the alternative...
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I Shrugged
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by I Shrugged » Thu Dec 20, 2018 7:25 am

Recent downturn makes me glad I’ve waited till now to do my Roth conversion.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by ochotona » Thu Dec 20, 2018 2:18 pm

I Shrugged wrote:
Thu Dec 20, 2018 7:25 am
Recent downturn makes me glad I’ve waited till now to do my Roth conversion.
I am jealous.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by I Shrugged » Thu Dec 20, 2018 3:47 pm

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

Post by ochotona » Tue Jan 22, 2019 10:15 am

If the Democrats take over in 2020, you'll have wished you Roth converted when you could, after they rip out the tax cuts on party line vote.
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Re: There seems to be an advantage to Roth conversion now until 12/31/2025

Post by Kbg » Tue Jan 22, 2019 1:20 pm

ochotona wrote:
Tue Jan 22, 2019 10:15 am
If the Democrats take over in 2020, you'll have wished you Roth converted when you could, after they rip out the tax cuts on party line vote.
Or if around and in charge in 2025, just let them expire. This last tax cut bill was epic in its gimmickry, and of course, passed on to the national debt balance.
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