Roth Conversion (with spreadsheet!)

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NancyABQ
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Roth Conversion (with spreadsheet!)

Post by NancyABQ »

Okay, so this is Yet Another Roth Conversion question. But it comes with a spreadsheet for you numbers freaks!
I have just retired, so things are more real. And I read the McQuarrie article, which has made me question my original plan to do as many Roth conversions as practical.

Age: 59
Filing Status: Single
State: NM (~5% tax, 2.5% on cap gains/dividends)
Tax Rate: 22-24% (see spreadsheet!), ~5% state
Debt: None (well, car loan at 0% that I could pay off at any time)
Portfolio Size: ~$3.8M
AA: 55/45 (international is ... whatever, I have some but don't worry about fixed %)
Taxable (includes a trust): $1.9M (mostly equities)
Roth: ~$250K (100% equities)
Trad IRA: $1.3M (Mostly fixed income, wanting it to be 100% fixed income)
Inherited IRA (stretch): ~$340K
Pension @65: $32200 annual (non-COLA)
SS@65: ~$32000
SS@70: ~$45500
Life Expectancy: ~85?
LTC Insurance: Yes

I have no heir concerns. I am not concerned about the tax rate paid on my funds by my heirs. I think this is a big factor when considering Roth conversions, as it seems to make them less compelling.

Expenses: $100K/yr (includes ~$15K for medical expenses until age 65)
Honestly I think it will not be possible for me to spend all my money, but expenses factor in to how much spendable money I need to generate so they affect the taxes.

So, originally my plan had been to do as many Roth Conversions as possible in the next few years (until IRMAA becomes an issue). I had planned to convert into the 24% bracket, staying below the NIIT ($200K).

But now I have second thoughts, after reading the McQuarrie article, and realizing that the benefits for converting aren't all that compelling, and if I plan to spend the Roth, then they become less compelling. Since I don't care about the taxes my heirs pay, I might spend the Roth in order to generate additional spendable money without generating additional taxes, etc. I just don't know, but if I think I might spend the Roth, then conversions are not as beneficial.

Anyway, I have a giant spreadsheet working all this out and trying to figure out what is best.
Here is the updated link: https://docs.google.com/spreadsheets/d/ ... sp=sharing
Link to BH Roth Distribution spreadsheet: https://docs.google.com/spreadsheets/d/ ... sp=sharing
Another Spreadsheet: https://docs.google.com/spreadsheets/d/ ... sp=sharing. This one models taxes more accurately (if in brackets where cap gains are 15%) and also models Inherited IRA properly.

Caveats:
1. All numbers are in today's dollars. This doesn't factor in possible changes in tax brackets.
2. The RMD is estimated for the inherited IRA and then I added in one of many numbers I might get for first year of Traditional IRA RMD @72.
3. [EDITED] Taxes are only accurate through the 24% bracket. If RMD @72+ is high enough then I'd be moved into 32% bracket, but this isn't explicitly shown. SS is assumed to be 100% taxable, for simplicity.
4. "Trust Cap Gains" are thrown off by the trust and are a pure wild guess, can't be controlled.
5. "Invest Cap" represent me selling taxable to fund expenses, and assume a 100% gain (i.e. $20K gains means $40K of money to spend)

Looking at all this and playing around with the results:
1. Should I Roth convert at all? How much?
2. Should I maybe spend some of the inherited IRA for living expenses, above the RMD, to "flatten" the tax rate down in the years before age 72?
3. Just eyeballing things, and keeping in mind that the numbers are not inflation-adjusted, I wondered if instead of massive Roth conversions I should just maybe aim for around $20K in taxes before age 72, generated by some combination of withdrawal from Inherited IRA, withdrawal from taxable, and Roth conversions? And then when RMDs hit @72... well, I pay the increased taxes or donate to charity, etc.
4. Should I take SS @65? Mainly to flatten down the income and also because I don't think I have a super-long life expectancy.

Thoughts?
(Please let me know if the link to the spreadsheet doesn't work -- I have never tried it before!)

Edit: minor clarifications
Edit2: Updated link to spreadsheet with more accurate tax calculations
Edit3: Added link to additional Distribution Calculator spreadsheet
Edit4: Link to another spreadsheet combining best parts of other two
Last edited by NancyABQ on Tue Jul 20, 2021 1:31 pm, edited 4 times in total.
Lee_WSP
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Re: Roth Conversion (with spreadsheet!)

Post by Lee_WSP »

Filling up the 22 to the next IRMAA bracket isn’t going to hurt and can only help.

Filling up to the 24 probably isn’t going to increase your quality of life or make you vastly wealthier (can’t take it with you when you die anyway).

As such, you are correct, past filling up to the 22% bracket, it is not worth spending too much time worrying about this “problem”.
RetiredCSProf
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Re: Roth Conversion (with spreadsheet!)

Post by RetiredCSProf »

You have a lot of options that are not easily compared within the attached spreadsheet -- lots of moving parts -- such as when to start SS and whether to take Roth conversions. Your motivation to convert to Roth would be to reduce the size of your future RMDs, with no concerns about leaving TDA to heirs.

Starting at age 70.5, you can take up to $100K per year in Qualified Charitable Donations (QCDs) from tIRA, and this will reduce future RMDs.
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gwe67
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Re: Roth Conversion (with spreadsheet!)

Post by gwe67 »

Taking SS at 62 and 70 often seems to be the optimal strategy.

See this:

https://www.bogleheads.org/blog/portfol ... -security/
VTI 48%, VXUS 12%, BND 40%
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Wiggums
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Re: Roth Conversion (with spreadsheet!)

Post by Wiggums »

NancyABQ wrote: Sat Jul 10, 2021 12:45 pm
But now I have second thoughts, after reading the McQuarrie article, and realizing that the benefits for converting aren't all that compelling, and if I plan to spend the Roth, then they become less compelling. Since I don't care about the taxes my heirs pay, I might spend the Roth in order to generate additional spendable money without generating additional taxes, etc. I just don't know, but if I think I might spend the Roth, then conversions are not as beneficial.
Great job on the spreadsheet.

I think you need to look at a year when your income includes the pension, SS, RMD plus value of pretax account which will be more than 1.3M. My guess is that you would be better off doing some conversions now. My assumption for this exercise would be that the tax rates will revert after 2025.
Topic Author
NancyABQ
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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

Wiggums wrote: Sat Jul 10, 2021 7:12 pm
NancyABQ wrote: Sat Jul 10, 2021 12:45 pm
But now I have second thoughts, after reading the McQuarrie article, and realizing that the benefits for converting aren't all that compelling, and if I plan to spend the Roth, then they become less compelling. Since I don't care about the taxes my heirs pay, I might spend the Roth in order to generate additional spendable money without generating additional taxes, etc. I just don't know, but if I think I might spend the Roth, then conversions are not as beneficial.
Great job on the spreadsheet.
Thanks. I actually first made it just to help estimate my taxes and calculate Roth conversions for the current year (can see this in the 2019 and 2020 columns) but then I decided to use it for forecasting as well.

I am no spreadsheet expert. I am using osx (numbers) so the fancy excel spreadsheets that are out there don't tend to work quite right for me. At least I understand what this one is doing :)
I think you need to look at a year when your income includes the pension, SS, RMD plus value of pretax account which will be more than 1.3M. I think you would be better off doing some conversions now. My assumption for this exercise would be that the tax rates will revert after 2025.
Yes, the last couple columns in the spreadsheet address that scenario. If I plug in my current balance of 1.3M and a rate of return of 4% (maybe high? it's mostly fixed income) into an RMD calculator, it gets an RMD@72 of $84K. I had used an RMD of $70K (plus my inherited IRA RMD) in the spreadsheet I posted. That was assuming some amount of Roth conversions, but it's all kind of a guess anyway, this far out.

Using current tax rates, it seems like I would be right on the edge of the 32% bracket, though not by a lot. Taking SS at 65 instead of 70 actually keeps me out of the 32% tax bracket according to the particular values I had put in the spreadsheet for the RMD.

I agree I would assume that tax rates will revert after 2025 -- I just didn't want to try to program that into the spreadsheet :) Also of course the tax brackets will adjust for inflation, but I think the best I can do right now is use current values for everything.

It does seem like I should do some conversions now, but maybe just to the top of the 22% bracket instead of up to $200K MAGI (NIIT in 24% bracket) as I had originally been thinking. Also, the conversions will get some of the remaining equities out of the TIRA, to slow down its growth. Also, if we assume the tax rates will revert, I would definitely be in the 28% bracket once RMDs start, even if I can stay out of the next (33%) bracket.

I haven't really considered taking SS any earlier than age 65, because that's when the pension kicks in. I wanted to keep income low before 65 to enable the Roth conversions. After the pension kicks in I don't think there will be much space for conversions anyway, which is why I am thinking of starting SS at that time also -- also to smooth out the income a bit. But this will definitely be a month-by-month decision.
Topic Author
NancyABQ
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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

Shameless bump -- Roth conversions are a hot topic, so I'm hoping for some more responses for my specific situation.

I have updated my spreadsheet to accurately (I think!) calculate the taxes up through the 24% bracket. I don't include anything for 32%+ as it only affects the last 2 columns, and I can eyeball it.

I am currently leaning towards minimal conversions -- only in some or all of the 12% bracket during the years before age 65 pension starts. So I would do a combination of Roth conversions and some taking advantage of the 0% capital gains rate in that bracket.

Because of being single with no concerns about heirs, and the fact that I believe I already have more money than I can spend, I am now thinking I don't want to go overboard on conversions, but 12% bracket probably can't hurt.

I think my tailored-for-my-case spreadsheet may provide some insight to others on the need to "run the numbers" for your specific case. I don't think there are any one-size-fits-all solutions to this.

(See questions in original post)

Thanks for any responses!
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celia
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Re: Roth Conversion (with spreadsheet!)

