When the Conventional Wisdom about Taxes in Retirement is Wrong

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southport
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When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by southport » Mon Jun 24, 2019 7:09 am

This is a link to a February article in the WSJ from Jonathan Guyton. Very interesting stuff.

https://blogs.wsj.com/experts/2019/02/2 ... -is-wrong/

Two areas not discussed but probably relevant: There's no mention of the time value of money when paying the taxes earlier. On the flip side, there's no mention that the current lower tax rates are due to expire eafter 2025, which would make this strategy even more appealing.

Thoughts, anyone?

Silk McCue
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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by Silk McCue » Mon Jun 24, 2019 7:21 am

I would like to read but it is only available to subscribers.

Cheers

jebmke
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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by jebmke » Mon Jun 24, 2019 7:31 am

In my opinion, there is little value in assuming that the tax structure will change. When I look at key inflection points (e.g. pension starts, SS starts, RMD starts) I always assume that the current law is still in force.
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FoolMeOnce
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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by FoolMeOnce » Mon Jun 24, 2019 7:58 am

jebmke wrote:
Mon Jun 24, 2019 7:31 am
In my opinion, there is little value in assuming that the tax structure will change. When I look at key inflection points (e.g. pension starts, SS starts, RMD starts) I always assume that the current law is still in force.
Do you mean you assume current rates will remain in force or "current law." Current law includes an expiration of recent tax cuts.

jebmke
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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by jebmke » Mon Jun 24, 2019 8:01 am

FoolMeOnce wrote:
Mon Jun 24, 2019 7:58 am
jebmke wrote:
Mon Jun 24, 2019 7:31 am
In my opinion, there is little value in assuming that the tax structure will change. When I look at key inflection points (e.g. pension starts, SS starts, RMD starts) I always assume that the current law is still in force.
Do you mean you assume current rates will remain in force or "current law." Current law includes an expiration of recent tax cuts.
I assume current rates will remain in force.
When you discover that you are riding a dead horse, the best strategy is to dismount.

livesoft
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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by livesoft » Mon Jun 24, 2019 8:07 am

So I read the article and it seems to follow the advice posted relentlessly at bogleheads.org.

However, I didn't see how the example couple would get the money to pay an additional $36,720 on the $153,000 larger Roth conversion. That money has to come from somewhere and would also likely increase their AGI by an additional tens of thousands of dollars. Guyton hid the total extra tax by only noting the 2% higher tax rate, so 2% of $153,000 is the additional $3,060 mentioned in the article, but he totally ignored the base 22% additional tax and its consequences of finding money to pay it on their AGI.

So conventional wisdom is not something I ever toe the line with, but sometimes these articles have other problems.
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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by MikeG62 » Mon Jun 24, 2019 8:12 am

southport wrote:
Mon Jun 24, 2019 7:09 am
This is a link to a February article in the WSJ from Jonathan Guyton. Very interesting stuff.

https://blogs.wsj.com/experts/2019/02/2 ... -is-wrong/

Two areas not discussed but probably relevant: There's no mention of the time value of money when paying the taxes earlier. On the flip side, there's no mention that the current lower tax rates are due to expire eafter 2025, which would make this strategy even more appealing.

Thoughts, anyone?
This is the reason lots of people Roth convert between the time they retire and begin drawing SS and taking RMD's. Often times it can be better to pay taxes now than later if paying them now is (very) likely to be at lower rates than paying them later (assuming current tax rates continue into the future).
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retiredjg
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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by retiredjg » Mon Jun 24, 2019 8:46 am

Here is the article for those who cannot open the link.

https://blogs.wsj.com/experts/2019/02/2 ... -is-wrong/

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by 3-20Characters » Mon Jun 24, 2019 8:55 am

retiredjg wrote:
Mon Jun 24, 2019 8:46 am
Here is the article for those who cannot open the link.

https://blogs.wsj.com/experts/2019/02/2 ... -is-wrong/
That link didn’t work for me but this did.

https://nebula.wsimg.com/3b2083c9424071 ... oworigin=1

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by David Jay » Mon Jun 24, 2019 10:39 am

3-20Characters wrote:
Mon Jun 24, 2019 8:55 am
retiredjg wrote:
Mon Jun 24, 2019 8:46 am
Here is the article for those who cannot open the link.

https://blogs.wsj.com/experts/2019/02/2 ... -is-wrong/
That link didn’t work for me but this did.

https://nebula.wsimg.com/3b2083c9424071 ... oworigin=1
The final paragraph provides a warning - there is a 5 year clock that starts when an individual opens their first Roth account, even if - as in the example - each spouse is well over 59 1/2.

