Will wife’s social security affect my Roth conversions.

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stumpy
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Will wife’s social security affect my Roth conversions.

Post by stumpy » Mon Feb 11, 2019 9:19 am

My wife will start Social Security in June. Will I still be allowed to do Roth rollovers from my 401(k). I am currently retired living off my pension and some money from taxable accounts. I want to start Roth rollovers this year. I will have a low adjusted gross income for the next couple of years. I do not plan on taking Social Security for another 7 to 10 years. Thanks in advance for your advice.

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Re: Will wife’s social security affect my Roth conversions.

Post by The Wizard » Mon Feb 11, 2019 9:23 am

Wife's SS has zero impact on you being able to do Roth conversions.
It will, of course, add to your MFJ AGI which will impact your taxes and proximity to Medicare IRMAA thresholds...
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02nz
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Re: Will wife’s social security affect my Roth conversions.

Post by 02nz » Mon Feb 11, 2019 10:05 am

Doing Roth conversions in years of low income is a good idea. The amount you convert is taxed as ordinary income (same as if you just withdrew that money), so it does impact the way Social Security is taxed. This is a little complex, but basically there's a formula that takes your non-SS income, adds half of SS benefits, and if that total comes to more than $32,000 for married couples, up to 50% of the SS benefits get taxed as income; above $44K up to 85% of the benefits are taxable. See https://www.bogleheads.org/wiki/Taxatio ... y_benefits.

So the withdrawal/Roth conversion not only get taxed as regular income, it can also push up taxes on your Social Security benefits. But you need to withdraw/convert that money sooner or later, so it's better to do it before your own benefits also start. (You could also look into whether to undo your wife's Social Security application, as postponing means a higher benefit later, and you'll likely pay less taxes on the SS benefits.)

I presume you're not going to do the conversion all in one year, because of the tax hit. It may make sense to roll over the entire balance from the 401k to a traditional IRA (this has no tax implications), and then do conversions at the same custodian (e.g. Vanguard) each year as you see fit. The 401k to IRA transfer takes some paperwork, so this way you only do that once. Converting from traditional to Roth IRA is super easy if at the same company, usually just a phone call or click on the website.

BTW to answer your actual question - nothing will ever prevent you from being able to do Roth conversions. Roth conversion = paying taxes on income on which you haven't yet paid taxes. The government will always happily let you do that! :happy

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Re: Will wife’s social security affect my Roth conversions.

Post by grabiner » Mon Feb 11, 2019 3:19 pm

02nz wrote:
Mon Feb 11, 2019 10:05 am
Doing Roth conversions in years of low income is a good idea. The amount you convert is taxed as ordinary income (same as if you just withdrew that money), so it does impact the way Social Security is taxed. This is a little complex, but basically there's a formula that takes your non-SS income, adds half of SS benefits, and if that total comes to more than $32,000 for married couples, up to 50% of the SS benefits get taxed as income; above $44K up to 85% of the benefits are taxable. See https://www.bogleheads.org/wiki/Taxatio ... y_benefits.

So the withdrawal/Roth conversion not only get taxed as regular income, it can also push up taxes on your Social Security benefits. But you need to withdraw/convert that money sooner or later, so it's better to do it before your own benefits also start.
This depends on what happens to the phase-in. With only your wife taking SS, there is a relatively smaller range of income in which $1 of additional income makes 85 cents of SS taxable; it starts when your other income plus half the SS is $44,000, and ends when 85% of the SS is taxed. If you can convert below that range, or above that range, you are likely to avoid being in the larger range which is relevant when you both take SS. And even if you have to cover that range, it is a small range, and covering it may be worthwhile if you can convert up to the top of the 22% tax bracket.
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Re: Will wife’s social security affect my Roth conversions.

Post by bradpevans » Mon Feb 11, 2019 3:50 pm

stumpy wrote:
Mon Feb 11, 2019 9:19 am
My wife will start Social Security in June. Will I still be allowed to do Roth rollovers from my 401(k). I am currently retired living off my pension and some money from taxable accounts. I want to start Roth rollovers this year. I will have a low adjusted gross income for the next couple of years. I do not plan on taking Social Security for another 7 to 10 years. Thanks in advance for your advice.
While you didn't ask, it might be wise to compare what happens if she starts in June vs next January (or later yet even)
It may give you more Roth conversion space (loosely speaking) in 2019 (or beyond).

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Re: Will wife’s social security affect my Roth conversions.

Post by celia » Mon Feb 11, 2019 4:15 pm

stumpy wrote:
Mon Feb 11, 2019 9:19 am
My wife will start Social Security in June. Will I still be allowed to do Roth rollovers from my 401(k). I am currently retired living off my pension and some money from taxable accounts. I want to start Roth rollovers this year. I will have a low adjusted gross income for the next couple of years. I do not plan on taking Social Security for another 7 to 10 years. Thanks in advance for your advice.
If you file jointly, her social security (or yours) will be on the same tax return as your other incomes and will impact the taxes, possibly being taxable itself (85% of it).

The title of your thread says Roth conversions, but your post talks about Roth rollovers. I'm not sure which you are talking about. If you are rolling over (transferring) your pre-tax 401K to a traditional IRA, there will be no tax consequences. If you are rolling over (transferring) Roth 401k to a Roth IRA, there will be no tax consequences. But if you convert part of the rollover while changing custodians, the converted amount will be taxed as regular income, whether or not one of you takes SS. And if you also have any basis (non-deductible contribution) in any kind of traditional IRA at the end of the year, the pro rata rule will apply to the calculation.

If your wife delays taking SS, that will give you more space to do Roth conversions. If you need some money for living expenses, you can withdraw part of your tIRA distribution (to taxable) for that while converting the part you don't need for current living expenses. The taxes will be the same whether you withdraw or convert the distribution. I also assume you are both over age 59.5.

The longer your wife delays taking SS (up to age 70), the more she will get each month. There is a guaranteed 8% increase for each year between FRA and age 70, and a smaller increase for months before FRA. (Technically, SS taken before FRA is calculated as being "decreased" since everything is calculated off the amount you would get at FRA.)

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Re: Will wife’s social security affect my Roth conversions.

Post by Big Dog » Mon Feb 11, 2019 4:59 pm

slightly off topic, but suggest you run OpenSocialSecurity to optimize filing strategies and then see how that works for taxes with conversions.

https://opensocialsecurity.com

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stumpy
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Re: Will wife’s social security affect my Roth conversions.

Post by stumpy » Tue Feb 12, 2019 12:41 am

With my pension and wife's SS my AGI will be about 42K. I do not see how I can avoid paying 85% on SS. I ran open social security and it is best if my wife takes SS at 62. I was planning on opening the Roth w/ Fidelity. They took over management of my 401 6 months prior to my retirement/layoff. It has all Vanguard funds and has only limited options for investing. So would it be easier to make one move to Fidelity via a tIRA. And then move from the tIRA to a Roth. Yearly I want to move just enough stay below the 22% bracket? Another question. Once I begin taking SS will that be the end of my ability to fund my Roth?

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Re: Will wife’s social security affect my Roth conversions.