Post by celia »

NancyABQ wrote: Sat Jul 10, 2021 12:45 pm Age: 59
Filing Status: Single
State: NM (~5% tax, 2.5% on cap gains/dividends)
Tax Rate: 22-24% (see spreadsheet!), ~5% state
Debt: None (well, car loan at 0% that I could pay off at any time)

Portfolio Size: ~$3.8M
AA: 55/45 (international is ... whatever, I have some but don't worry about fixed %)
Taxable (includes a trust): $1.9M (mostly equities)
Roth: ~$250K (100% equities)
Trad IRA: $1.3M (Mostly fixed income, wanting it to be 100% fixed income) <-- slow down the growth rate
Inherited IRA (stretch): ~$340K <-- slow down the growth rate, can't be converted

Pension @65: $32200 annual (non-COLA)
SS@65: ~$32000
SS@70: ~$45500 <-- delay until 70 so you can use the room in lower tax brackets for more conversions

So, originally my plan had been to do as many Roth Conversions as possible in the next few years (until IRMAA becomes an issue). I had planned to convert into the 24% bracket, staying below the NIIT ($200K).
Don't worry about NIIT or IRMAA for now since it is more important to bring down the Trad IRA balance. I suggest you figure out what happens when you only take the Inherited IRA RMD, pension at 65, SS at 70, and use the rest of your space to the top of the 24% bracket for Roth conversion. To keep this simple tax-wise, assume the rest of your living expenses come from Taxable.
If you DON'T convert, your trad IRA will continue to grow from now until age 72 (and even after that), and your RMD will be at least $60K at age 72. As long as you convert/withdraw less than that each year, the IRA is still growing. So try converting aggressively to the top of the 24% tax bracket to make progress in bringing down the IRA value. Then when you turn 72 in your spreadsheet, take only the RMDs to see what happens. (You need to model this until at least age 75 to see the long term implications.)

RMDs at age 72 start at about 4% each year and the percentage increases each year after that. So your personal RMD will start at $60k in that case and keep increasing.


To get started, I suggest you read this thread to get the big picture of what you’re working with and then look at how I built the outline of a plan using a spreadsheet. Note that the rows are lines on the tax return. Add another one for the Inherited IRA and track its remaining value on a new line at the bottom (where each account is assumed to have its own growth rate). When you get done, I would like to see it and get your impressions.

While figuring out how much to convert, keep in mind that the money converted will end up in Roths where it can continue to grow tax-free. If you wait for RMDs instead, the money will have to go to taxable (or charity via QCDs). You don’t have to spend all of the RMD, but you need to start paying taxes. The tax on a Roth conversion is the same as on an RMD of the same amount (excluding QCDs).
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.
sc9182
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Re: Roth Conversion (with spreadsheet!)

Post by sc9182 »

Some of the Trad IRA (and/or RMDs) can be used for large medical expenses, and/or LTC needs - mostly tax free:
viewtopic.php?t=335866

If someone involved in Grey Divorce (more % possibility than one thinks/ignores)

Upon such divorce - one may lose large pension benefits, and/or large SS payment if the other spouse has those larger buckets. So your own now single income may drop a lot - falling in to lower tax brackets. So higher Trad balance may be better choice than - already contributed/converted Roth amounts (possibly at higher tax rates) for low-SS, low/no pension spouse.

As you approach/live-thru RMD ages - your TDA beneficiary/inheritance pool/brood May be much larger than you think (immediate/step children, grand children, possibly great-grand children) with/without excersizing disowning inheritance option (for inheritors with very high Tax brackets) — but this is less known/used method.

Someone already mentions QCDs - if charitably inclined.

Btw - if you have large Brokerage appreciated stocks/ETFs/MFs/investments — your NIIT brackets May be much better if you become single (200k AGI) Vs. only 250k if MFJ.

Even if your math/hunch says Trad IRAs May be beneficial/tax-efficient allowing more net dollars into your pocket: some folks Abhor RMDs, just because.

If you have such chip against RMDs - find a flexible/friendly small employer with 401k plan - which plan allows a feature to allow to skip RMDs - then join as limited/part-time active employee. For the TDA amounts you strictly don’t want RMDs for - roll over those into that employer’s 401k plan.

There are multiple ways to tax-efficiently work-with/make-use-of large TDA balances — than RMD-scaring folks makes you think.
smitcat
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Re: Roth Conversion (with spreadsheet!)

Post by smitcat »

sc9182 wrote: Mon Jul 19, 2021 7:11 am Some of the Trad IRA (and/or RMDs) can be used for large medical expenses, and/or LTC needs - mostly tax free:
viewtopic.php?t=335866

If someone involved in Grey Divorce (more % possibility than one thinks/ignores)

Upon such divorce - one may lose large pension benefits, and/or large SS payment if the other spouse has those larger buckets. So your own now single income may drop a lot - falling in to lower tax brackets. So higher Trad balance may be better choice than - already contributed/converted Roth amounts (possibly at higher tax rates) for low-SS, low/no pension spouse.

As you approach/live-thru RMD ages - your TDA beneficiary/inheritance pool/brood May be much larger than you think (immediate/step children, grand children, possibly great-grand children) with/without excersizing disowning inheritance option (for inheritors with very high Tax brackets) — but this is less known/used method.

Someone already mentions QCDs - if charitably inclined.

Btw - if you have large Brokerage appreciated stocks/ETFs/MFs/investments — your NIIT brackets May be much better if you become single (200k AGI) Vs. only 250k if MFJ.

Even if your math/hunch says Trad IRAs May be beneficial/tax-efficient allowing more net dollars into your pocket: some folks Abhor RMDs, just because.

If you have such chip against RMDs - find a flexible/friendly small employer with 401k plan - which plan allows a feature to allow to skip RMDs - then join as limited/part-time active employee. For the TDA amounts you strictly don’t want RMDs for - roll over those into that employer’s 401k plan.

There are multiple ways to tax-efficiently work-with/make-use-of large TDA balances — than RMD-scaring folks makes you think.
This poster is single, is aleardy retired , has no heirs nor is concerned with heirs and owns LTCi , with a solid pension and SS.
sc9182
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Re: Roth Conversion (with spreadsheet!)

Post by sc9182 »

smitcat wrote: Mon Jul 19, 2021 8:40 am This poster is single, is aleardy retired , has no heirs nor is concerned with heirs and owns LTCi , with a solid pension and SS.
Not interested in geographical arbitrage (moving to no/low income tax or more retiree friendly state) ?
Not/never intend to get re-married, ie., Stuck single rest of life !?
Got life insurance? (To improve effective tax-rate upon death?) - if such desired ?
Near-Perfect health now and forever -
With no possibility of un-covered large medical bills, disabilities which may require un-covered medical assistance, or care-facilities ?
Or not interested in funding legacy !? May be your “named” chaired Professorship at a good Univ, or donate to research areas of your causes/interest/liking !?
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WoodSpinner
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Re: Roth Conversion (with spreadsheet!)

Post by WoodSpinner »

OP,

A fellow modeler!

Here is a tip that worked well for me to compare Roth Conversion strategies…
What I do is run a scenario and copy the table to an analytical workbook for comparisons. Then I can compare the different scenarios using a common set of metrics between different scenarios. One key is to keep everything in the model constant and only change the Roth Conversion targets between scenarios. I look at 4 age ranges, 61-70, 71-80. 81-90, 61-90 for comparison. Its fairly trivial to add a new worksheet and then copy the formulas to a new column to add the analysis. Made it easier on myself by using the Worksheet Name in Row 1 and referencing that with my calculations using the INDIRECT function (e.g. =SUM(INDIRECT("'" & I$1 & "'" & "!e5:e34")).

Image
FWIW, I use a worksheet for all of the calculations but this can get messy and be difficult to evaluate, I create. 2nd worksheet which has the key details I want to focus on that has a 2 way link to the calculation worksheet.

This allows me to change the Roth Conversions scenario and see the key results. Then I can compare these scenarios as described above.

See viewtopic.php?t=352743 for some more info if interested.



WoodSpinner
Topic Author
NancyABQ
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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

celia wrote: Mon Jul 19, 2021 5:52 am [...]
To get started, I suggest you read this thread to get the big picture of what you’re working with and then look at how I built the outline of a plan using a spreadsheet. Note that the rows are lines on the tax return. Add another one for the Inherited IRA and track its remaining value on a new line at the bottom (where each account is assumed to have its own growth rate). When you get done, I would like to see it and get your impressions.
[...]
Thanks for all the responses. I am reading them all, even if I don't directly respond!

I took the spreadsheet Celia recommended and put in my numbers. I think modest conversions of ~$100K prior to age 65 might do what I want.

Here is a link to the spreadsheet: https://docs.google.com/spreadsheets/d/ ... sp=sharing
The tax stuff at the bottom is meaningless, but the values of RMDs and total income is more-or-less useful. The spreadsheet took a round trip from google->xlsx->numbers->xlsx->google so some formulas were lost in the process, but I think I have cleaned up the important things.

My current TIRA is not 100% fixed income, but it would only take a few years of conversions to get it to that point, so I set its AA at 100% Fixed (and 2% growth) for this experiment.
smitcat
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Re: Roth Conversion (with spreadsheet!)

Post by smitcat »

sc9182 wrote: Mon Jul 19, 2021 9:31 am
smitcat wrote: Mon Jul 19, 2021 8:40 am This poster is single, is aleardy retired , has no heirs nor is concerned with heirs and owns LTCi , with a solid pension and SS.
Not interested in geographical arbitrage (moving to no/low income tax or more retiree friendly state) ?
Not/never intend to get re-married, ie., Stuck single rest of life !?
Got life insurance? (To improve effective tax-rate upon death?) - if such desired ?
Near-Perfect health now and forever -
With no possibility of un-covered large medical bills, disabilities which may require un-covered medical assistance, or care-facilities ?
Or not interested in funding legacy !? May be your “named” chaired Professorship at a good Univ, or donate to research areas of your causes/interest/liking !?
We already know Roth conversions work well for us.
In this case with the PO they have no interest in those items.
Topic Author
NancyABQ
Posts: 400
Joined: Thu Aug 18, 2016 3:37 pm

Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

WoodSpinner wrote: Mon Jul 19, 2021 9:53 am OP,

A fellow modeler!

Here is a tip that worked well for me to compare Roth Conversion strategies…

[...]
Thanks! I am not sure my spreadsheet skills are up to this one. Maybe I should just bite the bullet and get Excel for my Mac, assuming it works okay on the Mac (which I never assume...).

I only know how to do pretty basic things so far.

