keep cash in after-tax for bridge to Social Security ?

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RustyShackleford
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keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Thu Jul 26, 2018 2:17 pm

I am 65-1/2yo, retired, and plan to take Social Security at age 70. Currently I have almost enough cash (and cash equivalents like short-term CDs) to last me until then. SS will almost meet my living expenses - and by annuitizing a TIAA-CREF account, also planned at age70, I will be there - so my other investments will be gravy.

My question: should I violate the usual wisdom against keeping this cash in my after-tax accounts ? IOW, portfolio advice I've received here is to try to make my after-tax be mostly equities, and keep fixed-income stuff (like the short-term CDs where I like to keep cash these days) in tax-deferred and tax-advantaged accounts. With mostly equities in after-tax, I'd minimize taxes, since dividends are mostly qualified, and any taxable gains tend to be in the 0% bracket - I carefully manage my taxable income to exactly fill the 15% federal marginal bracket (the 0% LTCG bracket) with Roth conversions and LTCGs (equity sales in after-tax for rebalancing and basis step-up).

If I move the cash & CDs to tax-deferred and tax-advantaged, I'd do it by selling the small amounts of equity I have there and rebuying it with in after-tax with that cash. But then I can't use that cash for the 4 year bridge till I start SS and T-C annuity, without taking a distribution from either my tax-deferred or tax-advantaged accounts. Both would be pretty undesirable, because from tax-deferred would eat into my 15% tax bracket (that I'm using for Roth conversions etc), and it's nuts to use Roth money this early. Of course, I could sell after-tax equities for the bridge money, but it seems fairly likely there'll will be a significant market decline between now and age70 (not to market-time, but we are way overdue for a recession), so I'd be selling them disadvantageously.

So my inclination is to just keep that 4 years of living expenses (the bridge until age 70) in my after-tax in CDs, Treasuries, etc, and bit the bullet on the taxes I pay on the ordinary income they generate (probably only $3000/year or so). The alternative would be to move it to tax-deferred and tax-advantaged, and if I end up needing to do one of these disadvantageous things (selling equities in a market dip, or taking distributions from tax-deferred or tax-advantaged), just start taking SS earlier than 70yo instead.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by invst65 » Thu Jul 26, 2018 2:49 pm

I'm also holding enough cash in a taxable account as a bridge to Social Security. Been doing this for 2 years now and I have one more year to go. I hold the cash mostly in the form of T-Bills.

I didn't realize this went against conventional wisdom. Come to think of it, where else would you even hold the cash for this purpose?

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Re: keep cash in after-tax for bridge to Social Security ?

Post by delamer » Thu Jul 26, 2018 2:59 pm

Conventional wisdom sometimes contradicts itself. :(

It is also conventional wisdom to spend down your taxable accounts in retirement before you spend from your tax-advantaged accounts.

I don’t see any reason to move the cash you need for the next few years.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by Dottie57 » Thu Jul 26, 2018 3:12 pm

I have multiple years in cash. If the market earns 4% for me, then I will take from stocks and bonds and use cash for Roth conversion. The more down the market is, the more cash will be used for living. I think it is reasonable at this point.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by Leif » Thu Jul 26, 2018 4:51 pm

I've setup cash and CDs to last me until 70 when SS and RMDs kick in. Just as you are thinking.

Stocks should be for investing for goals with a 10+ year time horizon. Certainly not the case here. If you are in a particularly high tax bracket you could look for Muni money markets and short term muni funds. Plus, given the high PE10 of equities now I would not be inclined to take the risk.

PS - Just reread your post. You are not in a high tax bracket. I think cash (1-2 years) plus a CD ladder is the way to go.
Last edited by Leif on Thu Jul 26, 2018 5:50 pm, edited 1 time in total.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by GAAP » Thu Jul 26, 2018 5:08 pm

Given your chosen strategy, I wouldn't move the cash elsewhere -- but I would be nervous about 5 years of inflation taking some of that value. You don't say what you're making on those short-term CDs, but I doubt they stay even in real terms. Perhaps some inflation-protected securities or short-term bonds for some of that money?

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Re: keep cash in after-tax for bridge to Social Security ?

