Working on Planning RMDs - Should I stop Contributing

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VanGar+Goyle
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Re: Working on Planning RMDs - Should I stop Contributing

Post by VanGar+Goyle »

1. I currently defer 35% of my income so when I "retire" I will have a good chunk come from there.
Now I feel like you were burying the lead.
Rather than trying to solve a n-dimensional non-linear matrix of ever changing equations,
calculating 2% for IRA, 3% for 401(k), there is now a 35% variable.

I am new to this deferring. Is it like qualified tax deferred, but no growth, and no chance of Roth conversions or ERISA protection?

Very few retirees are going to end up in the 37% bracket due to RMDs.
Very few people will retire in 7 years in the 37% federal tax bracket, as TCJA does not have a 37% tax bracket in 7 years.
There may be a 39.6% tax rate.


BTW if in 37% federal tax bracket, OP could be in 13.3% state tax bracket, but that could be just adding a minor variable.
Well, you pay a little bit, we're a little bit tough. | You pay very much,very much tough. | You pay a too much, we're too much a tough. | How much you pay? ... Well, then we're plenty tough. - Marx
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celia
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Re: Working on Planning RMDs - Should I stop Contributing

Post by celia »

WolfgangPauli wrote: Sun Jun 13, 2021 8:46 am I am 58 and plan to work until at least 65...
Have you considered retiring a few years before that and use your employer’s medical insurance under the COBRA rules (where you pay the full premiums)?
So, my question: Should I stop putting into tax deferred accounts now and put it all in taxable accounts so I can control the withdrawals better and gain full Cap Gains benefit (Whatever that is)?
Better than that, instead of adding more to your taxable accounts, why not put it in Roth? Here’s how:

Continue maxing out your 401K (which lowers your Taxable Income on the tax return). Then, in the same year, convert the same amount in a TIRA to Roth (which puts your income back up the same as if you hadn’t contributed to a 401K).

This won’t lower your current tax-deferred balance (unless you want to convert a little more), but it won’t make it worse, either (except for the employer match).

The sooner you start pumping up a Roth, the sooner it can start growing. Remember to put stock funds in there, especially any that grow faster than most.

WolfgangPauli wrote: Sun Jun 13, 2021 9:46 am I just ran the "fire-calc" calculations and I was shocked.. It showed in every instance I grow the portfolio to crazy levels. I hate to ask this, but should I spend more? (i.e., just enjoy it more - 1st class airline Flying V. not etc... ).
Why not use some of your money in your taxable account to pay the Roth conversion taxes?
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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celia
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Re: Working on Planning RMDs - Should I stop Contributing

Post by celia »

TomatoTomahto wrote: Sun Jun 13, 2021 9:58 am We did do a Roth conversion one year of modest size, but regardless of the ticking tax bomb, it was just too painful to convert at the 42%+ marginal rate. We will likely wish that we had done more in the future, but tight now we are covering our ears and singing “nah nadi nah nah I can’t hear you.”
Were you glad you opened Roths when you did?
I was glad to see when you took the plunge and opened Roths (to start the 5-year clock).

Since you are trying to be oblivious to the future while in pain, why not just do another Roth conversion while singing “nah nadi nah nah I can’t hear you?
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
smitcat
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Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

lazynovice wrote: Tue Jun 15, 2021 7:30 pm
smitcat wrote: Tue Jun 15, 2021 2:14 pm
lazynovice wrote: Tue Jun 15, 2021 12:17 pm
smitcat wrote: Tue Jun 15, 2021 11:34 am
sc9182 wrote: Tue Jun 15, 2021 11:26 am
Yes to some - no to some other tools.
Any of those tools showed you how to effectively use Life Insurance to mitigate taxation/estate-tax scenarios ? Use tooling (or their ever improving feature-set) to model financial numbers and taxation., but don't let those define/control/handle all sorts of things life throws at you !
Once again... please provide a link to any reasonably detailed article(s) showing the math and process to use life insurance for these purposes.

What numbers and parameters have you loaded into these tools that allows a situation where you do not need to worry about RMD's until they are due? At least these inputs:
- ages at retire and SS election
- SS for spouses
- totals in pretax, ROTH, and tax deferred
- AA and market performance
- state of residence
Which tool were these applied to?
In my own situation, currently at 37% federal and 4.6% state (flat tax except first bit of retirement income is exempt). My spouse and I have PIAs within 20% of each other. We are two years apart in age. 66% of portfolio in taxable, 2% in Roth, rest in 401(k). 100% fixed income in 401(K). Will convert to Roth up to 15% federal until 63 to avoid IRMAA but maybe less if ACA subsidies are in reach. If one of us dies before 63, we have $1 million policies of life insurance which will more than cover any increase in taxes by moving to single rates. That insurance costs 2,000 per year between the two of us. After 60, the survivor can draw SS survivor’s benefits. Taxable but on a net basis can alleviate tax burden.

Tell me why I should stop deferring now at top brackets? Why should I convert past 15% when the time comes?
"Tell me why I should stop deferring now at top brackets? Why should I convert past 15% when the time comes?"
In your case I would do what you are doing - we are doing the same but are going up to another tax bracket with our Roth conversions.
I cannot begin to tell if your specific numbers warrant much of a change (if any) to the plan but it sounds pretty good from what little you post.

Have you tried running your numbers on RPM or Pralana?
Not asking for advice. You keep saying that there are many traps with RMDs that would warrant someone discontinuing deferring in the top tax bracket. I am saying they are very rare. You brought up state taxes and I showed you that does not change the answer.

And I gave you an example of where cheap term life insurance and social security survivor’s benefits can be used to mitigate the tax impact of one spouse dying earlier than planned.
"Not asking for advice. You keep saying that there are many traps with RMDs that would warrant someone discontinuing deferring in the top tax bracket. I am saying they are very rare. You brought up state taxes and I showed you that does not change the answer."
As I said this post does not say 'top tax bracket', those are your words. I do not know if he/she is speaking about total taxes or just federal taxes.
Based on the OP's posts and waiting untill RMD's are required - OP has more assetts, waiting later, deferring 35% or current income,etc.
Not likely near what you describe with your situation.

"And I gave you an example of where cheap term life insurance and social security survivor’s benefits can be used to mitigate the tax impact of one spouse dying earlier than planned."
Yes - an example of where insurance is used for income. In this post it was said that insurance was for mitigating things like RMD's.
I am guessing that you will let your term life insurance lapse when you no longer require it - a good use for life insurance in that you only pay for it while you require it. When you know you have enough funds and no longer need life insurance its not part of your plan. Likewise we ended life insurance when it was no longer needed.
smitcat
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Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

celia wrote: Wed Jun 16, 2021 4:35 am
WolfgangPauli wrote: Sun Jun 13, 2021 8:46 am I am 58 and plan to work until at least 65...
Have you considered retiring a few years before that and use your employer’s medical insurance under the COBRA rules (where you pay the full premiums)?
So, my question: Should I stop putting into tax deferred accounts now and put it all in taxable accounts so I can control the withdrawals better and gain full Cap Gains benefit (Whatever that is)?
Better than that, instead of adding more to your taxable accounts, why not put it in Roth? Here’s how:

Continue maxing out your 401K (which lowers your Taxable Income on the tax return). Then, in the same year, convert the same amount in a TIRA to Roth (which puts your income back up the same as if you hadn’t contributed to a 401K).

This won’t lower your current tax-deferred balance (unless you want to convert a little more), but it won’t make it worse, either (except for the employer match).

The sooner you start pumping up a Roth, the sooner it can start growing. Remember to put stock funds in there, especially any that grow faster than most.

WolfgangPauli wrote: Sun Jun 13, 2021 9:46 am I just ran the "fire-calc" calculations and I was shocked.. It showed in every instance I grow the portfolio to crazy levels. I hate to ask this, but should I spend more? (i.e., just enjoy it more - 1st class airline Flying V. not etc... ).
Why not use some of your money in your taxable account to pay the Roth conversion taxes?

