Search found 1568 matches

by FinancialDave
Tue Jul 31, 2018 1:15 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

My intention in that example was to illustrate the potential benefits for a current-year withdrawal need, no more. In that case, flexibility and tax bracket have a very limited context -- and historical tax brackets don't apply anymore. Extremely rough numbers, with the classic $40K withdrawal from...
by FinancialDave
Tue Jul 31, 2018 11:30 am
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

The problem is you aren't comparing apples to apples. My assumption was you wanted to compare leaving the money in the IRA to converting it to a Roth and letting it grow there. If your only solution is you have to pull it out vs convert it to Roth then yes, taxable will tie or be slightly less than...
by FinancialDave
Mon Jul 30, 2018 6:26 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

I think I must be missing something here, because unless you are assuming some different tax rates for conversion vs withdrawal, you will not gain a nickel or lose a nickel on your idea. This is the most basic of concepts -- "flat tax" with no deductions makes a Roth completely useless except as an...
by FinancialDave
Mon Jul 30, 2018 12:45 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

Any TIRA withdrawal could also be done as a Roth Conversion, followed by a Roth withdrawal. Unless you're withdrawing an entire year's worth of money at one shot (i.e., immediately putting it in a taxable cash account), the conversion will allow tax-free growth, but the TIRA withdrawal will generat...
by FinancialDave
Mon Jul 30, 2018 12:29 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

There's an important insight here, but I think Dave is wrong about the past tax cost being relevant. What's important here is analyzing the effect of a withdrawal strategy on the entire tax life cycle of the investor. I totally agree with what you are saying in regard with the aspect that the more ...
by FinancialDave
Sun Jul 29, 2018 2:08 am
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

Fivek, I think a lot of people's heads are hurting with all the back and forth and I don't seem to be making much progress as a good communicator. I will say the way I learn most is by doing and as much as you think i-orp some how is going to fail you it may be your next best bet to some hands on le...
by FinancialDave
Sat Jul 28, 2018 4:01 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

The independent variables...are...: 1. Roth balance (tax-free dollars) 2. IRA Balance (pre-tax dollars) If those are truly independent variables, what model constraints prevent one from choosing - 100% Roth - as large a balance as one desires? For a pure retirement calculation - "nothing at all." Y...
by FinancialDave
Sat Jul 28, 2018 3:23 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

@ trueblue, The above is actually a more thorough discussion of the inputs and outputs taken from my article, but the article tabulates the results for the 9 cases that I mentioned here. Though I haven't tested all 9 cases with i-orp, the few that I have seem to confirm a similar story, but i-orp (o...
by FinancialDave
Sat Jul 28, 2018 12:06 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

FiveK, I can assure you no "properties of math" are violated in my spreadsheet. The independent variables to " just " the retirement simulation are the following, just so there is no confusion: 1. Roth balance (tax-free dollars) 2. IRA Balance (pre-tax dollars) 3. Retirement Funds Growth Rate (the s...
by FinancialDave
Fri Jul 27, 2018 2:26 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

But not if, for example, instead of "for $1 million saved pre-tax is 97.5% in the tIRA" there is only 50% in the tIRA. In the three cases I studied - 12%, 18%, & 25%, the only one where the Roth wins is when the average tax cost of the Roth was 12% and thus they can survive by going 100% Roth from ...
by FinancialDave
Fri Jul 27, 2018 1:50 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

I-orp does not handle SS benefit taxation correctly, if the SS benefits are taxed at less than 85%. Probably not a good idea to use i-orp as justification in areas where it has known deficiencies. It's a "don't care" in all the examples I suggested because the SS will be taxed fully at 85% of its v...
by FinancialDave
Fri Jul 27, 2018 11:37 am
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

I-orp does not handle SS benefit taxation correctly, if the SS benefits are taxed at less than 85%. Probably not a good idea to use i-orp as justification in areas where it has known deficiencies. It's a "don't care" in all the examples I suggested because the SS will be taxed fully at 85% of its v...
by FinancialDave
Thu Jul 26, 2018 3:24 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

Great discussion by all. I have been going through this analysis for my situation and this has been helpful, however, I still don't know if it makes sense for me our not. I will be able to convert up to $50,000 within the 22% bracket and because of the 20% pass through deduction I will only have to...
by FinancialDave
Thu Jul 26, 2018 3:00 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

In other words consider the person who saved $1 million at a "saved marginal" rate of 25%, vs the person who saved a $1 million at a "saved marginal" rate of 33%. Say they have no Roth funds. If their income need in retirement is exactly the same - let's call it $100k a year with $40k SS filling pa...
by FinancialDave
Thu Jul 26, 2018 1:45 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

Difficult to estimate though it may be, it is the actual marginal rate paid at withdrawal vs. the marginal rate saved at contribution that determines whether a given traditional contribution was "correct". And sometimes one needs to be suboptimal on some contributions to reach a global optimum. E.g...
by FinancialDave
Thu Jul 26, 2018 1:28 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

Seems we still haven't nailed down whether we are talking about "ever" or "from this time forward". Because one can't change the past, decisions one can make "from this time forward" (based at least in part on the current situation that past decisions have influenced) is the useful discussion - agr...
by FinancialDave
Thu Jul 26, 2018 1:04 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

jalbert wrote:
Thu Jul 26, 2018 10:49 am


A Warren Buffett quote: "The longer you can defer paying a tax, the greater the chance you may never have to pay it."