Post by dm200 » Thu Jul 26, 2018 5:12 pm

Currently I have almost enough cash (and cash equivalents like short-term CDs) to last me until then. SS will almost meet my living expenses - and by annuitizing a TIAA-CREF account, also planned at age70, I will be there - so my other investments will be gravy.
Wouldn't you, at least, put this into a CD ladder going out the five years?

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Thu Jul 26, 2018 5:14 pm

I didn't realize this went against conventional wisdom. Come to think of it, where else would you even hold the cash for this purpose?
When I've presented my portfolio here, people have objected to my holding CDs and such in after-tax, because the interest/dividends are ordinary income. They've wanted me to make my after-tax pretty much all equity, thereby paying very little taxes, since most of the dividends would be QDI, and the LTCGs are taxed at zero (since I keep myself in the 15% marginal bracket, which is 0% on QDI and LTCG).

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Thu Jul 26, 2018 5:16 pm

GAAP wrote:
Thu Jul 26, 2018 5:08 pm
Given your chosen strategy, I wouldn't move the cash elsewhere -- but I would be nervous about 5 years of inflation taking some of that value. You don't say what you're making on those short-term CDs, but I doubt they stay even in real terms. Perhaps some inflation-protected securities or short-term bonds for some of that money?
It's 4 years, because this year's (aka. the year I'm 65yo) money is already in my checking account. I'm buying 1yr CDs mostly, earning 2+%, roughly even with inflation. I'm against bond funds now, on account of interest rates rising.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Thu Jul 26, 2018 5:20 pm

dm200 wrote:
Thu Jul 26, 2018 5:12 pm
Wouldn't you, at least, put this into a CD ladder going out the five years?
With interest rates headed upwards, I think I'm better off just buying 1yr ones. For example, looking at Vanguards chart of fixed-income yields (https://personal.vanguard.com/us/FixedIncomeHome), a 5yr Treasury is earning only 44 basis points more than a 1yr one (and oddly, the 1yr Treasury is earning more than 1yr CDs).

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Thu Jul 26, 2018 5:24 pm

Leif wrote:
Thu Jul 26, 2018 4:51 pm
I've setup cash and CDs to last me until 70 when SS and RMDs kick in. Just as you are thinking.
Great minds think alike :-) . No one else here seems to think I'm off-base either, though some object slightly to exactly how I deploy this "bridge" money.
Stocks should be for investing for goals with a 10+ year time horizon.
Naturally. Of course, if stocks continue to go up even towards my 70th birthday, I'll use stocks for spending money instead, basically re-balancing.

Thanks all, for your thoughts.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by 101 » Thu Jul 26, 2018 6:00 pm

It might be a good idea to run some numbers. In general holding the stocks in the taxable account should come out ahead, because if the stocks were in tax-deferred the earnings from both the CDs and the stocks would be taxed as ordinary income, whereas if the stocks were in taxable only the CD earnings would be taxed as ordinary income; the portion of the stock earnings attributable to LTCG and qualified dividends would be taxed at a lower rate.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by Angst » Thu Jul 26, 2018 6:20 pm

Look at your portfolio in its entirety:
If you need money, sell equity in taxable and simultaneously use "cash" in tax-deferred to buy back equity.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Fri Jul 27, 2018 1:38 am

Angst wrote:
Thu Jul 26, 2018 6:20 pm
Look at your portfolio in its entirety:
If you need money, sell equity in taxable and simultaneously use "cash" in tax-deferred to buy back equity.
You're right, that protects me from having to sell equities low because I have nothing else in taxable. But the sale of the equities (whether I buy them back in tax-deferred or not) generates LTCGs that eat into the 15% tax bracket that I'm utilizing to Roth-convert as much as possible before I hit RMDs.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by The Wizard » Fri Jul 27, 2018 3:00 am

RustyShackleford wrote:
Thu Jul 26, 2018 5:14 pm
I didn't realize this went against conventional wisdom. Come to think of it, where else would you even hold the cash for this purpose?
When I've presented my portfolio here, people have objected to my holding CDs and such in after-tax, because the interest/dividends are ordinary income. They've wanted me to make my after-tax pretty much all equity, thereby paying very little taxes, since most of the dividends would be QDI, and the LTCGs are taxed at zero (since I keep myself in the 15% marginal bracket, which is 0% on QDI and LTCG).
Correct. I agree with those statements.
I'm 68, retired five years, with 20 months to go until age 70 SS.
Only cash I keep is in checking account and no more than $10k there. Excess gets reinvested in VTSAX in my taxable account.