I tell everyone to open a Roth for each spouse “yesterday” (yeah, I know it is by actually by tax year). Even if you have to pay taxes at a 100% pro-rata basis from a tIRA Conversion. Get it open with a small amount ($1000 into a TargetRetirement?) to start the clock. Then at 59.5 all Roth withdrawals are qualified.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

wolf359
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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by wolf359 » Mon Jun 24, 2019 11:29 am

I understand the issue he's talking about, but it gets trickier to apply when you're younger and not yet retired.

One of the reasons that this works well is that the current tax brackets are very favorable, and that the example couple are retired.

But what about someone who has that same hypothetical $1.5 million as his example couple at age 50 (or earlier), and is still working? Assuming that some of the retirement funds are in an IRA or legacy 401-k from a previous employer, and therefore available to be converted, it doesn't make sense to do so while a full-time salary is being earned.

There's a point at which there may be too much money in the tax deferred accounts, but I'm not sure what that level is. This is complicated by the fact that the current favorable tax rates will expire, Social Security payments are scheduled to drop around 2030, and of course any actions by future Congresses are purely speculative and cannot be predicted (or even considered under forum rules.)

By the time a 50 year old turns 70 1/2 and RMDs apply, that $1.5 million will have grown significantly, especially if maximum contributions continued for 20 years. (As of this writing the law may be changing and the RMD age may extend out a couple more years, but the point still stands if that happens.)

It's the old Roth versus traditional debate. I'm still on the side of taking the deduction, but I'm hedging by putting a little into Roth, and paying taxes at current rates.

I like the idea of keeping some traditional retirement funds around to generate taxable income on demand, but not so much that you're forced to pay too much in taxes when RMDs come around. Unconverted traditional funds that never get converted, or get converted at a low tax rate, are the best. However, if that traditional fund balance gets too big, then it may have been better to pay the taxes up front.

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by privateID » Mon Jun 24, 2019 11:54 am

wolf359 wrote:
Mon Jun 24, 2019 11:29 am
I understand the issue he's talking about, but it gets trickier to apply when you're younger and not yet retired.

One of the reasons that this works well is that the current tax brackets are very favorable, and that the example couple are retired.

But what about someone who has that same hypothetical $1.5 million as his example couple at age 50 (or earlier), and is still working? Assuming that some of the retirement funds are in an IRA or legacy 401-k from a previous employer, and therefore available to be converted, it doesn't make sense to do so while a full-time salary is being earned.

There's a point at which there may be too much money in the tax deferred accounts, but I'm not sure what that level is. This is complicated by the fact that the current favorable tax rates will expire, Social Security payments are scheduled to drop around 2030, and of course any actions by future Congresses are purely speculative and cannot be predicted (or even considered under forum rules.)

By the time a 50 year old turns 70 1/2 and RMDs apply, that $1.5 million will have grown significantly, especially if maximum contributions continued for 20 years. (As of this writing the law may be changing and the RMD age may extend out a couple more years, but the point still stands if that happens.)

It's the old Roth versus traditional debate. I'm still on the side of taking the deduction, but I'm hedging by putting a little into Roth, and paying taxes at current rates.

I like the idea of keeping some traditional retirement funds around to generate taxable income on demand, but not so much that you're forced to pay too much in taxes when RMDs come around. Unconverted traditional funds that never get converted, or get converted at a low tax rate, are the best. However, if that traditional fund balance gets too big, then it may have been better to pay the taxes up front.
So I am 53 and have about 1.5 miliion in my retirement accounts. I have some tIRAs that I believe I can convert. My AGI last year was 133K. I have some room in the 22% bracket to convert and alot more room if I venture out to the 24% bracket. I am wondering if it makes sense to convert, at least to the end of the 22% bracket. I do plan to spend a few years doing conversions in retirement (say around 60) where I hope to convert below 22%, but why not take advantage of the 22% bracket today?