Post by 02nz » Tue Feb 12, 2019 1:10 am

stumpy wrote:
Tue Feb 12, 2019 12:41 am
So would it be easier to make one move to Fidelity via a tIRA. And then move from the tIRA to a Roth. Yearly I want to move just enough stay below the 22% bracket?
Correct, it probably makes sense to convert up to the top of the 12% bracket and no more.
stumpy wrote:
Tue Feb 12, 2019 12:41 am
Once I begin taking SS will that be the end of my ability to fund my Roth?
Roth contributions can continue even after you start Social Security. They are limited to $7000 per person per year (for age 50 and up), but the contributions between the two of you cannot exceed your earned income (interest and capital gains don't count as earned income). For example, if you earn $14000 and your wife $0, you can fund $7000 for you and another $7000 for your wife.

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Re: Will wife’s social security affect my Roth conversions.

Post by The Wizard » Tue Feb 12, 2019 2:47 am

stumpy wrote:
Tue Feb 12, 2019 12:41 am
With my pension and wife's SS my AGI will be about 42K. I do not see how I can avoid paying 85% on SS. I ran open social security and it is best if my wife takes SS at 62. I was planning on opening the Roth w/ Fidelity. They took over management of my 401 6 months prior to my retirement/layoff. It has all Vanguard funds and has only limited options for investing. So would it be easier to make one move to Fidelity via a tIRA. And then move from the tIRA to a Roth. Yearly I want to move just enough stay below the 22% bracket? Another question. Once I begin taking SS will that be the end of my ability to fund my Roth?
I'm doing modest Roth conversions in the 24% marginal bracket nowadays, formerly the 28% bracket.
The top of the 24% bracket has no real bearing on how much I convert.
I convert enough to get my AGI up around where it will be in 2020 with zero Roth conversions.
I start both SS and RMDs in 2020...
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Re: Will wife’s social security affect my Roth conversions.

Post by celia » Tue Feb 12, 2019 3:46 am

I'll start by commenting and answering all your questions:
stumpy wrote:
Tue Feb 12, 2019 12:41 am
With my pension and wife's SS my AGI will be about 42K. I do not see how I can avoid paying 85% on SS.
Just to clarify, you aren't in the 85% tax bracket when paying taxes on SS (that is, 85% of every dollar goes back to the feds). Instead, it is just that up to 85% of the SS will be taxed (at whatever tax bracket you are in). The other 15% of SS will be tax-free.
I ran open social security and it is best if my wife takes SS at 62.
That is a simplistic calculator and doesn't take anything besides both of your work histories (PIAs) and ages into account, as far as I can tell. For example, your other income or Roth conversions impact your taxes more than the SS does. And your tax situation goes back to impact when you should start SS. (More about that later.)
I was planning on opening the Roth w/ Fidelity. They took over management of my 401 6 months prior to my retirement/layoff. It has all Vanguard funds and has only limited options for investing. So would it be easier to make one move to Fidelity via a tIRA. And then move from the tIRA to a Roth.
That sounds like a good plan. But don't convert everything to Roth in one year. If either of you has ever made non-deductible contributions to an IRA or 401K, things get more complicated, so please advise if that is the case.
Yearly I want to move just enough stay below the 22% bracket?
So you want to convert while staying in the 12% tax bracket? You might want/need to go to the top of the 22% bracket, but that will take some calculations to see if there is room BELOW the 22% bracket or WITHIN the 22% bracket. Here is how you calculate it:

First you add up all your incomes. (Some categories are taxed at different rates as noted below)
* Wages (fully taxed)
* Interest (fully taxed)
* Qualified dividends and capital gains from taxable investments (taxed at 0% if all your income ends up in the 12% bracket, else the part that goes into the 22% bracket will be taxed at 15%)
* Unqualified dividends and capital gains (fully taxed)
* Pensions (fully taxed, unless you bought service time using post-tax money)
* SS (not taxed if total income is low enough, going up to 85% of the SS being fully taxed)
* Withdrawals from tIRAs, whether they went to taxable or Roth IRAs [RMDs after age 70 are considered withdrawals] (fully taxed)
* Long Term Capital Gains from taxable investments that were sold (taxed at 0% if all your income ends up in the 12% bracket, else the part that goes into the 22% bracket will be taxed at 15%)
* Other incomes (rental profits, side business, lottery winnings, etc)

Add this all up for 2018, then do it again for 2019. Stumpy, you estimated you would have $42K for 2019 so we will continue with that amount. There are also a few other things you can then deduct. Deductible Contributions to IRAs is probably the main one that retirees would benefit from.

Then, if you are Single, subtract $12,000 for your Standard Deduction. If you are filing as Married, subtract $24,000 for your Standard Deduction. If you can itemize more than that, subtract your Itemized Deductions instead. This amount is being taxed at 0%. Stumpy, you calculate $42K - $24K (for standard deductions) = $18K.

Now, take that calculated number and look in the Single table or Married filing jointly table on this page. I see that someone filing as MFJ with taxable income of $18,000 lands near the top of the 10% bracket (which ends at $19,050). So our poster can add enough other income to reach $77,400 which is the top of the 12% bracket. That means Stumpy has room for $77,400 - 18,000 = $59,400. (If he has any of these other incomes, such as Qualified dividends and capital gains, that needs to be taken into account before using up all this space for Roth conversions.)

It is best to run your estimated numbers through tax software before doing the conversion, as Roth conversions can no longer be un-done.

Once I begin taking SS will that be the end of my ability to fund my Roth?
SS doesn't have anything to do with the ability to fund a Roth. You or your wife must have compensation (like wages) to be able to contribute to an IRA. And once a person turns 70, they cannot contribute to a tIRA even if they have compensation. (Roths have no age restrictions.) The compensation and age rules are true regardless if you are taking SS or not.



The questions and comments the OP has made to this point seemed to be asking how much he can convert while staying in a particular tax bracket ("stay below the 22% bracket"). Although he didn't ask this, a more important question might be:
What will my tax bracket be for the rest of my life (and my spouse's)?

This is very important, but we don't have any information as to OP's financial situation, their living expenses in retirement, or their income sources. All we know is this year's projected income from a pension and SS. We don't know what future tax rates will be. But the OP can make the best estimate he can by putting the list of expected income sources above into a spreadsheet and use a new column for each year for now until he and his spouse are 72 to see what will happen when RMDs and both Social Securities kick in. Then calculate the tax bracket for each year and see what happens to it using today's tax brackets (which are near historic lows).

Stumpy, When you and your wife have both taken SS for an entire year along with RMDs and your tax bracket then jumps suddenly, that is a sign you may want to consider doing more Roth conversions before then. We find that it is often better to "level" one's income sources over your expected life span to level out the tax brackets over the same time period. You can change things now, but after age 70, it will be very hard to change anything. But if your tax bracket doesn't increase in later life, then your current plan can be implemented.

And before I forget--regarding when your wife starts SS--that I alluded to above. If you decide that it makes sense to do more Roth conversions before SS, your wife can delay the start of SS to allow more Roth conversions to be done before age 70 while staying in the same tax brackets. The money you save in taxes after age 70, should you do more Roth conversions early could be worth more than the amount of SS she receives early. Plus she will still get SS, but get a bigger monthly benefit when she does start.
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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stumpy
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Re: Will wife’s social security affect my Roth conversions.