Recommend you annuitize a portion of your TIAA holdings now rather than waiting further. I did at age 63.

I've been withdrawing $3000/month from my unannuitized TIAA holdings (60% stocks) as a bridge to age 70, though half of that is an ongoing Roth conversion.

Excessive cash holdings are greatly overrated, I think, but people have individual styles and risk tolerance, so I understand that.

Also, have you projected what your AGI will be from age 70 on?
Will it be a lot higher than it is now?
If so, this is a good reason to withdraw more from tax deferred now, both for living expenses and Roth conversions.
Strategy depends a lot on relative sizes of your various accounts, but still no reason for excess cash, especially in taxable.
Note: TIAA Traditional is not "cash"...
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Re: keep cash in after-tax for bridge to Social Security ?

Post by 22twain » Fri Jul 27, 2018 6:46 am

RustyShackleford wrote:
Thu Jul 26, 2018 2:17 pm
If I move the cash & CDs to tax-deferred and tax-advantaged, I'd do it by selling the small amounts of equity I have there and rebuying it with in after-tax with that cash. But then I can't use that cash for the 4 year bridge till I start SS and T-C annuity, without taking a distribution from either my tax-deferred or tax-advantaged accounts.
There's no need to take distributions from tax-deferred in order to use the cash.
I could sell after-tax equities for the bridge money,
This is precisely what you should do, but it's only half of the complete strategy.
but it seems fairly likely there'll will be a significant market decline between now and age70 [...] so I'd be selling them disadvantageously.
After selling those taxable stocks at low prices, you then use some of the cash/CDs/whatever in tax-deferred to buy an equal amount of stock there, at those same low prices. No net loss.
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Re: keep cash in after-tax for bridge to Social Security ?

Post by 101 » Fri Jul 27, 2018 7:09 am

RustyShackleford wrote:
Fri Jul 27, 2018 1:38 am
But the sale of the equities (whether I buy them back in tax-deferred or not) generates LTCGs that eat into the 15% tax bracket that I'm utilizing to Roth-convert as much as possible before I hit RMDs.
Isn't the same true for your CD earnings?

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Re: keep cash in after-tax for bridge to Social Security ?

Post by dm200 » Fri Jul 27, 2018 10:15 am

If you are (or will be) subject to IRMAA - you might want to look if you can manage current and future income flows to reduce any adverse affects.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Fri Jul 27, 2018 11:54 am

22twain wrote:
Fri Jul 27, 2018 6:46 am
After selling those taxable stocks at low prices, you then use some of the cash/CDs/whatever in tax-deferred to buy an equal amount of stock there, at those same low prices. No net loss.
Yeah, same as "Angst" said above.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Fri Jul 27, 2018 12:01 pm

The Wizard wrote:
Fri Jul 27, 2018 3:00 am
Recommend you annuitize a portion of your TIAA holdings now rather than waiting further.
Why ?
Excessive cash holdings are greatly overrated, I think, but people have individual styles and risk tolerance, so I understand that.
It's not for risk tolerance. It's simply how best to do this "bridge" until I hit age 70. My strategy for risk management is simply to start taking SS before age 70 if need be.
Also, have you projected what your AGI will be from age 70 on?
Will it be a lot higher than it is now?
No, I imagine I'll be able to keep in the 15% bracket and live as I'd like, especially given how much I've been able to move to Roth since retiring from full-time work at age 52 or so.
... a good reason to withdraw more from tax deferred now, both for living expenses and Roth conversions.
Yeah, I guess withdrawals from tax-deferred will reduce RMDs whether they go towards living expenses or into Roth.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Fri Jul 27, 2018 12:14 pm

