IRA to ROTH and taxes on SS

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Old 06-25-2017, 09:41 AM
Villageswimmer Villageswimmer is offline
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Originally Posted by Bogie Shooter View Post
Always listen to arm-chair financial advisor quarterbacks.............

No one should make financial decisions based on posts here. However, posts may stimulate one to investigate further to verify information and see how it relates to their personal circumstances. This kind of discussion can be helpful.

Roth conversions carry a number of complex ramifications. Much info can be found at irs dot gov as well as the boglehead site.

The post wrt medical expenses is one such issue to be considered and illustrates the case for tax diversification.

The Roth conversion decision is not one size fits all.
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Old 06-25-2017, 01:00 PM
Bogie Shooter Bogie Shooter is offline
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Originally Posted by Villageswimmer;1416448[U
]No one should make financial decisions based on posts here. [/U]However, posts may stimulate one to investigate further to verify information and see how it relates to their personal circumstances. This kind of discussion can be helpful.

Roth conversions carry a number of complex ramifications. Much info can be found at irs dot gov as well as the boglehead site.

The post wrt medical expenses is one such issue to be considered and illustrates the case for tax diversification.

The Roth conversion decision is not one size fits all.
You are right!
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Old 06-25-2017, 02:15 PM
JoelJohnson JoelJohnson is offline
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GREAT COMMENTS! Keep them coming!
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Old 06-25-2017, 02:33 PM
manaboutown manaboutown is offline
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Some years ago when the rules were no doubt different than they are today I had an otherwise very low taxable income year and took advantage of that to convert my IRAs to Roth IRAs. Of course I had to pay tax on my withdrawals but IMHO I benefited because today at age 75 I face no RMD issues. Too, when the day comes I do take distributions from my Roth they will not be taxable - unless of course the rules change. It was a personal choice which I did not analyze by calculating an IRR or anything like that; personal circumstances and perspectives differ so it is very much an individual matter.
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Old 06-25-2017, 04:37 PM
Steve9930 Steve9930 is offline
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Originally Posted by JoelJohnson View Post
Does anyone have any experience with the "Retiree Portfolio Model" put out by the Boglehead group?

How about "Optimal Retirement Portfolio" (ORP)?

I'm trying to figure out if I should (and how much) of my IRA should be converted to a ROTH. Yes, I know there are no taxes on a Roth when you take it out, but, by converting a large IRA you are paying taxes now and are reducing your nest egg with the hope that you will make it up in the future.

The spreadsheet I mention helps with this, but it is very complicated.
Here is what I did and it worked great. I had a self directed IRA and was investing in the stock market. I had several stocks that where good companies but the stocks were beaten down. I opened a Roth and moved those stocks into the Roth and only paid Federal taxes on the lower amount of their value. Since that time all have recovered This March was the 5 year anniversary so now that gain and the dividends being generated are all now Federal Tax Free. I only wish I had done this years ago. There are so many advantages to the Roth IRA. Like the cash generated not be part of the SSN Taxing equation and the ability to pass the Roth on. I smile every time I take money out of the Roth and walk right by the tax man....... HooRa!
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Old 06-25-2017, 05:48 PM
Villageswimmer Villageswimmer is offline
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Here is what I did and it worked great. I had a self directed IRA and was investing in the stock market. I had several stocks that where good companies but the stocks were beaten down. I opened a Roth and moved those stocks into the Roth and only paid Federal taxes on the lower amount of their value. Since that time all have recovered This March was the 5 year anniversary so now that gain and the dividends being generated are all now Federal Tax Free. I only wish I had done this years ago. There are so many advantages to the Roth IRA. Like the cash generated not be part of the SSN Taxing equation and the ability to pass the Roth on. I smile every time I take money out of the Roth and walk right by the tax man....... HooRa!

This may (or may not) happen with any investment vehicle with a fluctuating asset value--not just stocks. In your case, the timing turned out to be to your advantage. You were lucky. At least so far.

The opposite could just as well have occurred if the asset value had decreased after having been moved to the Roth. If your stocks now in the Roth go down, the value of the Roth decreases. Your post may imply that, somehow, the Roth protects assets from a falling market. Not at all.

I do agree that the tax free nature of Roth money is sweet. YOU own the whole enchilada.

When one looks at their balance of a traditional IRA, one needs to understand they only own PART of it. If the balance is $100k and you're in the 25% tax bracket, you only own $75k. Sobering thought.

Sorry...I don't mean to restate the obvious.
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Old 06-25-2017, 06:35 PM
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dewilson58 dewilson58 is offline
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Originally Posted by retiredguy123 View Post
To me, Roth conversions don't make financial sense unless you are sure that you will pay a lower tax rate on the converted money as compared with the tax rate you will pay later. Delay the tax payment for as long as possible, and let the money grow.
I'm with you 123.

Plus...........without getting political, what if tax rate brackets are reduced.
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Old 06-25-2017, 07:55 PM
Steve9930 Steve9930 is offline
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Originally Posted by Villageswimmer View Post
This may (or may not) happen with any investment vehicle with a fluctuating asset value--not just stocks. In your case, the timing turned out to be to your advantage. You were lucky. At least so far.

The opposite could just as well have occurred if the asset value had decreased after having been moved to the Roth. If your stocks now in the Roth go down, the value of the Roth decreases. Your post may imply that, somehow, the Roth protects assets from a falling market. Not at all.