Post by stumpy » Wed Feb 13, 2019 1:20 am

Thank you all the information. I will need to read it a couple of times to fully digest it. Couple of points to clarify. I did realize that 85% of my SS would be taxable not taxed at a rate of 85%. I am not always good at explaining myself. Also the 42K I referenced as Income was minus our 24K standard deduction. My pension is $53,800 yearly, my wife’s SS would be about 9K and we have interest, dividends.... So AGI would be approximately 42K. Sorry for not detailing that. My wife and I will look at postponing her SS in order to put more in a Roth. Oops. Sorry I forgot I will get a partial bonus for the 6 months I worked in 2018 and I forgot 4 1/2 months of unemployment. So my AGI income will be higher. But I still plan on staying below the 22% bracket.
Also I have no current plans to work so once I decide to collect SS I guess I am done with the Roth contributions.

Thank you once again for all your wisdom. I find the Boglehead group amazing. You have given this old oilfield worker a lot to think about, look into and do.

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Re: Will wife’s social security affect my Roth conversions.

Post by sawdust60 » Wed Feb 13, 2019 2:41 am

I understand planning to fully utilize the 12% tax rates. Remember to include qualified dividends and LTCG in your calculations, if you want to retain the 0% tax rate.

The balance, of your IRA/401K accounts at age 70.5 and resulting RMD, is quite important in the analysis on whether you might want to do more Roth conversion sooner (and perhaps continuing with RMD).

Your marginal tax rate with SS + RMD is likely to be at least 22%. prior post: viewtopic.php?f=2&t=271875#p4365173

Lower tax rates or higher distributions can occur in years with high medical expense or nursing home. QCD can satisfy RMD. In other words, you could do Roth at 22% and then find you are using tax-paid funds instead of pretax funds. At 12%, it is not a concern because of the future marginal rate of 22%+.

Be aware of the Medicare IRMAA penalty (a hidden tax, age 63+). Medicare MAGI is AGI plus tax exempt interest. The first bracket of $170k MAGI is below the top of the 22% bracket of $165k taxable in 2018.

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Re: Will wife’s social security affect my Roth conversions.

Post by celia » Wed Feb 13, 2019 3:37 am

No problem with re-reading things many times. I, also, re-read various parts of this thread several times and misunderstood your income picture. Your generous pension also leads me to guess that your tax-deferred account could be over $1M, especially if you received employer matches. In that case, you will be lucky to be in the 22% tax bracket. There's nothing wrong with being in higher brackets if it means your post-age-70 tax bracket is kept under control.
stumpy wrote:
Wed Feb 13, 2019 1:20 am
Also I have no current plans to work so once I decide to collect SS I guess I am done with the Roth contributions.
When you and your wife are no longer working in a given tax year, you can no longer CONTRIBUTE to any IRA. (SS is irrelevant here.) But you can certainly CONVERT some of your tax-deferred accounts to a Roth account each year.


I suspect you feel overloaded with all the information given so far. I don't know if reading another thread will help or hinder you. I'll let you decide. But I first recommend you figure out if your future RMDs and SS at age 71 will push you into an even higher tax bracket. If it will, I then suggest you read Small Law Survivor's thread on estimating how much to convert to Roth each year. This is an old thread that was written before the tax laws (and tax brackets) changed for 2018.

The particular post that the link takes you too is the heart of the thread. But if you start at the beginning of the thread and read all of it (150+ individual posts), try to just follow the thought process, not all the details. You will see how the process of figuring out HOW MUCH TO CONVERT EACH YEAR evolves as many forum members participate and point out other things to watch for. It is not an easy process to understand and there is no one optimal answer. But this was a learning experience for all who participated at that time.

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Re: Will wife’s social security affect my Roth conversions.

Post by The Wizard » Wed Feb 13, 2019 4:21 am

stumpy wrote:
Wed Feb 13, 2019 1:20 am
...Also the 42K I referenced as Income was minus our 24K standard deduction. My pension is $53,800 yearly, my wife’s SS would be about 9K and we have interest, dividends.... So AGI would be approximately 42K...
No.
AGI is total of all income BEFORE subtracting deductions and credits.
So your AGI is more like $66k...
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Re: Will wife’s social security affect my Roth conversions.

Post by Retired2013 » Wed Feb 13, 2019 7:05 am

celia wrote:
Tue Feb 12, 2019 3:46 am


And before I forget--regarding when your wife starts SS--that I alluded to above. If you decide that it makes sense to do more Roth conversions before SS, your wife can delay the start of SS to allow more Roth conversions to be done before age 70 while staying in the same tax brackets. The money you save in taxes after age 70, should you do more Roth conversions early could be worth more than the amount of SS she receives early. Plus she will still get SS, but get a bigger monthly benefit when she does start.
You are assuming that both live to the break even point. If either of them pass away around age 70, the surviving spouse would take over the higher payment but will never recover the lower payments missed for 8 years ($9k x 8 yrs = $72k). The difference of $72k will decline as you approach the break-even point of around age 80. Since SS is calculated on the average age of around 80 (50/50 on making age 80) it tells me the odds are that one of you have the probability of passing away prior to age 80 and therefore it's better to take SS for the lower earner at age 62.

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Re: Will wife’s social security affect my Roth conversions.

Post by tadamsmar » Wed Feb 13, 2019 8:03 am

Your AGI includes the standard deduction. If you look at Form 1040, you will see that the line called "Adjusted gross income" comes before the standard deduction (or itemized deduction) is subtracted.

The AGI line on 1040 is usually the number you need limit, but sometimes you have to limit other modified AGI (MAGI) numbers that come into play.

Also, I have my doubts that your wife starting SS at 62 is the best plan if she does not estimate a shorter than average lifespan. If she had already started it, then I think you can suspend it till a later age if you decide that that is beneficial. I missed doing this after I sold some property that provided enough money to easily allow delay SS.

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Re: Will wife’s social security affect my Roth conversions.

Post by Retired2013 » Wed Feb 13, 2019 8:50 am

tadamsmar wrote:
Wed Feb 13, 2019 8:03 am
Your AGI includes the standard deduction. If you look at Form 1040, you will see that the line called "Adjusted gross income" comes before the standard deduction (or itemized deduction) is subtracted.

The AGI line on 1040 is usually the number you need limit, but sometimes you have to limit other modified AGI (MAGI) numbers that come into play.

Also, I have my doubts that your wife starting SS at 62 is the best plan if she does not estimate a shorter than average lifespan. If she had already started it, then I think you can suspend it till a later age if you decide that that is beneficial. I missed doing this after I sold some property that provided enough money to easily allow delay SS.
It's not "if she does not estimate a shorter than average lifespan", it's if EITHER have a shorter lifespan. Remember, the lower SS payment (hers) will stop when EITHER one passes away. If you believe that BOTH of you will live pass the average age, then yes, they would be better off waiting to collect. However, what's the difference in the amount between collecting at 62 and 80. That is what would be gained each month if BOTH live pass the break-even point. I don't see the risk reward and I believe that is why most recommendations are to collect at 62 / 70.