101 wrote:
Fri Jul 27, 2018 7:09 am
RustyShackleford wrote:
Fri Jul 27, 2018 1:38 am
But the sale of the equities (whether I buy them back in tax-deferred or not) generates LTCGs that eat into the 15% tax bracket that I'm utilizing to Roth-convert as much as possible before I hit RMDs.
Isn't the same true for your CD earnings?
Well, if I keep $40,000 worth of cash in taxable for next year's living expenses, put it in a 1-year Treasury, I'm gonna earn about 2.5% interest. If instead I "move" that cash to tax-deferred or tax-advantaged (by selling equity there and rebuying it in taxable), then when I go to sell that equity for next year's living expenses, I'll pay capital gains. If I sell older equity positions, the LTCGs are gonna be a lot more than 2.5% of the sale - taxable at 0%, but still using up a lot more (than the T-Bill interest) of my precious 15% bracket. If I sell the ones I just bought, I have to make sure I hold them at least a year, lest the CGs be ordinary income.
Last edited by RustyShackleford on Fri Jul 27, 2018 12:51 pm, edited 1 time in total.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by B'Falls_JT » Fri Jul 27, 2018 12:18 pm

Your plan makes sense to me! Our situation is somewhat similar with a little longer time frame until we collect SS. Prior to retirement, we bought CDs with after-tax money (mostly 2-yr) to cover expenses for 4-5 years once we retired (goal was to have some insurance against sequence-of-returns risk). We only keep up to one year's expenses in actual cash accounts and most of the rest in CDs (also have a few EE and I bonds, and we spin off dividends from after-tax stock holdings). We retired at 59 and began using this money for expenses/taxes. The plan was (and is) for wife to take SS at 66 and me to take SS at 70. Likewise, we also do Roth conversions while staying at or below the 15% tax bracket. As the market has generally been good, we have sold after-tax stock (ETF) shares via re-balancing to replenish our 4-5-year bucket. So far, things have worked well (good fortune with stock market results). In the event of a market crash, our contingency plans are to 1) sell the savings bonds; 2) do stock swaps (sell in after-tax and buy in tax-advantaged); 3) take an IRA distribution (sale of short-term bonds); or 4) take a Roth distribution. However, there are drawbacks to each of these approaches.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by SGM » Fri Jul 27, 2018 12:28 pm

I ended up spending from bond and stock dividends from taxable in the 4 years I delayed SS. I did cash in some I-bonds from treasury direct, because I think they might have been difficult for DW to access. That was another reason I took a small pension earlier than I might have otherwise.

My other plan was to buy a USAA savings annuity which paid 4% tax deferred initially 8 years ago. Currently it is paying 3.2%. It grew by about 37.5% over those 8 years tax deferred. It has never been annuitized and I could have taken out 10% every year over the last 7 years. I didn't need the money so I now have the issue of whether to annuitize it or just start taking it out over a couple of years. I may just take it out over the next 10 years in which I expect we would enjoy more travel than we would later in life.

We also had a spousal SS benefit that started 3 years ago. At about the same time we started the TIAA-CREF annuity. We didn't see much benefit in waiting for T-C annuitization. Due to the extremely low costs to the company and our contract which puts the mortality credit responsibility on the annuitant the payouts have risen a lot in 3 years. I suspect it will continue to go up as the annuitants in our cohort are quite aged.

We also used the lower income time to make Roth conversions. The conversions started after 2010 in a low income year and continued while I worked only part time and continued to make contributions to a solo 401k and a profit sharing plan. I finished up the conversions after complete retirement.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Sun Jul 29, 2018 1:50 pm

22twain wrote:
Fri Jul 27, 2018 6:46 am
After selling those taxable stocks at low prices, you then use some of the cash/CDs/whatever in tax-deferred to buy an equal amount of stock there, at those same low prices. No net loss.
One problem with this strategy ... If, as seems likely, there's a major correction sometime between now and when I turn 70yo 4-1/2 years from now, I may actually end up selling those after-tax equities at a loss. But if I then rebuy them in tax-deferred/advantaged, wash sale rules will kick in - and I can't add the disallowed loss to the basis in the repurchased stock. So I have to either wait 30 days and hope the value doesn't go up (of course, it might go down, but it's a crap-shoot), or game the system by buying something that's similar enough but not "substantially identical".

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Re: keep cash in after-tax for bridge to Social Security ?

Post by Leif » Sun Jul 29, 2018 3:31 pm

RustyShackleford wrote:
Sun Jul 29, 2018 1:50 pm
... or game the system by buying something that's similar enough but not "substantially identical".
The is very common in TLH. You may sell TSM and buy S&P500 for example.