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by wolf359 » Mon Jun 24, 2019 12:17 pm

privateID wrote:
Mon Jun 24, 2019 11:54 am
wolf359 wrote:
Mon Jun 24, 2019 11:29 am
I understand the issue he's talking about, but it gets trickier to apply when you're younger and not yet retired.

One of the reasons that this works well is that the current tax brackets are very favorable, and that the example couple are retired.

But what about someone who has that same hypothetical $1.5 million as his example couple at age 50 (or earlier), and is still working? Assuming that some of the retirement funds are in an IRA or legacy 401-k from a previous employer, and therefore available to be converted, it doesn't make sense to do so while a full-time salary is being earned.

There's a point at which there may be too much money in the tax deferred accounts, but I'm not sure what that level is. This is complicated by the fact that the current favorable tax rates will expire, Social Security payments are scheduled to drop around 2030, and of course any actions by future Congresses are purely speculative and cannot be predicted (or even considered under forum rules.)

By the time a 50 year old turns 70 1/2 and RMDs apply, that $1.5 million will have grown significantly, especially if maximum contributions continued for 20 years. (As of this writing the law may be changing and the RMD age may extend out a couple more years, but the point still stands if that happens.)

It's the old Roth versus traditional debate. I'm still on the side of taking the deduction, but I'm hedging by putting a little into Roth, and paying taxes at current rates.

I like the idea of keeping some traditional retirement funds around to generate taxable income on demand, but not so much that you're forced to pay too much in taxes when RMDs come around. Unconverted traditional funds that never get converted, or get converted at a low tax rate, are the best. However, if that traditional fund balance gets too big, then it may have been better to pay the taxes up front.
So I am 53 and have about 1.5 miliion in my retirement accounts. I have some tIRAs that I believe I can convert. My AGI last year was 133K. I have some room in the 22% bracket to convert and alot more room if I venture out to the 24% bracket. I am wondering if it makes sense to convert, at least to the end of the 22% bracket. I do plan to spend a few years doing conversions in retirement (say around 60) where I hope to convert below 22%, but why not take advantage of the 22% bracket today?
I may be overthinking it, but right now, your current income pops you into the 22% bracket. That means that any funds that you convert now will be taxed at 22% (or 24% if you stretch into the next bracket.)

If you wait until retirement, then your conversion will be filling all the income brackets. Some will be taxed at 10%, some at 12%, some at 22%, some at 24%. Your effective tax is lower if you're not working.

The original article is talking about the sweet spot of 22-24% tax brackets. The next jump up is 32%, which is significantly higher tax. If you aren't going to get anywhere near the top of the 24% tax bracket even with income and conversions, then I'd probably do it. It's a trade-off between a known tax rate (22-24%) and an unknown one (lower effective tax after retirement, maybe.)

Edit: Rethinking this. If the situation above holds, then why not simply stop contributing to 401k traditional and change it to 401k Roth? If you're still working and contributing to your retirement account, then does it make sense to pay taxes to reduce it, while simultaneously adding more to be converted? Roth space is precious, so if you have the money to pay the taxes, just add new money to the 401k Roth in the first place. If you still have space, then convert beyond that.

I'm still wrestling with this issue, if you hadn't noticed.

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by privateID » Mon Jun 24, 2019 12:37 pm

wolf359 wrote:
Mon Jun 24, 2019 12:17 pm
privateID wrote:
Mon Jun 24, 2019 11:54 am
wolf359 wrote:
Mon Jun 24, 2019 11:29 am
I understand the issue he's talking about, but it gets trickier to apply when you're younger and not yet retired.

One of the reasons that this works well is that the current tax brackets are very favorable, and that the example couple are retired.

