Tax Deferred : Taxable : Tax Free

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Horsefly
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Re: Tax Deferred : Taxable : Tax Free

Post by Horsefly » Sat Nov 30, 2019 10:36 pm

68% : 22% : 10%

We retired at 55, now 61/62. Discovered BH after retirement. :oops: I'm pretty sure tax rates are going up, so we have been actively trying to convert from t-IRA to Roth every year. Not sure we will make enough of a dent by age 70.5, but hopefully.

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LilyFleur
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Re: Tax Deferred : Taxable : Tax Free

Post by LilyFleur » Sat Nov 30, 2019 11:55 pm

75% Tax Deferred
25% Taxable
0% Tax Free

Single, 60, retired for a few years now. My pension puts me into the 22% bracket.

To make any significant progress on Roth conversions, I will have to move into the 24% bracket and pay at least 9% in state income taxes as well. If I do Roth conversions, I won't be able to itemize on my taxes and then I am basically paying about $23,000 per year in health care costs (pre-tax) without any tax break.

Maybe I'll get lucky and be in a nursing home by the time the big giant RMD arrives (I think it's around age 85).

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oldzey
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Re: Tax Deferred : Taxable : Tax Free

Post by oldzey » Sun Dec 01, 2019 1:08 am

403b: 62%
ROTH: 24%
TAXABLE: 14%
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

KarenC
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Re: Tax Deferred : Taxable : Tax Free

Post by KarenC » Sun Dec 01, 2019 9:04 am

pre-tax : taxable : post-tax = 80 : 17 : 4
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EnjoyIt
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Re: Tax Deferred : Taxable : Tax Free

Post by EnjoyIt » Sun Dec 01, 2019 9:28 am

TomatoTomahto wrote:
Sun Nov 10, 2019 4:22 pm
@lakpr, I apologize if I lumped you in with the BH cohort that does overly simplistic recommendations against Roth contributions. You thought about the OP’s situation more carefully.

I admit to falling in the cohort that does overly simplistic pro Roth contribution recommendations. We are in the tax torpedo’s bullseye.
I ran a bunch of scenarios over the years with estimates on when it is a good idea to do Roth contributions vs traditional. I find that for most people, unless they are super savers, traditional appears to usually be the correct answer. It is like laker said. Once one starts to get into the $1 million traditional range, then we start seeing people getting into the 22% tax bracket especially if that $1 million has some time to keep growing.

Keep in mind that this is all based on current tax codes and pre Trump's tax TCJA.

When things start to change is if someone was a very high saver for many years, downshifts into part time work later in their career, or gets a significant windfall.

The reality is that everyone needs to do their own projections to see what is right for them as there really is no blanket statement that fits everyone. But, for most people traditional is usually the correct answer.

To answer the OP question, we are about
55% Taxable
40% Traditional
5% Roth

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TomatoTomahto
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Re: Tax Deferred : Taxable : Tax Free

Post by TomatoTomahto » Sun Dec 01, 2019 9:47 am

EnjoyIt wrote:
Sun Dec 01, 2019 9:28 am
I ran a bunch of scenarios over the years with estimates on when it is a good idea to do Roth contributions vs traditional. I find that for most people, unless they are super savers, traditional appears to usually be the correct answer. It is like laker said. Once one starts to get into the $1 million traditional range, then we start seeing people getting into the 22% tax bracket especially if that $1 million has some time to keep growing.
I recently decided that, in addition to having my wife’s contributions go to Roth 401k, we would begin doing some (painful) Roth conversions. The reasoning is found at viewtopic.php?f=10&t=296337
Okay, I get it; I won't be political or controversial. The Earth is flat.

EnjoyIt
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Re: Tax Deferred : Taxable : Tax Free

Post by EnjoyIt » Sun Dec 01, 2019 10:20 am

TomatoTomahto wrote:
Sun Dec 01, 2019 9:47 am
EnjoyIt wrote:
Sun Dec 01, 2019 9:28 am
I ran a bunch of scenarios over the years with estimates on when it is a good idea to do Roth contributions vs traditional. I find that for most people, unless they are super savers, traditional appears to usually be the correct answer. It is like laker said. Once one starts to get into the $1 million traditional range, then we start seeing people getting into the 22% tax bracket especially if that $1 million has some time to keep growing.
I recently decided that, in addition to having my wife’s contributions go to Roth 401k, we would begin doing some (painful) Roth conversions. The reasoning is found at viewtopic.php?f=10&t=296337
We hit a few of reasons to start looking at Roth. We are in our 40s, saved aggressively, and then went part time putting ourselves in a lower tax bracket. According to my math with some assumptions on growth, if we retire in the next couple of years, we should continue doing traditional since after that we will have lost of time to do Roth conversions up to the top of the 12% tax bracket. If we continue working part time well into our 50s we should be doing more Roth above the backdoor Roth we do today. Will probably start doing Roth in 2020 with the assumption that we will do part time work into our 50s. If I am wrong, the error is small. We also keep almost all our bonds in our 401k to minimize growth there and keep most of our growth in taxable, Roth, and HSA.

smitcat
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Re: Tax Deferred : Taxable : Tax Free

Post by smitcat » Sun Dec 01, 2019 10:49 am

EnjoyIt wrote:
Sun Dec 01, 2019 9:28 am
TomatoTomahto wrote:
Sun Nov 10, 2019 4:22 pm
@lakpr, I apologize if I lumped you in with the BH cohort that does overly simplistic recommendations against Roth contributions. You thought about the OP’s situation more carefully.