What would bother me is moving more equities into my tax deferred. As I look to RMDs I want the higher expected return assets out of my tax deferred accounts. I'm working hard, via Roth conversions, to do just that.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Tue Aug 07, 2018 12:36 pm

Leif wrote:
Sun Jul 29, 2018 3:31 pm
RustyShackleford wrote:
Sun Jul 29, 2018 1:50 pm
... or game the system by buying something that's similar enough but not "substantially identical".
The is very common in TLH. You may sell TSM and buy S&P500 for example.

What would bother me is moving more equities into my tax deferred. As I look to RMDs I want the higher expected return assets out of my tax deferred accounts. I'm working hard, via Roth conversions, to do just that.
By "moving equities into tax-deferred", you mean if you're forced to sell equity in after-tax, at low prices, for spending needs, and then you rebuy it in tax-deferred so as not to have had a net loss in equity (and to keep your AA on target) ?

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Re: keep cash in after-tax for bridge to Social Security ?

Post by The Wizard » Tue Aug 07, 2018 12:51 pm

RustyShackleford wrote:
Tue Aug 07, 2018 12:36 pm
Leif wrote:
Sun Jul 29, 2018 3:31 pm
RustyShackleford wrote:
Sun Jul 29, 2018 1:50 pm
... or game the system by buying something that's similar enough but not "substantially identical".
The is very common in TLH. You may sell TSM and buy S&P500 for example.

What would bother me is moving more equities into my tax deferred. As I look to RMDs I want the higher expected return assets out of my tax deferred accounts. I'm working hard, via Roth conversions, to do just that.
By "moving equities into tax-deferred", you mean if you're forced to sell equity in after-tax, at low prices, for spending needs, and then you rebuy it in tax-deferred so as not to have had a net loss in equity (and to keep your AA on target) ?
Not sure what Leif meant, but that seems backwards.
Five years into retirement at 68, I live off monthly pro rata withdrawals from my tax deferred (TIAA) account.
I accumulate excess income some months in my smallish taxable account, all in VTSAX.

Individual answers probably depend on relative sizes of your various accounts...
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Re: keep cash in after-tax for bridge to Social Security ?

Post by Leif » Tue Aug 07, 2018 7:28 pm

RustyShackleford wrote:
Tue Aug 07, 2018 12:36 pm
By "moving equities into tax-deferred", you mean if you're forced to sell equity in after-tax, at low prices, for spending needs, and then you rebuy it in tax-deferred so as not to have had a net loss in equity (and to keep your AA on target) ?
Yes.

The proposal was to keep equities in taxable and not interest bearing, such as cash and CDs. The argument was more tax efficient. However, to keep the AA the same (or not lose money in a down market) it was suggested to buy equities to tax deferred to offset the sale of equities in taxable to fund the SS bridge. That would essentially "move" equities into tax deferred.

I have a CD ladder in taxable. As my CDs come due I'm using part of the money to fund the SS bridge. As I have extra cash I'm buying equities in taxable and selling equities (to buy bonds) in my tIRA (keeping my AA the same). The holy grail for me is to get all equities out of my tIRA (to Roth and taxable) prior to RMDs. Even selling equities in my tIRA and doing Roth conversions I don't believe I'll meet my goal. But, as much as I can get done, I think I will lower the expected return of my tIRA and thus reduce the RMDs and taxes.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Wed Aug 08, 2018 1:14 pm

The Wizard wrote:
Tue Aug 07, 2018 12:51 pm
Not sure what Leif meant, but that seems backwards.
Five years into retirement at 68, I live off monthly pro rata withdrawals from my tax deferred (TIAA) account.
I accumulate excess income some months in my smallish taxable account, all in VTSAX.
Leif just responded with a nice summary of his approach, which I believe I'll adopt. The only fly I see in his ointment is potential wash-sale rule applying if selling equity low in taxable and rebuying in tax-deferred to maintain AA, but this should be easily circumventable by buying similar but not identical stuff.