But I will take this as a stretch goal :)
Topic Author
NancyABQ
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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

smitcat wrote: Mon Jul 19, 2021 11:31 am
sc9182 wrote: Mon Jul 19, 2021 9:31 am
smitcat wrote: Mon Jul 19, 2021 8:40 am This poster is single, is aleardy retired , has no heirs nor is concerned with heirs and owns LTCi , with a solid pension and SS.
Not interested in geographical arbitrage (moving to no/low income tax or more retiree friendly state) ?
Not/never intend to get re-married, ie., Stuck single rest of life !?
Got life insurance? (To improve effective tax-rate upon death?) - if such desired ?
Near-Perfect health now and forever -
With no possibility of un-covered large medical bills, disabilities which may require un-covered medical assistance, or care-facilities ?
Or not interested in funding legacy !? May be your “named” chaired Professorship at a good Univ, or donate to research areas of your causes/interest/liking !?
We already know Roth conversions work well for us.
In this case with the PO they have no interest in those items.
I have definitely decided I don't need to do "extreme" Roth conversions. Most of the issues sc9182 brings up just don't apply to me. I think a single person with no heir concerns and plenty of money is quite a different case than a married couple who wants to make sure they have enough money and also consider their heirs.

I am not opposed to paying some taxes on RMDs when the time comes, or making donations to charity. I just want to do things that make sense to try to balance the tax load a bit.
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celia
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Re: Roth Conversion (with spreadsheet!)

Post by celia »

NancyABQ wrote: Mon Jul 19, 2021 11:27 am I took the spreadsheet Celia recommended and put in my numbers. I think modest conversions of ~$100K prior to age 65 might do what I want.

Here is a link to the spreadsheet: https://docs.google.com/spreadsheets/d/ ... sp=sharing
The tax stuff at the bottom is meaningless, but the values of RMDs and total income is more-or-less useful. The spreadsheet took a round trip from google->xlsx->numbers->xlsx->google so some formulas were lost in the process, but I think I have cleaned up the important things.

My current TIRA is not 100% fixed income, but it would only take a few years of conversions to get it to that point, so I set its AA at 100% Fixed (and 2% growth) for this experiment.
This looks better than what I was expecting! May I suggest you not change this spreadsheet so we can talk about it and others can learn from it? Make a copy and continue working on the copy.

To "clean things up" a bit, you can delete (or hide) any rows that are always $0, such as the rows for a spouse.

If you need more money for taxes in the early years, you can withdraw more than the minimum from the Inherited IRA. It will become "wicked" as you get closer to it's final withdrawal years as the divisors for Inherited IRAs drop faster than for your own IRA. (They drop by 1 each year compared to less than 1 for your own IRA, for those not aware.) After you are 70.5, take QCDs from that IRA first and try to get rid of the account. Here's a thread from someone who inherited an Inherited IRA (original beneficiary had died but the original withdrawal pattern continues for later beneficiaries):
Inherited IRA RMD Shocker

To learn about IRMAA surcharges (surcharges on Medicare and Drug Plan premiums), check out: https://www.medicareresources.org/medic ... unt-irmaa/ (this is not the Medicare website)

The boundary limits are updated each year and these surcharges work like a cliff in that if you are $1 over a boundary, you pay the entire increased premium. It is based on a 2-year look-back on your tax returns (because the tax return for the year you turn 63 doesn't have to be filed until October of the year you turn 64 and then the IRS notifies Medicare which sets your premiums for the following year). It is not based on your AGI, but your MAGI, that (for Medicare purposes only) is your AGI plus any tax-free interest (munis, TIPS) shown on the tax return.

I consider the IRMAA surcharges as an additional tax, but it is not owed until two years later. Since you can turn 65 any time during the year, the surcharges for that year will only apply to your birthday month and later and are based on your income tax return for the year you turn 63.

I assume you are aware that the last-referenced spreadsheet (as it currently is) runs into the 32% tax bracket for Singles. (See 2021 Tax brackets, which is applied to "Taxable Income" which is after your itemized or standard deduction is subtracted out.) So if you decide to cut back on some Roth conversions, look at the years where your AGI/MAGI is the highest. This also reminds me that we usually encourage people to level out their AGI over all their remaining years, so their taxes are level. But instead of bumping into IRMAA surcharges every year, it is better to convert more early on like your spreadsheet shows.

Luckily, these Do-It-Yourself spreadsheets are free and we can change them as much as we like. :D
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.
Topic Author
NancyABQ
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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

celia wrote: Mon Jul 19, 2021 1:25 pm
NancyABQ wrote: Mon Jul 19, 2021 11:27 am I took the spreadsheet Celia recommended and put in my numbers. I think modest conversions of ~$100K prior to age 65 might do what I want.

Here is a link to the spreadsheet: https://docs.google.com/spreadsheets/d/ ... sp=sharing
The tax stuff at the bottom is meaningless, but the values of RMDs and total income is more-or-less useful. The spreadsheet took a round trip from google->xlsx->numbers->xlsx->google so some formulas were lost in the process, but I think I have cleaned up the important things.

My current TIRA is not 100% fixed income, but it would only take a few years of conversions to get it to that point, so I set its AA at 100% Fixed (and 2% growth) for this experiment.
This looks better than what I was expecting! May I suggest you not change this spreadsheet so we can talk about it and others can learn from it? Make a copy and continue working on the copy.
That's no problem. My working copy is the one I use in Numbers. I just exported a snapshot of it. So I don't plan to modify the one on google from here.

The main issue with the one up there now is the information on taxes is pretty useless. It just isn't calculating meaningful numbers, at least for my case of a mix of ordinary income and 15% income. It might be misleading/confusing to somebody who comes looking for an example.
To "clean things up" a bit, you can delete (or hide) any rows that are always $0, such as the rows for a spouse.

If you need more money for taxes in the early years, you can withdraw more than the minimum from the Inherited IRA. It will become "wicked" as you get closer to it's final withdrawal years as the divisors for Inherited IRAs drop faster than for your own IRA. (They drop by 1 each year compared to less than 1 for your own IRA, for those not aware.) After you are 70.5, take QCDs from that IRA first and try to get rid of the account. Here's a thread from someone who inherited an Inherited IRA (original beneficiary had died but the original withdrawal pattern continues for later beneficiaries):
Inherited IRA RMD Shocker
I wasn't sure if it will ever make sense to withdraw extra from the inherited IRA vs. spending taxable. The taxes for spending taxable are obviously less, but reducing the inherited IRA balance is also good. Maybe I would look at that between age 65 and 70. I am not sure I have the spreadsheet skills to accurately model the Inherited IRA RMD the way the TIRA RMD is modelled (i.e. starting balance, growth, withdrawals, yearly divisors). The values I put in are from a calculator I found online, so they are projected from today, but I would have to redo them all manually in the future and there's no easy way for me to model extra withdrawals with the current spreadsheet.

I have studied the graph of RMDs/balance that is generated for an inherited IRA, and yes the last few years where it is spending down to zero will be quite large if nothing is done to prevent that.
To learn about IRMAA surcharges (surcharges on Medicare and Drug Plan premiums), check out: https://www.medicareresources.org/medic ... unt-irmaa/ (this is not the Medicare website)

The boundary limits are updated each year and these surcharges work like a cliff in that if you are $1 over a boundary, you pay the entire increased premium. It is based on a 2-year look-back on your tax returns (because the tax return for the year you turn 63 doesn't have to be filed until October of the year you turn 64 and then the IRS notifies Medicare which sets your premiums for the following year). It is not based on your AGI, but your MAGI, that (for Medicare purposes only) is your AGI plus any tax-free interest (munis, TIPS) shown on the tax return.

I consider the IRMAA surcharges as an additional tax, but it is not owed until two years later. Since you can turn 65 any time during the year, the surcharges for that year will only apply to your birthday month and later and are based on your income tax return for the year you turn 63.
My birthday is in January, so I don't have to worry about mid-year changes on the IRMAA. I definitely plan to keep an eye on it after age 63.
I assume you are aware that the last-referenced spreadsheet (as it currently is) runs into the 32% tax bracket for Singles. (See 2021 Tax brackets, which is applied to "Taxable Income" which is after your itemized or standard deduction is subtracted out.) So if you decide to cut back on some Roth conversions, look at the years where your AGI/MAGI is the highest. This also reminds me that we usually encourage people to level out their AGI over all their remaining years, so their taxes are level. But instead of bumping into IRMAA surcharges every year, it is better to convert more early on like your spreadsheet shows.

Luckily, these Do-It-Yourself spreadsheets are free and we can change them as much as we like. :D
It may look like it goes into 32% but I think it really doesn't, because I have a non-trivial amount of 15% capital gain/qualified dividend income in there. My other spreadsheet does a much more detailed job on how the taxes actually work out. If I was better at spreadsheets I would automatically feed the outputs of this one into that one. As it is, I may make a new version of my other one that is stripped down in some areas, but specifically has the detailed tax calculations, and manually feed the income numbers (separated by ordinary/cap gain) into that one.
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Re: Roth Conversion (with spreadsheet!)

Post by celia »

NancyABQ wrote: Mon Jul 19, 2021 3:10 pm The tax stuff at the bottom is meaningless, but the values of RMDs and total income is more-or-less useful.
This spreadsheet does not calculate taxes. (You might be looking at stray numbers from an example hanging around.) You have to run the numbers for each year through tax software and update the whole spreadsheet each year or two. But if you have consecutive years with the same values, they all get the same taxes.
It may look like it goes into 32% but I think it really doesn't, because I have a non-trivial amount of 15% capital gain/qualified dividend income in there.
Yes, it does go into the 32% bracket after your Taxable Income (after deductions) goes above $164,925.

The way taxes work is to think of your Qualified Dividends and LT Capital Gains as sitting on top of all your other income. Compare the boundaries for them to the tax table boundaries. Any that lie in the 22% or 24% or 32% tax bracket will be taxed at 15%. Those in the 10% or 12% tax bracket will be free. So as long as the 32% tax bracket is filled will just Qualified dividends and LTGG, none of your income will be taxed at that rate.

Lucky 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.
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Re: Roth Conversion (with spreadsheet!)

Post by iceport »

NancyABQ wrote: Mon Jul 19, 2021 3:10 pm The main issue with the one up there now is the information on taxes is pretty useless. It just isn't calculating meaningful numbers, at least for my case of a mix of ordinary income and 15% income. It might be misleading/confusing to somebody who comes looking for an example.
I tend to agree with you on the crude/incomplete tax accounting.

I don't have any input for you, NancyABQ, but I am curious about your decision — and that of the Bogleheads — to assume tax law changes.