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Re: Will wife’s social security affect my Roth conversions.

Post by tadamsmar » Wed Feb 13, 2019 9:21 am

Retired2013 wrote:
Wed Feb 13, 2019 8:50 am
tadamsmar wrote:
Wed Feb 13, 2019 8:03 am
Your AGI includes the standard deduction. If you look at Form 1040, you will see that the line called "Adjusted gross income" comes before the standard deduction (or itemized deduction) is subtracted.

The AGI line on 1040 is usually the number you need limit, but sometimes you have to limit other modified AGI (MAGI) numbers that come into play.

Also, I have my doubts that your wife starting SS at 62 is the best plan if she does not estimate a shorter than average lifespan. If she had already started it, then I think you can suspend it till a later age if you decide that that is beneficial. I missed doing this after I sold some property that provided enough money to easily allow delay SS.
It's not "if she does not estimate a shorter than average lifespan", it's if EITHER have a shorter lifespan. Remember, the lower SS payment (hers) will stop when EITHER one passes away. If you believe that BOTH of you will live pass the average age, then yes, they would be better off waiting to collect. However, what's the difference in the amount between collecting at 62 and 80. That is what would be gained each month if BOTH live pass the break-even point. I don't see the risk reward and I believe that is why most recommendations are to collect at 62 / 70.
Thanks for the clarification, that does make a difference. Note that the surviving spouse's benefit will still be lower than if she had waited to full retirement age, not sure how that factors into the equation.

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Re: Will wife’s social security affect my Roth conversions.

Post by bradpevans » Wed Feb 13, 2019 9:43 am

Retired2013 wrote:
Wed Feb 13, 2019 7:05 am
celia wrote:
Tue Feb 12, 2019 3:46 am


And before I forget--regarding when your wife starts SS--that I alluded to above. If you decide that it makes sense to do more Roth conversions before SS, your wife can delay the start of SS to allow more Roth conversions to be done before age 70 while staying in the same tax brackets. The money you save in taxes after age 70, should you do more Roth conversions early could be worth more than the amount of SS she receives early. Plus she will still get SS, but get a bigger monthly benefit when she does start.
You are assuming that both live to the break even point. If either of them pass away around age 70, the surviving spouse would take over the higher payment but will never recover the lower payments missed for 8 years ($9k x 8 yrs = $72k). The difference of $72k will decline as you approach the break-even point of around age 80. Since SS is calculated on the average age of around 80 (50/50 on making age 80) it tells me the odds are that one of you have the probability of passing away prior to age 80 and therefore it's better to take SS for the lower earner at age 62.
In the narrow this is all correct. But what is not considered is Roth conversion, or more specifically how does triggering SS at 62 impact Roth conversion space at 12%, then at 22%

Another dimension to consider is the spectrum between spending your last dollar to pay the funeral home and leaving a massive inheritance.

For many, the combination of early retirement + Roth conversions can save huge taxes later.

At some point "later" means: 1 or 2 SS, pension(s), RMDs, and potentially higher spend on medical. And eventually MFJ becomes Single status, which, combined with keeping the larger SS, RMDs, pension(s)/ survivor pension, will often push the survivor into higher tax bracket(s)

Said more succinctly, what is optimal for SS may not be optimal for total income.

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Re: Will wife’s social security affect my Roth conversions.

Post by Epsilon Delta » Wed Feb 13, 2019 10:59 am

tadamsmar wrote:
Wed Feb 13, 2019 9:21 am
Thanks for the clarification, that does make a difference. Note that the surviving spouse's benefit will still be lower than if she had waited to full retirement age, not sure how that factors into the equation.
Taking your SS early on your own record does not affect your survivors benefit. You may be confusing spousal benefits (your spouse is alive) with survivors benefit (your spouse is dead). Spousal benefits are reduced if you take your own benefits early, survivors benefits aren't.

There is a complexity if you and your spouse have about the same SS benefits and one of you dies before age 70. In this case you may need to know who died because survivors benefits earn delayed credits until date of death rather than age 70, so it is not always clear who has the lower SS and should claim early.

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Re: Will wife’s social security affect my Roth conversions.

Post by Epsilon Delta » Wed Feb 13, 2019 11:12 am

Retired2013 wrote:
Wed Feb 13, 2019 8:50 am
It's not "if she does not estimate a shorter than average lifespan", it's if EITHER have a shorter lifespan. Remember, the lower SS payment (hers) will stop when EITHER one passes away. If you believe that BOTH of you will live pass the average age, then yes, they would be better off waiting to collect. However, what's the difference in the amount between collecting at 62 and 80. That is what would be gained each month if BOTH live pass the break-even point. I don't see the risk reward and I believe that is why most recommendations are to collect at 62 / 70.
Adding to the above.
This is the first to die life expectancy. First to die is always less the either individuals life expectancy. If the two individuals have similar life expectancy at age 70 the first to die is usually five or more years less than either individual's life expectancy. And the longer the individual life expectancy the greater the shortfall.

The two individual life expediencies have to be extraordinarily long before the first to die life expectancy reaches the population average. Even if both parties are healthy and all four parents are still living it usually maximizes expected value to claim at 62 / 70.

OffGridder
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Re: Will wife’s social security affect my Roth conversions.

Post by OffGridder » Wed Feb 13, 2019 12:47 pm

celia wrote:
Tue Feb 12, 2019 3:46 am

But the OP can make the best estimate he can by putting the list of expected income sources above into a spreadsheet and use a new column for each year for now until he and his spouse are 72 to see what will happen when RMDs and both Social Securities kick in. Then calculate the tax bracket for each year and see what happens to it using today's tax brackets (which are near historic lows).
Celia,
I use a similar strategy as you to calculate how much to Roth convert each year. That is to try to maintain a level AGI and marginal income tax rate for the duration of retirement. My question for you pertains to the RMD calculation you use in your spreadsheet. Are you assuming a specific growth rate for your tIRA, or are are you just calculating the RMD based on the current balance, as if you had to take the RMD in the current year?

Thank you,
Dave
"Goodness is the only investment that never fails." | H.D. Thoreau

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Re: Will wife’s social security affect my Roth conversions.

Post by WhiteMaxima » Wed Feb 13, 2019 1:50 pm

retire earlier at 55 (of course, if you have medical covered) , roll over to Roth or taken distribution for 15 years up to 12% bracket, taking $24000 standard deduction, live in low cost area (Mexico, Thailand). depelete traditional IRA and 401k by rolling over. take SS at 70. Well done.

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Re: Will wife’s social security affect my Roth conversions.

Post by The Wizard » Wed Feb 13, 2019 2:22 pm

Similar to Celia, I maintain a spreadsheet that tracks and projects my AGI through my mid 70s.
I started it at age 63 when I retired, so it was hard to be accurate on what my tax-deferred balance would be at age 70.
So what I've been doing is assuming zero portfolio growth year to year. If I withdraw $3000/month, then balance is $36k lower a year from now.

But.......I update my sheet each January with actual numbers.

My sheet shows projected AGI in 2020, when both SS and RMDs start, with no Roth conversions after that point.
That AGI is more than $30k highher than 2018's AGI with no conversions, so that gives me the number I need for Roth conversion amount...
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Retired2013
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Re: Will wife’s social security affect my Roth conversions.