This suggests erring on the side of less Roth funds, not more, when there is significant uncertainty about the decision.
Amen to that!

Dave
by FinancialDave
Thu Jul 26, 2018 11:29 am
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

...if you just believe the Wiki and you thought your tax rate would be higher in retirement you would put ALL your retirement money in the Roth - absolutely the wrong thing to do.... If one thought incorrectly, then yes it would be the wrong thing to do. But if one is correct, then it is the right ...
by FinancialDave
Wed Jul 25, 2018 8:27 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

Many tax items are indexed to inflation, but taxation on SS is not. This is an important consideration for many in retirement. In the cases we are talking about here (higher income) 85% of SS will be taxed as ordinary income. The tax brackets they are taxed in have absolutely been indexed to inflat...
by FinancialDave
Wed Jul 25, 2018 8:22 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

It doesn’t seem too difficult to get your retirement tax bracket above that once RMDs start. Especially after the first spouse dies and the second is forced into the single tax brackets... Yeah, that single tax bracket is a killer. That's why we are converting into the 22% bracket. Survivor will de...
by FinancialDave
Wed Jul 25, 2018 8:06 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

Let me state it a different way. When all is said and done the optimal Roth / tIRA choice.... ... Your marginal rate tells you if you need any Roth at all, your effective tax from these accounts tells you how much. ... The current size of your Roth / traditional funds is technically what determines...
by FinancialDave
Wed Jul 25, 2018 7:03 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

I think you missed my point - if you have at least 5% of your savings going toward the Roth (95% IRA / 5% Roth) then your retirement tax bracket never goes above 12%, because you spend down the Roth money only when necessary. I’m missing something here when you say “never” goes above 12%. It doesn’...
by FinancialDave
Wed Jul 25, 2018 6:08 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

I think you missed my point - if you have at least 5% of your savings going toward the Roth (95% IRA / 5% Roth) then your retirement tax bracket never goes above 12%, because you spend down the Roth money only when necessary. I’m missing something here when you say “never” goes above 12%. It doesn’...
by FinancialDave
Wed Jul 25, 2018 4:38 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

Perhaps you have another constraint in mind? For example, someone with $1.9 million in traditional and $100K in Roth is definitely in the 22% bracket with a 4% withdrawal rate. Unless of course the withdrawal is $80K from the Roth, but that merely postpones the inevitable. ;) The relevance question...
by FinancialDave
Wed Jul 25, 2018 2:52 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

FinancialDave - I have done much reading and running numbers in i-orp and other calculators regarding Roth conversions. I think my conclusion jives with what you are saying. My conclusion was that for the individual considering the conversions, Roth conversions don't really have a significant impac...
by FinancialDave
Wed Jul 25, 2018 2:36 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

4. Finally, as alluded to above, during your working years the measuring stick is your marginal tax rate but during retirement that measuring stick is the "effective tax rate" of the income need that is being pulled from the tax-deferred funds. Let's say someone can save 12% marginal now and expect...
by FinancialDave
Wed Jul 25, 2018 2:22 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

Also note, as the tax law is currently written, we go back to the old brackets in 2025. The 22% bracket today becomes 25% in 7 years -- making conversions up to the top of the 24% bracket potentially of value. The same concept applies for the other brackets. Ya, there were a lot of really smart peo...
by FinancialDave
Wed Jul 25, 2018 2:18 pm
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

I am not exactly sure what you are saying as your Federal marginal tax rates have little to do with the Washington State Estate tax rates. I didn't say they did. If you own a TIRA, a portion of that TIRA is effectively owned by the IRS -- they will get their money when you withdraw it, or when your...
by FinancialDave
Wed Jul 25, 2018 11:34 am
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

The discussion around marginal rates assumes that there are no other taxes potentially due. In a state like the one I live in, there are also estate taxes to consider. If I convert to below the threshold, my heirs pay no estate taxes -- and those taxes would apply for both my death and my wife's de...
by FinancialDave
Wed Jul 25, 2018 10:54 am
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