Celia - I think these are all good ideas depending upon how the OP defines 'tax rate' in his original post.
Did you also notice he is deferring large income amounts currently?
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TomatoTomahto
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Re: Working on Planning RMDs - Should I stop Contributing

Post by TomatoTomahto »

celia wrote: Wed Jun 16, 2021 5:03 am
TomatoTomahto wrote: Sun Jun 13, 2021 9:58 am We did do a Roth conversion one year of modest size, but regardless of the ticking tax bomb, it was just too painful to convert at the 42%+ marginal rate. We will likely wish that we had done more in the future, but tight now we are covering our ears and singing “nah nadi nah nah I can’t hear you.”
Were you glad you opened Roths when you did?
I was glad to see when you took the plunge and opened Roths (to start the 5-year clock).

Since you are trying to be oblivious to the future while in pain, why not just do another Roth conversion while singing “nah nadi nah nah I can’t hear you?
I AM glad that we started the 5-year clock. I’m also glad that I’ve gotten a 2-year reprieve on my RMDs, and we might have an opening to do some conversions for my wife (who has the more significant deferred accounts) in a few years.

If there is a significant market correction, we will jump into conversions with both feet. I missed the short opportunity last year.
I get the FI part but not the RE part of FIRE.
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TomatoTomahto
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Re: Working on Planning RMDs - Should I stop Contributing

Post by TomatoTomahto »

smitcat wrote: Wed Jun 16, 2021 6:11 am Did you also notice he is deferring large income amounts currently?
This would really concern me. We defer up to the company match, because that’s free money, but in practice it’s less than 1% of salary. Deferring 35% is like adding lots of gunpowder to a bomb that has a flaky timer. There are countless stories, on BH and elsewhere, of the lack of control over timing with deferred comp; many get the income when they least want it — Murphy’s Law.
I get the FI part but not the RE part of FIRE.
sc9182
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Re: Working on Planning RMDs - Should I stop Contributing

Post by sc9182 »

TomatoTomahto wrote: Wed Jun 16, 2021 7:04 am
smitcat wrote: Wed Jun 16, 2021 6:11 am Did you also notice he is deferring large income amounts currently?
This would really concern me. We defer up to the company match, because that’s free money, but in practice it’s less than 1% of salary. Deferring 35% is like adding lots of gunpowder to a bomb that has a flaky timer. There are countless stories, on BH and elsewhere, of the lack of control over timing with deferred comp; many get the income when they least want it — Murphy’s Law.
Lol - don’t know if OP is he/she., doubt if OP is contributing to “deferred-comp”., I think OP contributing to tax-deferred account. May OP chime-in :-)

While everyone wishes to live forever/immortal and in great health — by the time one term-lapses or cancels term life-insurance., some chance that one of the spouses life-term May expire before policy term !? Or health/condition may start to become flaky - that lapsing term-life may be bad idear in some cases. Also, lapsing a good term policy too early doesn’t help with reducing effective tax rate(s).

Wonder how come similar set of folks hop-on RMD threads each time :-) — while not a lot of net-new has been proposed yet !? (Wish there is something can be done, me as well, but with nothing net-new being proposed, simply continuing to scare about RMDs may not help much to improve the situation).
lazynovice
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Re: Working on Planning RMDs - Should I stop Contributing

Post by lazynovice »

smitcat wrote: Wed Jun 16, 2021 6:11 am
celia wrote: Wed Jun 16, 2021 4:35 am
WolfgangPauli wrote: Sun Jun 13, 2021 8:46 am I am 58 and plan to work until at least 65...
Have you considered retiring a few years before that and use your employer’s medical insurance under the COBRA rules (where you pay the full premiums)?
So, my question: Should I stop putting into tax deferred accounts now and put it all in taxable accounts so I can control the withdrawals better and gain full Cap Gains benefit (Whatever that is)?
Better than that, instead of adding more to your taxable accounts, why not put it in Roth? Here’s how:

Continue maxing out your 401K (which lowers your Taxable Income on the tax return). Then, in the same year, convert the same amount in a TIRA to Roth (which puts your income back up the same as if you hadn’t contributed to a 401K).

This won’t lower your current tax-deferred balance (unless you want to convert a little more), but it won’t make it worse, either (except for the employer match).

The sooner you start pumping up a Roth, the sooner it can start growing. Remember to put stock funds in there, especially any that grow faster than most.

WolfgangPauli wrote: Sun Jun 13, 2021 9:46 am I just ran the "fire-calc" calculations and I was shocked.. It showed in every instance I grow the portfolio to crazy levels. I hate to ask this, but should I spend more? (i.e., just enjoy it more - 1st class airline Flying V. not etc... ).
Why not use some of your money in your taxable account to pay the Roth conversion taxes?

Celia - I think these are all good ideas depending upon how the OP defines 'tax rate' in his original post.
Did you also notice he is deferring large income amounts currently?
I missed the 35% but since I do not see anything besides 401(k) or IRAs, I don’t think that is a 457 or anything like that. But you are correct that if maxing a 401(k) and IRA is 35%, he is not in the top bracket and his 37% is inclusive of state taxes.

I am in the top tax bracket and do not contribute to the 457 offered to me. So we agree on that.

I don’t really need the term life insurance now but honestly it removes the temptation to do Roth conversions above the 15% federal bracket once I retire just to avoid taxes. I have plenty of time to change my mind on both but I am going to continue to max my 401(k) until I retire.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
lazynovice
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Re: Working on Planning RMDs - Should I stop Contributing

Post by lazynovice »

sc9182 wrote: Wed Jun 16, 2021 7:49 am
TomatoTomahto wrote: Wed Jun 16, 2021 7:04 am
smitcat wrote: Wed Jun 16, 2021 6:11 am Did you also notice he is deferring large income amounts currently?
This would really concern me. We defer up to the company match, because that’s free money, but in practice it’s less than 1% of salary. Deferring 35% is like adding lots of gunpowder to a bomb that has a flaky timer. There are countless stories, on BH and elsewhere, of the lack of control over timing with deferred comp; many get the income when they least want it — Murphy’s Law.
Lol - don’t know if OP is he/she., doubt if OP is contributing to “deferred-comp”., I think OP contributing to tax-deferred account. May OP chime-in :-)

While everyone wishes to live forever/immortal and in great health — by the time one term-lapses or cancels term life-insurance., some chance that one of the spouses life-term May expire before policy term !? Or health/condition may start to become flaky - that lapsing term-life may be bad idear in some cases. Also, lapsing a good term policy too early doesn’t help with reducing effective tax rate(s).

Wonder how come similar set of folks hop-on RMD threads each time :-) — while not a lot of net-new has been proposed yet !? (Wish there is something can be done, me as well, but with nothing net-new being proposed, simply continuing to scare about RMDs may not help much to improve the situation).
Can you clarify if you are suggesting whole life or permanent life insurance? Just a yes or a no?
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
smitcat
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Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

sc9182 wrote: Wed Jun 16, 2021 7:49 am
TomatoTomahto wrote: Wed Jun 16, 2021 7:04 am
smitcat wrote: Wed Jun 16, 2021 6:11 am Did you also notice he is deferring large income amounts currently?
This would really concern me. We defer up to the company match, because that’s free money, but in practice it’s less than 1% of salary. Deferring 35% is like adding lots of gunpowder to a bomb that has a flaky timer. There are countless stories, on BH and elsewhere, of the lack of control over timing with deferred comp; many get the income when they least want it — Murphy’s Law.
Lol - don’t know if OP is he/she., doubt if OP is contributing to “deferred-comp”., I think OP contributing to tax-deferred account. May OP chime-in :-)

While everyone wishes to live forever/immortal and in great health — by the time one term-lapses or cancels term life-insurance., some chance that one of the spouses life-term May expire before policy term !? Or health/condition may start to become flaky - that lapsing term-life may be bad idear in some cases. Also, lapsing a good term policy too early doesn’t help with reducing effective tax rate(s).

