1. An accountant recommended by my lawyer did not believe it would be an advantage to do Roth conversions from Traditional IRA funds. I'm thinking about changing small amounts over to keep my earned income for taxes under $85,000 to $80,000 due to increased taxes on my SS income and Increased costs in Medicare. Thoughts?
It is my understanding that 85% of your SS will be taxed either way. So why does it matter if your income is $80k or $85k?
I don't know about Medicare costs, but I would assume there would not be any difference in Medicare costs for $80k vs $85k either. Am I wrong about that?
3. Like most people, I'm really confused about bond funds vs. bonds in this bond environment. I'm a total novice when it comes to individual bonds. Anyway, thinking about a middle road approach of some type to hedge my bets. Recommendations?
Use bond funds for simplicity. Very few of us know enough about individual bonds to build a decent bond portfolio.
4. How fast would you put the MMF into mutual funds? I'm tempted to do all at once to keep record keeping simpler despite the risk of this strategy. What would you do?
I would not dilly dally, but if you cannot do it all at one time, set up a plan and get it done in 6 months or less.
3. The fund offerings within my 401K are extremely poor. The Stock Index fund I'm currently in has an ER=0.31. All other funds I would be interested in are actively managed with expense ratios of over 1.0 and frequently, high levels of turnover within the fund.
If you have a stock index fund at .31%, the plan is not extremely poor. Your other offerings may not be great though, but that doesn't matter much because you don't need to use them.
Despite the possible tax implications, I think it would be better to roll to an IRA at VG.
There are no tax implications of moving a 401k to an IRA. But maybe you are thinking about increases in SS and Medicare costs? Again, I'm not sure those are valid issues.
1. Bumping up into the 28% tax bracket. With the top of the 25% bracket at almost $88,000 for individuals and my income at $48,000 (SS + pension) + $35,000 (beginning RMDs at age 70) = $83,000 in retirement at age $70. Doesn't that leave me little room for growth within the IRA before reaching $88,000 income?
In reading this and other thread(s), it seems this is the issue that is causing you the most discomfort. I don't think it is an issue at all. Here's why.
-The $87,850 maximum for taxable income will be higher in when you get to RMD time.
-The $87,850 number refers to taxable income. Even if you make $88,000, by the time you reduce that by 1 exemption ($3,900 this year) and the standard deduction ($6,100 this year), your taxable income would be $78,000, nowhere near going over the line into the 28% tax bracket. And if you itemize deductions instead of using the standard deduction, you'd be even farther from the 28% bracket line.
-Even if you did manage to bump into the 28% bracket, that will only affect the money over the 28% bracket line; it would not affect anything else that I can see. So if you went $1,000 into the 28% bracket, you'd pay $280 tax on that instead of $250 tax on it. (This assumes that you would not be in some kind of phase out.) In light of your huge portfolio, is that really something to worry about?
2. I can handle stock market upheavels with stocks but have no experience with a bond fund market with no where to go but up and a significant amount of my portfolio going into bond funds. Odds are bond rates will stay extremely low for the long term. However, I feel the need for some type of portfolio strategy to address the "what if?" The VG TotBndMktIndex F. makes me anxious. Strategies I've considered are a.) shifting AA to 55%stocks/45%bonds to counteract a possible big drop in the TotBdIdex F. (10%?); b.) Keeping my current 4 VG bond funds and transition to TotMkBndIndex after bond funds rise/
This shows that you really don't understand the current bond situation very well. Consider these things.
1) It is true that bonds are not paying a great deal. Remember that sometimes stocks don't pay well (in fact can REALLY drop in value) but you are not particularly worried about that. Why the worry over bonds but not stocks? Is that rational?
2) It is also true that bond rates may stay low for a long time. So? Is the income from bonds the only reason you hold them? Or do bonds have some other purpose in your portfolio that you can't achieve by adding on extra stocks?
3) What if we do see interest rates rise by 1%? Vanguard's Total Bond Market Index has an average duration of 5.3 years so if interest rates rise by 1%, your TBM value might drop by about 5%....but it will also start paying you higher dividends because interest rates have risen! If interest rates rise by another 1%, the whole cycle starts over, including the part about higher dividends. So that "possible big drop" isn't really so much of a drop, is it?
Also, remember that interest rates don't go up by 1% increments, so even if the described 2% increase in interest rates does occur, it is like to occur over at least a couple of years. For a person who wold not blink an eye at a 50% drop in stocks, why is this tiny drop in value for your bonds such a fearsome beast? (Answer - the financial media has to have something to write/talk about and that happens to be one of the few topics they've had to write/talk about for awhile.)
There are possible "solutions" to your fear of TBM. One would be to use shorter term bond funds which would have less of a drop in value when/if interest rates go up. The downside is that shorter term bond funds would pay you less than the TBM. Not a great trade in my opinion. Another possibility is to use CDs instead of bonds for part of your bond allocation. CDs are not paying great either, but there is no possibility that a CD will lose value - you might be more comfortable with that. A third possible solution is to continue to shift some of your bond allocation into I Bonds and EE bonds which will not lose value if held to maturity. Since there is a limit on how much you can buy of this stuff, this "solution" is of limited value.
Mostly, I'd like you to consider the things you are worried about and whether they are truly worthy of your concern and obvious discomfort. You've got a lot of money. Apparently you won't need most of it. You've got the long term care issue covered as best you can. So whatever money you have left will be going to your kids (and maybe charity).
The things you are worried about aren't going to matter much when it comes to how much money you leave behind. In fact, it seems to me you are mostly worried about "the small stuff", not the big stuff (which seems to be in good order other than needing simplification). I'm sure your kids would rather have a little smaller inheritance than to see you worry about some of these things. I feel sure they don't want you to have this much worry over things that will matter so little in the end.
I think (other than simplification) you are in great shape! I hope you will see that. And have a happy Mother's Day too!