[retiredguy123]

Originally Posted by Bill14564

While I agree with all the above (and it took me a while to get to that place) I'm not yet sure whether you need to pay estimated taxes based on 100% of your payment for last year or if you need to base it on 110% when your AGI is above a certain level. I use 110% just to be safe but that *might* not be necessary.

That is why I said "usually". If your AGI is above a certain level, you do need to pay 110 percent of your prior year tax. But, if you use a tax software, like TurboTax, the program will calculate the correct amount for you. One year, this happened to me and I thought TurboTax had made a mistake. If you are under the AGI limit, I would not pay the extra amount in estimated tax. Let the tax software tell you how much to pay.

The other method, which I never use, is to pay at least 90 percent of the current year taxes due. This involves a complicated calculation and tracking of your income during the year. It's not worth it to me.

Also, if tax withholding is optional, I never allow someone else to deduct taxes from my income.

[Bill14564]

Originally Posted by retiredguy123

That is why I said "usually". If your AGI is above a certain level, you do need to pay 110 percent of your prior year tax. But, if you use a tax software, like TurboTax, the program will calculate the correct amount for you. One year, this happened to me and I thought TurboTax had made a mistake. If you are under the AGI limit, I would not pay the extra amount in estimated tax. Let the tax software tell you how much to pay.

The other method, which I never use, is to pay at least 90 percent of the current year taxes due. This involves a complicated calculation and tracking of your income during the year. It's not worth it to me.

Also, if tax withholding is optional, I never allow someone else to deduct taxes from my income.

I haven't found (or looked for) that estimation option in the HR Block software. I should look.

The year I retired I chose not to use the 110% method - my income decreased significantly and I wasn't willing to give the IRS that much extra. I built a spreadsheet to perform the 90% calculation to a usable degree. It wasn't perfect but it kept me away from a penalty. You're right though, it is a fairly complicated calculation, requires a lot of input, and needs to be updated each year. Now that my expected income has leveled out, the 100%/110% method is preferable.

[ElDiabloJoe]

Of course, you could always mitigate the fiduciary and tax aspects by using a fee only advisor who is also a CPA. I know of one, but you'd have to be comfortable with her not being local: Annette Di Bello CPA CFP(R) PC Fee Only Fiduciary Wealth Mgmt

[Haggar]

Originally Posted by retiredguy123

I use the prior year tax rule to pay an equal amount of estimated tax every quarter. It makes no difference when I receive income during the year. There is no penalty due. And, the income tax due on any IRA withdrawals or conversions are always due on April 15 of the next year, regardless of when you received the income. So, you can receive the income in January or December of the prior year, but the same tax amount is due on April 15 of the next year.

Yes, if you don't use the prior year tax rule, you could owe a small penalty if you don't adjust the estimated quarterly payments.

Agreed - but if you have made tax estimates based upon a reduced income in the next year and did use not the safe estimates equal to last year taxes (possibly plus 10% if you're in a higher bracket) and then you got a large income in the last quarter form 2210 is what is used to avoid a penalty if you make an larger tax payment in January.

[Haggar]

Originally Posted by villagetinker

Hopefully your financial advisor has a tax professional associate. There are many things to consider aside from just the tax issues. for example there may be a 5 year waiting period before you can withdrawal the ROTH funds. I had looked into this years ago, but I missed the optimal time to do the conversion, so I just live with RMDs.

Out of any Roth IRA withdrawals are made in the following order: original Roth Contributions, Roth conversion contributions and lastly earnings. It is the earnings which are subject to the penalties, not the withdrawal of contributions. That means that at least 5 years must elapse between the the tax year of your first contribution to a Roth and withdrawals of earnings. Once the 5 year rule has been met and the account owner is 59 1/2 or older they may make a qualified distribution exempt from taxes and penalties.

So many factors to determine in making this decision - age of the client, health of the client, taxable income/tax bracket now, investment goals, tax brackets in the future, etc,

[manaboutown]

Originally Posted by ElDiabloJoe

Of course, you could always mitigate the fiduciary and tax aspects by using a fee only advisor who is also a CPA. I know of one, but you'd have to be comfortable with her not being local: Annette Di Bello CPA CFP(R) PC Fee Only Fiduciary Wealth Mgmt

Looks like she has an AUM fee structure. From her website:

Investment Management Fees - $1,000,000 minimum investment
1.20% annual on the first $1,000,000
1.00% annual on the next $500,000
0.80% annual on the assets above $1,500,000

That's a little pricey IMHO..

Her financial planning fee seems reasonable except that one must first be an AUM customer to obtain that service for which one is already paying a huge percentage of invested assets under her management every quarter.

From her website:

Financial Planning Fees
Comprehensive Tax, Financial & Retirement Plans Start at: $2,500 - $400 per hour

Also while I commend her for going to night school at Cal State Fullerton to obtain her bachelor's degree in business administration it is not a top business school.

I may have missed it but I did not see any statement on her website about her acting in a fiduciary capacity.

I'll pass...

[retiredguy123]

My advice about Roth conversions is to don't do it. Keep the money in a Traditional IRA. If you have a 401K, roll it over into a Traditional IRA. If you ever go into assisted living or a nursing home, pay for it by withdrawing money from the Traditional IRA and take a medical tax deduction. I think the Government created the Roth conversion so people would pay their taxes early.