But what about someone who has that same hypothetical $1.5 million as his example couple at age 50 (or earlier), and is still working? Assuming that some of the retirement funds are in an IRA or legacy 401-k from a previous employer, and therefore available to be converted, it doesn't make sense to do so while a full-time salary is being earned.

There's a point at which there may be too much money in the tax deferred accounts, but I'm not sure what that level is. This is complicated by the fact that the current favorable tax rates will expire, Social Security payments are scheduled to drop around 2030, and of course any actions by future Congresses are purely speculative and cannot be predicted (or even considered under forum rules.)

By the time a 50 year old turns 70 1/2 and RMDs apply, that $1.5 million will have grown significantly, especially if maximum contributions continued for 20 years. (As of this writing the law may be changing and the RMD age may extend out a couple more years, but the point still stands if that happens.)

It's the old Roth versus traditional debate. I'm still on the side of taking the deduction, but I'm hedging by putting a little into Roth, and paying taxes at current rates.

I like the idea of keeping some traditional retirement funds around to generate taxable income on demand, but not so much that you're forced to pay too much in taxes when RMDs come around. Unconverted traditional funds that never get converted, or get converted at a low tax rate, are the best. However, if that traditional fund balance gets too big, then it may have been better to pay the taxes up front.
So I am 53 and have about 1.5 miliion in my retirement accounts. I have some tIRAs that I believe I can convert. My AGI last year was 133K. I have some room in the 22% bracket to convert and alot more room if I venture out to the 24% bracket. I am wondering if it makes sense to convert, at least to the end of the 22% bracket. I do plan to spend a few years doing conversions in retirement (say around 60) where I hope to convert below 22%, but why not take advantage of the 22% bracket today?
I may be overthinking it, but right now, your current income pops you into the 22% bracket. That means that any funds that you convert now will be taxed at 22% (or 24% if you stretch into the next bracket.)

If you wait until retirement, then your conversion will be filling all the income brackets. Some will be taxed at 10%, some at 12%, some at 22%, some at 24%. Your effective tax is lower if you're not working.

The original article is talking about the sweet spot of 22-24% tax brackets. The next jump up is 32%, which is significantly higher tax. If you aren't going to get anywhere near the top of the 24% tax bracket even with income and conversions, then I'd probably do it. It's a trade-off between a known tax rate (22-24%) and an unknown one (lower effective tax after retirement, maybe.)

Edit: Rethinking this. If the situation above holds, then why not simply stop contributing to 401k traditional and change it to 401k Roth? If you're still working and contributing to your retirement account, then does it make sense to pay taxes to reduce it, while simultaneously adding more to be converted? Roth space is precious, so if you have the money to pay the taxes, just add new money to the 401k Roth in the first place. If you still have space, then convert beyond that.

I'm still wrestling with this issue, if you hadn't noticed.
So my plan has been at age 60 or so to retire and have about 8 years to do Roth conversions (I have some I-bonds maturing in that time frame that actually knock out a year or so of conversions). I was planning to just convert up to to the top of the current 12% bracket. But now I'm thinking that may not be enough. If I knew for sure it would not be enough, then I think I would convert (or just switch to Roth 401K for a few years). So, I think my homework is to try to determine what amount in my 401K/tIRA is too high (I expect my total retirement money to be between 2 and 3 million).

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by wolf359 » Mon Jun 24, 2019 12:46 pm

privateID wrote:
Mon Jun 24, 2019 12:37 pm

So my plan has been at age 60 or so to retire and have about 8 years to do Roth conversions (I have some I-bonds maturing in that time frame that actually knock out a year or so of conversions). I was planning to just convert up to to the top of the current 12% bracket. But now I'm thinking that may not be enough. If I knew for sure it would not be enough, then I think I would convert (or just switch to Roth 401K for a few years). So, I think my homework is to try to determine what amount in my 401K/tIRA is too high (I expect my total retirement money to be between 2 and 3 million).
My thought was that if the RMDs are forcing me to convert an amount that I'd be converting anyways to live on, I'm okay with that. I'm also okay with some amounts above that, depending upon taxes.

Too much in traditional is when RMDs force me to pay more in taxes than I originally saved.