I admit to falling in the cohort that does overly simplistic pro Roth contribution recommendations. We are in the tax torpedo’s bullseye.
I ran a bunch of scenarios over the years with estimates on when it is a good idea to do Roth contributions vs traditional. I find that for most people, unless they are super savers, traditional appears to usually be the correct answer. It is like laker said. Once one starts to get into the $1 million traditional range, then we start seeing people getting into the 22% tax bracket especially if that $1 million has some time to keep growing.

Keep in mind that this is all based on current tax codes and pre Trump's tax TCJA.

When things start to change is if someone was a very high saver for many years, downshifts into part time work later in their career, or gets a significant windfall.

The reality is that everyone needs to do their own projections to see what is right for them as there really is no blanket statement that fits everyone. But, for most people traditional is usually the correct answer.

To answer the OP question, we are about
55% Taxable
40% Traditional
5% Roth
"I find that for most people, unless they are super savers, traditional appears to usually be the correct answer. It is like laker said. Once one starts to get into the $1 million traditional range, then we start seeing people getting into the 22% tax bracket especially if that $1 million has some time to keep growing."
Agreed - we also find that high tax states and states which have higher inheritance taxes with lower thresholds will tend to make Roth conversions a real winner. The solution is to run the scenarios exactly like you describe.

jhawktx
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Re: Tax Deferred : Taxable : Tax Free

Post by jhawktx » Sun Dec 01, 2019 11:27 am

rkhusky wrote:
Sat Nov 16, 2019 8:12 am
Currently 57:11:32. Hope to do some serious Roth conversions in the 12% bracket over the next 15 years, perhaps reaching 10:5:85.
85% in Roth?! For the vast majority of people this would be crazy. Most would almost certainly pay more in taxes to build this high of a Roth balance than they would save during withdrawals.

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teen persuasion
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Re: Tax Deferred : Taxable : Tax Free

Post by teen persuasion » Sun Dec 01, 2019 12:28 pm

65% : 0 : 35%

When we FIRE, plan to use a Roth conversion ladder to access the tax deferred accounts for expenses, so converting an amount mostly within the standard deduction to Roth, and withdrawing an equal or slightly smaller amount from Roth contributions. A 4% starting point (from total balance) would actually be about 6% from the tax deferred side, while the Roth balance is essentially unchanged due to the conversion/withdrawal swap. So depending on growth, the tax deferred balance may be slow to drop, while the Roth continues to grow.

Of course, all bonds are in tax deferred, so looking at it on its own it is nearly half bonds, so should grow slower. Over time, as the Roth grows to be a larger proportion of the total, the tax deferred will be increasingly majority bonds, slowing replacement growth (after conversion depletion) even more.

Those who Roth convert ALL of their tax deferred - where do you keep your bonds at that point? In Roth, or taxable?

moneybags
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Re: Tax Deferred : Taxable : Tax Free

Post by moneybags » Sun Dec 01, 2019 9:15 pm

Ugh, this actually annoying determine as Fidelity and Schwab both make it a chore to determine the size of the 401k vs Roth 401k buckets.

I'm guessing we're about to 40% tax deferred, 35% taxable and 25% Roth. I expect our Roth share to greatly increase as both of our companies recently began offering after tax contributions and rollovers to Roth IRA/401ks which we're now fully maximizing (~33k per person).

We plan to FIRE at 40/45 and will likely withdrawal from taxable accounts (at 0% tax rate) while doing Roth conversions then begin drawing down Roth contributions.

stan1
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Re: Tax Deferred : Taxable : Tax Free

Post by stan1 » Sun Dec 01, 2019 9:26 pm

jhawktx wrote:
Sun Dec 01, 2019 11:27 am
rkhusky wrote:
Sat Nov 16, 2019 8:12 am
Currently 57:11:32. Hope to do some serious Roth conversions in the 12% bracket over the next 15 years, perhaps reaching 10:5:85.
85% in Roth?! For the vast majority of people this would be crazy. Most would almost certainly pay more in taxes to build this high of a Roth balance than they would save during withdrawals.
Or they are giving the very generous gift of Inherited Roth IRAs to their non-spousal heirs who might have higher tax rates and may not need or desire immediate RMDs that come with Inherited Traditional accounts. Definitely a consideration if you are able to afford the tax payments.

Hydromod
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Re: Tax Deferred : Taxable : Tax Free

Post by Hydromod » Sun Dec 01, 2019 9:59 pm

Age 59/53, hopefully 10 yr to retirement for both.