[BlueStarAirlines]

Originally Posted by retiredguy123

My advice about Roth conversions is to don't do it.

My advice is don't follow that advice. Everyone's situation is different and asking for advice without knowing all the info is the same as asking a crowd what is the best food to eat. Tons of answers with only a few actually helpful answers.

After watching my father pass and my mother's taxes exploding as a now-single taxpayer, having some money one can use without tax consideration is beneficial. Just another opinion.....

[Caymus]

Originally Posted by manaboutown

Looks like she has an AUM fee structure. From her website:

Investment Management Fees - $1,000,000 minimum investment
1.20% annual on the first $1,000,000
1.00% annual on the next $500,000
0.80% annual on the assets above $1,500,000

That's a little pricey IMHO..

Her financial planning fee seems reasonable except that one must first be an AUM customer to obtain that service for which one is already paying a huge percentage of invested assets under her management every quarter.

From her website:

Financial Planning Fees
Comprehensive Tax, Financial & Retirement Plans Start at: $2,500 - $400 per hour

Also while I commend her for going to night school at Cal State Fullerton to obtain her bachelor's degree in business administration it is not a top business school.

I may have missed it but I did not see any statement on her website about her acting in a fiduciary capacity.

I'll pass...

Bernie Madoff was a fiduciary. How did that work out?

[CoachKandSportsguy]

Originally Posted by retiredguy123

My advice about Roth conversions is to don't do it.

There are several variables to consider:

First, what is your reason for creating a Roth?
* Reduce potential RMD?
* Reduce income taxes to heirs?
* Reduce future income taxes?
* Single or married makes a big difference. .

These strategies are straight up tax minimization strategies, and as the IRA gets larger:
* there is a level below which a Roth won't make much of a difference
* there is a level which a Roth can be very beneficial
* there is a level above which a Roth isn't worth the taxes paid.

The biggest determinate are:
* size of your taxable investment account
* size of your annual living expenses

Spending above your Social Security and pension totals have to be funded from somewhere. Typical example: If you live with no savings after SS and pension totals, how will you pay for a new car or a new roof to keep insurance?

* more IRA?
* some taxable investments?
* some ROTH?

That's how to think about a ROTH vs taxable investments vs IRA
and yes, you may have to pay some taxes on the investment account but taxes are a measure of success, the more successful, the more taxes. . and if you fear paying more taxes, you will seldom build substantial wealth. AND there are investment tax minimization strategies for taxable accounts.

YMMV

[retiredguy123]

The only surefire example I have seen where a Roth conversion made sense was a retired teacher I knew who had a plan to convert all of his retirement money into a Roth, so he could leave tax free money to his children. He knew he was paying more taxes than he needed to, but he didn't care.

Every other example of a Roth conversion required the use of a crystal ball to predict future tax rates for you and your heirs, future incomes, life spans, and other unknowable variables.

[Janie123]

Originally Posted by Tom52

Can anyone recommend someone like a tax pro who would help me determine the tax consequences of, and recommended amount to convert from a conventional IRA to a Roth IRA?

Tom, I would like someone on this site to actually answer the original question, just once and not spout their opinions.

I have been using Boldin (formerly NewRetirement) software to model retirement… cost is about $95 a year. I’ve modeled conversions to highest tax bracket, conversions to 22-24% bracket, no conversions, dying at 85/95, one spouse before the other and what I found is, one, we’re not going to outlive out savings, and two the money left when we both die is approximately the same with our without conversions… BUT… with conversions, our daughter and potentially grandkids will have a whole bunch of money that is tax free. No conversions leaves a bit more money than massive conversions (approx $1-2M more), partial conversions is a break even but a huge conversion leaves many more millions that are tax free.

If you come across someone here in TV that could help with this, please message me.

thanks in advance…

[M2inOR]

We used Craig Wear to determine whether a ROTH conversion made sense for us.

His firm is not an investment advisor, and he does not work on a commission. He does not recommend specific investments either.

He has written a book that is available at Amazon. It tells you a lot about the conversion process. For some people it makes no sense. For others like us, it made a lot of sense.

We are in year four of the process after 3 years of large conversions.

Wife and I both had large 401Ks that we first rolled over into conventional IRAs when we retired at 65.

We deferred our SS to gain that 8% return each year until we turned 70 last year. We had other taxable income from deferred compensation and taxable investment accounts that provided bulk of our income until we started SS.

We paid for a plan for ROTH conversions, and began conversion 4 years ago. It put us into a higher tax bracket, and we paid estimated taxes each year. We hit IRMAA, too, but wife had a retirement benefit that took care of that surprise.

Craig Wear developed a conversion plan for us that made sense. It worked for us.

Read his book as he fully describes the process, the planning, and it tells you whether it makes sense for your situation.

As for future taxes...who knows. I do know that the ROTH balances for us will NOT be taxed. Everything else will be.

Saving Taxes for a Lifetime | Q3 Advisors

[mrf6969]

I have been converting my IRA's to Roth for years. I am 73 now and this is my final year to be able to do this. Makes sense to do this as now the Roth IRA's will grow totally tax free with no burden on those that will inherit.

[M2inOR]

Originally Posted by mrf6969

...Makes sense to do this as now the Roth IRA's will grow totally tax free with no burden on those that will inherit.

Very important, as heirs will be under pressure to withdraw funds within 10 years, and pay any taxes due.

No time limit or restrictions on ROTH inheritance, and no taxes due.