The problem is that when you hit 70 1/2 in 15 years or so, RMDs start low, then climb over the next 20 years. Your balance will actually also climb (because initial RMDs aren't high enough to deplete them.) By the end, your RMDs may get pretty high, especially if either you or your spouse passes and the survivor is suddenly dealing with individual tax rates.

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by retiredjg » Mon Jun 24, 2019 12:48 pm

wolf359 wrote:
Mon Jun 24, 2019 12:17 pm
If you wait until retirement, then your conversion will be filling all the income brackets. Some will be taxed at 10%, some at 12%, some at 22%, some at 24%. Your effective tax is lower if you're not working.
This is not my understanding of how it works.

In retirement, your income may stretch from the 0% bracket on up to the 24% (or whatever). But the conversion itself will only be taxed in the highest bracket or the highest two brackets if the conversion covers enough ground.

And the conversion itself may actually be at a higher marginal rate than your tax bracket in some circumstances (such as making more SS taxable or pushing qualified dividends/cap gains from the 0% rate to the 15% rate).

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by TropikThunder » Mon Jun 24, 2019 1:08 pm

retiredjg wrote:
Mon Jun 24, 2019 12:48 pm
In retirement, your income may stretch from the 0% bracket on up to the 24% (or whatever). But the conversion itself will only be taxed in the highest bracket or the highest two brackets if the conversion covers enough ground.
I don’t get this part. Why wouldn’t the conversion (which counts as regular income) fill the lower brackets first if there is no other income (retired, haven’t started collecting SS)?

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by retiredjg » Mon Jun 24, 2019 1:22 pm

TropikThunder wrote:
Mon Jun 24, 2019 1:08 pm
retiredjg wrote:
Mon Jun 24, 2019 12:48 pm
In retirement, your income may stretch from the 0% bracket on up to the 24% (or whatever). But the conversion itself will only be taxed in the highest bracket or the highest two brackets if the conversion covers enough ground.
I don’t get this part. Why wouldn’t the conversion (which counts as regular income) fill the lower brackets first if there is no other income (retired, haven’t started collecting SS)?
Well, it would if there is no other income. However, that is not the scenario I interpreted wolf359's post to mean. I could be wrong though.

Most people do have other income just to live on and the conversion "sits on top" of that other income. That is what I mean when I said that the conversion is taxed at the highest rate or maybe the highest 2 rates.

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by jbranx » Mon Jun 24, 2019 1:49 pm

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by FIREchief » Mon Jun 24, 2019 2:07 pm

wolf359 wrote:
Mon Jun 24, 2019 11:29 am
Social Security payments are scheduled to drop around 2030
This isn't really true.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by FIREchief » Mon Jun 24, 2019 2:11 pm

wolf359 wrote:
Mon Jun 24, 2019 12:17 pm
Rethinking this. If the situation above holds, then why not simply stop contributing to 401k traditional and change it to 401k Roth? If you're still working and contributing to your retirement account, then does it make sense to pay taxes to reduce it, while simultaneously adding more to be converted? Roth space is precious, so if you have the money to pay the taxes, just add new money to the 401k Roth in the first place. If you still have space, then convert beyond that.

I'm still wrestling with this issue, if you hadn't noticed.
It's a wash. You can contribute to a pre-tax account while simultaneously Roth converting other pre-tax qualified assets, or you can just change your contributions to Roth. The taxes and benefits are identical.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by Stinky » Mon Jun 24, 2019 2:25 pm

wolf359 wrote:
Mon Jun 24, 2019 11:29 am
Social Security payments are scheduled to drop around 2030
I believe that this is incorrect.

As I understand it, the SS "trust fund" is currently projected to be depleted at roughly that time. That's the whole story, as of the current time. No "scheduled drop in payments".
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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by One Ping » Mon Jun 24, 2019 3:10 pm

FIREchief wrote:
Mon Jun 24, 2019 2:07 pm
wolf359 wrote:
Mon Jun 24, 2019 11:29 am
Social Security payments are scheduled to drop around 2030
This isn't really true.
Stinky wrote:
Mon Jun 24, 2019 2:25 pm
wolf359 wrote:
Mon Jun 24, 2019 11:29 am
Social Security payments are scheduled to drop around 2030
I believe that this is incorrect.

