bob brinker on Roth [conversion]

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hulburt1
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bob brinker on Roth [conversion]

Postby hulburt1 » Wed Jul 12, 2017 11:41 am

Bob told a caller not to convert from Ira to Roth until after congress come out with new tax levels. Is that good advice?

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flamesabers
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Re: bob brinker on Roth

Postby flamesabers » Wed Jul 12, 2017 11:45 am

hulburt1 wrote:Bob told a caller not to convert from Ira to Roth until after congress come out with new tax levels. Is that good advice?


Has the new tax levels been officially signed into law? If not, it's just pure speculation as to whether it's better to do a IRA conversion now or later. People who will be in a low tax bracket for the year I think should do the conversion now and not worry about what Congress may or may not do.

mhalley
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Re: bob brinker on Roth

Postby mhalley » Wed Jul 12, 2017 12:09 pm

It's a trade off for those in retirement. I am converting a portion every year, but only have so many years until I hit 70 and will probably stop doing conversions. If I skip this year I would have to increase the amount converted over the next several years in order to convert the same amount of money. Would I be better off waiting and then converting more every year? Can't say until the tax rates are finalized. If the tax rates went down significantly, then I could convert even more by converting this year, then increasing the amount going forward.

The Wizard
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Re: bob brinker on Roth

Postby The Wizard » Wed Jul 12, 2017 12:27 pm

hulburt1 wrote:Bob told a caller not to convert from Ira to Roth until after congress come out with new tax levels. Is that good advice?

It's probably not something to discuss much here due to proposed legislation...
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rkhusky
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Re: bob brinker on Roth

Postby rkhusky » Wed Jul 12, 2017 1:05 pm

What is his prognostication record for predicting details of future legislation? If it is above 80%, you might want to heed the advice. If it is below 50%, completely disregard.

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celia
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Re: bob brinker on Roth

Postby celia » Wed Jul 12, 2017 1:24 pm

I think he means that changes in tax law are something that the caller might want to consider. I would counter that you can convert now and recharacterize and re-convert again next year. REMEMBER TO CONVERT INTO A NEW (empty) ROTH, so that possible recharacterizations are easier.

We also don't know if the caller was planning a one-time conversion or a series of them over several years.

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Re: bob brinker on Roth

Postby LadyGeek » Wed Jul 12, 2017 2:15 pm

Invest as you would under current law, then revise your decision after the law has been changed. See this post: Re: Tax exempt muni bond funds & proposed lower rates on taxable investment interest

The important point is to keep investors from making bad decisions. Proposed regulations change many times between the time they're introduced and signed into law.

Opinions of the political process or conjecture on what "might" happen is off-topic.
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nedsaid
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Re: bob brinker on Roth

Postby nedsaid » Wed Jul 12, 2017 3:52 pm

hulburt1 wrote:Bob told a caller not to convert from Ira to Roth until after congress come out with new tax levels. Is that good advice?


Investors should look to make their portfolios tax efficient as taxes are a big expense for investors. This is a perfect example of why I tell people not to overdo tax strategies. We live in a dynamic world and unfortunately such things as tax law and tax rates are dynamic as well. I am conservative on advice for Roth conversions, one reason is that it generates a tax bill, and a second reason is that tax laws can change. Roth IRAs have the advantage over Traditional IRAs only if the tax bracket for the investor is higher in retirement than while working, of course assuming you get the full tax deduction for contributions to Traditional IRAs. Be mindful of the taxation of investments but don't tie yourself into a pretzel over this.
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TomatoTomahto
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Re: bob brinker on Roth

Postby TomatoTomahto » Wed Jul 12, 2017 4:26 pm

I don't know Bob Brinker from Adam.

I think it's fair to say, and I believe it falls within forum rules, that we are likely to have tax reform "soon." In the prologue to A Fine Mess by T.R. Reid, it is pointed out that the federal income tax is substantially redone every roughly 32 years. 1922, 1954, 1986, uh, 2018? Numerical patterns like that are too neat for anyone but sports fans, but still, we probably are due. 8-)

I think that letting the tax tail wag the investment dog is not good planning. Thankfully, in my case, Roth conversions are not even a close call, so I don't have to think too much.

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FIREchief
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Re: bob brinker on Roth

Postby FIREchief » Wed Jul 12, 2017 5:27 pm

Well, I know with 100% certainty that the tax rates for my situation will do one of three things:
a) stay the same
b) go up
c) go down

This is a lot like financial planning with respect to interest rates (they also will do one of the same three things). Doing nothing with respect to Roth conversions is a lot like sitting in cash. Sometimes inaction is a really bad plan.