As currently written, the individual income tax rates enacted by the 2017 TCJA will expire in 2025, and will revert back to the 2017 rates in 2026. However, you seem to be assuming that there will be new tax laws enacted that will extend the 2017 tax cuts indefinitely.

Are you assuming that the current tax laws will change — and that the 2017 tax cuts will be extended — because you want to be conservative in your estimates of the value of Roth conversions?

Or is it because you are making a guess about future legislation and honestly expect that the 2017 tax cuts will be extended?

It's often (usually?) advised here that we should base our financial planning on current tax laws, given the uncertainty about future legislation. I don't really agree with that approach, so I have no criticism of your decision to make assumptions about future tax laws. However, I am curious about why you chose to assume that new tax laws will govern your taxes in 2026 and beyond, and not the current tax laws.

Thanks. (And sorry if this is an off-topic digression.)
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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

iceport wrote: Mon Jul 19, 2021 4:15 pm
NancyABQ wrote: Mon Jul 19, 2021 3:10 pm The main issue with the one up there now is the information on taxes is pretty useless. It just isn't calculating meaningful numbers, at least for my case of a mix of ordinary income and 15% income. It might be misleading/confusing to somebody who comes looking for an example.
I tend to agree with you on the crude/incomplete tax accounting.

I don't have any input for you, NancyABQ, but I am curious about your decision — and that of the Bogleheads — to assume tax law changes.

As currently written, the individual income tax rates enacted by the 2017 TCJA will expire in 2025, and will revert back to the 2017 rates in 2026. However, you seem to be assuming that there will be new tax laws enacted that will extend the 2017 tax cuts indefinitely.

Are you assuming that the current tax laws will change — and that the 2017 tax cuts will be extended — because you want to be conservative in your estimates of the value of Roth conversions?

Or is it because you are making a guess about future legislation and honestly expect that the 2017 tax cuts will be extended?

It's often (usually?) advised here that we should base our financial planning on current tax laws, given the uncertainty about future legislation. I don't really agree with that approach, so I have no criticism of your decision to make assumptions about future tax laws. However, I am curious about why you chose to assume that new tax laws will govern your taxes in 2026 and beyond, and not the current tax laws.

Thanks. (And sorry if this is an off-topic digression.)
Heh, nothing so profound is going on here. I am not assuming that the tax law will change (i.e. I assume the rates will revert in 2026, which is the current tax law). I have just been too lazy to code the higher tax rates into the spreadsheet. Instead I just look at the post-2026 numbers using the current rates extended out, and mentally say to myself: "but it's worse than that because the tax rates will be higher" :)

But you are correct that it really shouldn't be ignored. Even if my tax brackets stayed the same, the 22-24% taxes I pay today would be 25-28% taxes after 2026, and that's not insignificant! But to be completely accurate I'd also have to change the deduction to be lower, remove the $10K SALT limit and add back in the exemption? Or does that stuff not also sunset? It gets complicated!

I think I may be warming up to making a new spreadsheet that combines my more accurate tax calculations (and including post-2026 brackets) with this Distribution calculation spreadsheet. Then if I am feeling really ambitious maybe I will code in an Inherited IRA RMD projection that includes possible extra withdrawals :)
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Re: Roth Conversion (with spreadsheet!)

Post by iceport »

^^^ Thanks for the thorough explanation! I look forward to any future spreadsheet version you might create and be willing to share! :greedy

In my own way of looking at this, which is still in the early stages of awareness, it would be valuable to make it as easy to adjust future tax rates in the spreadsheet as it is to adjust Roth conversion amounts. That way, it might be possible to get a feel for how much the results might change with future tax changes. There is just so much uncertainty surrounding future tax laws, it seems like exploring a range of tax rates and outcomes would be a good way to get some kind of measure of just how sensitive the analysis is to future tax changes.

For all we know, income tax rates in 2030 will look nothing like either 2017 or 2021!

Anyway, that's just my own fixation. Thanks again for the explanation... carry on!
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Re: Roth Conversion (with spreadsheet!)

Post by celia »

One of the things I like about this thread is showing how an answer doesn’t just pop up at the first attempt. It shows everyone a process that can be used and refined along the way. Many readers here (over 2,200 views right now) see that side research is also needed (ie, referenced pages). And everyone who replys sees this problem differently.

Most of the comments are pushing the OP towards a better outcome. But even when the OP is satisfied and the thread dies down, stuff will happen in the world or OP’s world to make changes later on.
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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Re: Roth Conversion (with spreadsheet!)

Post by island »

Hi Nancy,
Great thread. Nothing I can add, but I follow with interest since I have pondered some of the same issues you mentioned, but no more than that at this point. I haven't developed the skills you and the others have yet so I really appreciate this conversation, the spreadsheet, links, etc.
Agree w Celia, definitely something others like myself can learn from, or at least get an idea of where to begin!

Question... You mentioned you have TLC insurance. Can you please share more info about that? When and who you purchased with, the costs or daily rate you decided on, or other variables to consider and or helped you make your decision. Any tips you can provide would be great. It's definitely a concern of mine and a big unknown! Thanks.
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Re: Roth Conversion (with spreadsheet!)

Post by celia »

island wrote: Mon Jul 19, 2021 7:06 pm Question... You mentioned you have TLC insurance. Can you please share more info about that? When and who you purchased with, the costs or daily rate you decided on, or other variables to consider and or helped you make your decision. Any tips you can provide would be great. It's definitely a concern of mine and a big unknown! Thanks.
Long Term Care Insurance is a different topic and should be put in a different thread so the title can attract those who are experienced in that. They will not think to look here.

But it was appropriate to mention it here as we would have tended to encourage her to hold onto more tax-deferred, than she currently is thinking of, if she didn’t have it.

Island, after reading some LTCI threads here, if you still have questions, could you start a thread for the questions you have in mind? Thanks.

Maybe NancyABQ will post in that thread!
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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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

island wrote: Mon Jul 19, 2021 7:06 pm Hi Nancy,
Great thread. Nothing I can add, but I follow with interest since I have pondered some of the same issues you mentioned, but no more than that at this point. I haven't developed the skills you and the others have yet so I really appreciate this conversation, the spreadsheet, links, etc.
Agree w Celia, definitely something others like myself can learn from, or at least get an idea of where to begin!
I'm glad you're finding it useful. To me it mainly points out that if somebody says "Should I do Roth conversions, and how much?" the answer is very situation-dependent and non-trivial.
Question... You mentioned you have TLC insurance. Can you please share more info about that? When and who you purchased with, the costs or daily rate you decided on, or other variables to consider and or helped you make your decision. Any tips you can provide would be great. It's definitely a concern of mine and a big unknown! Thanks.
I'm not sure my experience will be of much use to you. My former employer in 2003 (my age 41) offered LTC insurance as a benefit (I had to pay for it through payroll deductions, but they arranged the policy). At some point later, the company discontinued directly arranging the policy, but I was still grandfathered in as long as I wanted to keep paying the premiums. I decided to keep paying.

At some point the insurance company gave me a choice of reducing the benefits in some way (I forget what the options were, and what I chose -- something to do with the max daily benefit) and I chose something. So the policy isn't quite as good as it originally was, but that was the only time it has been adjusted.

I have kept paying the premiums, and the premium ($413/year) has never gone up. The insurance company is Mutual of Omaha.

I sort of doubt this particular policy would be available to you today, but I haven't researched it.

I can't tell you, without doing some research into my paperwork, exactly what the benefit is (some dollar limit per day, some exclusion/waiting period, some maximum benefit) but for $400 per year I am certainly going to keep it, whatever it is!
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Re: Roth Conversion (with spreadsheet!)

Post by BH13 »

NancyABQ wrote: Mon Jul 19, 2021 4:42 pm I think I may be warming up to making a new spreadsheet that combines my more accurate tax calculations (and including post-2026 brackets) with this Distribution calculation spreadsheet. Then if I am feeling really ambitious maybe I will code in an Inherited IRA RMD projection that includes possible extra withdrawals :)
Great thread. I created a branch of the spreadsheet created by Sahara which calculates Div / LTCG taxes, IRA RMDs, Inherited RMDs, NIIT. Hopefully you & others can make use of the following linked (generic data) sheet:

https://docs.google.com/spreadsheets/d/ ... sp=sharing

I make no guarantees & I'm sure there are bugs on cases I haven't run across. It is tuned for MFJ so will need updates for single etc.

Some notes:

- Calculation of Long CapGains & Dividend taxes.
- Limitation: All CG & Divs taxed at 15% after 80,800 MFJ threshold is met.
- Calculation of NIIT taxes above 250k
- Calculation of both His & Her RMDs. Auto-derives RMDs based on ages entered & begins RMDs at age 72.
- Auto calculation of Inherited IRA RMD. Enter Inherited IRA divisor into RMD Sheet.
- Calculates annual Dividend income to be 1.15% of prior year Taxable account balance.
- Preliminary calculation of CA taxes in rows 59-63
- Inflation is not considered. All calculations are nominal, not real. Tax brackets, rates, deductions are fixed.
- Presumes 85% of all SSA income is taxed
- Dividends / Cap Gains are either taxed @ 0% or 15%. 20% rate not calculated.
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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

BH13 wrote: Mon Jul 19, 2021 7:30 pm
NancyABQ wrote: Mon Jul 19, 2021 4:42 pm I think I may be warming up to making a new spreadsheet that combines my more accurate tax calculations (and including post-2026 brackets) with this Distribution calculation spreadsheet. Then if I am feeling really ambitious maybe I will code in an Inherited IRA RMD projection that includes possible extra withdrawals :)
Great thread. I created a branch of the spreadsheet created by Sahara which calculates Div / LTCG taxes, IRA RMDs, Inherited RMDs, NIIT. Hopefully you & others can make use of the following linked (generic data) sheet:

https://docs.google.com/spreadsheets/d/ ... sp=sharing

I make no guarantees & I'm sure there are bugs on cases I haven't run across. It is tuned for MFJ so will need updates for single etc.