Post by Retired2013 » Wed Feb 13, 2019 3:16 pm

The Wizard wrote:
Wed Feb 13, 2019 2:22 pm
Similar to Celia, I maintain a spreadsheet that tracks and projects my AGI through my mid 70s.
I started it at age 63 when I retired, so it was hard to be accurate on what my tax-deferred balance would be at age 70.
So what I've been doing is assuming zero portfolio growth year to year. If I withdraw $3000/month, then balance is $36k lower a year from now.

But.......I update my sheet each January with actual numbers.

My sheet shows projected AGI in 2020, when both SS and RMDs start, with no Roth conversions after that point.
That AGI is more than $30k highher than 2018's AGI with no conversions, so that gives me the number I need for Roth conversion amount...
The Wizard

You might want to try putting in a total return rate on your balance for each year going forward. I just built an excel spreadsheet with SS, RMD and conversions per year going to age 100. I'm targeting a yearly MAGI of $170,000 (starting point) to keep under the Medicare penalty (I treat the penalty as an additional tax). I find the biggest factor is the total return. I have 4% but when I just increase that to 5%, income jumps by $20k. If I go to 7% I end up in the 32% bracket.

Another factor is if EITHER of us pass-away prior to age 80 and the surviving spouse has to file as single. Jump to the 32% bracket with Medicare penalty.

In my spreadsheet I have a formula that keeps conversions going until tIRA balance falls below $1m. Depending on total return rate, that could be as early as age 71 or continue until age 80. I selected the $1m in case one of us needs assisted living or nursing home care and I can then withdraw funds against the expense at a much lower tax rate.

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Re: Will wife’s social security affect my Roth conversions.

Post by The Wizard » Wed Feb 13, 2019 4:34 pm

Retired2013 wrote:
Wed Feb 13, 2019 3:16 pm


...You might want to try putting in a total return rate on your balance for each year going forward. I just built an excel spreadsheet with SS, RMD and conversions per year going to age 100. I'm targeting a yearly MAGI of $170,000 (starting point) to keep under the Medicare penalty (I treat the penalty as an additional tax). I find the biggest factor is the total return. I have 4% but when I just increase that to 5%, income jumps by $20k. If I go to 7% I end up in the 32% bracket.

Another factor is if EITHER of us pass-away prior to age 80 and the surviving spouse has to file as single. Jump to the 32% bracket with Medicare penalty.

In my spreadsheet I have a formula that keeps conversions going until tIRA balance falls below $1m. Depending on total return rate, that could be as early as age 71 or continue until age 80. I selected the $1m in case one of us needs assisted living or nursing home care and I can then withdraw funds against the expense at a much lower tax rate.
You make some good points, especially for married couples and the eventual survivor. (I'm single nowadays and haven't spent much time pondering this issue.)

As far as total return on my tax-deferred portfolio, I'll just be happy if it meets or exceeds inflation over the next decade or two.

And I've been in Medicare IRMAA territory since I started at 65. My projected AGI at age 70 in 2020 (next year!) is presently $9000 below the next IRMAA threshold, so I think I will strive not to exceed that, meaning modest Roth conversions if any.

Note that IRMAA thresholds are scheduled to start tracking inflation in 2020, so we'll see how that goes...
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Re: Will wife’s social security affect my Roth conversions.

Post by tadamsmar » Wed Feb 13, 2019 5:44 pm

Epsilon Delta wrote:
Wed Feb 13, 2019 10:59 am
tadamsmar wrote:
Wed Feb 13, 2019 9:21 am
Thanks for the clarification, that does make a difference. Note that the surviving spouse's benefit will still be lower than if she had waited to full retirement age, not sure how that factors into the equation.
Taking your SS early on your own record does not affect your survivors benefit. You may be confusing spousal benefits (your spouse is alive) with survivors benefit (your spouse is dead). Spousal benefits are reduced if you take your own benefits early, survivors benefits aren't.
You are correct, I was wrong. I misread something that just said that benefits would be lower if the deceased spouse had taken SS early. As you say, a surviving spouse can arrange to get the benefit of the other spouse if that is larger.

And, of course, that devalues having both spouses delay SS.

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Re: Will wife’s social security affect my Roth conversions.

Post by celia » Fri Feb 15, 2019 2:46 pm

I figure it’s time for some example calcs, not only to see if my earlier claim was true, but to show various choices one can make in deciding how much to convert.
Retired2013 wrote:
Wed Feb 13, 2019 7:05 am
celia wrote:
Tue Feb 12, 2019 3:46 am
And before I forget--regarding when your wife starts SS--that I alluded to above. If you decide that it makes sense to do more Roth conversions before SS, your wife can delay the start of SS to allow more Roth conversions to be done before age 70 while staying in the same tax brackets. The money you save in taxes after age 70, should you do more Roth conversions early could be worth more than the amount of SS she receives early. Plus she will still get SS, but get a bigger monthly benefit when she does start.
You are assuming that both live to the break even point. If either of them pass away around age 70, the surviving spouse would take over the higher payment but will never recover the lower payments missed for 8 years ($9k x 8 yrs = $72k). The difference of $72k will decline as you approach the break-even point of around age 80. Since SS is calculated on the average age of around 80 (50/50 on making age 80) it tells me the odds are that one of you have the probability of passing away prior to age 80 and therefore it's better to take SS for the lower earner at age 62.
Although I agree with your statement, you did not take Roth conversions or future Required Minimum Distributions (RMDs) into account. If they use the $72k space for some of the Roth conversions instead, will they really save $72K in taxes while taking higher RMDs? Let's see.

Since we don’t have enough information about the OP’s situation, we need to make some assumptions:

* Let's assume they both turn 62 this summer in the first half of the year. (RMDs would start in the year they turn 71 if he doesn’t turn 70.5 until the following year.)
* He has a $1M 401k or tax-deferred IRA now. (If non-deductible contributions have ever been made, don’t do anything until you cleared out the tIRA before the end of any year and left it empty on Dec. 31). It is easiest to then start with rolling over the 401K to a Rollover IRA.
* The account grows 6% a year (on average). On a million dollar account, this means it grows at least $60,000 per year without any additions or withdrawals.
* A $9,000 conversion will hardly make a dent in his account balance since the yearly growth will likely be more than that, but it will at least offer some space to convert something at the rate at which the SS would have been taxed. To have an impact on future RMDs and future taxes, let’s start by withdrawing twice as much as the yearly growth ($120,000). In the worst case, he has nothing in taxable to pay the extra taxes, so we will withhold some money for that (shown in the RMD column for the first few years, but that amount could be converted for even better results). (For withholding taxes, I assume he is over 59.5 so there won’t be a penalty.) When he turns 65 and starts Medicare, he may be subject to IRMAA rules. So we will try to keep his income under $170,000 per year (although the Medicare surcharges are minor compared to the SS he is deferring and the taxes he will save down the road). And I will drop the tax withholding at age 67 so FRA SS (estimated to be $13,000) can be started if they wish to go that route, but assume all the SS would be applied to the Roth conversion taxes. (I also want to show flexibility in changing the conversion amounts over the years. Of course, this can be changed by the account owner according to what they want to do.)
* And for extra information, let’s watch the value of the Roth as it grows at 8% a year (because stock funds--or something that is expected to grow the fastest should be converted first).