Paying taxes for conversions was the only way I would have done a conversion. I recognized and have written about how there is a small advantage of decreasing ongoing tax drag on my taxable account which is lowered slightly by paying the taxes at the time of conversion. I don't think my taxable acc...
by FinancialDave
Wed Jul 25, 2018 10:35 am
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

4. Finally, as alluded to above, during your working years the measuring stick is your marginal tax rate but during retirement that measuring stick is the "effective tax rate" of the income need that is being pulled from the tax-deferred funds. Let's say someone can save 12% marginal now and expect...
by FinancialDave
Wed Jul 25, 2018 12:49 am
Forum: Investing - Theory, News & General
Topic: Vanguard Paper on Roth Conversion Analysis
Replies: 123
Views: 9163

Re: Vanguard Paper on Roth Conversion Analysis

Other factors can lower the BETR, e.g. LTC deductions, tax-loss harvesting in retirement, delaying SS and spending down a tIRA to replace the income likely reduces the tax drag as well in many cases. I've been bothered by these analyses for some time, and I finally understand the concern well enoug...
by FinancialDave
Sat May 05, 2018 12:14 am
Forum: Investing - Theory, News & General
Topic: Fixed income windfall allocation: lump sum or steadily buy?
Replies: 43
Views: 2829

Re: Fixed income windfall allocation: lump sum or steadily buy?

As said above, a $1M portfolio made up of 30 years of market returns is today no different than a $1M deposit into your checking account. If you are afraid to lump the new $1M in, you should be equally afraid leaving the 30 year accumulated $1M invested. That sounds just a little toooo academic for...
by FinancialDave
Fri May 04, 2018 11:44 pm
Forum: Investing - Theory, News & General
Topic: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!
Replies: 92
Views: 9237

Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

There was comprehensive legal scholarship by Prof Jim Maule on this issue in a 2007 article here. Note that the only potential problem areas in that paper involved computation of self-employment income, but basis of an IRA does not affect that item at all. This comes up almost every year when I am ...
by FinancialDave
Fri May 04, 2018 1:59 pm
Forum: Investing - Theory, News & General
Topic: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!
Replies: 92
Views: 9237

Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Epsilon Delta wrote:
Fri May 04, 2018 9:34 am
I offer my services as a heir to anybody who has a TIRA with basis.

Feel free to hate me if you like, although it is not necessary.
I'll second that!

:sharebeer

In fact if it helps the cause I will agree to ignore the basis!
by FinancialDave
Mon Apr 30, 2018 6:08 pm
Forum: Investing - Theory, News & General
Topic: Roth IRA vs unmatched 401K
Replies: 14
Views: 762

Re: Roth IRA vs unmatched 401K

I am in the camp (retired at 60, now 66) of KNOWING my tax rate is considerably less in retirement -- 25% down to 12%. Yours of course may vary, but I have looked at a lot of tax returns in my volunteer work and not many can really say their tax rate is higher now in retirement, other than maybe the...
by FinancialDave
Mon Apr 30, 2018 5:27 pm
Forum: Investing - Theory, News & General
Topic: Fixed income windfall allocation: lump sum or steadily buy?
Replies: 43
Views: 2829

Re: Fixed income windfall allocation: lump sum or steadily buy?

With interest rates inside brokerage accounts now above 1% (about 1.6% right now -VMMXX) I see no need to PILE INTO interest rate risk all at once by investing all $200k into bonds at one time. Certainly if you are going to buy short term bond funds, most of them are not even going to make the 1.6% ...
by FinancialDave
Mon Apr 30, 2018 5:20 pm
Forum: Investing - Theory, News & General
Topic: Portfolio Changes After Retirement
Replies: 11
Views: 1257

Re: Portfolio Changes After Retirement

I agree with most everyone else, Less-Is_More, in retirement, however you can't really go less than 3, without using some sort of Balanced Fund(s). As a 3-fund retirement account I like Wellington, Wellesly, & Total Stock Market, from which I can manage just about any Stock/Bond ratio I want. It's m...
by FinancialDave
Thu Feb 08, 2018 11:55 am
Forum: Investing - Theory, News & General
Topic: Backdoor Roth on the Bubble
Replies: 5
Views: 485

Re: Backdoor Roth on the Bubble

Have you already maxed out a traditional 401k or other tax deferred instruments that will get you a deduction off your taxable income?

Dave
by FinancialDave
Tue Feb 06, 2018 11:39 am
Forum: Investing - Theory, News & General
Topic: 2018 Hedge Fund contest
Replies: 158
Views: 15740

Re: 2018 Hedge Fund contest

Yes,
I think I heard XIV is bankrupt.

I know this was an inverse ETN, but the same is something that can happen to anyone with a short position! It can go up farther than you have money.

Something for those Hedge Fund Managers with only a short position to remember.