Wonder how come similar set of folks hop-on RMD threads each time :-) — while not a lot of net-new has been proposed yet !? (Wish there is something can be done, me as well, but with nothing net-new being proposed, simply continuing to scare about RMDs may not help much to improve the situation).
"Lol - don’t know if OP is he/she., doubt if OP is contributing to “deferred-comp”., I think OP contributing to tax-deferred account. May OP chime-in :-)"
You would need to read his posts in this thread.
smitcat
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Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

lazynovice wrote: Wed Jun 16, 2021 7:51 am
smitcat wrote: Wed Jun 16, 2021 6:11 am
celia wrote: Wed Jun 16, 2021 4:35 am
WolfgangPauli wrote: Sun Jun 13, 2021 8:46 am I am 58 and plan to work until at least 65...
Have you considered retiring a few years before that and use your employer’s medical insurance under the COBRA rules (where you pay the full premiums)?
So, my question: Should I stop putting into tax deferred accounts now and put it all in taxable accounts so I can control the withdrawals better and gain full Cap Gains benefit (Whatever that is)?
Better than that, instead of adding more to your taxable accounts, why not put it in Roth? Here’s how:

Continue maxing out your 401K (which lowers your Taxable Income on the tax return). Then, in the same year, convert the same amount in a TIRA to Roth (which puts your income back up the same as if you hadn’t contributed to a 401K).

This won’t lower your current tax-deferred balance (unless you want to convert a little more), but it won’t make it worse, either (except for the employer match).

The sooner you start pumping up a Roth, the sooner it can start growing. Remember to put stock funds in there, especially any that grow faster than most.

WolfgangPauli wrote: Sun Jun 13, 2021 9:46 am I just ran the "fire-calc" calculations and I was shocked.. It showed in every instance I grow the portfolio to crazy levels. I hate to ask this, but should I spend more? (i.e., just enjoy it more - 1st class airline Flying V. not etc... ).
Why not use some of your money in your taxable account to pay the Roth conversion taxes?

Celia - I think these are all good ideas depending upon how the OP defines 'tax rate' in his original post.
Did you also notice he is deferring large income amounts currently?
I missed the 35% but since I do not see anything besides 401(k) or IRAs, I don’t think that is a 457 or anything like that. But you are correct that if maxing a 401(k) and IRA is 35%, he is not in the top bracket and his 37% is inclusive of state taxes.

I am in the top tax bracket and do not contribute to the 457 offered to me. So we agree on that.

I don’t really need the term life insurance now but honestly it removes the temptation to do Roth conversions above the 15% federal bracket once I retire just to avoid taxes. I have plenty of time to change my mind on both but I am going to continue to max my 401(k) until I retire.
"I don’t really need the term life insurance now but honestly it removes the temptation to do Roth conversions above the 15% federal bracket once I retire just to avoid taxes. I have plenty of time to change my mind on both but I am going to continue to max my 401(k) until I retire."
Some of us cannot stay in the 15% bracket so you are ahead of the planning ....the numbers can change quickly as time goes by.
sc9182
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Re: Working on Planning RMDs - Should I stop Contributing

Post by sc9182 »

smitcat wrote: Wed Jun 16, 2021 10:01 am ..
"Lol - don’t know if OP is he/she., doubt if OP is contributing to “deferred-comp”., I think OP contributing to tax-deferred account. May OP chime-in :-)"
You would need to read his posts in this thread.
Hear Hear - but OP also may be getting younger, if he (?) is now 58'ish - how come he may be 60 last year ? Please share that time-travel technique or youth-elixir :-)

OP elsewhere expressed charity is in mind, and actively contributing to charity currently, and intend to do charitable giving in future. With that in mind, RMDs are of lot-lesser nuisance and "more tax efficient" than Roth on any given day of a month or year (upto $100K annual QCD limit). Kudos "WolfgangPauli" !!

Then again - who want to be donating out of fully/fully-converted Roth instead of RMD/QCD route ? Care to share your math ?
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celia
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Re: Working on Planning RMDs - Should I stop Contributing

Post by celia »

lazynovice wrote: Wed Jun 16, 2021 7:51 am
smitcat wrote: Wed Jun 16, 2021 6:11 am Celia - I think these are all good ideas depending upon how the OP defines 'tax rate' in his original post.
Did you also notice he is deferring large income amounts currently?
I missed the 35% but since I do not see anything besides 401(k) or IRAs, I don’t think that is a 457 or anything like that. But you are correct that if maxing a 401(k) and IRA is 35%, he is not in the top bracket and his 37% is inclusive of state taxes.
Yes, I read OP’s first two posts as tax-deferring 35% of earned income while in the 37% marginal (top) tax bracket. Since OP is married, that means OP earns over $650K a year and has been tax-deferring over $200K each year. Since the TIRAs have a lot more than a million combined, they can put more in Roths as I suggested.
I am in the top tax bracket and do not contribute to the 457 offered to me. So we agree on that.
I’m not sure who you are agreeing with.
I don’t really need the term life insurance now but honestly it removes the temptation to do Roth conversions above the 15% federal bracket once I retire just to avoid taxes. I have plenty of time to change my mind on both but I am going to continue to max my 401(k) until I retire.
Hmmm... the space in each tax bracket is not equal. The 12% tax bracket tops out at $40.5K (Single) or $81K (MFJ) of Taxable Income which doesn’t allow much/any Roth conversions for someone who will be receiving maximum SS benefits. Possibly you are referring to (taxable) Qualified Dividends or LT Capital Gains being taxed(???). And why do you want to “remove any temptation” to do excess Roth conversions? Those who NEED to do them, can’t even find enough space in the tax brackets to do them.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
lazynovice
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Re: Working on Planning RMDs - Should I stop Contributing

Post by lazynovice »

smitcat wrote: Wed Jun 16, 2021 10:03 am
lazynovice wrote: Wed Jun 16, 2021 7:51 am
smitcat wrote: Wed Jun 16, 2021 6:11 am
celia wrote: Wed Jun 16, 2021 4:35 am
WolfgangPauli wrote: Sun Jun 13, 2021 8:46 am I am 58 and plan to work until at least 65...
Have you considered retiring a few years before that and use your employer’s medical insurance under the COBRA rules (where you pay the full premiums)?
So, my question: Should I stop putting into tax deferred accounts now and put it all in taxable accounts so I can control the withdrawals better and gain full Cap Gains benefit (Whatever that is)?
Better than that, instead of adding more to your taxable accounts, why not put it in Roth? Here’s how:

Continue maxing out your 401K (which lowers your Taxable Income on the tax return). Then, in the same year, convert the same amount in a TIRA to Roth (which puts your income back up the same as if you hadn’t contributed to a 401K).

This won’t lower your current tax-deferred balance (unless you want to convert a little more), but it won’t make it worse, either (except for the employer match).

The sooner you start pumping up a Roth, the sooner it can start growing. Remember to put stock funds in there, especially any that grow faster than most.

WolfgangPauli wrote: Sun Jun 13, 2021 9:46 am I just ran the "fire-calc" calculations and I was shocked.. It showed in every instance I grow the portfolio to crazy levels. I hate to ask this, but should I spend more? (i.e., just enjoy it more - 1st class airline Flying V. not etc... ).
Why not use some of your money in your taxable account to pay the Roth conversion taxes?

Celia - I think these are all good ideas depending upon how the OP defines 'tax rate' in his original post.
Did you also notice he is deferring large income amounts currently?
I missed the 35% but since I do not see anything besides 401(k) or IRAs, I don’t think that is a 457 or anything like that. But you are correct that if maxing a 401(k) and IRA is 35%, he is not in the top bracket and his 37% is inclusive of state taxes.

I am in the top tax bracket and do not contribute to the 457 offered to me. So we agree on that.