Some notes:

- Calculation of Long CapGains & Dividend taxes.
- Limitation: All CG & Divs taxed at 15% after 80,800 MFJ threshold is met.
- Calculation of NIIT taxes above 250k
- Calculation of both His & Her RMDs. Auto-derives RMDs based on ages entered & begins RMDs at age 72.
- Auto calculation of Inherited IRA RMD. Enter Inherited IRA divisor into RMD Sheet.
- Calculates annual Dividend income to be 1.15% of prior year Taxable account balance.
- Preliminary calculation of CA taxes in rows 59-63
- Inflation is not considered. All calculations are nominal, not real. Tax brackets, rates, deductions are fixed.
- Presumes 85% of all SSA income is taxed
- Dividends / Cap Gains are either taxed @ 0% or 15%. 20% rate not calculated.
Oh this looks good, thanks!

I know some of the formulas would get lost if I try to load that into Numbers, so I will see if I can modify it directly in Google (but of course the UI tricks I have managed to figure out are all different :()
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Re: Roth Conversion (with spreadsheet!)

Post by Peter Foley »

I confess I did not review your spreadsheet so take this a a general observation.

Converting to the tax rate you will have with RMD's for a couple years (22%), pre IRMMA will not hurt. Then review and revise.

If there is a major market downturn, it will allow you to convert a greater percentage of your IRA. I agree with your goal of having the IRA be 100% fixed income because you have room for your desired asset allocation in equities in both Roth and taxable.

You may find that you have a year where you can do some tax loss harvesting and offset some of your taxable withdrawals from the regular IRA or the stretch IRA.

I personally would be inclined to drop the long term care insurance. If you do have long term care expenses it will create a low tax year and you can most likely pay those expenses with "tax free" withdrawals from an IRA. My MIL was in long term care for three years and her medical expenses eliminated all her tax liability.
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Re: Roth Conversion (with spreadsheet!)

Post by Free to Choose »

You don't provide a reason to do the Roth conversions. For most people it appears to provide a benefit for heirs, which you do not have. Saving on taxes is really not a benefit for you unless you increase your spending as a result.

I suggest running i-ORP with and without Roth conversions. It solves for the maximum spending (Disposable Income). Usually, Roth conversions allows you to spend a little bit more (1-2%) each year. Run the program each year.

If you don't increase spending, all of your spreadsheets and effort doesn't provide a lot of value. i-ORP can be a useful tool to compare and provide another way to look at things.

I have made a lot of recent posts and a thread about using i-ORP. I don't want to appear to be a super-fan. I thought Roth conversions would be a great way to save on taxes and increase my portfolio value. Using i-ORP I realized they don't help much, and not at all if I don't increase my spending.
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Re: Roth Conversion (with spreadsheet!)

Post by marcopolo »

Free to Choose wrote: Mon Jul 19, 2021 9:26 pm You don't provide a reason to do the Roth conversions. For most people it appears to provide a benefit for heirs, which you do not have. Saving on taxes is really not a benefit for you unless you increase your spending as a result.

I suggest running i-ORP with and without Roth conversions. It solves for the maximum spending (Disposable Income). Usually, Roth conversions allows you to spend a little bit more (1-2%) each year. Run the program each year.

If you don't increase spending, all of your spreadsheets and effort doesn't provide a lot of value. i-ORP can be a useful tool to compare and provide another way to look at things.

I have made a lot of recent posts and a thread about using i-ORP. I don't want to appear to be a super-fan. I thought Roth conversions would be a great way to save on taxes and increase my portfolio value. Using i-ORP I realized they don't help much, and not at all if I don't increase my spending.
I-ORP would be essentially useless in his case, maybe even harmful, for evaluating Roth Conversions.
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Re: Roth Conversion (with spreadsheet!)

Post by sc9182 »

marcopolo wrote: Mon Jul 19, 2021 9:31 pm
Free to Choose wrote: Mon Jul 19, 2021 9:26 pm You don't provide a reason to do the Roth conversions. For most people it appears to provide a benefit for heirs, which you do not have. Saving on taxes is really not a benefit for you unless you increase your spending as a result.

I suggest running i-ORP with and without Roth conversions. It solves for the maximum spending (Disposable Income). Usually, Roth conversions allows you to spend a little bit more (1-2%) each year. Run the program each year.

If you don't increase spending, all of your spreadsheets and effort doesn't provide a lot of value. i-ORP can be a useful tool to compare and provide another way to look at things.

I have made a lot of recent posts and a thread about using i-ORP. I don't want to appear to be a super-fan. I thought Roth conversions would be a great way to save on taxes and increase my portfolio value. Using i-ORP I realized they don't help much, and not at all if I don't increase my spending.
I-ORP would be essentially useless in his case, maybe even harmful, for evaluating Roth Conversions.
Can’t agree more with both of above. What is the objective here — “more net monies”, or “better inheritance to heirs”, or surviving “market/life’s outcomes”, or “stick it to Uncle Sam with least taxes, even possibly at the cost of I may have lesser net monies in my hand”, or anything/just-eyeballing or is it just an exercise in futility !?
Last edited by sc9182 on Mon Jul 19, 2021 9:44 pm, edited 1 time in total.
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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

marcopolo wrote: Mon Jul 19, 2021 9:31 pm
Free to Choose wrote: Mon Jul 19, 2021 9:26 pm You don't provide a reason to do the Roth conversions. For most people it appears to provide a benefit for heirs, which you do not have. Saving on taxes is really not a benefit for you unless you increase your spending as a result.

I suggest running i-ORP with and without Roth conversions. It solves for the maximum spending (Disposable Income). Usually, Roth conversions allows you to spend a little bit more (1-2%) each year. Run the program each year.

If you don't increase spending, all of your spreadsheets and effort doesn't provide a lot of value. i-ORP can be a useful tool to compare and provide another way to look at things.

I have made a lot of recent posts and a thread about using i-ORP. I don't want to appear to be a super-fan. I thought Roth conversions would be a great way to save on taxes and increase my portfolio value. Using i-ORP I realized they don't help much, and not at all if I don't increase my spending.
I-ORP would be essentially useless in his [her] case, maybe even harmful, for evaluating Roth Conversions.
I did play with I-ORP, but I did not find it very useful for my case. Amongst other things, the inability to accurately reflect the AA in TIRA vs. Taxable/Roth matters a lot. I think I-ORP told me I could be spending about $160K instead of my current target of $100K.

I can easily increase my spending in the spreadsheet by increasing the amount withdrawn from the taxable account (or possibly inherited IRA) in the pre-RMD years. My playing around so far seems to confirm that I don't spend enough relative to my portfolio size, but I've never been big on budgets -- maybe I spend more than I think I do :)

I was thinking of refining the spreadsheet to differentiate between spendable money and taxable income, but so far I have just been eyeballing that.
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Re: Roth Conversion (with spreadsheet!)

Post by marcopolo »

sc9182 wrote: Mon Jul 19, 2021 9:39 pm
marcopolo wrote: Mon Jul 19, 2021 9:31 pm
Free to Choose wrote: Mon Jul 19, 2021 9:26 pm You don't provide a reason to do the Roth conversions. For most people it appears to provide a benefit for heirs, which you do not have. Saving on taxes is really not a benefit for you unless you increase your spending as a result.

I suggest running i-ORP with and without Roth conversions. It solves for the maximum spending (Disposable Income). Usually, Roth conversions allows you to spend a little bit more (1-2%) each year. Run the program each year.

If you don't increase spending, all of your spreadsheets and effort doesn't provide a lot of value. i-ORP can be a useful tool to compare and provide another way to look at things.

I have made a lot of recent posts and a thread about using i-ORP. I don't want to appear to be a super-fan. I thought Roth conversions would be a great way to save on taxes and increase my portfolio value. Using i-ORP I realized they don't help much, and not at all if I don't increase my spending.
I-ORP would be essentially useless in his case, maybe even harmful, for evaluating Roth Conversions.
Can’t agree more with both of above. What is the objective here — “more net monies”, or “better inheritance to heirs”, or surviving “market/life’s outcomes”, or “stick it to Uncle Sam with least taxes, even possibly at the cost of I may have lesser net monies in my hand”, or anything, or is it just an exercise in futility !?
Sorry, i was not more clear.
I was not commenting on OP's fuzzy goals. I don't think that is all that unusual.

I was commenting on the mechanics of how I-ORP works. It is so often recommended here by people for analyzing potential Roth Conversions. I suspect many of them do not understand what I-ORP does, and why it is actually terrible in evaluating Roth Conversions in some portfolio configurations, particularly in the common case of how the OP has their portfolio structured.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Roth Conversion (with spreadsheet!)

Post by Peter Foley »

I find the Retiree Portfolio Model spreadsheet to be a superior tool to i-orp. The MN Bogleheads group did a review of retirement calculators a few years ago and I believe this was the general consensus. Both spreadsheets have been updated/enhanced since then.
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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

sc9182 wrote: Mon Jul 19, 2021 9:39 pm
marcopolo wrote: Mon Jul 19, 2021 9:31 pm
Free to Choose wrote: Mon Jul 19, 2021 9:26 pm You don't provide a reason to do the Roth conversions. For most people it appears to provide a benefit for heirs, which you do not have. Saving on taxes is really not a benefit for you unless you increase your spending as a result.

I suggest running i-ORP with and without Roth conversions. It solves for the maximum spending (Disposable Income). Usually, Roth conversions allows you to spend a little bit more (1-2%) each year. Run the program each year.

If you don't increase spending, all of your spreadsheets and effort doesn't provide a lot of value. i-ORP can be a useful tool to compare and provide another way to look at things.

I have made a lot of recent posts and a thread about using i-ORP. I don't want to appear to be a super-fan. I thought Roth conversions would be a great way to save on taxes and increase my portfolio value. Using i-ORP I realized they don't help much, and not at all if I don't increase my spending.
I-ORP would be essentially useless in his case, maybe even harmful, for evaluating Roth Conversions.
Can’t agree more with both of above. What is the objective here — “more net monies”, or “better inheritance to heirs”, or surviving “market/life’s outcomes”, or “stick it to Uncle Sam with least taxes, even possibly at the cost of I may have lesser net monies in my hand”, or anything, or is it just an exercise in futility !?
My goals are:

1) Make sure I have enough money for the rest of my life, with plenty of safety for bad market scenarios (seems to be solved)
2) Reduce future taxes to the extent that it makes sense, without going crazy about it. Mainly just flatten the rates out, grab the low-hanging fruit. Some people try to completely convert their TDA to Roth. I am definitely not aiming for that (and I'm not sure the average person should be aiming for that, really). I don't mind paying taxes to Uncle Sam, but I want to minimize them where it makes sense.

