DISTRIBUTIONS

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Kennyt7
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DISTRIBUTIONS

Post by Kennyt7 » Tue Nov 21, 2017 9:36 pm

68yr old married with 4.4 million in IRA
Any suggestions on doing some Roth Conversions

livesoft
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Re: DISTRIBUTIONS

Post by livesoft » Tue Nov 21, 2017 9:40 pm

I do Roth conversions, but I pay the tax with money that doesn't come from the IRA.

But your post is quite uninformative.
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Topic Author
Kennyt7
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Re: DISTRIBUTIONS

Post by Kennyt7 » Tue Nov 21, 2017 9:44 pm

4.4 in ira 900k in munis ss for both about 40k no debts 68,67
probably can not do enough roths to make much of a difference
my goal is to preserve capital
have taken distributions for almost 10yrs, probably a million dollars

retiredjg
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Re: DISTRIBUTIONS

Post by retiredjg » Wed Nov 22, 2017 9:24 am

It appears you might be in the top of the 15% bracket or maybe lower 25% bracket now.

Your RMDs are going to be large - maybe $200k to start with, going higher as you age. This is going to push you (as a couple) into the 28% bracket and maybe higher in your 80's. When one dies, the survivor may be pushed into a higher bracket as well.

Just a quick guess based on the very limited information given in your posts, it might be reasonable to convert to the top of the 25% or even the 28% bracket each year from now till you start RMDs. Right now, the top of the 25% bracket for a couple is $153k taxable income (after exemptions and deductions).

Note that converting that much may push you into a higher tier for your Medicare premiums if you have any. You should find out how uch space you have before being pushed into a higher tier.

Do not do anything just based on my quick guess - this needs to be evaluated more carefully than I have.

tpn
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Re: DISTRIBUTIONS

Post by tpn » Wed Nov 22, 2017 12:01 pm

livesoft wrote:
Tue Nov 21, 2017 9:40 pm
I do Roth conversions, but I pay the tax with money that doesn't come from the IRA.
I've seen this sentiment expressed several times on this forum and elsewhere. Is the consensus that it's not worth doing Roth conversions if one has to pay the taxes from the IRA? Or just that it would be beneficial to pay the conversion taxes using taxable assets if one happens to have them? With a few years yet to go before planned post-retirement/pre-SS conversion, I've been funneling all of my savings into pre-tax retirement accounts. Would it be better to direct some of this to a taxable account for future conversion taxes in lieu of maxing out the IRAs, 401ks, etc?

dbr
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Re: DISTRIBUTIONS

Post by dbr » Wed Nov 22, 2017 12:13 pm

As a quick guess there isn't going to be a very large fraction of that total holding that can be converted tax efficiently. Still, it is entirely possible to run out a set of future tax scenarios that would show what can be done. If you aren't up to doing the work yourself, I would think you could hire a CPA to take a look at it.

bsteiner
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Re: DISTRIBUTIONS

Post by bsteiner » Wed Nov 22, 2017 12:18 pm

tpn wrote:
Wed Nov 22, 2017 12:01 pm
livesoft wrote:
Tue Nov 21, 2017 9:40 pm
I do Roth conversions, but I pay the tax with money that doesn't come from the IRA.
I've seen this sentiment expressed several times on this forum and elsewhere. Is the consensus that it's not worth doing Roth conversions if one has to pay the taxes from the IRA? Or just that it would be beneficial to pay the conversion taxes using taxable assets if one happens to have them? With a few years yet to go before planned post-retirement/pre-SS conversion, I've been funneling all of my savings into pre-tax retirement accounts. Would it be better to direct some of this to a taxable account for future conversion taxes in lieu of maxing out the IRAs, 401ks, etc?
The principal benefit of the conversion is that by paying the tax out of other money, you're effectively making an additional contribution (the amount of the tax) to the IRA. In that case, it would make sense to convert even at a tax rate somewhat higher (but not too much higher) than the tax rate that would otherwise apply to the distributions.

However, there are other benefits to converting. The next largest benefit is that there are no required distributions during lifetime. So it may make sense to convert to the extent you can do so at a tax rate less than or equal to the tax rate that would otherwise apply to the distributions.

It may be worth creating a spreadsheet showing the result when the beneficiaries take their last required distributions, and making reasonable assumptions as to investment returns in the IRA and in the taxable account.

retiredjg
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Re: DISTRIBUTIONS

Post by retiredjg » Wed Nov 22, 2017 2:20 pm

tpn wrote:
Wed Nov 22, 2017 12:01 pm
livesoft wrote:
Tue Nov 21, 2017 9:40 pm
I do Roth conversions, but I pay the tax with money that doesn't come from the IRA.
I've seen this sentiment expressed several times on this forum and elsewhere. Is the consensus that it's not worth doing Roth conversions if one has to pay the taxes from the IRA?
No, there is no such consensus. There is still a benefit, but it is a different benefit.

For example, I don't have a taxable account. I have a tIRA and a Roth IRA. I look at my tIRA as 75% mine and 25% Uncle Sams (I am single and in the 25% bracket).

When I do a Roth conversion next month, I will simply be giving Sam the money that is already his. But I will also be reducing the amount that will be subject to RMDs in a few years. If I don't do this, my RMDs may push me into a higher bracket if I live into my 80's and if the market is decent.

Why pay 28% later when I can pay 25% now with no net loss of how much is mine?

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JDCarpenter
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Re: DISTRIBUTIONS

Post by JDCarpenter » Wed Nov 22, 2017 3:04 pm

Kennyt7 wrote:
Tue Nov 21, 2017 9:36 pm
68yr old married with 4.4 million in IRA
Any suggestions on doing some Roth Conversions
Ouch. We are in similar situation, but 10 years younger--and still worrying that we have insufficient time to do the conversions that we presently project to wanting.... (Still, you gotta admit that this is truly a first world problem!)

Possibly worth it to convert to top of 28 percent bracket before you start taking social security, and maybe thereafter as well--depending upon such things as other assets, your cost of living, social and other income streams, and what your heirs' income tax situation is like. What have you done so far on conversions?

There are many variables here, as alluded to by livesoft, and with the data you've given in these two posts, we are all just spitballing suggestions...
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celia
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Re: DISTRIBUTIONS

Post by celia » Thu Nov 23, 2017 12:26 am

Kennyt7 wrote:
Tue Nov 21, 2017 9:44 pm
have taken distributions for almost 10yrs, probably a million dollars
So, you have been averaging $100K distributions so far. Is that your living expenses or has some of it been Roth conversions? Do you have taxable that you can use for living expenses instead?

It appears your RMDs will start at $160K, so you might as well start withdrawing that much each year starting now and put the excess not needed for living expenses in a Roth. That is the MINIMUM you should plan on. You can also convert to the top of whatever tax bracket that puts you in or to the top of the 28% tax bracket. As long as the account continues to grow at a rate higher than the RMD, the balance will increase, pushing you up into higher tax brackets.

Note: Always convert into new (empty) Roth accounts in case you later find that you should recharacterize (such as when a big market drops after you have converted). And start by converting the assets that are expected to grow the fastest. Get the growth going in the Roth, instead.

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