I don’t really need the term life insurance now but honestly it removes the temptation to do Roth conversions above the 15% federal bracket once I retire just to avoid taxes. I have plenty of time to change my mind on both but I am going to continue to max my 401(k) until I retire.
"I don’t really need the term life insurance now but honestly it removes the temptation to do Roth conversions above the 15% federal bracket once I retire just to avoid taxes. I have plenty of time to change my mind on both but I am going to continue to max my 401(k) until I retire."
Some of us cannot stay in the 15% bracket so you are ahead of the planning ....the numbers can change quickly as time goes by.
It is a lot easier to stay in the 15% with no pension. I’d rather have the pension. I worry less about RMDs than about loss of lower capital gains rates because then I am hosed.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
lazynovice
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Re: Working on Planning RMDs - Should I stop Contributing

Post by lazynovice »

celia wrote: Wed Jun 16, 2021 12:07 pm
lazynovice wrote: Wed Jun 16, 2021 7:51 am
smitcat wrote: Wed Jun 16, 2021 6:11 am Celia - I think these are all good ideas depending upon how the OP defines 'tax rate' in his original post.
Did you also notice he is deferring large income amounts currently?
I missed the 35% but since I do not see anything besides 401(k) or IRAs, I don’t think that is a 457 or anything like that. But you are correct that if maxing a 401(k) and IRA is 35%, he is not in the top bracket and his 37% is inclusive of state taxes.
Yes, I read OP’s first two posts as tax-deferring 35% of earned income while in the 37% marginal (top) tax bracket. Since OP is married, that means OP earns over $650K a year and has been tax-deferring over $200K each year. Since the TIRAs have a lot more than a million combined, they can put more in Roths as I suggested.
I am in the top tax bracket and do not contribute to the 457 offered to me. So we agree on that.
I’m not sure who you are agreeing with.
I don’t really need the term life insurance now but honestly it removes the temptation to do Roth conversions above the 15% federal bracket once I retire just to avoid taxes. I have plenty of time to change my mind on both but I am going to continue to max my 401(k) until I retire.
Hmmm... the space in each tax bracket is not equal. The 12% tax bracket tops out at $40.5K (Single) or $81K (MFJ) of Taxable Income which doesn’t allow much/any Roth conversions for someone who will be receiving maximum SS benefits. Possibly you are referring to (taxable) Qualified Dividends or LT Capital Gains being taxed(???). And why do you want to “remove any temptation” to do excess Roth conversions? Those who NEED to do them, can’t even find enough space in the tax brackets to do them.
If OP has been deferring 200k per year, there would have to be a 457, I believe. He didn’t list one. I was agreeing with smitcat and Tomato that I would not use the 457 if I were OP.

I would not do Roth conversions and draw max SS at the same time. I plan to do the conversions prior to 63 and possibly up to 70 when SS starts.

What do I mean by remove temptation? I see plenty of posters convincing themselves to do Roth conversions in the 22% and beyond. The justification is often- @I might die and leave my spouse in the single brackets.” If I die or my husband dies, we will use life insurance to pay the higher taxes.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
smitcat
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Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

lazynovice wrote: Wed Jun 16, 2021 5:41 pm
smitcat wrote: Wed Jun 16, 2021 10:03 am
lazynovice wrote: Wed Jun 16, 2021 7:51 am
smitcat wrote: Wed Jun 16, 2021 6:11 am
celia wrote: Wed Jun 16, 2021 4:35 am
Have you considered retiring a few years before that and use your employer’s medical insurance under the COBRA rules (where you pay the full premiums)?


Better than that, instead of adding more to your taxable accounts, why not put it in Roth? Here’s how:

Continue maxing out your 401K (which lowers your Taxable Income on the tax return). Then, in the same year, convert the same amount in a TIRA to Roth (which puts your income back up the same as if you hadn’t contributed to a 401K).

This won’t lower your current tax-deferred balance (unless you want to convert a little more), but it won’t make it worse, either (except for the employer match).

The sooner you start pumping up a Roth, the sooner it can start growing. Remember to put stock funds in there, especially any that grow faster than most.



Why not use some of your money in your taxable account to pay the Roth conversion taxes?

Celia - I think these are all good ideas depending upon how the OP defines 'tax rate' in his original post.
Did you also notice he is deferring large income amounts currently?
I missed the 35% but since I do not see anything besides 401(k) or IRAs, I don’t think that is a 457 or anything like that. But you are correct that if maxing a 401(k) and IRA is 35%, he is not in the top bracket and his 37% is inclusive of state taxes.

I am in the top tax bracket and do not contribute to the 457 offered to me. So we agree on that.

I don’t really need the term life insurance now but honestly it removes the temptation to do Roth conversions above the 15% federal bracket once I retire just to avoid taxes. I have plenty of time to change my mind on both but I am going to continue to max my 401(k) until I retire.
"I don’t really need the term life insurance now but honestly it removes the temptation to do Roth conversions above the 15% federal bracket once I retire just to avoid taxes. I have plenty of time to change my mind on both but I am going to continue to max my 401(k) until I retire."
Some of us cannot stay in the 15% bracket so you are ahead of the planning ....the numbers can change quickly as time goes by.
It is a lot easier to stay in the 15% with no pension. I’d rather have the pension. I worry less about RMDs than about loss of lower capital gains rates because then I am hosed.
No pensions for us either - wish we had them as well.
smitcat
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Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

lazynovice wrote: Wed Jun 16, 2021 5:49 pm
celia wrote: Wed Jun 16, 2021 12:07 pm
lazynovice wrote: Wed Jun 16, 2021 7:51 am
smitcat wrote: Wed Jun 16, 2021 6:11 am Celia - I think these are all good ideas depending upon how the OP defines 'tax rate' in his original post.
Did you also notice he is deferring large income amounts currently?
I missed the 35% but since I do not see anything besides 401(k) or IRAs, I don’t think that is a 457 or anything like that. But you are correct that if maxing a 401(k) and IRA is 35%, he is not in the top bracket and his 37% is inclusive of state taxes.
Yes, I read OP’s first two posts as tax-deferring 35% of earned income while in the 37% marginal (top) tax bracket. Since OP is married, that means OP earns over $650K a year and has been tax-deferring over $200K each year. Since the TIRAs have a lot more than a million combined, they can put more in Roths as I suggested.
I am in the top tax bracket and do not contribute to the 457 offered to me. So we agree on that.
I’m not sure who you are agreeing with.
I don’t really need the term life insurance now but honestly it removes the temptation to do Roth conversions above the 15% federal bracket once I retire just to avoid taxes. I have plenty of time to change my mind on both but I am going to continue to max my 401(k) until I retire.
Hmmm... the space in each tax bracket is not equal. The 12% tax bracket tops out at $40.5K (Single) or $81K (MFJ) of Taxable Income which doesn’t allow much/any Roth conversions for someone who will be receiving maximum SS benefits. Possibly you are referring to (taxable) Qualified Dividends or LT Capital Gains being taxed(???). And why do you want to “remove any temptation” to do excess Roth conversions? Those who NEED to do them, can’t even find enough space in the tax brackets to do them.
If OP has been deferring 200k per year, there would have to be a 457, I believe. He didn’t list one. I was agreeing with smitcat and Tomato that I would not use the 457 if I were OP.

I would not do Roth conversions and draw max SS at the same time. I plan to do the conversions prior to 63 and possibly up to 70 when SS starts.

What do I mean by remove temptation? I see plenty of posters convincing themselves to do Roth conversions in the 22% and beyond. The justification is often- @I might die and leave my spouse in the single brackets.” If I die or my husband dies, we will use life insurance to pay the higher taxes.
We really are better off going above the 15% bracket - whether or not either spouse passes early it is still a better bet.
sc9182
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Re: Working on Planning RMDs - Should I stop Contributing

Post by sc9182 »

For some of those RMD naysayers and/or Always-Roth-only crowd — do get some clarity for folks new to Roths !! Roth is an umbrella - and each contribution chunk and each chunk of conversion that goes into a Roth has rules and 5-year clocks or it’s own. Despite whether or not you reached age 59.5

Each Roth contribution or conversion that you performed (and for monies coming from MBR to Roth) - have their own 5-year clock — you ignore that clock at your own 'tax' peril. And the rules differ before age 59.5 Vs. after age 59.5

You make one small mistake during Roth withdrawals and/or Roth basis withdrawals— on each of those Roth tranche — before age 59.5 or after 59.5 ., and you make one small mistake — you are on the hook !! (Its like undercooked pieces of seafood in your meal — if all meal pieces in that plate are whether or not fully cooked/aged for 5+ years !!). Then again, do you get Normal rules or senior (age 59.5) rules on those chunks !?