I do agree that the tax free nature of Roth money is sweet. YOU own the whole enchilada.

When one looks at their balance of a traditional IRA, one needs to understand they only own PART of it. If the balance is $100k and you're in the 25% tax bracket, you only own $75k. Sobering thought.

Sorry...I don't mean to restate the obvious.
Luck has nothing to do with investing. It requires research and a sense knowing when you are riding a dying horse and where the current momentum is headed. Luck had nothing to do with what happened in my case. Well positioned companies on a down turn is an excellent opprotunity to reduce taxes. A Roth allows you to generate a cash flow without effecting the taxing of the Social Security Benefit. A Roth gives you the same flexability of a traditional IRA with the additional benefits.Those companies allowed me to put the money into investments that now reduced the down side risk and provide a nice tax free revenue scheme. Not only that but the Roth will be pasted to my heirs without the disadvantage ov having to take the money. All investments come with risk. The amount of risk your willing to take is up to your ability to handle it. Once one retires its no longer about capital appreciating, its about a sustainable cash flow and enough appreciation to stay ahead of inflation.
  #24  
Old 06-26-2017, 08:21 AM
JoelJohnson JoelJohnson is offline
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There is no doubt I will pay taxes on the IRA, the only question is how to minimize them. If I convert now (or in the next few years) and the ROTH portfolio goes down, I lose. If it goes up I win, true even without converting ,of course. The difference is that if you assume the market will go up over the next 20 years (which it should) then you may end up paying more taxes by NOT converting then converting. Of course you could end up paying more taxes if you convert too much at one time. Those sheets I mentioned are supposed to help with that decision. The problem is understanding what they are telling me. I was hoping to find someone who was familiar with those programs.
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Old 06-26-2017, 03:53 PM
Steve9930 Steve9930 is offline
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Originally Posted by suesiegel View Post
We do not know your age or your income needs.
If, you convert to a Roth you will pay your current tax rate on whatever amount you convert. You do not need to convert it all at once. When you reach age 70.5 you need to take minimum withdrawals from any regular IRA. The minimum withdrawal is calculated each year based on amount in the account AND YOU LIVING TO AGE 100.

Assuming you pass away before age 100, you can leave your IRA to your kids or??? They receive it tax free but are forced to take yearly withdrawals calculated based on them living to age 100. I have a small inherited IRA from my mother. It is like a gift that keeps on giving. I have it conservatively invested, the stock market has been good and after my forced withdrawal, I have more than the original amount.

Few, have bothered to see the obvious for an IRA. Assuming your tax bracket has always been 30%. You can earn a dollar but after taxes you only have .70 to spend.
As they pitch an IRA, rather than spending that .70 you can invest a full 1.00. Magic of compounding at say 7% it doubles every 10.28 years. For a regular IRA the rude suprise is you are forced to take it out of the IRA. If, you are still in the 30% tax bracket YOUR NET SPENDABLE DOLLARS IS EXACTLY THE SAME AS IF YOU HAD PAID THE TAX AND ONLY HAD .70. Enter the ROTH IRA, not avialable to us. It is available to younger people. You deposit after tax dollars into your ROTH and all of the growth as well as the after tax money you put in can be withdrawn FREE OF TAX.
YOUR ACCOUNTANT SHOULD BE ABLE TO BETTER EXPLAIN THIS TO YOU AND WILL HAVE FAR MORE KNOWLEDGE OF YOUR FINANCIAL AND FAMILY MATTERS.
All you need to know is exactly how long you will live, what the government will do about taxes AND INFLATION AND RETURNS ON YOUR MONEY DEPENDING ON WHERE YOU DECIDE TO PLACE IT and the correct answers are simple.
Only trouble is almost all of the information you must have is at best a guess.
We,ex-New Yorkers, moved to Florida and escaped a 6% STATE TAX, a 2% CITY TAX, real estate Tax on a far smaller home about 4x what we pay here
Also cash flow out of a Roth is not used in the calculation on how much of your Social Security is taxable. It is possible if your income consisted of SS and a Roth you woul pay 0 Federal Tax.
  #26  
Old 06-26-2017, 03:58 PM
Steve9930 Steve9930 is offline
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Quote:
Originally Posted by Bogie Shooter View Post
Always listen to arm-chair financial advisor quarterbacks.............
So if the paid finacial advisor is so smart, why are they still working?
  #27  
Old 06-26-2017, 04:15 PM
Hoosierb4 Hoosierb4 is offline
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I'm not familiar with the programs you mention, but one thing that you may be able to take advantage of is converting part of your IRAs to a Roth in years where you have a low tax rate. That happened for me in the years between when I retired and when I had to start taking distributions from my regular IRAs. Nobody can predict when the markets will go up and when they will go down, so I'd just ignore that. But, you do know when you will have to start taking the RMD from your IRAs.
  #28  
Old 06-26-2017, 09:27 PM
larcha larcha is offline
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Several financial web sites, like Fidelity and Vanguard, have free calculators to help you make a "Roth" conversion decision. When I looked at doing one a few years ago the answer was definitely NO! There just wasn't enough time left, read life expectancy, to re-coop the tax cost and make any money.
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Old 06-26-2017, 09:35 PM
larcha larcha is offline
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Here is what Fidelity has to offer re a Roth conversion evaluater:
Fidelity Investments
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Old 06-27-2017, 08:06 AM
JoelJohnson JoelJohnson is offline
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Great site - Thanks
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