Take SS or do Roth conversion

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Take SS or do Roth conversion

Post by Luckygirl » Wed Nov 07, 2018 7:23 pm

My FRA is next month and I can’t decide if I should start collecting SS or do Roth conversions. I am also retiring next month so need to create a paycheck. My husband is the higher earner and he will wait until 70 to collect SS. I know if he dies after that, I could get his higher amount. Fidelity did a calculation and with me collecting at 66 and him at 70, the break even for me was 83. If I did conversion I’d only do enough so it wouldn’t put us in higher tax bracket, and I’d have to spend about $2400/mo of that which is same as my SS at 66. Any ideas? I do think by the time we have to take RMD’s and SS, we could be in a higher tax bracket. Thanks.

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Re: Take SS or do Roth conversion

Post by megabad » Wed Nov 07, 2018 7:54 pm

Is your spousal benefit larger than your benefit? Is spouse in good health/have good genes? Will your tax bracket be a little higher or a lot higher?

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Re: Take SS or do Roth conversion

Post by The Wizard » Wed Nov 07, 2018 9:28 pm

megabad wrote:
Wed Nov 07, 2018 7:54 pm
Is your spousal benefit larger than your benefit? Is spouse in good health/have good genes? Will your tax bracket be a little higher or a lot higher?
Tax bracket alone isn't the whole issue.
Look more at Adjusted Gross Income.
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Re: Take SS or do Roth conversion

Post by grabiner » Wed Nov 07, 2018 10:10 pm

It's usually close to break-even to wait for SS past FRA when you will get a widow's benefit if your husband dies first. Therefore, if you can get some other advantage from waiting, such as filling up the lower tax brackets with a conversion to avoid unneeded RMDs, it's probably worth doing.
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Re: Take SS or do Roth conversion

Post by Watty » Wed Nov 07, 2018 10:19 pm

Luckygirl wrote:
Wed Nov 07, 2018 7:23 pm
Any ideas?
A couple of sort of random thoughts.

1) Will you be maxing out all your retirement accounts?

2) Reading between the lines I would suspect that you may have ample means and will eventually leave a significant estate. The estate planning aspects could be very important. You might be in a higher tax bracket in the future but if you are leaving the money to someone who will be in a lower tax bracket, or a charity, then doing Roth conversions may not be to your heirs advantage.

3) You need to run your numbers three ways, as a couple and as if either of you survives the other. The survivor will then be filing in the higher single tax brackets. Single people will get into the the higher tax brackets pretty quickly.

4) You can also check out your Social Security claiming strategy on this web site.


Once you see their suggested strategy then you can compare that to an alternate strategy and it will tell you the difference in value. One problem with some of the calculators that say "breakeven at 83" or whatever is that it does not tell you how significant any differences are. For example(in make up numbers) if the expected value of you starting at FRA is only $5,000 less than starting at 70 then that might not be enough to make waiting until 70 worthwhile.

5) Assuming that you will have ample funds later on no matter what, would starting Social Security now allow you a more enjoyable lifestyle now? One risk is that you might come up with an optimal tax strategy but the end result if the cost if not fully enjoying your retirement then it might not be a good trade off. This life expectancy calculator is very simplistic but there is a there is a significant chance that you will not both be alive ten years from now. I would suspect that there is an even greater chance that one of you would have limiting health conditions by then.

https://personal.vanguard.com/us/insigh ... ol?lang=en

I had one year in my 50's when I went to three funerals of people that were about my age. I wasn't real close to any of them but it did get me to tilt my "now vs later" balance more towards the "now" side.

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Re: Take SS or do Roth conversion

Post by celia » Wed Nov 07, 2018 10:39 pm

Well, you didn't give us any specifics of YOUR situation so we don't know if Roth conversions are right for you or not. A lot of it depends on what percentage of your portfolio is in tax-deferred, what your tax brackets would be after age 70 if you converted or not, what your other sources of income would be and when they start, and your age differential (if married).

Here's my favorite thread on figuring out how much to convert each year. The tax laws have since changed, but the thought process and contributions from many Bogleheads may help you analyze your own situation:

Small Law Survivor's $400,000 Roth Conversions
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: Take SS or do Roth conversion

Post by SGM » Thu Nov 08, 2018 4:10 am

A widow can pay more taxes than a couple even if the income goes down after one spouse dies. This argues for more conversions. We will be living off taxable accounts and other income streams for a very long time given projected longevity. I am certain that RMDs would push us up into the next higher tax bracket so I converted all tax deferred accounts over a 6 year period before taking SS at 70.

I ignored any break even analysis for SS claiming because I preferred doing the Roth conversions before taking SS and before annuitizing a 403b through TIAA-CREF. I would not have done any conversions if we could not pay all the taxes out of a taxable account.

After age 70 our SS income will be about $60k per year and adding that and 3.65% of our tax deferred accounts as RMDs in the first year would just add to income we don't need for current expenses. We can live off our taxable income streams and SS.

I have looked at MAGI, IRMMA and tax rates while converting vs. tax rates after age 70 1/2. You might want to try I-ORP and see what it recommends for conversions. Everyone's situation is different and deserves a more detailed analysis.

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Re: Take SS or do Roth conversion

Post by vested1 » Thu Nov 08, 2018 7:40 am

What is your husband's current age? If you file at your FRA for your own benefit, he may be able to file a restricted application and get 1/2 of your PIA (age 66 amount) benefit at his FRA, or as soon as you file if he is older than you. He needs to have been at least age 62 on January 2nd 2016 in order to file a restricted application on your PIA. His own benefit would continue to increase until his age 70 with a restricted application.

If he is still working his restricted application SS payment of 1/2 of your PIA will not be reduced via the earnings test for wages earned after his FRA.

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Re: Take SS or do Roth conversion

Post by Luckygirl » Sat Nov 24, 2018 11:06 pm

My husband is a few years younger, so we don’t qualify for the restricted benefit. He plans to continue working until his FRA, and then he will need to draw from his portfolio until he turns 70 for SS. I tried using I-orp calculator and could not understand the results at all! When we’re both collecting SS and RMD’s this will be more than enough to live on and not need to withdraw anything more from other accounts. We have no debt. If I do a Roth conversion now instead of take SS, I would need to use some of it to live on, so I would only reinvest part of it into my current ROTH, so I would still reduce future RMDs. I never thought retiring would involve so many decisions!

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