:sharebeer

fd
by FinancialDave
Mon Feb 05, 2018 7:56 pm
Forum: Investing - Theory, News & General
Topic: TSM believers, defend thyself! (In a good natured, friendly debate.)
Replies: 59
Views: 7037

Re: TSM believers, defend thyself! (In a good natured, friendly debate.)

Jeff,
I am missing your point here. Are you saying all these endowments had exactly the same asset allocation, because I doubt that they did, so I am not sure what you are comparing??

Dave
by FinancialDave
Sun Feb 04, 2018 10:47 pm
Forum: Investing - Theory, News & General
Topic: TSM believers, defend thyself! (In a good natured, friendly debate.)
Replies: 59
Views: 7037

Re: TSM believers, defend thyself! (In a good natured, friendly debate.)

Just remember, at the end of the day there is NOTHING that IS going to guarantee you above market returns - HOWEVER there is something that WILL guarantee you market returns. Finally, those market returns are not going to guarantee you any particular CAGR -- even if you got the 10% after 28 years yo...
by FinancialDave
Mon Jan 15, 2018 2:40 pm
Forum: Investing - Theory, News & General
Topic: REGISTRATION FOR 2018 BOGLEHEAD CONTEST
Replies: 154
Views: 11592

Re: REGISTRATION FOR 2018 BOGLEHEAD CONTEST

Suggestions for the summary chart: - Please provide a legend. I assume the red dots are the Wall Street Experts. - Create an anchor (Iink) to the Summary chart from the top of the page. Then, an anchor (link) from the chart to the top of the page. Otherwise, readers may not see the chart - it's a l...
by FinancialDave
Sat Jan 13, 2018 8:36 pm
Forum: Investing - Theory, News & General
Topic: VUSXX vs. TreasuryDirect
Replies: 10
Views: 1852

Re: VUSXX vs. TreasuryDirect

Kevin,
Which tax-exempt MM were you thinking?

When I look at the Vanguard VMSXX its 7-day yield is only .74%. Hardly seems an alternative to VMMXX paying 1.42%.

Dave
by FinancialDave
Sat Jan 13, 2018 8:18 pm
Forum: Investing - Theory, News & General
Topic: VUSXX vs. TreasuryDirect
Replies: 10
Views: 1852

Re: VUSXX vs. TreasuryDirect

I am confused why you need VUSXX with a 7-day yield of 1.19% when the standard money market VMMXX is paying 1.42%

Dave
by FinancialDave
Sat Jan 13, 2018 10:51 am
Forum: Investing - Theory, News & General
Topic: 4% Withdrawal vs Yield as Income
Replies: 41
Views: 2610

Re: 4% Withdrawal vs Yield as Income

When I buy a house (for cash) and its value drops by half, have I lost anything. Is the house still providing everything I need? If I am later forced to sell at a loss then yes I have lost something. Dave Yes you lose money the instant the house drops in value. You might feel better not knowing tha...
by FinancialDave
Fri Jan 12, 2018 8:18 pm
Forum: Investing - Theory, News & General
Topic: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?
Replies: 48
Views: 7151

Re: If I have a million with Edward Jones, in 10 years, how much money has my FA made off me?

Trying to gauge the general idea on how much the guy is making off of my parents, or how much he makes yearly off them. That is really the wrong question to ask. The only relevant question to you is how much the fees are reducing your parents retirement nest egg, because that number is a compounded...
by FinancialDave
Fri Jan 12, 2018 8:05 pm
Forum: Investing - Theory, News & General
Topic: 4% Withdrawal vs Yield as Income
Replies: 41
Views: 2610

Re: 4% Withdrawal vs Yield as Income

@will, I agree with you - poor choice of terms on my part. In the long term there is no guarantee you are going to preserve your capital with ANY strategy other than FDIC insured bank account where you only spend the income. I understand very well that especially if you try and invest in individual ...
by FinancialDave
Fri Jan 12, 2018 7:51 pm
Forum: Investing - Theory, News & General
Topic: 4% Withdrawal vs Yield as Income
Replies: 41
Views: 2610

Re: 4% Withdrawal vs Yield as Income

"Look, the 4% withdrawals include dividends. If I was 100% Total Stock Market Index in retirement (I wouldn't be), I'll get the 2% dividends from it, and then sell another 2% each year." Understood and agreed. But you could build your own portfolio of individual stocks (no REITS or MLP's) that pays...
by FinancialDave
Fri Jan 12, 2018 7:10 pm
Forum: Investing - Theory, News & General
Topic: 4% Withdrawal vs Yield as Income
Replies: 41
Views: 2610

Re: 4% Withdrawal vs Yield as Income

@financialdave Thanks that makes sense, that wiki is misleading. I put a $1,000,000 hypothetical into portfoliovisualizer in VTSMX. You can see that the portfolio income is pretty resilient to a crash. The rise in income afterwards is due to only price increase, without dividends reinvested. Though...