As I understand it, the SS "trust fund" is currently projected to be depleted at roughly that time. That's the whole story, as of the current time. No "scheduled drop in payments".
Not to derail the thread too much, but the gist of the 2019 Social Security Trustees Report is:
The latest projection has the combined Social Security trust funds that pay retirement and disability benefits running out of cash reserves by 2035. ... Even if Congress does nothing to shore up the system by 2035, Social Security will be able to pay out about 75-80 percent of promised benefits until at least 2093.
ETA: SS is a pay as you go system. If there is no trust fund to draw on, benefits can only be paid based on 'cash flow' into the system. If the that isn't enough to pay all the benefits ... well ... you guess what happens.
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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by nodenuff2 » Mon Jun 24, 2019 3:30 pm

Hind sight is 20/20. Started my 401K in 1982. All the “experts” said save in a 401k. So I did all my saving inside tax deferred accounts. Fast forward 40 years and realize now that I should have saved some outside those accounts. Some in taxable some in Roth to diversify my taxes. Oh well worse problems to have. Don’t worry heirs will sort it out in a dew years.
2014 No. 42 2015 No.342 2016 No. 6 2017 238 2018 no. 175 What do I know? "Good bless America land that I love..."

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by grabiner » Tue Jun 25, 2019 10:09 pm

wolf359 wrote:
Mon Jun 24, 2019 12:17 pm
I may be overthinking it, but right now, your current income pops you into the 22% bracket. That means that any funds that you convert now will be taxed at 22% (or 24% if you stretch into the next bracket.)

If you wait until retirement, then your conversion will be filling all the income brackets. Some will be taxed at 10%, some at 12%, some at 22%, some at 24%. Your effective tax is lower if you're not working.

The original article is talking about the sweet spot of 22-24% tax brackets. The next jump up is 32%, which is significantly higher tax. If you aren't going to get anywhere near the top of the 24% tax bracket even with income and conversions, then I'd probably do it. It's a trade-off between a known tax rate (22-24%) and an unknown one (lower effective tax after retirement, maybe.)
Actually, the article is about something different: the 40.7% marginal tax rate that affects people in the 22% tax bracket who are still in the phase-in of Social Security taxation. The example couple is at the top of that marginal tax rate; converting this year at 22% and 24% reduces the amount taxed in future years at 40.7%. For the formula and examples, see Taxation of Social Security benefits on the wiki.

However, the advantage is somewhat overstated, because SS grows with inflation, while the phase-in of SS taxation does not. It is already rare for a married couple to have the 40.7% marginal tax rate; most couples have SS benefits low enough that they hit the top of the SS phase-in while still in the 12% tax bracket. (It's more likely for higher-income single retirees.) And as inflation increases SS and market growth increases RMDs, the example couple will probably fill up the whole 40.7% rate in a few years.
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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by JimInIllinois » Tue Jun 25, 2019 10:33 pm

FIREchief wrote:
Mon Jun 24, 2019 2:11 pm
It's a wash. You can contribute to a pre-tax account while simultaneously Roth converting other pre-tax qualified assets, or you can just change your contributions to Roth. The taxes and benefits are identical.
It depends on your state. Illinois doesn't tax Roth conversions, so better to contribute pre-tax and convert.

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Re: When the Conventional Wisdom about Taxes in Retirement is Wrong

Post by FIREchief » Tue Jun 25, 2019 10:40 pm

JimInIllinois wrote:
Tue Jun 25, 2019 10:33 pm
FIREchief wrote:
Mon Jun 24, 2019 2:11 pm
It's a wash. You can contribute to a pre-tax account while simultaneously Roth converting other pre-tax qualified assets, or you can just change your contributions to Roth. The taxes and benefits are identical.
It depends on your state. Illinois doesn't tax Roth conversions, so better to contribute pre-tax and convert.
Thx IlliniJim. I didn't know that! One more strange IL thing.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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