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TomatoTomahto
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Re: bob brinker on Roth

Postby TomatoTomahto » Wed Jul 12, 2017 5:37 pm

FIREchief wrote:Well, I know with 100% certainty that the tax rates for my situation will do one of three things:
a) stay the same
b) go up
c) go down

That's true, but I wouldn't assign equal probabilities. Usually, change in either direction is smaller than you think it will be, and take longer to go into effect than you think it will. So, I plan for "stay the same."

Thesaints
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Re: bob brinker on Roth

Postby Thesaints » Wed Jul 12, 2017 6:04 pm

we can safely exclude they will go higher until 2021, at least.

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Re: bob brinker on Roth

Postby The Wizard » Wed Jul 12, 2017 6:11 pm

Thesaints wrote:we can safely exclude they will go higher until 2021, at least.

I disagree...
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Re: bob brinker on Roth

Postby Cyclesafe » Wed Jul 12, 2017 6:18 pm

One should diversify one's tax exposure the same way one would diversify one's investments. Precipitously acting on a hunch / prediction, as often as not, will not end well. Stay the course.

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Re: bob brinker on Roth

Postby mhalley » Wed Jul 12, 2017 6:53 pm

I listened to the podcast today, and as some background the caller wanted to leave his Ira to a son who is in the 33% tax bracket, and was thinking of converting up to the 25-28% bracket. Bob said it was ok to do the Roth conversion to the 15% tax bracket, but then wait a few months to see what happens to tax rates before converting more. That doesn't seem too off base.

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Re: bob brinker on Roth

Postby Thesaints » Wed Jul 12, 2017 6:57 pm

However, isn't always possible to recharacterize rhe conversion ? As such, one would want to wait for Jan1 and have almost 16 of wait & see time.

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FIREchief
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Re: bob brinker on Roth

Postby FIREchief » Wed Jul 12, 2017 7:37 pm

Thesaints wrote:However, isn't always possible to recharacterize rhe conversion ? As such, one would want to wait for Jan1 and have almost 16 of wait & see time.


He would actually have almost 22 months of wait & see time.

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FIREchief
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Re: bob brinker on Roth

Postby FIREchief » Wed Jul 12, 2017 7:39 pm

TomatoTomahto wrote:
FIREchief wrote:Well, I know with 100% certainty that the tax rates for my situation will do one of three things:
a) stay the same
b) go up
c) go down

That's true, but I wouldn't assign equal probabilities. Usually, change in either direction is smaller than you think it will be, and take longer to go into effect than you think it will. So, I plan for "stay the same."


I couldn't agree more, which is why I plan my Roth conversion strategy based upon current law. I do consider the possibility of elimination of the stretch as well, however either with or without the stretch; Roth conversion is a big winner for heirs when an asset protection trust is involved..

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FIREchief
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Re: bob brinker on Roth

Postby FIREchief » Wed Jul 12, 2017 7:42 pm

mhalley wrote:I listened to the podcast today, and as some background the caller wanted to leave his Ira to a son who is in the 33% tax bracket, and was thinking of converting up to the 25-28% bracket. Bob said it was ok to do the Roth conversion to the 15% tax bracket, but then wait a few months to see what happens to tax rates before converting more. That doesn't seem too off base.


I think it sounds way off base. Roth converting to the top of 15% is almost always a no-brainer, and with an heir in the 33% bracket; I can't imagine why he should hesitate to convert at least to the top of 28%.

Couple of months? LOL

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Re: bob brinker on Roth

Postby user5027 » Wed Jul 12, 2017 7:45 pm

If you convert on Jan 1, 2018 you have until Oct 2019 to recharacterize.

A 2017 conversion can be recharacterized as late as Oct 2018.

If you already filed you will need to amend.

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LadyGeek
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Re: bob brinker on Roth

Postby LadyGeek » Wed Jul 12, 2017 7:53 pm

This thread is now in the Personal Finance (Not Investing) forum (tax impacts of Roth conversion).
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celia
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Re: bob brinker on Roth

Postby celia » Sat Jul 15, 2017 4:59 pm

mhalley wrote:I listened to the podcast today, and as some background the caller wanted to leave his Ira to a son who is in the 33% tax bracket, and was thinking of converting up to the 25-28% bracket. Bob said it was ok to do the Roth conversion to the 15% tax bracket, but then wait a few months to see what happens to tax rates before converting more. That doesn't seem too off base.