The Roth-only proponents (especially RMD naysayers) — promptly fail to mention nor quote all those complicated Roth rules — on each chunk of the Roth contribution, back-door Roth or conversion that came in. Let us call each of those incoming chunks a Rothlet. Roth is not one single Roth account: it’s a soup with some chunks/Rothlets need to be cooked for 5-years for getting better benefits, some Rothlets could be left under 5-years cooked/aged, and it also depends based on your own age at which you intend to get that soup for consumption (doing withdrawal).. Roth is nothin like regular IRA or 401k ..

And who need to keep track of all those Rothlet amounts !? YOU !! You miss one beat — you are in thick tax soup!!

No - I am not against Roth - infact have decent chunk - and continue to do MBR. But, anyone who says Roth-only is panacea for all RMD issues (especially future RMDs not-a-big-issue if planned/tackled earlier). Good luck keeping track of basis, time-clock of each of those Rothlets - especially when doing withdrawals !!
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Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

sc9182 wrote: Wed Jun 16, 2021 9:39 pm For some of those RMD naysayers and/or Always-Roth-only crowd — do get some clarity for folks new to Roths !! Roth is an umbrella - and each contribution chunk and each chunk of conversion that goes into a Roth has rules and 5-year clocks or it’s own. Despite whether or not you reached age 59.5

Each Roth contribution or conversion that you performed (and for monies coming from MBR to Roth) - have their own 5-year clock — you ignore that clock at your own 'tax' peril. And the rules differ before age 59.5 Vs. after age 59.5

You make one small mistake during Roth withdrawals and/or Roth basis withdrawals— on each of those Roth tranche — before age 59.5 or after 59.5 ., and you make one small mistake — you are on the hook !! (Its like undercooked pieces of seafood in your meal — if all meal pieces in that plate are whether or not fully cooked/aged for 5+ years !!). Then again, do you get Normal rules or senior (age 59.5) rules on those chunks !?

The Roth-only proponents (especially RMD naysayers) — promptly fail to mention nor quote all those complicated Roth rules — on each chunk of the Roth contribution, back-door Roth or conversion that came in. Let us call each of those incoming chunks a Rothlet. Roth is not one single Roth account: it’s a soup with some chunks/Rothlets need to be cooked for 5-years for getting better benefits, some Rothlets could be left under 5-years cooked/aged, and it also depends based on your own age at which you intend to get that soup for consumption (doing withdrawal).. Roth is nothin like regular IRA or 401k ..

And who need to keep track of all those Rothlet amounts !? YOU !! You miss one beat — you are in thick tax soup!!

No - I am not against Roth - infact have decent chunk - and continue to do MBR. But, anyone who says Roth-only is panacea for all RMD issues (especially future RMDs not-a-big-issue if planned/tackled earlier). Good luck keeping track of basis, time-clock of each of those Rothlets - especially when doing withdrawals !!

Another post with many words which do not appear very helpful for others, or clear, or even accurate.
For those wanting or needing to know some insights and methods for Roth accounts please read this article by Kitces...
https://www.kitces.com/blog/understandi ... nversions/
smitcat
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Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

celia wrote: Wed Jun 16, 2021 12:07 pm
lazynovice wrote: Wed Jun 16, 2021 7:51 am
smitcat wrote: Wed Jun 16, 2021 6:11 am Celia - I think these are all good ideas depending upon how the OP defines 'tax rate' in his original post.
Did you also notice he is deferring large income amounts currently?
I missed the 35% but since I do not see anything besides 401(k) or IRAs, I don’t think that is a 457 or anything like that. But you are correct that if maxing a 401(k) and IRA is 35%, he is not in the top bracket and his 37% is inclusive of state taxes.
Yes, I read OP’s first two posts as tax-deferring 35% of earned income while in the 37% marginal (top) tax bracket. Since OP is married, that means OP earns over $650K a year and has been tax-deferring over $200K each year. Since the TIRAs have a lot more than a million combined, they can put more in Roths as I suggested.
I am in the top tax bracket and do not contribute to the 457 offered to me. So we agree on that.
I’m not sure who you are agreeing with.
I don’t really need the term life insurance now but honestly it removes the temptation to do Roth conversions above the 15% federal bracket once I retire just to avoid taxes. I have plenty of time to change my mind on both but I am going to continue to max my 401(k) until I retire.
Hmmm... the space in each tax bracket is not equal. The 12% tax bracket tops out at $40.5K (Single) or $81K (MFJ) of Taxable Income which doesn’t allow much/any Roth conversions for someone who will be receiving maximum SS benefits. Possibly you are referring to (taxable) Qualified Dividends or LT Capital Gains being taxed(???). And why do you want to “remove any temptation” to do excess Roth conversions? Those who NEED to do them, can’t even find enough space in the tax brackets to do them.
"Yes, I read OP’s first two posts as tax-deferring 35% of earned income while in the 37% marginal (top) tax bracket. Since OP is married, that means OP earns over $650K a year and has been tax-deferring over $200K each year."
Interesting and insightful way to figure out the starting points.
If these other items below are also accuratetly posted by the OP ....
"2020 Effective Tax Rate: 29%
2020 Marginal Tax Rate: 37%"
And he is also deferring 35% before reaching those levels is it not possible that he is about $1.5 million per year before deferrals in order to meet both of those tax rates concurrently?
sc9182
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Re: Working on Planning RMDs - Should I stop Contributing

Post by sc9182 »

smitcat wrote: Thu Jun 17, 2021 8:24 am
Another post with many words which do not appear very helpful for others, or clear, or even accurate.
For those wanting or needing to know some insights and methods for Roth accounts please read this article by Kitces...
https://www.kitces.com/blog/understandi ... nversions/
Don’t understand because- don’t want to understand/describe Roth’s complications, may be !?

Kitces is pretty good — but don’t even waste anyone’s time - looking at that 2014 article as source of reference for “many things” about Roth, or it’s Gotcha’s !!

* Roth Contributions
* Roth option availability in 401k, or 457 type accounts (nearly 1/3 rd plans - even recently. Even less popular/available amongst Self-Employed-401k/SEP-IRA type providers/plans
* MBR availability is much rare - let alone the Wiki not even built on this topic :-)
* Roth Conversions & ProRata rules — worse yet, how conversions affect progressive tax brackets, affect eligibility of some tax credits, FAFSA, IRMAA, and NIIT - among other things
* Backdoor Roth IRA and ProRata rules
* Mega Backdoor Roth (MBR) in 401k - after tax contributions (time of conversion into Roth 401k Vs. Roth IRAs)
* 5-year clock reset on Roth 401k to a Roth IRA transfer.
* Unlimited asset protection for ERISA type plans such as 401k, or protection extended to Rollover IRAs (do NOT commingle Rollover IRAs with contributory IRAs!). Additional clarity may be needed for multiple types or Roth monies out there once you step out of ERISA protection umbrella.
* Permanent loss of pre-tax dollars for QCD, charity, 7.5% or higher medical costs
* Permanent loss of - Federal taxes paid, temporal (time/years), and state/locality taxes incurred/paid — and never be able to recover those taxes already paid - not even able to Geo-Tax-Arbirage !!
* IRS notices, CP2000 about Roths that folks here on BH receive/dread on threads
* Some additional points with Inherited Roth’s

These are in-addition to my above description about multiple chunks/Rothlets .. and managing each Rothlets basis, as well as Its origin/age time stamps. Market crashes and Sequence of Returns Risk — how they decimate Roth’s especially during retirement withdrawal phase.

Then again - “Roth only/mainly” retirement portfolios May be suited but only for ‘select” few ..

Roth’s (or Roth only) are being sold as antidote to RMDs - soooo false in many ways and not suitable for most people. Besides not a whole lot is wrong with RMDs ..