Image
Image

Note that the most impact is made according to what he does the first few years. The bigger the Roth conversion at the start, the longer that amount gets to grow tax-free in the Roth. This also offers flexibility for starting SS anywhere along the line if financial circumstances change and it also minimizes IRMAA (Medicare surcharges).

Also note that the cumulative amount that has been taxed starts out higher with the Roth conversion example but gets higher at age 84 in the example without the Roth conversion (green cells). If the tax rates change any time before this, the year the taxes on the non-Roth example will be higher will occur earlier than that. And at age 88, I have the cumulative taxes in these calculations being higher by $350K in the non-Roth example (yellow cells). A 22% tax bracket applied to that extra tax would be more than the $72K that was lost in SS between age 62 and 70.

Because I gave higher growth rates than some people may expect, I “handicapped” the Roth example by assuming the Roth conversion and RMDs happened at the end of the year. (The formula for calculating the tax-deferred balance each year was:
(<previous year balance> * 1.06) - <previous year Roth conversion> - <previous year RMD>.
In practice, if you convert near the beginning of the year so growth on the converted amount happens in the Roth instead of the tax-deferred account but take RMDs late in the year, the formula would be:
(<previous year balance> - <previous year Roth conversion>) * 1.06 - <previous year RMD>.

I also “handicapped” the Roth conversion by taking early withdrawals (in the RMD column) to apply to the taxes. If possible, it would have been better if that money had been converted and taxes were paid from a taxable account or current income. I also "handicapped" the Roth conversion by allowing FRA SS to be taken, so then the OP is only "losing out" on part of $72K.
Retired2013 wrote:
Wed Feb 13, 2019 7:05 am
You are assuming that both live to the break even point. If either of them pass away around age 70, the surviving spouse would take over the higher payment but will never recover the lower payments missed for 8 years ($9k x 8 yrs = $72k).
Retired2013 also brought up the case if one of them dies around age 70. This case really pushes the advantage to the early Roth conversion side of the discussion rather than taking SS, since the survivor will still have to take out the same RMD (if they are the same ages), but the survivor will then file as Single, instead of MFJ. The space in the tax brackets for Singles are only half as much they are for MFJ, so the survivor will likely jump into higher tax brackets then. And the saving of $72K in taxes will probably happen in half the time as was shown in the chart. If this should happen, the survivor will be glad that some of the account had already been converted at tax rates for Marrieds.

Looking at each year's value of the Roth Conversion example's tax-deferred account PLUS the value of the Roth each year shows that the total value sort of stays similar to the non-Roth conversion tIRA balance for several years, even though some taxes were withheld because stock funds were put into the Roth. (For example, at age 70, he would have $1.6M whether he had converted or not.) But the Roth dollars are more valuable since they can be withdrawn without taxes and the whole dollar can be spent. Withdrawing from a tax-deferred account means that only 70-80% of any dollar withdrawn can be spent.

OffGridder wrote: Celia,
I use a similar strategy as you to calculate how much to Roth convert each year. That is to try to maintain a level AGI and marginal income tax rate for the duration of retirement. My question for you pertains to the RMD calculation you use in your spreadsheet. Are you assuming a specific growth rate for your tIRA, or are are you just calculating the RMD based on the current balance, as if you had to take the RMD in the current year?
For this example, I used a tIRA growth rate of 6% starting now.

In our personal situation, I converted to the top of a specific tax bracket so our entire tIRAs would be converted before age 70. Fortunately, we were ahead of schedule on our Roth conversions when DH inherited a tIRA. You can’t convert an Inherited IRA, but we withdrew a lot of it before age 70 to minimize future RMDs (which are now minimal). After age 70 and the start of the higher SS, we started giving withdrawals to charities by using Qualified Charitable Donations (QCDs) where neither we nor the charity pay taxes on the withdrawals.
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: Will wife’s social security affect my Roth conversions.

Post by OffGridder » Fri Feb 15, 2019 5:51 pm

celia wrote:
Fri Feb 15, 2019 2:46 pm
I figure it’s time for some example calcs, not only to see if my earlier claim was true, but to show various choices one can make in deciding how much to convert.
Retired2013 wrote:
Wed Feb 13, 2019 7:05 am
celia wrote:
Tue Feb 12, 2019 3:46 am
And before I forget--regarding when your wife starts SS--that I alluded to above. If you decide that it makes sense to do more Roth conversions before SS, your wife can delay the start of SS to allow more Roth conversions to be done before age 70 while staying in the same tax brackets. The money you save in taxes after age 70, should you do more Roth conversions early could be worth more than the amount of SS she receives early. Plus she will still get SS, but get a bigger monthly benefit when she does start.
You are assuming that both live to the break even point. If either of them pass away around age 70, the surviving spouse would take over the higher payment but will never recover the lower payments missed for 8 years ($9k x 8 yrs = $72k). The difference of $72k will decline as you approach the break-even point of around age 80. Since SS is calculated on the average age of around 80 (50/50 on making age 80) it tells me the odds are that one of you have the probability of passing away prior to age 80 and therefore it's better to take SS for the lower earner at age 62.
Although I agree with your statement, you did not take Roth conversions or future Required Minimum Distributions (RMDs) into account. If they use the $72k space for some of the Roth conversions instead, will they really save $72K in taxes while taking higher RMDs? Let's see.

Since we don’t have enough information about the OP’s situation, we need to make some assumptions:

* Let's assume they both turn 62 this summer in the first half of the year. (RMDs would start in the year they turn 71 if he doesn’t turn 70.5 until the following year.)
* He has a $1M 401k or tax-deferred IRA now. (If non-deductible contributions have ever been made, don’t do anything until you cleared out the tIRA before the end of any year and left it empty on Dec. 31). It is easiest to then start with rolling over the 401K to a Rollover IRA.
* The account grows 6% a year (on average). On a million dollar account, this means it grows at least $60,000 per year without any additions or withdrawals.
* A $9,000 conversion will hardly make a dent in his account balance since the yearly growth will likely be more than that, but it will at least offer some space to convert something at the rate at which the SS would have been taxed. To have an impact on future RMDs and future taxes, let’s start by withdrawing twice as much as the yearly growth ($120,000). In the worst case, he has nothing in taxable to pay the extra taxes, so we will withhold some money for that (shown in the RMD column for the first few years, but that amount could be converted for even better results). (For withholding taxes, I assume he is over 59.5 so there won’t be a penalty.) When he turns 65 and starts Medicare, he may be subject to IRMAA rules. So we will try to keep his income under $170,000 per year (although the Medicare surcharges are minor compared to the SS he is deferring and the taxes he will save down the road). And I will drop the tax withholding at age 67 so FRA SS (estimated to be $13,000) can be started if they wish to go that route, but assume all the SS would be applied to the Roth conversion taxes. (I also want to show flexibility in changing the conversion amounts over the years. Of course, this can be changed by the account owner according to what they want to do.)
* And for extra information, let’s watch the value of the Roth as it grows at 8% a year (because stock funds--or something that is expected to grow the fastest should be converted first).