I think I've mentioned a few times, when I looked at things and realized I would probably never spend all of my Roth, and also would not miss the money paid in taxes on RMDs (since RMD+other income will exceed expenses), then I started to wonder why I should go crazy doing Roth conversions? That's why I started modelling things more carefully, to really understand what's going on.
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Re: Roth Conversion (with spreadsheet!)

Post by Free to Choose »

NancyABQ wrote: Mon Jul 19, 2021 9:42 pm
marcopolo wrote: Mon Jul 19, 2021 9:31 pm
Free to Choose wrote: Mon Jul 19, 2021 9:26 pm You don't provide a reason to do the Roth conversions. For most people it appears to provide a benefit for heirs, which you do not have. Saving on taxes is really not a benefit for you unless you increase your spending as a result.

I suggest running i-ORP with and without Roth conversions. It solves for the maximum spending (Disposable Income). Usually, Roth conversions allows you to spend a little bit more (1-2%) each year. Run the program each year.

If you don't increase spending, all of your spreadsheets and effort doesn't provide a lot of value. i-ORP can be a useful tool to compare and provide another way to look at things.

I have made a lot of recent posts and a thread about using i-ORP. I don't want to appear to be a super-fan. I thought Roth conversions would be a great way to save on taxes and increase my portfolio value. Using i-ORP I realized they don't help much, and not at all if I don't increase my spending.
I-ORP would be essentially useless in his [her] case, maybe even harmful, for evaluating Roth Conversions.
I did play with I-ORP, but I did not find it very useful for my case. Amongst other things, the inability to accurately reflect the AA in TIRA vs. Taxable/Roth matters a lot. I think I-ORP told me I could be spending about $160K instead of my current target of $100K.

I can easily increase my spending in the spreadsheet by increasing the amount withdrawn from the taxable account (or possibly inherited IRA) in the pre-RMD years. My playing around so far seems to confirm that I don't spend enough relative to my portfolio size, but I've never been big on budgets -- maybe I spend more than I think I do :)

I was thinking of refining the spreadsheet to differentiate between spendable money and taxable income, but so far I have just been eyeballing that.
i-ORP does provide different rate of returns for each account. Isn't that the same as asset allocation for you? I think so.

I would also feel a little uneasy spending so much more money than what I think is reasonable or comfortable. I would consider looking at the VPW spreadsheet and some others sources for withdrawal values. If my essential living expenses were covered by guaranteed income (Social Security, Pension, Annuity, etc) and less than 2% of my investment portfolio, I would be more comfortable spending at the higher of the withdrawals values.
marcopolo
Posts: 4525
Joined: Sat Dec 03, 2016 10:22 am

Re: Roth Conversion (with spreadsheet!)

Post by marcopolo »

NancyABQ wrote: Mon Jul 19, 2021 9:54 pm
sc9182 wrote: Mon Jul 19, 2021 9:39 pm
marcopolo wrote: Mon Jul 19, 2021 9:31 pm
Free to Choose wrote: Mon Jul 19, 2021 9:26 pm You don't provide a reason to do the Roth conversions. For most people it appears to provide a benefit for heirs, which you do not have. Saving on taxes is really not a benefit for you unless you increase your spending as a result.

I suggest running i-ORP with and without Roth conversions. It solves for the maximum spending (Disposable Income). Usually, Roth conversions allows you to spend a little bit more (1-2%) each year. Run the program each year.

If you don't increase spending, all of your spreadsheets and effort doesn't provide a lot of value. i-ORP can be a useful tool to compare and provide another way to look at things.

I have made a lot of recent posts and a thread about using i-ORP. I don't want to appear to be a super-fan. I thought Roth conversions would be a great way to save on taxes and increase my portfolio value. Using i-ORP I realized they don't help much, and not at all if I don't increase my spending.
I-ORP would be essentially useless in his case, maybe even harmful, for evaluating Roth Conversions.
Can’t agree more with both of above. What is the objective here — “more net monies”, or “better inheritance to heirs”, or surviving “market/life’s outcomes”, or “stick it to Uncle Sam with least taxes, even possibly at the cost of I may have lesser net monies in my hand”, or anything, or is it just an exercise in futility !?
My goals are:

1) Make sure I have enough money for the rest of my life, with plenty of safety for bad market scenarios (seems to be solved)
2) Reduce future taxes to the extent that it makes sense, without going crazy about it. Mainly just flatten the rates out, grab the low-hanging fruit. Some people try to completely convert their TDA to Roth. I am definitely not aiming for that (and I'm not sure the average person should be aiming for that, really). I don't mind paying taxes to Uncle Sam, but I want to minimize them where it makes sense.

I think I've mentioned a few times, when I looked at things and realized I would probably never spend all of my Roth, and also would not miss the money paid in taxes on RMDs (since RMD+other income will exceed expenses), then I started to wonder why I should go crazy doing Roth conversions? That's why I started modelling things more carefully, to really understand what's going on.
Flattening out the projected tax rates for the rest of your time horizon is about the best you can do. Modest Roth conversions will almost certainly accomplish that in your case. It is rarely beneficial to completely empty TDA, unless avoiding taxes for heirs is the main goal.

This really is a second, or third order optimization issue, and does not make a huge difference for most people. I used to do a LOT of modelling of this, and finally came to that conclusion, and am much more relaxed about it now. Your experience with I-ORP mirrors mine. I am not sure why people keep pushing it as a tool for Roth Conversions.

Good luck to you.
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
Posts: 4525
Joined: Sat Dec 03, 2016 10:22 am

Re: Roth Conversion (with spreadsheet!)

Post by marcopolo »

Free to Choose wrote: Mon Jul 19, 2021 9:57 pm
NancyABQ wrote: Mon Jul 19, 2021 9:42 pm
marcopolo wrote: Mon Jul 19, 2021 9:31 pm
Free to Choose wrote: Mon Jul 19, 2021 9:26 pm You don't provide a reason to do the Roth conversions. For most people it appears to provide a benefit for heirs, which you do not have. Saving on taxes is really not a benefit for you unless you increase your spending as a result.

I suggest running i-ORP with and without Roth conversions. It solves for the maximum spending (Disposable Income). Usually, Roth conversions allows you to spend a little bit more (1-2%) each year. Run the program each year.

If you don't increase spending, all of your spreadsheets and effort doesn't provide a lot of value. i-ORP can be a useful tool to compare and provide another way to look at things.

I have made a lot of recent posts and a thread about using i-ORP. I don't want to appear to be a super-fan. I thought Roth conversions would be a great way to save on taxes and increase my portfolio value. Using i-ORP I realized they don't help much, and not at all if I don't increase my spending.
I-ORP would be essentially useless in his [her] case, maybe even harmful, for evaluating Roth Conversions.
I did play with I-ORP, but I did not find it very useful for my case. Amongst other things, the inability to accurately reflect the AA in TIRA vs. Taxable/Roth matters a lot. I think I-ORP told me I could be spending about $160K instead of my current target of $100K.

I can easily increase my spending in the spreadsheet by increasing the amount withdrawn from the taxable account (or possibly inherited IRA) in the pre-RMD years. My playing around so far seems to confirm that I don't spend enough relative to my portfolio size, but I've never been big on budgets -- maybe I spend more than I think I do :)

I was thinking of refining the spreadsheet to differentiate between spendable money and taxable income, but so far I have just been eyeballing that.
i-ORP does provide different rate of returns for each account. Isn't that the same as asset allocation for you? I think so.

I would also feel a little uneasy spending so much more money than what I think is reasonable or comfortable. I would consider looking at the VPW spreadsheet and some others sources for withdrawal values. If my essential living expenses were covered by guaranteed income (Social Security, Pension, Annuity, etc) and less than 2% of my investment portfolio, I would be more comfortable spending at the higher of the withdrawals values.
All that accomplishes is I-ORP pushing dollars from the low return account to the higher return account, either through spending or Roth Conversions. That is what it is designed to do. It is trying to maximize spending. It does so by capturing the highest returns. Unfortunately, it does not care about your overall AA, so happily takes on more risk to achieve those higher returns. In many cases, the improved spending people see, and attribute to Roth Conversions, actually comes from taking on more risk by transferring dollars from fixed income in TDA to equities in Roth, and increasing their overall equity allocation.
Once in a while you get shown the light, in the strangest of places if you look at it right.
sc9182
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Joined: Wed Aug 17, 2016 7:43 pm

Re: Roth Conversion (with spreadsheet!)

Post by sc9182 »

marcopolo wrote: Tue Jul 20, 2021 2:30 am All that accomplishes is I-ORP pushing dollars from the low return account to the higher return account, either through spending or Roth Conversions. That is what it is designed to do. It is trying to maximize spending. It does so by capturing the highest returns. Unfortunately, it does not care about your overall AA, so happily takes on more risk to achieve those higher returns. In many cases, the improved spending people see, and attribute to Roth Conversions, actually comes from taking on more risk by transferring dollars from fixed income in TDA to equities in Roth, and increasing their overall equity allocation.
Good points. Along the same lines - some Roth-happy folks also assume - each of them live forever till late 90s and beyond, and/or with perfect health. And even more importantly that - they will never need to touch “Roth” balances until their forever-age +10-year inherited Roth window, thus., allowing for maximum compounding window (and also taking higher risk assets in the portfolio in Roth). Yes, chances are allowing to compound over longer multi-decade horizons, without dipping into it - Roth could work it’s advantage. Also, the higher risk Roth portfolio may also succeed over such longer time horizon. But, higher risk doesn’t always necessarily lead To higher reward :-( Also, if their Roth compounding disrupted due to untimely bad-health and/or demise — the Roth compounding window decreases, thus - the assumed longer compounding window fails to materialize - thus, diminishing slight compounding edge Roth may allow in such case. Hence, suggestion of limited amount of life-insurance (not costlier varieties) to juice up “net” kitty at inheritance (and bettering average tax rate especially prior to their TDA balances conversions window).
smitcat
Posts: 8030
Joined: Mon Nov 07, 2016 10:51 am

Re: Roth Conversion (with spreadsheet!)