Care to share — rather than strawman anti-RMD arguments.
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celia
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Re: Working on Planning RMDs - Should I stop Contributing

Post by celia »

sc9182 wrote: Wed Jun 16, 2021 9:39 pm For some of those RMD naysayers and/or Always-Roth-only crowd — do get some clarity for folks new to Roths !! Roth is an umbrella - and each contribution chunk and each chunk of conversion that goes into a Roth has rules and 5-year clocks or it’s own. Despite whether or not you reached age 59.5

Each Roth contribution or conversion that you performed (and for monies coming from MBR to Roth) - have their own 5-year clock — you ignore that clock at your own 'tax' peril. And the rules differ before age 59.5 Vs. after age 59.5
I think you have a big misunderstanding here. Roth IRAs are not that complicated. Most people use them as intended as a retirement account. They keep making contributions when they can, do a Roth conversion if needed, retire at or after 59.5, then withdraw what they want, when they want...or just leave the money in so it can continue to grow.

Only those who NEED SOME MONEY for living expenses before age 59.5 need to worry about a "Roth ladder" to bridge the age gap. They can take out the contributed dollars, but not the growth, at any time and if they do Roth conversions in order to access their tax-deferred money before 59.5, each conversion needs to "age" 5 years. But if there was a contribution or conversion anytime before 5 years previous, after they turn 59.5, ALL THE MONEY in the Roth is available, even the chunk they converted the day before.

There are only 2 simple eligibility rules to withdraw contributions, conversions, and their growth tax-free from Roth: the owner had to have a Roth account be opened (and funded) at least 5 years previously and the owner has to be at least 59.5 years old. You can keep putting "chunks” in, but YOU are now eligible for tax-free withdrawals. Eligibility doesn't apply to "chunks", but to the account owner. And no record-keeping is needed after age 59.5.

sc9182 wrote: Wed Jun 16, 2021 10:38 am
smitcat wrote: Wed Jun 16, 2021 10:01 am ..
"Lol - don’t know if OP is he/she., doubt if OP is contributing to “deferred-comp”., I think OP contributing to tax-deferred account. May OP chime-in :-)"
You would need to read his posts in this thread.
Hear Hear - but OP also may be getting younger, if he (?) is now 58'ish - how come he may be 60 last year ? Please share that time-travel technique or youth-elixir :-)
I picked up on this before posting but posted anyways. The original story does sound a little inconsistent and I don't know how anyone could tax-defer than much income anyway, although I didn't think about it at the time.

I also noticed that OP posted several times on 6/13 but hasn't been back to post since....
Last edited by celia on Fri Jun 18, 2021 1:03 am, edited 1 time in total.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
afan
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Re: Working on Planning RMDs - Should I stop Contributing

Post by afan »

Keep deferring.

Keep working as long as you enjoy it.

Do not feel an obligation to blow some money just because you can.

Do not do Roth conversions at 37%.

You can do back door Roths but the amounts involved are so limited that they will have little impact on where you end up financially. Do them if you can. If not, don't worry about it. It will make almost no difference.

The Supreme Court just rejected the last long-shot attempt to stop the ACA. Congress could always change it in the future but for now it looks solid.

Working until Medicare age is perfectly reasonable.
Working past 72 is also reasonable. You are already in the top tax bracket, so you will not increase your tax rate by doing so. If you have an awake employer, you will be able to delay RMDs until you retire even if it is after 72.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
VanGar+Goyle
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Re: Working on Planning RMDs - Should I stop Contributing

Post by VanGar+Goyle »

So, my [ORIGINAL] question: Should I stop putting into tax deferred accounts now and put it all in taxable accounts so I can control the withdrawals better and gain full Cap Gains benefit (Whatever that is)?
Going back to some of the original question, If new income is in a taxable account, it has already been withdrawn ( from pre-tax ), taxed at your current 37% rate, and you could be paying an additional 20% Cap Gains rate on future Long Term Capital Gains (LTCG).
Better to use asset location ideas to put taxable account funds in tax efficient LTCG/qualified dividend funds and stocks.
Roth’s (or Roth only) are being sold as antidote to RMDs - soooo false in many ways and not suitable for most people. Besides not a whole lot is wrong with RMDs ..
I suspect that the Original Poster is not 'most people'. He has a particular set of income and savings skills, and believes that he may have a RMD problem.
Well, you pay a little bit, we're a little bit tough. | You pay very much,very much tough. | You pay a too much, we're too much a tough. | How much you pay? ... Well, then we're plenty tough. - Marx
sc9182
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Re: Working on Planning RMDs - Should I stop Contributing

Post by sc9182 »

VanGar+Goyle wrote: Fri Jun 18, 2021 12:28 am
Roth’s (or Roth only) are being sold as antidote to RMDs - soooo false in many ways and not suitable for most people. Besides not a whole lot is wrong with RMDs ..
I suspect that the Original Poster is not 'most people'. He has a particular set of income and savings skills, and believes that he may have a RMD problem.
It’s been addresses all the way one sentence earlier to your selected-clipping:

Then again - “Roth only/mainly” retirement portfolios May be suited but only for ‘select” few ..

Since we are to guess again as OP hasn’t retuned to this thread in a while: OP may have gotten significant career (financially) progression recently (someone reverse calculated to) $600k — $1 million annual income., and/or good career stability even as approaching 60s.

Hard to imagine OPs moderate IRA/other-savings numbers if it’s been a very-high-paying career all his long career. If income levels have been anywhere this good during majority of his (?) earlier part of career - his portfolio numbers would be much higher .. especially having been invested into last dozen years of bull market.

The main question is - could OP (or someone in general) see sudden significant jump in career and it’s longevity (at least Financially) later part of their career !? If they knew/figured the keys to kingdom (high paying and longevity), how come they didn’t unlock it much earlier !?

Like Dr. Jim of WhitecoatInvestor often mentions in his posts: if you are soon to get into very-high paying career as an high-paying attending — then stash away most in Roths during Residency/Fellowships. That’s one seriously valid case for Roths.

For many cases - it’s hard to know Roth’s Vs Traditional decision until very late into career and life events (Divorce(s), disability, deaths, frail health, physical/mental/market limitations during later part of career, ageism, inflation, bad-markets among dozens of things).

For many cases a high RMD indicates a very illustrious and long career/business (dual !?), financial success, good markets, and great luck amongst many stages of life, health etc.
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TomatoTomahto
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Re: Working on Planning RMDs - Should I stop Contributing

Post by TomatoTomahto »

sc9182 wrote: Fri Jun 18, 2021 6:42 am Hard to imagine OPs moderate IRA numbers if it’s been a very-high-paying career all his long career. If income levels have been anywhere this good during majority of his (?) earlier part of career - his portfolio numbed would be much higher .. especially having been invested into last dozen bull markets.
I can't speak for OP, but it is possible that it was a combination of at least some of:
1. IRA limits were much lower in the past
2. If one has sizable savings of many different flavors, it has often been advantageous to put fixed income in tax deferred and equities in taxable. Thus the equities bull markets don't have such an effect on the deferred accounts.
3. It is not unusual that one's career has zoomed during the bull markets in tech, banking, etc. This is doubly the case if OP is any of the employee classes that have traditionally been disadvantaged in terms of compensation (female, various ethnic groups, etc.)
I get the FI part but not the RE part of FIRE.
smitcat
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Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

sc9182 wrote: Thu Jun 17, 2021 2:10 pm
smitcat wrote: Thu Jun 17, 2021 8:24 am
Another post with many words which do not appear very helpful for others, or clear, or even accurate.
For those wanting or needing to know some insights and methods for Roth accounts please read this article by Kitces...
https://www.kitces.com/blog/understandi ... nversions/
Don’t understand because- don’t want to understand/describe Roth’s complications, may be !?

Kitces is pretty good — but don’t even waste anyone’s time - looking at that 2014 article as source of reference for “many things” about Roth, or it’s Gotcha’s !!