Image
Image

Note that the most impact is made according to what he does the first few years. The bigger the Roth conversion at the start, the longer that amount gets to grow tax-free in the Roth. This also offers flexibility for starting SS anywhere along the line if financial circumstances change and it also minimizes IRMAA (Medicare surcharges).

Also note that the cumulative amount that has been taxed starts out higher with the Roth conversion example but gets higher at age 84 in the example without the Roth conversion (green cells). If the tax rates change any time before this, the year the taxes on the non-Roth example will be higher will occur earlier than that. And at age 88, I have the cumulative taxes in these calculations being higher by $350K in the non-Roth example (yellow cells). A 22% tax bracket applied to that extra tax would be more than the $72K that was lost in SS between age 62 and 70.

Because I gave higher growth rates than some people may expect, I “handicapped” the Roth example by assuming the Roth conversion and RMDs happened at the end of the year. (The formula for calculating the tax-deferred balance each year was:
(<previous year balance> * 1.06) - <previous year Roth conversion> - <previous year RMD>.
In practice, if you convert near the beginning of the year so growth on the converted amount happens in the Roth instead of the tax-deferred account but take RMDs late in the year, the formula would be:
(<previous year balance> - <previous year Roth conversion>) * 1.06 - <previous year RMD>.

I also “handicapped” the Roth conversion by taking early withdrawals (in the RMD column) to apply to the taxes. If possible, it would have been better if that money had been converted and taxes were paid from a taxable account or current income. I also "handicapped" the Roth conversion by allowing FRA SS to be taken, so then the OP is only "losing out" on part of $72K.
Retired2013 wrote:
Wed Feb 13, 2019 7:05 am
You are assuming that both live to the break even point. If either of them pass away around age 70, the surviving spouse would take over the higher payment but will never recover the lower payments missed for 8 years ($9k x 8 yrs = $72k).
Retired2013 also brought up the case if one of them dies around age 70. This case really pushes the advantage to the early Roth conversion side of the discussion rather than taking SS, since the survivor will still have to take out the same RMD (if they are the same ages), but the survivor will then file as Single, instead of MFJ. The space in the tax brackets for Singles are only half as much they are for MFJ, so the survivor will likely jump into higher tax brackets then. And the saving of $72K in taxes will probably happen in half the time as was shown in the chart. If this should happen, the survivor will be glad that some of the account had already been converted at tax rates for Marrieds.

Looking at each year's value of the Roth Conversion example's tax-deferred account PLUS the value of the Roth each year shows that the total value sort of stays similar to the non-Roth conversion tIRA balance for several years, even though some taxes were withheld because stock funds were put into the Roth. (For example, at age 70, he would have $1.6M whether he had converted or not.) But the Roth dollars are more valuable since they can be withdrawn without taxes and the whole dollar can be spent. Withdrawing from a tax-deferred account means that only 70-80% of any dollar withdrawn can be spent.

OffGridder wrote: Celia,
I use a similar strategy as you to calculate how much to Roth convert each year. That is to try to maintain a level AGI and marginal income tax rate for the duration of retirement. My question for you pertains to the RMD calculation you use in your spreadsheet. Are you assuming a specific growth rate for your tIRA, or are are you just calculating the RMD based on the current balance, as if you had to take the RMD in the current year?
For this example, I used a tIRA growth rate of 6% starting now.

In our personal situation, I converted to the top of a specific tax bracket so our entire tIRAs would be converted before age 70. Fortunately, we were ahead of schedule on our Roth conversions when DH inherited a tIRA. You can’t convert an Inherited IRA, but we withdrew a lot of it before age 70 to minimize future RMDs (which are now minimal). After age 70 and the start of the higher SS, we started giving withdrawals to charities by using Qualified Charitable Donations (QCDs) where neither we nor the charity pay taxes on the withdrawals.
Thank you Celia for taking the time to provide clarification on how you calculate how much you Roth convert each year. I have one more question, if you don't mind. If you are projecting 6% growth on your tIRA to estimate your RMD amount, are you also applying an inflation factor to future SS and tax brackets, so all estimated numbers are in "then year" dollars?
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Re: Will wife’s social security affect my Roth conversions.

Post by celia » Fri Feb 15, 2019 8:21 pm

OffGridder wrote:
Fri Feb 15, 2019 5:51 pm
Thank you Celia for taking the time to provide clarification on how you calculate how much you Roth convert each year. I have one more question, if you don't mind. If you are projecting 6% growth on your tIRA to estimate your RMD amount, are you also applying an inflation factor to future SS and tax brackets, so all estimated numbers are in "then year" dollars?
Inflation is not accounted for in any of my calcs (throughout the forum). This enables you to use the latest year tax software and current values (except for expected growth rate which is not tied to inflation) to do your estimates, even for future years. I assume inflation is similar to the SS cost-of-living increase, and how much tax brackets change each year (and would thus cancel each other out). I prefer to keep things simple. That would just be another unknown thrown into the mix, for me.

-----------------------------------------------------------------------------
You can build the same Excel spreadsheet and use your own data with these directions:
A. To build the same headers I have that span more than 1 cell, select all the cells that you want to be displayed together as one cell, then in the top menu bar when you are in the "Home" menu bar, chose Format > Cells > Alignment (tab) > then put a checkmark in the box for Merge Cells
On the same tab, then choose how you want the text aligned. I used "center" for most horizontal and vertical text alignment.
Click "OK".
To later draw dark lines around certain cells (eg, to separate the different scenarios from each other), use Format > Cells, Border (tab) instead.
To make columns wider or narrower, put your cursor on the column header with the alphabet letters, click on a column whose width you want to change and while holding down the left mouse or keypad key, change the distance by dragging the right edge along the column header with the alphabet letter on it. (If a cell isn't wide enough for the data in it, it may display as #####.),
To display dollars without the cents, select column E and many other columns to the right of it. While the columns are selected, from the Home menu bar, choose Format > Cells > Number (tab) > Currency, then change the decimal places to 0. Click OK.

B. These are the formulas I used in the indicated spreadsheet cells:
(The formulas occur in the cells with the green triangle in the upper left corner in the cell. Once a formula appears in a column, it is copied to all the cells below it in the same column. If you don't yet use Excel, this will help you get started, but I assume you can already locate and click on any cell and copy and paste.)

(every formula starts with the "equal sign")
A5: =A4+1
D12: =1/C12
E5: =E4*1.06-F4-G4 (the "6" is for a 6% growth in the account. Change it to a "3" (ie, 1.03) if you want 3% annual growth, for example
G12: =E12/C12
H4: =F4+G4
I4: =H4 and the rest of the column copies I5: =I4+H5
J5: =J4*1.06-K4-L4 (can change the 6% growth rate)
L12: =J12/C12
M4: =K4+L4
N4: =M4 and the rest of the column copies N5: =N4+M5
O4: =K4 and the rest of the column copies O5: =O4*1.08+K5 (can change 8% growth rate)

To test your spreadsheet, you could fill in the same numbers I have in row 4 that aren't formulas and see if you get the same results I did. Note: Once you fill in one number in row 4, the rest of the column will immediately appear if it has a formula in it. :D

Then try your own numbers.
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: Will wife’s social security affect my Roth conversions.