Post by smitcat »

sc9182 wrote: Tue Jul 20, 2021 7:35 am
marcopolo wrote: Tue Jul 20, 2021 2:30 am All that accomplishes is I-ORP pushing dollars from the low return account to the higher return account, either through spending or Roth Conversions. That is what it is designed to do. It is trying to maximize spending. It does so by capturing the highest returns. Unfortunately, it does not care about your overall AA, so happily takes on more risk to achieve those higher returns. In many cases, the improved spending people see, and attribute to Roth Conversions, actually comes from taking on more risk by transferring dollars from fixed income in TDA to equities in Roth, and increasing their overall equity allocation.
Good points. Along the same lines - some Roth-happy folks also assume - each of them live forever till late 90s and beyond, and/or with perfect health. And even more importantly that - they will never need to touch “Roth” balances until their forever-age +10-year inherited Roth window, thus., allowing for maximum compounding window (and also taking higher risk assets in the portfolio in Roth). Yes, chances are allowing to compound over longer multi-decade horizons, without dipping into it - Roth could work it’s advantage. Also, the higher risk Roth portfolio may also succeed over such longer time horizon. But, higher risk doesn’t always necessarily lead To higher reward :-( Also, if their Roth compounding disrupted due to untimely bad-health and/or demise — the Roth compounding window decreases, thus - the assumed longer compounding window fails to materialize - thus, diminishing slight compounding edge Roth may allow in such case. Hence, suggestion of limited amount of life-insurance (not costlier varieties) to juice up “net” kitty at inheritance (and bettering average tax rate especially prior to their TDA balances conversions window).
"Hence, suggestion of limited amount of life-insurance (not costlier varieties) to juice up “net” kitty at inheritance (and bettering average tax rate especially prior to their TDA balances conversions window)."

Which life insurance do you have or do you suggest?
What is the cost per XXX for a 60 year old for that insurance?
Are there limitations based on current health for that insurance?
Does the insurance have a fixed payout or is it adjusted for inflation?
Please describe how this would work....
smitcat
Posts: 8030
Joined: Mon Nov 07, 2016 10:51 am

Re: Roth Conversion (with spreadsheet!)

Post by smitcat »

marcopolo wrote: Tue Jul 20, 2021 2:30 am
Free to Choose wrote: Mon Jul 19, 2021 9:57 pm
NancyABQ wrote: Mon Jul 19, 2021 9:42 pm
marcopolo wrote: Mon Jul 19, 2021 9:31 pm
Free to Choose wrote: Mon Jul 19, 2021 9:26 pm You don't provide a reason to do the Roth conversions. For most people it appears to provide a benefit for heirs, which you do not have. Saving on taxes is really not a benefit for you unless you increase your spending as a result.

I suggest running i-ORP with and without Roth conversions. It solves for the maximum spending (Disposable Income). Usually, Roth conversions allows you to spend a little bit more (1-2%) each year. Run the program each year.

If you don't increase spending, all of your spreadsheets and effort doesn't provide a lot of value. i-ORP can be a useful tool to compare and provide another way to look at things.

I have made a lot of recent posts and a thread about using i-ORP. I don't want to appear to be a super-fan. I thought Roth conversions would be a great way to save on taxes and increase my portfolio value. Using i-ORP I realized they don't help much, and not at all if I don't increase my spending.
I-ORP would be essentially useless in his [her] case, maybe even harmful, for evaluating Roth Conversions.
I did play with I-ORP, but I did not find it very useful for my case. Amongst other things, the inability to accurately reflect the AA in TIRA vs. Taxable/Roth matters a lot. I think I-ORP told me I could be spending about $160K instead of my current target of $100K.

I can easily increase my spending in the spreadsheet by increasing the amount withdrawn from the taxable account (or possibly inherited IRA) in the pre-RMD years. My playing around so far seems to confirm that I don't spend enough relative to my portfolio size, but I've never been big on budgets -- maybe I spend more than I think I do :)

I was thinking of refining the spreadsheet to differentiate between spendable money and taxable income, but so far I have just been eyeballing that.
i-ORP does provide different rate of returns for each account. Isn't that the same as asset allocation for you? I think so.

I would also feel a little uneasy spending so much more money than what I think is reasonable or comfortable. I would consider looking at the VPW spreadsheet and some others sources for withdrawal values. If my essential living expenses were covered by guaranteed income (Social Security, Pension, Annuity, etc) and less than 2% of my investment portfolio, I would be more comfortable spending at the higher of the withdrawals values.
All that accomplishes is I-ORP pushing dollars from the low return account to the higher return account, either through spending or Roth Conversions. That is what it is designed to do. It is trying to maximize spending. It does so by capturing the highest returns. Unfortunately, it does not care about your overall AA, so happily takes on more risk to achieve those higher returns. In many cases, the improved spending people see, and attribute to Roth Conversions, actually comes from taking on more risk by transferring dollars from fixed income in TDA to equities in Roth, and increasing their overall equity allocation.

"All that accomplishes is I-ORP pushing dollars from the low return account to the higher return account, either through spending or Roth Conversions. That is what it is designed to do"
You have described this IORP issue well in many posts so hopefully folks start to understand this issue better.
The work around has also been described but it has many limits - In IORP just set each account to the same AA and leave it that way to run the Roth conversion analysis.
We have a better track record using the RPM tool and Pralana for evaluating Roth's - but if the IORP is contrained to the exact same fixed AA's in all acoounts and still comes out ahead it is likely a good sign that pursuing more anyalsis is well worth the time.
crefwatch
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Re: Roth Conversion (with spreadsheet!)

Post by crefwatch »

I'm not urging you to make your spreadsheet more complex, but I want to note that I was successful in copying the 15-cell vertical-calculation regarding 0-15 capital gains and ordinary income interaction from the Bogleheafs Wiki-referenced Retirement Toolkit current-year tax calculation. it's a little scary as an idea but it makes the tax calculation less work for you. And it allows changing tax tables each year if you use an indirect range reference.
Topic Author
NancyABQ
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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

smitcat wrote: Tue Jul 20, 2021 9:17 am
sc9182 wrote: Tue Jul 20, 2021 7:35 am
marcopolo wrote: Tue Jul 20, 2021 2:30 am All that accomplishes is I-ORP pushing dollars from the low return account to the higher return account, either through spending or Roth Conversions. That is what it is designed to do. It is trying to maximize spending. It does so by capturing the highest returns. Unfortunately, it does not care about your overall AA, so happily takes on more risk to achieve those higher returns. In many cases, the improved spending people see, and attribute to Roth Conversions, actually comes from taking on more risk by transferring dollars from fixed income in TDA to equities in Roth, and increasing their overall equity allocation.
Good points. Along the same lines - some Roth-happy folks also assume - each of them live forever till late 90s and beyond, and/or with perfect health. And even more importantly that - they will never need to touch “Roth” balances until their forever-age +10-year inherited Roth window, thus., allowing for maximum compounding window (and also taking higher risk assets in the portfolio in Roth). Yes, chances are allowing to compound over longer multi-decade horizons, without dipping into it - Roth could work it’s advantage. Also, the higher risk Roth portfolio may also succeed over such longer time horizon. But, higher risk doesn’t always necessarily lead To higher reward :-( Also, if their Roth compounding disrupted due to untimely bad-health and/or demise — the Roth compounding window decreases, thus - the assumed longer compounding window fails to materialize - thus, diminishing slight compounding edge Roth may allow in such case. Hence, suggestion of limited amount of life-insurance (not costlier varieties) to juice up “net” kitty at inheritance (and bettering average tax rate especially prior to their TDA balances conversions window).
"Hence, suggestion of limited amount of life-insurance (not costlier varieties) to juice up “net” kitty at inheritance (and bettering average tax rate especially prior to their TDA balances conversions window)."

Which life insurance do you have or do you suggest?
What is the cost per XXX for a 60 year old for that insurance?
Are there limitations based on current health for that insurance?
Does the insurance have a fixed payout or is it adjusted for inflation?
Please describe how this would work....
I am curious about this also. I am having trouble understanding how life insurance is of any interest to a single person with no heir concerns?

I was also a little taken aback by another responder's suggestion that I should drop my $400/year LTC Insurance policy in order to possibly be able to deduct massive medical expenses later. Maybe if the policy was a lot more expensive this would make sense?

Both of these seem a bit like letting the tax tail wag the dog, to me... But maybe I'm missing something?
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retired@50
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Re: Roth Conversion (with spreadsheet!)

Post by retired@50 »

NancyABQ wrote: Tue Jul 20, 2021 9:59 am
smitcat wrote: Tue Jul 20, 2021 9:17 am
sc9182 wrote: Tue Jul 20, 2021 7:35 am
marcopolo wrote: Tue Jul 20, 2021 2:30 am All that accomplishes is I-ORP pushing dollars from the low return account to the higher return account, either through spending or Roth Conversions. That is what it is designed to do. It is trying to maximize spending. It does so by capturing the highest returns. Unfortunately, it does not care about your overall AA, so happily takes on more risk to achieve those higher returns. In many cases, the improved spending people see, and attribute to Roth Conversions, actually comes from taking on more risk by transferring dollars from fixed income in TDA to equities in Roth, and increasing their overall equity allocation.
Good points. Along the same lines - some Roth-happy folks also assume - each of them live forever till late 90s and beyond, and/or with perfect health. And even more importantly that - they will never need to touch “Roth” balances until their forever-age +10-year inherited Roth window, thus., allowing for maximum compounding window (and also taking higher risk assets in the portfolio in Roth). Yes, chances are allowing to compound over longer multi-decade horizons, without dipping into it - Roth could work it’s advantage. Also, the higher risk Roth portfolio may also succeed over such longer time horizon. But, higher risk doesn’t always necessarily lead To higher reward :-( Also, if their Roth compounding disrupted due to untimely bad-health and/or demise — the Roth compounding window decreases, thus - the assumed longer compounding window fails to materialize - thus, diminishing slight compounding edge Roth may allow in such case. Hence, suggestion of limited amount of life-insurance (not costlier varieties) to juice up “net” kitty at inheritance (and bettering average tax rate especially prior to their TDA balances conversions window).
"Hence, suggestion of limited amount of life-insurance (not costlier varieties) to juice up “net” kitty at inheritance (and bettering average tax rate especially prior to their TDA balances conversions window)."

Which life insurance do you have or do you suggest?
What is the cost per XXX for a 60 year old for that insurance?
Are there limitations based on current health for that insurance?
Does the insurance have a fixed payout or is it adjusted for inflation?
Please describe how this would work....
I am curious about this also. I am having trouble understanding how life insurance is of any interest to a single person with no heir concerns?