* Roth Contributions
* Roth option availability in 401k, or 457 type accounts (nearly 1/3 rd plans - even recently. Even less popular/available amongst Self-Employed-401k/SEP-IRA type providers/plans
* MBR availability is much rare - let alone the Wiki not even built on this topic :-)
* Roth Conversions & ProRata rules — worse yet, how conversions affect progressive tax brackets, affect eligibility of some tax credits, FAFSA, IRMAA, and NIIT - among other things
* Backdoor Roth IRA and ProRata rules
* Mega Backdoor Roth (MBR) in 401k - after tax contributions (time of conversion into Roth 401k Vs. Roth IRAs)
* 5-year clock reset on Roth 401k to a Roth IRA transfer.
* Unlimited asset protection for ERISA type plans such as 401k, or protection extended to Rollover IRAs (do NOT commingle Rollover IRAs with contributory IRAs!). Additional clarity may be needed for multiple types or Roth monies out there once you step out of ERISA protection umbrella.
* Permanent loss of pre-tax dollars for QCD, charity, 7.5% or higher medical costs
* Permanent loss of - Federal taxes paid, temporal (time/years), and state/locality taxes incurred/paid — and never be able to recover those taxes already paid - not even able to Geo-Tax-Arbirage !!
* IRS notices, CP2000 about Roths that folks here on BH receive/dread on threads
* Some additional points with Inherited Roth’s

These are in-addition to my above description about multiple chunks/Rothlets .. and managing each Rothlets basis, as well as Its origin/age time stamps. Market crashes and Sequence of Returns Risk — how they decimate Roth’s especially during retirement withdrawal phase.

Then again - “Roth only/mainly” retirement portfolios May be suited but only for ‘select” few ..

Roth’s (or Roth only) are being sold as antidote to RMDs - soooo false in many ways and not suitable for most people. Besides not a whole lot is wrong with RMDs ..

Care to share — rather than strawman anti-RMD arguments.
Another post with no details or support - KItces and others have described how easy Roths are to utilize and in which situations they benefit.
There are numerous easy to read articles with math examples for those who may need this type of advice - as well as these calulators to help.
- IORP extended
- RPM
- Pralana
smitcat
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Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

afan wrote: Thu Jun 17, 2021 7:32 pm Keep deferring.

Keep working as long as you enjoy it.

Do not feel an obligation to blow some money just because you can.

Do not do Roth conversions at 37%.

You can do back door Roths but the amounts involved are so limited that they will have little impact on where you end up financially. Do them if you can. If not, don't worry about it. It will make almost no difference.

The Supreme Court just rejected the last long-shot attempt to stop the ACA. Congress could always change it in the future but for now it looks solid.

Working until Medicare age is perfectly reasonable.
Working past 72 is also reasonable. You are already in the top tax bracket, so you will not increase your tax rate by doing so. If you have an awake employer, you will be able to delay RMDs until you retire even if it is after 72.
"Do not do Roth conversions at 37%."
Agreed if that is the Fed rate only....
sc9182
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Re: Working on Planning RMDs - Should I stop Contributing

Post by sc9182 »

smitcat wrote: Fri Jun 18, 2021 9:07 am
sc9182 wrote: Thu Jun 17, 2021 2:10 pm
smitcat wrote: Thu Jun 17, 2021 8:24 am
Another post with many words which do not appear very helpful for others, or clear, or even accurate.
For those wanting or needing to know some insights and methods for Roth accounts please read this article by Kitces...
https://www.kitces.com/blog/understandi ... nversions/
Don’t understand because- don’t want to understand/describe Roth’s complications, may be !?

Kitces is pretty good — but don’t even waste anyone’s time - looking at that 2014 article as source of reference for “many things” about Roth, or it’s Gotcha’s !!

* Roth Contributions
* Roth option availability in 401k, or 457 type accounts (nearly 1/3 rd plans - even recently. Even less popular/available amongst Self-Employed-401k/SEP-IRA type providers/plans
* MBR availability is much rare - let alone the Wiki not even built on this topic :-)
* Roth Conversions & ProRata rules — worse yet, how conversions affect progressive tax brackets, affect eligibility of some tax credits, FAFSA, IRMAA, and NIIT - among other things
* Backdoor Roth IRA and ProRata rules
* Mega Backdoor Roth (MBR) in 401k - after tax contributions (time of conversion into Roth 401k Vs. Roth IRAs)
* 5-year clock reset on Roth 401k to a Roth IRA transfer.
* Unlimited asset protection for ERISA type plans such as 401k, or protection extended to Rollover IRAs (do NOT commingle Rollover IRAs with contributory IRAs!). Additional clarity may be needed for multiple types or Roth monies out there once you step out of ERISA protection umbrella.
* Permanent loss of pre-tax dollars for QCD, charity, 7.5% or higher medical costs
* Permanent loss of - Federal taxes paid, temporal (time/years), and state/locality taxes incurred/paid — and never be able to recover those taxes already paid - not even able to Geo-Tax-Arbirage !!
* IRS notices, CP2000 about Roths that folks here on BH receive/dread on threads
* Some additional points with Inherited Roth’s

These are in-addition to my above description about multiple chunks/Rothlets .. and managing each Rothlets basis, as well as Its origin/age time stamps. Market crashes and Sequence of Returns Risk — how they decimate Roth’s especially during retirement withdrawal phase.

Then again - “Roth only/mainly” retirement portfolios May be suited but only for ‘select” few ..

Roth’s (or Roth only) are being sold as antidote to RMDs - soooo false in many ways and not suitable for most people. Besides not a whole lot is wrong with RMDs ..

Care to share — rather than strawman anti-RMD arguments.
Another post with no details or support - KItces and others have described how easy Roths are to utilize and in which situations they benefit.
There are numerous easy to read articles with math examples for those who may need this type of advice - as well as these calulators to help.
- IORP extended
- RPM
- Pralana
Definitely use tooling (and yes many of those are improving with more scenarios- good !).

But - no need to live life based on those 3 tooling - rather than what challenges/opportunities - the life, health, abilities, and market etc presents.

Yes tools are good - but there is whole lot to life than those 3 tools !! Would live a little

Agree tools are good to model!
smitcat
Posts: 8030
Joined: Mon Nov 07, 2016 10:51 am

Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

sc9182 wrote: Fri Jun 18, 2021 9:24 am
smitcat wrote: Fri Jun 18, 2021 9:07 am
sc9182 wrote: Thu Jun 17, 2021 2:10 pm
smitcat wrote: Thu Jun 17, 2021 8:24 am
Another post with many words which do not appear very helpful for others, or clear, or even accurate.
For those wanting or needing to know some insights and methods for Roth accounts please read this article by Kitces...
https://www.kitces.com/blog/understandi ... nversions/
Don’t understand because- don’t want to understand/describe Roth’s complications, may be !?

Kitces is pretty good — but don’t even waste anyone’s time - looking at that 2014 article as source of reference for “many things” about Roth, or it’s Gotcha’s !!

* Roth Contributions
* Roth option availability in 401k, or 457 type accounts (nearly 1/3 rd plans - even recently. Even less popular/available amongst Self-Employed-401k/SEP-IRA type providers/plans
* MBR availability is much rare - let alone the Wiki not even built on this topic :-)
* Roth Conversions & ProRata rules — worse yet, how conversions affect progressive tax brackets, affect eligibility of some tax credits, FAFSA, IRMAA, and NIIT - among other things
* Backdoor Roth IRA and ProRata rules
* Mega Backdoor Roth (MBR) in 401k - after tax contributions (time of conversion into Roth 401k Vs. Roth IRAs)
* 5-year clock reset on Roth 401k to a Roth IRA transfer.
* Unlimited asset protection for ERISA type plans such as 401k, or protection extended to Rollover IRAs (do NOT commingle Rollover IRAs with contributory IRAs!). Additional clarity may be needed for multiple types or Roth monies out there once you step out of ERISA protection umbrella.
* Permanent loss of pre-tax dollars for QCD, charity, 7.5% or higher medical costs
* Permanent loss of - Federal taxes paid, temporal (time/years), and state/locality taxes incurred/paid — and never be able to recover those taxes already paid - not even able to Geo-Tax-Arbirage !!
* IRS notices, CP2000 about Roths that folks here on BH receive/dread on threads
* Some additional points with Inherited Roth’s

These are in-addition to my above description about multiple chunks/Rothlets .. and managing each Rothlets basis, as well as Its origin/age time stamps. Market crashes and Sequence of Returns Risk — how they decimate Roth’s especially during retirement withdrawal phase.