The thing I don't like about your plan is that instead of doing withdrawals from your TIAA account, you could be doing Roth conversions (technically those are "taxable rollovers", not "Roth conversions", since the TIAA account is not a TIRA, but it's pretty much the same thing). Thereby reducing your RMDs when you hit 70yo. This is assuming you have a target taxable income, such as (like me) the top of the 15% marginal federal tax bracket.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Thu Aug 09, 2018 1:07 pm

Leif wrote:
Tue Aug 07, 2018 7:28 pm
I have a CD ladder in taxable. As my CDs come due I'm using part of the money to fund the SS bridge. As I have extra cash I'm buying equities in taxable and selling equities (to buy bonds) in my tIRA (keeping my AA the same). The holy grail for me is to get all equities out of my tIRA (to Roth and taxable) prior to RMDs. Even selling equities in my tIRA and doing Roth conversions I don't believe I'll meet my goal. But, as much as I can get done, I think I will lower the expected return of my tIRA and thus reduce the RMDs and taxes.
My problem is that the only TIRA money I have is an RA at TIAA-CREF (technically it's not an IRA, but it's the moral equivalent). So although it makes sense to get equities out of that (by buying equities in after-tax and buying fixed-income in TIRA, as we've discussed) it does not make sense to do the same thing with a Roth. That would be letting the tax tail wag the asset location dog, since obviously having high-returning assets in a Roth is good.

I've got a whopping big after-tax CD maturing in October. If I decide to buy equities with it, I'd need to sell some in tax-deferred (to maintain my AA). But I don't have any equities in my TIRA (aka. TIAA-CREF RA), so I'd have to sell some in my Roth. And I'm not sure that makes sense.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by jalbert » Thu Aug 09, 2018 1:23 pm

The alternate strategy to compare with is moving the cash in after-tax accounts to equities, moving a commensurate amount of equities to fixed-income in your tax-deferred account, and realizing income from your tax-deferred account to cover expenses until you are 70 and take SS, but no (or reduced) Roth conversions.

Here you are drawing down the tax-qualified account instead of Roth-converting it. This also reduces your future RMDs. You would have to run the numbers to see which strategy is best, and it depends on market returns as well— if the market falls, you can TLH a taxable account, but not a Roth account.
...because from tax-deferred would eat into my 15% tax bracket (that I'm using for Roth conversions etc), and it's nuts to use Roth money this early.
Simultaneously withdrawing from Roth and converting from tax-deferred is equivalent to withdrawing from tax-deferred when the amounts are the same.
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Re: keep cash in after-tax for bridge to Social Security ?

Post by Leif » Thu Aug 09, 2018 2:58 pm

RustyShackleford wrote:
Thu Aug 09, 2018 1:07 pm
I've got a whopping big after-tax CD maturing in October. If I decide to buy equities with it, I'd need to sell some in tax-deferred (to maintain my AA). But I don't have any equities in my TIRA (aka. TIAA-CREF RA), so I'd have to sell some in my Roth. And I'm not sure that makes sense.
I agree with you. Selling equities in a Roth to buy in taxable makes no sense. In my particular case I have a LOT of equities in my tIRA. I'm moving my REITs to Roth (conversion) since that is the my most tax inefficient asset class. Others asset classes I will look for tax efficient funds to buy in taxable.

With the market as high as it is I'm also thinking I may do some TLH down the road with my new equities from my CD proceeds. All my current taxable equities have such a low basis (from 2009) they would not be useful for TLH.
Last edited by Leif on Thu Aug 09, 2018 3:15 pm, edited 1 time in total.

The Wizard
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Re: keep cash in after-tax for bridge to Social Security ?

Post by The Wizard » Thu Aug 09, 2018 3:10 pm

RustyShackleford wrote:
Wed Aug 08, 2018 1:14 pm

...The thing I don't like about your plan is that instead of doing withdrawals from your TIAA account, you could be doing Roth conversions (technically those are "taxable rollovers", not "Roth conversions", since the TIAA account is not a TIRA, but it's pretty much the same thing). Thereby reducing your RMDs when you hit 70yo. This is assuming you have a target taxable income, such as (like me) the top of the 15% marginal federal tax bracket.
I actually am doing $1500/month of Roth conversion with my TIAA funds, in addition to taking some for additional living expenses. And I'll do an additional lump conversion in December depending on where my projected AGI stands with respect to IRMAA thresholds.