What many people don't consider is when the current IRA owner will die. If he dies after the son stops working, what will the son's tax bracket be at that time compared to the account owner's? How much will the account owner have to withdraw meanwhile? If he doesn't need it for spending, it might as well be converted instead (after RMDs are withdrawn).

And even if the tax law changed tomorrow, what will it be like in 32+ years from now when another change could happen? All you can do is go with what you know and try to diversify your tax rate over time (as laws change).

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Re: bob brinker on Roth

Postby Alan S. » Sat Jul 15, 2017 9:17 pm

FIREchief wrote:
TomatoTomahto wrote:
FIREchief wrote:Well, I know with 100% certainty that the tax rates for my situation will do one of three things:
a) stay the same
b) go up
c) go down

That's true, but I wouldn't assign equal probabilities. Usually, change in either direction is smaller than you think it will be, and take longer to go into effect than you think it will. So, I plan for "stay the same."


I couldn't agree more, which is why I plan my Roth conversion strategy based upon current law. I do consider the possibility of elimination of the stretch as well, however either with or without the stretch; Roth conversion is a big winner for heirs when an asset protection trust is involved..


This is a really good point regarding stretch elimination since there is a considerable amount of support for it. Under the 5 year rule, the best the beneficiary could do would be to distribute around 1/6 of the balance in 6 different calendar years. The marginal rate paid will increased on these distributions for larger IRAs.

Of course, determining how much of your own assets you want to deplete paying conversion taxes for the benefit of your beneficiary is another issue altogether. Without good LTC insurance, you would be much better off paying these high costs from your TIRA since they will be mostly deductible in excess of 10% of AGI. The deduction is worth more when the IRA distribution is taxable.

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FIREchief
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Re: bob brinker on Roth

Postby FIREchief » Sat Jul 15, 2017 11:03 pm

Alan S. wrote:
This is a really good point regarding stretch elimination since there is a considerable amount of support for it. Under the 5 year rule, the best the beneficiary could do would be to distribute around 1/6 of the balance in 6 different calendar years. The marginal rate paid will increased on these distributions for larger IRAs.

Of course, determining how much of your own assets you want to deplete paying conversion taxes for the benefit of your beneficiary is another issue altogether. Without good LTC insurance, you would be much better off paying these high costs from your TIRA since they will be mostly deductible in excess of 10% of AGI. The deduction is worth more when the IRA distribution is taxable.


I believe they are deductible in excess of 7.5% if a person is at least 65.

You've clearly described the one scenario I can think of where I might think twice about maximizing my Roth conversions. Too much and a person risks paying LTC with Roth dollars. Too little and RMDs and stretch elimination can become quite "taxing." That said, if the stretch were to be eliminated, tIRA dollars would fall far behind appreciated after-tax investments wrt estate planning. Conventional wisdom often suggests burning down after-tax dollars first, but for many situations burning down the tIRA dollars via withdrawals for living expenses and Roth conversions may be more desirable (with the taxes on conversions also coming out of the tIRA).

Ron Scott
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Re: bob brinker on Roth [conversion]

Postby Ron Scott » Sun Jul 16, 2017 5:36 am

Bob might have been assuming the law would pass in a few months and the caller might have a small amount to convert. If so waiting a few months can't hurt.

annielouise
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Re: bob brinker on Roth [conversion]

Postby annielouise » Sun Jul 16, 2017 7:26 am

Considering the length of the runway that the IRS needs to implement changes, this seems like poor advice. It seems reasonable at this time to expect any major reform to take effect no earlier than 2018.

Thesaints wrote:we can safely exclude they will go higher until 2021, at least.


It never hurts to spend some time reading through proposals. No one knows what will get implemented, but I do know that many of the current ideas will raise our taxes. For reference: we are at the bottom end of the top quintile and currently itemize.

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Re: bob brinker on Roth [conversion]

Postby heyyou » Sun Jul 16, 2017 9:17 pm

I would counter that you can convert now and recharacterize and re-convert again next year. REMEMBER TO CONVERT INTO A NEW (empty) ROTH, so that possible recharacterizations are easier.

As usual, good info from Celia.
Note that Brinker needs uncertainty so he can sound authoritative. His answer is best for his business/radio show, so come back tomorrow for more expert answers to your questions!

Celia's answer is best for BHs and for the public.


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