I was also a little taken aback by another responder's suggestion that I should drop my $400/year LTC Insurance policy in order to possibly be able to deduct massive medical expenses later. Maybe if the policy was a lot more expensive this would make sense?

Both of these seem a bit like letting the tax tail wag the dog, to me... But maybe I'm missing something?
I don't think you're missing anything. Life insurance isn't relevant if you're single with no bequest motive.

As far as the LTC policy at $400/year, that sounds too good to be true to my ears, so if I were you, I'd be sure to read up on the details just so you don't get lulled into a false sense of security. I'm not saying to get rid of it, but I'd want to fully comprehend all features, benefits, conditions, etc. of the policy so I wasn't surprised when making a claim in the future.

Regards,
This is one person's opinion. Nothing more.
Topic Author
NancyABQ
Posts: 400
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Re: Roth Conversion (with spreadsheet!)

Post by NancyABQ »

retired@50 wrote: Tue Jul 20, 2021 10:05 am
NancyABQ wrote: Tue Jul 20, 2021 9:59 am
smitcat wrote: Tue Jul 20, 2021 9:17 am
sc9182 wrote: Tue Jul 20, 2021 7:35 am
marcopolo wrote: Tue Jul 20, 2021 2:30 am All that accomplishes is I-ORP pushing dollars from the low return account to the higher return account, either through spending or Roth Conversions. That is what it is designed to do. It is trying to maximize spending. It does so by capturing the highest returns. Unfortunately, it does not care about your overall AA, so happily takes on more risk to achieve those higher returns. In many cases, the improved spending people see, and attribute to Roth Conversions, actually comes from taking on more risk by transferring dollars from fixed income in TDA to equities in Roth, and increasing their overall equity allocation.
Good points. Along the same lines - some Roth-happy folks also assume - each of them live forever till late 90s and beyond, and/or with perfect health. And even more importantly that - they will never need to touch “Roth” balances until their forever-age +10-year inherited Roth window, thus., allowing for maximum compounding window (and also taking higher risk assets in the portfolio in Roth). Yes, chances are allowing to compound over longer multi-decade horizons, without dipping into it - Roth could work it’s advantage. Also, the higher risk Roth portfolio may also succeed over such longer time horizon. But, higher risk doesn’t always necessarily lead To higher reward :-( Also, if their Roth compounding disrupted due to untimely bad-health and/or demise — the Roth compounding window decreases, thus - the assumed longer compounding window fails to materialize - thus, diminishing slight compounding edge Roth may allow in such case. Hence, suggestion of limited amount of life-insurance (not costlier varieties) to juice up “net” kitty at inheritance (and bettering average tax rate especially prior to their TDA balances conversions window).
"Hence, suggestion of limited amount of life-insurance (not costlier varieties) to juice up “net” kitty at inheritance (and bettering average tax rate especially prior to their TDA balances conversions window)."

Which life insurance do you have or do you suggest?
What is the cost per XXX for a 60 year old for that insurance?
Are there limitations based on current health for that insurance?
Does the insurance have a fixed payout or is it adjusted for inflation?
Please describe how this would work....
I am curious about this also. I am having trouble understanding how life insurance is of any interest to a single person with no heir concerns?

I was also a little taken aback by another responder's suggestion that I should drop my $400/year LTC Insurance policy in order to possibly be able to deduct massive medical expenses later. Maybe if the policy was a lot more expensive this would make sense?

Both of these seem a bit like letting the tax tail wag the dog, to me... But maybe I'm missing something?
I don't think you're missing anything. Life insurance isn't relevant if you're single with no bequest motive.

As far as the LTC policy at $400/year, that sounds too good to be true to my ears, so if I were you, I'd be sure to read up on the details just so you don't get lulled into a false sense of security. I'm not saying to get rid of it, but I'd want to fully comprehend all features, benefits, conditions, etc. of the policy so I wasn't surprised when making a claim in the future.

Regards,
Okay, this made me check. The policy is too old for them to allow online access, so I had to call them directly.
Coverage is $250/day, waiting period 30 days, lifetime max ~$456,000 (approx 5 years). Various details about Nursing Home vs. Home Health Care, etc.
Sounds pretty darn good for $413/year!
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retired@50
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Re: Roth Conversion (with spreadsheet!)

Post by retired@50 »

NancyABQ wrote: Tue Jul 20, 2021 10:36 am Okay, this made me check. The policy is too old for them to allow online access, so I had to call them directly.
Coverage is $250/day, waiting period 30 days, lifetime max ~$456,000 (approx 5 years). Various details about Nursing Home vs. Home Health Care, etc.
Sounds pretty darn good for $413/year!
Good for you. That does sound pretty good.

Regards,
This is one person's opinion. Nothing more.
smitcat
Posts: 8030
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Re: Roth Conversion (with spreadsheet!)

Post by smitcat »

NancyABQ wrote: Tue Jul 20, 2021 9:59 am
smitcat wrote: Tue Jul 20, 2021 9:17 am
sc9182 wrote: Tue Jul 20, 2021 7:35 am
marcopolo wrote: Tue Jul 20, 2021 2:30 am All that accomplishes is I-ORP pushing dollars from the low return account to the higher return account, either through spending or Roth Conversions. That is what it is designed to do. It is trying to maximize spending. It does so by capturing the highest returns. Unfortunately, it does not care about your overall AA, so happily takes on more risk to achieve those higher returns. In many cases, the improved spending people see, and attribute to Roth Conversions, actually comes from taking on more risk by transferring dollars from fixed income in TDA to equities in Roth, and increasing their overall equity allocation.
Good points. Along the same lines - some Roth-happy folks also assume - each of them live forever till late 90s and beyond, and/or with perfect health. And even more importantly that - they will never need to touch “Roth” balances until their forever-age +10-year inherited Roth window, thus., allowing for maximum compounding window (and also taking higher risk assets in the portfolio in Roth). Yes, chances are allowing to compound over longer multi-decade horizons, without dipping into it - Roth could work it’s advantage. Also, the higher risk Roth portfolio may also succeed over such longer time horizon. But, higher risk doesn’t always necessarily lead To higher reward :-( Also, if their Roth compounding disrupted due to untimely bad-health and/or demise — the Roth compounding window decreases, thus - the assumed longer compounding window fails to materialize - thus, diminishing slight compounding edge Roth may allow in such case. Hence, suggestion of limited amount of life-insurance (not costlier varieties) to juice up “net” kitty at inheritance (and bettering average tax rate especially prior to their TDA balances conversions window).
"Hence, suggestion of limited amount of life-insurance (not costlier varieties) to juice up “net” kitty at inheritance (and bettering average tax rate especially prior to their TDA balances conversions window)."

Which life insurance do you have or do you suggest?
What is the cost per XXX for a 60 year old for that insurance?
Are there limitations based on current health for that insurance?
Does the insurance have a fixed payout or is it adjusted for inflation?
Please describe how this would work....
I am curious about this also. I am having trouble understanding how life insurance is of any interest to a single person with no heir concerns?

I was also a little taken aback by another responder's suggestion that I should drop my $400/year LTC Insurance policy in order to possibly be able to deduct massive medical expenses later. Maybe if the policy was a lot more expensive this would make sense?

Both of these seem a bit like letting the tax tail wag the dog, to me... But maybe I'm missing something?
"Both of these seem a bit like letting the tax tail wag the dog, to me... But maybe I'm missing something?"
You and me both - I have asked these questions before and received no answers which would support the stategy.
Here is a link to one such post...

viewtopic.php?f=2&t=351369&p=6068863#p6068863
sc9182
Posts: 592
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Re: Roth Conversion (with spreadsheet!)

Post by sc9182 »

smitcat wrote: Tue Jul 20, 2021 11:40 am
I have asked these questions before and received no answers which would support the stategy.
Here is a link to one such post...

viewtopic.php?f=2&t=351369&p=6068863#p6068863
Since this Poster excited about Roth., let me ask for counterfactual. If Roth conversion likley to provide barely slight advantage “over longer term” (Prof. McQ thread) — how is someone going to ensure Roth’s long term survival - to effectuate its break-even-point/success. Or if unable to achieve longer longevity (sorry), what action one going to take to reduce short-term Roth’s conversion-loss due to early demise of Roth holder !? Got an idear ?

Do note: many “large” and long-term Roth conversions are likely to involve some tax-realization towards paying conversion taxes — most often done from brokerage (likely with some embedded cap gains). Hence, upon the initial years of Roth conversion (s) — it’s likely Roth conversion would lose against free step-up basis of Brokerage monies used (with embedded cap gains) to pay for conversion-taxes. If such cap-gains not realized until death — likely, they would get free step-up upon early demise of the Brokerage/Roth holder. Alas, the Recently realized cap-gains negated put Roth “net” portfolio value to be lower than that of {TDA + Brokerage (with some embedded cap gains)}

I am OK with Roth, and especially like MBR (excess savings/investing go here prior to Brokerage). But Roth conversions at marginal rates higher than 22-24% (and/or considering some NIIT, IRMAA tier points), are less likely to assure conversions' success. Then again -- very specific (a Few BHers) individual cases -- larger/extended Roth conversions could make sense. But do crunch numbers ..
Last edited by sc9182 on Wed Jul 21, 2021 3:45 pm, edited 9 times in total.
sc9182
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Re: Roth Conversion (with spreadsheet!)

Post by sc9182 »

NancyABQ wrote: Tue Jul 20, 2021 9:59 am I am curious about this also. I am having trouble understanding how life insurance is of any interest to a single person with no heir concerns?

I was also a little taken aback by another responder's suggestion that I should drop my $400/year LTC Insurance policy in order to possibly be able to deduct massive medical expenses later. Maybe if the policy was a lot more expensive this would make sense?

Both of these seem a bit like letting the tax tail wag the dog, to me... But maybe I'm missing something?
Suggestion SPECIFIC to OP, specific to this topic:
How about load-up on low cost “limited amounts of” debt to fuel better lifestyle - since Debts and assets (if any remaining) cancel each other upon death (or if debts are more than assets— that’s even better as those debts allowed better lifestyle and allowed to live a bit large).

Don’t merely die broke., better that : die with Debt :-)
Last edited by sc9182 on Tue Jul 20, 2021 1:06 pm, edited 1 time in total.
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