marcopolo wrote: ↑
Fri May 25, 2018 6:59 pm
smitcat wrote: ↑
Fri May 25, 2018 6:37 pm
marcopolo wrote: ↑
Fri May 25, 2018 2:58 pm
smitcat wrote: ↑
Fri May 25, 2018 2:18 pm
Our solution is to run the potential Roth conversions thru the RPM calculator/spreadsheet and see what the affect has in store for your case.
You can then vary the future possibilities and see would happen.
Unfortunately - there is no calculator which will foretell what are earnings, taxes, or drawdown needs will be in the future so we must supply our best guess on our own.
FWIW - in our case we are definetaly for Roth conversions. Differing inputs will yield differing results.
I have to admit, I am still trying to figure out all the nuance of the RPM spreadsheet.
Just out of curiosity, how big do you go with your Roth conversions? It seems doing so to the top of the 12% bracket makes a lot of sense. But, as someone a few posts up mentioned, voluntarily paying 22% now just seems like too big a pill to swallow given the uncertainties of future events.
OK so I will say that everyone's results will be different dependent upon their inputs. The key is to mostly lower the taxable base before your RMD's kick in and the RPM will show you the base case(no coverts) vs the Roth conversion . By playing around with the amount of Roth conversions you will get to an optimal amount - which we intend to check each year with the latest data on our balances, taxes, etc. With that said I will respond to your questions by looking at our last RPM output...
"Just out of curiosity, how big do you go with your Roth conversions?" - 24%
Total taxes paid in base case = $877,000
Total taxes paid in full case = $392,300
Difference in tax total = $484,700
Difference in account balances ending = $642,300
This run is with both of us living a ripe old age the advantage is steeper when we run this with one spouse passing early.
I don't think you will ever be able to picture this in your mind unless/until you run the RPM - at least we were unable to come close to projecting these outcomes without running them.
That difference is huge. Is that in nominal dollars, inflation adjusted dollars, or dollars adjusted by the assumed investment growth rate? I think the last one is what you want to be comparing, right?
Paying $100,000 today may be worse than paying $200,000 20 years from now if the $100,000 left to grow would have been $400,000 in 20 years.
I was hoping to encourage others to run their own numbers rather than have a discussion about all of our variables which go into this - which would take up a few pages anyway and not apply to your situation.
The difference in account balance ending is one of the smaller runs , it goes up appreciably with any one of these changes:
- one spouse passing early
- an 'average' or higher earnings exectation (our are conservative)
- a larger inflation rate (our are average)
- a smaller drawdown (we have a much larger drawdown then we expect to use)
- tax rates remain flat as is in this run
I could have put in the numbers for a run with 7% account earnings, one spouse pass at 80 , drawdown of 50% and inflation at 3% but no-one would believe it.
So the balance at end could be converted to 'spendable' money by making the drawdown higher but in our case it is for heirs. About 10 years back when my father passed he left me a very small 401K inheritance - I must take about $1,000/yr on that in forced RMD's. I have learned that those funds go on 'top' of my existing eaernings and i have noo choice taking them right about when my earnings/taxes are at theor greatest point. Therefor my tax rate on this RMD has been close to 40% between Fed and State taxes.So whether we spend these dollars or leave them our best fit solution resides in running these models and choosing the best outcomes and refining each year.
My message is that the affect os not what you may think and that it IS worth running your own numbers to get your choices.
It will take time to initially set up and understand but it will hlep your view of not only Roth conversions but many other options, variables, and consequeces.