But my marginal federal tax bracket is 24% nowadays...
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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Mon Oct 08, 2018 1:54 pm

Leif wrote:
Thu Aug 09, 2018 2:58 pm
RustyShackleford wrote:
Thu Aug 09, 2018 1:07 pm
I've got a whopping big after-tax CD maturing in October. If I decide to buy equities with it, I'd need to sell some in tax-deferred (to maintain my AA). But I don't have any equities in my TIRA (aka. TIAA-CREF RA), so I'd have to sell some in my Roth. And I'm not sure that makes sense.
I agree with you. Selling equities in a Roth to buy in taxable makes no sense.
Except, to make room in my Roth for some TIPS. With real yields hitting 1% now, I think I need some more of those, and I don't want to hold them in after-tax.

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Leif
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Re: keep cash in after-tax for bridge to Social Security ?

Post by Leif » Fri Oct 19, 2018 11:15 am

RustyShackleford wrote:
Mon Oct 08, 2018 1:54 pm
Leif wrote:
Thu Aug 09, 2018 2:58 pm
RustyShackleford wrote:
Thu Aug 09, 2018 1:07 pm
I've got a whopping big after-tax CD maturing in October. If I decide to buy equities with it, I'd need to sell some in tax-deferred (to maintain my AA). But I don't have any equities in my TIRA (aka. TIAA-CREF RA), so I'd have to sell some in my Roth. And I'm not sure that makes sense.
I agree with you. Selling equities in a Roth to buy in taxable makes no sense.
Except, to make room in my Roth for some TIPS. With real yields hitting 1% now, I think I need some more of those, and I don't want to hold them in after-tax.
I would still want my equities in a Roth. I would consider buy TIPS (mutual fund) in taxable, if no space in a tIRA, especially if you are in a high tax state. I keep my TIPS fund in a tIRA.

Dandy
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Re: keep cash in after-tax for bridge to Social Security ?

Post by Dandy » Fri Oct 19, 2018 1:07 pm

I used Savings, CDs and LTd Term Tax Exempt fund for most of the bridge. I also didn't put the whole bridge aside. Used taxable distributions to bridge the bridge so to speak. A lot depends on your tax bracket if you want to use tax free or fund the whole bridge in taxable from the start.

Since this was a critical goal I didn't take much risk at all with the funds.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by RustyShackleford » Fri Oct 19, 2018 1:55 pm

Dandy wrote:
Fri Oct 19, 2018 1:07 pm
I used Savings, CDs and LTd Term Tax Exempt fund for most of the bridge. I also didn't put the whole bridge aside. Used taxable distributions to bridge the bridge so to speak. A lot depends on your tax bracket if you want to use tax free or fund the whole bridge in taxable from the start.
I keep myself in the 12% bracket (formerly 15%) by fine-tuning Roth conversions (and occasionally some basis step-up). So will probably stay away from tax-free. But just bought 1yr Treasury for money earmarked for 2020 spending (almost 3% YTM !) so will save a little on state taxes at least.
Since this was a critical goal I didn't take much risk at all with the funds.
Sure, and I only have enough cash (or maturing CDs and Treasuries) in taxable to get me to my 68th birthday. The remaining two years will have to come from equity sales, which could be problematic if the long-overdue correction/recession comes by then (or I can use the process of rebuying the equities in tax-advantaged, as suggested by Lief and others above). Or I could take distributions from fixed-income stuff in qualified account; this would cut into my 12% bracket so reduce my Roth conversions, but have the same effect on reducing money subject to RMDs. Or, just start taking SS at age 68 instead, not the end of the world.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by Dottie57 » Fri Oct 19, 2018 2:40 pm

dm200 wrote:
Thu Jul 26, 2018 5:12 pm
Currently I have almost enough cash (and cash equivalents like short-term CDs) to last me until then. SS will almost meet my living expenses - and by annuitizing a TIAA-CREF account, also planned at age70, I will be there - so my other investments will be gravy.
Wouldn't you, at least, put this into a CD ladder going out the five years?
I am putting money in 1 and 2 year CDs for my bridge to SS. If rates go up, then I can take advantage during the bridge time.

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Re: keep cash in after-tax for bridge to Social Security ?

Post by David Jay » Fri Oct 19, 2018 3:25 pm

I am thinking about a ladder of 5 year TIPs to cover my final 3 years before SS (at age 70). Purchase at ages 62, 63 and 64.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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