Then again - “Roth only/mainly” retirement portfolios May be suited but only for ‘select” few ..

Roth’s (or Roth only) are being sold as antidote to RMDs - soooo false in many ways and not suitable for most people. Besides not a whole lot is wrong with RMDs ..

Care to share — rather than strawman anti-RMD arguments.
Another post with no details or support - KItces and others have described how easy Roths are to utilize and in which situations they benefit.
There are numerous easy to read articles with math examples for those who may need this type of advice - as well as these calulators to help.
- IORP extended
- RPM
- Pralana
Definitely use tooling (and yes many of those are improving with more scenarios- good !).

But - no need to live life based on those 3 tooling - rather than what challenges/opportunities - the life, health, abilities, and market etc presents.

Yes tools are good - but there is whole lot to life than those 3 tools !! Would live a little

Agree tools are good to model!
Of course you can live life just fine as well as using valuable tools.
There are no reasons why we need to choose between the two when both have value.
lazynovice
Posts: 1865
Joined: Mon Apr 16, 2012 10:48 pm

Re: Working on Planning RMDs - Should I stop Contributing

Post by lazynovice »

For those who have not seen this thread, there is a pretty good discussion of all of these topics. The professor who wrote a recent paper arguing that for MOST people Roth conversions are not a good idea above the lowest tax brackets is participating in the thread.

Here is the thread:
viewtopic.php?f=10&t=351540

Bogleheads are not most people of course but he challenges quite a few assumptions that are often repeated on these threads.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
sc9182
Posts: 590
Joined: Wed Aug 17, 2016 7:43 pm

Re: Working on Planning RMDs - Should I stop Contributing

Post by sc9182 »

lazynovice wrote: Fri Jun 18, 2021 9:53 am For those who have not seen this thread, there is a pretty good discussion of all of these topics. The professor who wrote a recent paper arguing that for MOST people Roth conversions are not a good idea above the lowest tax brackets is participating in the thread.

Here is the thread:
viewtopic.php?f=10&t=351540

Bogleheads are not most people of course but he challenges quite a few assumptions that are often repeated on these threads.
Thanks for pointing out that thread and article - earlier could not Access that article and didn't pay attention to it until you pointed it now. Glad you reminding about that thread and article+study among other clarifications.

Hope that thread would help with the calculation/math demands for some of the tooling-folks.
User avatar
celia
Posts: 13013
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Working on Planning RMDs - Should I stop Contributing

Post by celia »

afan wrote: Thu Jun 17, 2021 7:32 pm Do not do Roth conversions at 37%.
smitcat wrote: Fri Jun 18, 2021 9:10 am "Do not do Roth conversions at 37%."
Agreed if that is the Fed rate only....

Did you read my original post in this thread? OP was asking:
The big question for me is if I should stop contributing to the 401(K) and non-deductible IRA as my RMDs are going to be significant (I believe).
I noted that if he would be paying 37% in taxes to put it in taxable, he might as well put it in Roth instead, since he will pay the same taxes either way. In addition, he will get the "free" employer contribution:
celia wrote: Wed Jun 16, 2021 4:35 am
WolfgangPauli wrote: Sun Jun 13, 2021 8:46 am So, my question: Should I stop putting into tax deferred accounts now and put it all in taxable accounts so I can control the withdrawals better and gain full Cap Gains benefit (Whatever that is)?
Better than that, instead of adding more to your taxable accounts, why not put it in Roth? Here’s how:

Continue maxing out your 401K (which lowers your Taxable Income on the tax return). Then, in the same year, convert the same amount in a TIRA to Roth (which puts your income back up the same as if you hadn’t contributed to a 401K).

This won’t lower your current tax-deferred balance (unless you want to convert a little more), but it won’t make it worse, either (except for the employer match).

The sooner you start pumping up a Roth, the sooner it can start growing. Remember to put stock funds in there, especially any that grow faster than most.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
smitcat
Posts: 8030
Joined: Mon Nov 07, 2016 10:51 am

Re: Working on Planning RMDs - Should I stop Contributing

Post by smitcat »

celia wrote: Sat Jun 19, 2021 4:54 pm
afan wrote: Thu Jun 17, 2021 7:32 pm Do not do Roth conversions at 37%.
smitcat wrote: Fri Jun 18, 2021 9:10 am "Do not do Roth conversions at 37%."
Agreed if that is the Fed rate only....

Did you read my original post in this thread? OP was asking:
The big question for me is if I should stop contributing to the 401(K) and non-deductible IRA as my RMDs are going to be significant (I believe).
I noted that if he would be paying 37% in taxes to put it in taxable, he might as well put it in Roth instead, since he will pay the same taxes either way. In addition, he will get the "free" employer contribution:
celia wrote: Wed Jun 16, 2021 4:35 am
WolfgangPauli wrote: Sun Jun 13, 2021 8:46 am So, my question: Should I stop putting into tax deferred accounts now and put it all in taxable accounts so I can control the withdrawals better and gain full Cap Gains benefit (Whatever that is)?
Better than that, instead of adding more to your taxable accounts, why not put it in Roth? Here’s how:

Continue maxing out your 401K (which lowers your Taxable Income on the tax return). Then, in the same year, convert the same amount in a TIRA to Roth (which puts your income back up the same as if you hadn’t contributed to a 401K).

This won’t lower your current tax-deferred balance (unless you want to convert a little more), but it won’t make it worse, either (except for the employer match).

The sooner you start pumping up a Roth, the sooner it can start growing. Remember to put stock funds in there, especially any that grow faster than most.
Excellent.
Topic Author
WolfgangPauli
Posts: 498
Joined: Sun Aug 23, 2015 8:28 am

Re: Working on Planning RMDs - Should I stop Contributing

Post by WolfgangPauli »

sc9182 wrote: Wed Jun 16, 2021 7:49 am
TomatoTomahto wrote: Wed Jun 16, 2021 7:04 am
smitcat wrote: Wed Jun 16, 2021 6:11 am Did you also notice he is deferring large income amounts currently?
This would really concern me. We defer up to the company match, because that’s free money, but in practice it’s less than 1% of salary. Deferring 35% is like adding lots of gunpowder to a bomb that has a flaky timer. There are countless stories, on BH and elsewhere, of the lack of control over timing with deferred comp; many get the income when they least want it — Murphy’s Law.
Lol - don’t know if OP is he/she., doubt if OP is contributing to “deferred-comp”., I think OP contributing to tax-deferred account. May OP chime-in :-)

While everyone wishes to live forever/immortal and in great health — by the time one term-lapses or cancels term life-insurance., some chance that one of the spouses life-term May expire before policy term !? Or health/condition may start to become flaky - that lapsing term-life may be bad idear in some cases. Also, lapsing a good term policy too early doesn’t help with reducing effective tax rate(s).

Wonder how come similar set of folks hop-on RMD threads each time :-) — while not a lot of net-new has been proposed yet !? (Wish there is something can be done, me as well, but with nothing net-new being proposed, simply continuing to scare about RMDs may not help much to improve the situation).
The 35% I am deferring is to a non qualified retirement plan. No match just allows me to not pay huge taxes while working. This is over and above the full contribution being made to the 401(k) plan.. So, I guess if you add those together I am deferring almost 50% - 35% Non qual and 15% 401(k) getting a match... Of course, I can change that every year.. this is just what I am doing now.

This is such great advice and thoughts.. thank you everyone!
Twitter: @JAXbogleheads | EM: JAXbogleheads@gmail.com
Topic Author
WolfgangPauli
Posts: 498
Joined: Sun Aug 23, 2015 8:28 am

Re: Working on Planning RMDs - Should I stop Contributing

Post by WolfgangPauli »

Great advice here.. A lot of people are asking about my tax rate.. I live in a no income tax state.. Thank you!
Twitter: @JAXbogleheads | EM: JAXbogleheads@gmail.com
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