Post by stumpy » Sun Feb 17, 2019 7:52 pm

Celia thanks for your posts. I will see about building a copy of your spreadsheet. One question about it. What is the distribution period in column C?
I also went through part of the thread on "small laws survivor". It was a lot of info. Answers to a couple of questions in the thread. My wife turns 62 at the end of April. I will be 61 at the end of July. My wife stopped "working" when we got married to take care of the kids. We were both single parents. So she will get more SS by taking half of mine at my FRA or when I start it. I do not have a million in my 401K. It is 850K. I have 250K in taxable though. I plan on pulling off the taxable to supplement my pension and use the 401k for Roth funding. Yes my company had a great match. I put in 2% and they would match with 8%. Also I am asuming we will both live past 80. Most peole on both sides have lived to late 80's to early 90's. I am sure we will live past the SS break even point. Not sure if there is anything else. Thanks once again to everyone for the information.

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Re: Will wife’s social security affect my Roth conversions.

Post by abuss368 » Sun Feb 17, 2019 8:25 pm

Your wife taking social security should not matter in terms of Roth conversions. The only aspect will be how much of her social security is taxed (up to a maximum of 85%).
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Re: Will wife’s social security affect my Roth conversions.

Post by haban01 » Sun Feb 17, 2019 9:02 pm

stumpy wrote:
Sun Feb 17, 2019 7:52 pm
Celia thanks for your posts. I will see about building a copy of your spreadsheet. One question about it. What is the distribution period in column C?
I also went through part of the thread on "small laws survivor". It was a lot of info. Answers to a couple of questions in the thread. My wife turns 62 at the end of April. I will be 61 at the end of July. My wife stopped "working" when we got married to take care of the kids. We were both single parents. So she will get more SS by taking half of mine at my FRA or when I start it. I do not have a million in my 401K. It is 850K. I have 250K in taxable though. I plan on pulling off the taxable to supplement my pension and use the 401k for Roth funding. Yes my company had a great match. I put in 2% and they would match with 8%. Also I am asuming we will both live past 80. Most peole on both sides have lived to late 80's to early 90's. I am sure we will live past the SS break even point. Not sure if there is anything else. Thanks once again to everyone for the information.
Keep in mind that she will NOT get 50% of your benefit once she hits FRA off of yours if she files early at 62. It will be reduced. (Less then half)
Eric | | "Stay the Course" | "Press on Regardless"

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Re: Will wife’s social security affect my Roth conversions.

Post by celia » Sun Feb 17, 2019 11:24 pm

stumpy wrote:
Sun Feb 17, 2019 7:52 pm
Celia thanks for your posts. I will see about building a copy of your spreadsheet. One question about it. What is the distribution period in column C?
Column C is the IRS-defined estimated remaining time over which you need to take RMDs. It is defined in IRS Publication 590-B. See Table III at the end right before the Table of Contents. This table applies to Single individuals and those Married who are within 10 years of age of their spouse. Note that the estimated remaining time does not decrease by 1.0 each year. I converted it to per cent in Column D just because most people can comprehend percentages easier, but the per cents are not as accurate as Column C and are not used in any calculations.

To calculate each years' RMD, you divide the previous December 31 account balance by the Distribution Period. The December 31 account balance is the same on the next day, because the markets are not open that day.
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.

JonnyBeRetired
Posts: 6
Joined: Tue Jan 15, 2019 11:49 am

Re: Will wife’s social security affect my Roth conversions.

Post by JonnyBeRetired » Fri Nov 01, 2019 10:49 pm

celia wrote:
Sun Feb 17, 2019 11:24 pm
stumpy wrote:
Sun Feb 17, 2019 7:52 pm
Celia thanks for your posts. I will see about building a copy of your spreadsheet. One question about it. What is the distribution period in column C?
Column C is the IRS-defined estimated remaining time over which you need to take RMDs. It is defined in IRS Publication 590-B. See Table III at the end right before the Table of Contents. This table applies to Single individuals and those Married who are within 10 years of age of their spouse. Note that the estimated remaining time does not decrease by 1.0 each year. I converted it to per cent in Column D just because most people can comprehend percentages easier, but the per cents are not as accurate as Column C and are not used in any calculations.

To calculate each years' RMD, you divide the previous December 31 account balance by the Distribution Period. The December 31 account balance is the same on the next day, because the markets are not open that day.
Celia,
Thank you for this and your other posts concerning Roth conversions. I came back to re-read this one and to start work on a spreadsheet as you describe, but the images of the spreadsheets are no longer here. The TinyPic Wikipedia says “The service shut down on September 9, 2019 due to declining site income.” Is there anyway your images can be reposted?
Regards
Jon

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tadamsmar
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Joined: Mon May 07, 2007 12:33 pm

Re: Will wife’s social security affect my Roth conversions.

Post by tadamsmar » Sat Nov 02, 2019 9:49 am

stumpy wrote:
Mon Feb 11, 2019 9:19 am
My wife will start Social Security in June. Will I still be allowed to do Roth rollovers from my 401(k). I am currently retired living off my pension and some money from taxable accounts. I want to start Roth rollovers this year. I will have a low adjusted gross income for the next couple of years. I do not plan on taking Social Security for another 7 to 10 years. Thanks in advance for your advice.
Additional taxable income from any source affects your Roth conversions.

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FiveK
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Re: Will wife’s social security affect my Roth conversions.

Post by FiveK » Sat Nov 02, 2019 5:03 pm

JonnyBeRetired wrote:
Fri Nov 01, 2019 10:49 pm
Celia,
Thank you for this and your other posts concerning Roth conversions. I came back to re-read this one and to start work on a spreadsheet as you describe, but the images of the spreadsheets are no longer here. The TinyPic Wikipedia says “The service shut down on September 9, 2019 due to declining site income.” Is there anyway your images can be reposted?
Regards
Jon
I think celia's spreadsheet did multiple years, as does the Retiree Portfolio Model.

Another spreadsheet that will show a marginal rate chart for trad->Roth conversions for one year, given all other income, is the personal finance toolbox spreadsheet.

JonnyBeRetired
Posts: 6
Joined: Tue Jan 15, 2019 11:49 am

Re: Will wife’s social security affect my Roth conversions.

Post by JonnyBeRetired » Sat Nov 02, 2019 5:52 pm

FiveK wrote:
Sat Nov 02, 2019 5:03 pm
JonnyBeRetired wrote:
Fri Nov 01, 2019 10:49 pm
Celia,
Thank you for this and your other posts concerning Roth conversions. I came back to re-read this one and to start work on a spreadsheet as you describe, but the images of the spreadsheets are no longer here. The TinyPic Wikipedia says “The service shut down on September 9, 2019 due to declining site income.” Is there anyway your images can be reposted?
Regards
Jon
I think celia's spreadsheet did multiple years, as does the Retiree Portfolio Model.

Another spreadsheet that will show a marginal rate chart for trad->Roth conversions for one year, given all other income, is the personal finance toolbox spreadsheet.
Thank you FiveK. I’ll take a look.
Jon

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