Currently 88:6:6. Just found out this year that our 403b has a Roth option, so we both started maxing that instead of deferred.

Our calculations suggest that it would be a wash to stay fully tax deferred or switch to Roth as long as filing MFJ, but the actuarial odds say it's 50/50 that one will live longer than the other by about 10 years. Ten years of single filing makes switching to Roth going forward hands down the winner.

rkhusky
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Re: Tax Deferred : Taxable : Tax Free

Post by rkhusky » Sun Dec 01, 2019 10:13 pm

jhawktx wrote:
Sun Dec 01, 2019 11:27 am
rkhusky wrote:
Sat Nov 16, 2019 8:12 am
Currently 57:11:32. Hope to do some serious Roth conversions in the 12% bracket over the next 15 years, perhaps reaching 10:5:85.
85% in Roth?! For the vast majority of people this would be crazy. Most would almost certainly pay more in taxes to build this high of a Roth balance than they would save during withdrawals.
Not at all. With the way that Social Security is taxed, I am estimating that my effective rate on Traditional withdrawals (RMD's) will be about 20%, so if I can convert at a 12% marginal rate, than I come out ahead. If the tax rate goes back up to 15%, I still come out ahead.

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grayfox
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Re: Tax Deferred : Taxable : Tax Free

Post by grayfox » Thu Dec 05, 2019 10:21 am

mtmingus wrote:
Sun Nov 10, 2019 9:57 am
What are your asset allocations among the three major categories:

Tax Deferred (Regular 401k, Traditional IRA)
Taxable (non-retirement brokerages)
Tax Free (Roth)
?

We are guilty of top heavy 68:7:25.

Thinking of paying tax now for Roth Conversions when possible without bumping up the federal marginal rate. It's state tax free in the great state of Illinois.
In Dec-2018 I was at Tax : tIRA : Roth = 27 : 66 : 7 and looking at massive RMDs. I forget the exact numbers but iORP showed like $90,000 per year in taxes when I am 85-90.

I did a mega-conversion in 2019 and it now shows 30 : 47: 23
although I have not paid the FIT out of the taxable yet.
I already moved to LCOL state that does not tax roth conversions, which saves tens of thousands in state taxes in 2019.

I plan to do more mega-conversions for the next four or five years until it is 0 : 0 : 100

After age 70, I will have no RMDs, keep all my social security and pay no federal or state income taxes.
:idea: I would rather pay big FIT now, and nothing for the rest of my long life.

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willthrill81
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Re: Tax Deferred : Taxable : Tax Free

Post by willthrill81 » Thu Dec 05, 2019 10:35 am

rkhusky wrote:
Sun Dec 01, 2019 10:13 pm
jhawktx wrote:
Sun Dec 01, 2019 11:27 am
rkhusky wrote:
Sat Nov 16, 2019 8:12 am
Currently 57:11:32. Hope to do some serious Roth conversions in the 12% bracket over the next 15 years, perhaps reaching 10:5:85.
85% in Roth?! For the vast majority of people this would be crazy. Most would almost certainly pay more in taxes to build this high of a Roth balance than they would save during withdrawals.
Not at all. With the way that Social Security is taxed, I am estimating that my effective rate on Traditional withdrawals (RMD's) will be about 20%, so if I can convert at a 12% marginal rate, than I come out ahead. If the tax rate goes back up to 15%, I still come out ahead.
He was referencing "the vast majority of people," and I think that he's probably right. But at the same time, no one is an average, and it behooves investors to consider their own circumstances before deciding how much to place where.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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unclescrooge
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Re: Tax Deferred : Taxable : Tax Free

Post by unclescrooge » Thu Dec 05, 2019 10:59 am

TomatoTomahto wrote:
Sun Nov 10, 2019 2:52 pm
neilpilot wrote:
Sun Nov 10, 2019 2:46 pm
lakpr wrote:
Sun Nov 10, 2019 2:34 pm
What is the absolute amount you have in your tax deferred accounts? If it is less than $1 million (approximately) I wouldn't bother with Roth conversions. The reasoning is that, with balances less than that threshold, even withdrawals twice the RMD size would only place you in the 15% bracket, and opting for Roth conversions now you are paying 22% tax rate.

RMD starts at 3.65% of tax deferred balance at age 70.5, on a balance of $1 million that is $36500. Twice that is $73000. If you look up the tax tables for 2017, for a couple, that $73k income places you in 15% bracket (don't forget to deduct approximately $12000 in standard exemptions).

Why would you want to pay 22% rate now (a decision that will be irrevocable, remember TCJA removed that option?) when you could be paying only 15% rate?
Maybe I'm missing something, but does your post assume that there's no SS or pension income? Not to mention dividend, interest & capital gains.
No, neilpilot, you’re not missing anything; posters that discourage Roth always assume 1) that RMDs are the sole income 2) that MFJ remains the filing status 3) that the 2% that taxable throws off don’t count 4) that retirement is early so chance to do conversions 5) that you have no deferred compensation 6) that RMDs remain below 4% and so on.
+1
One thing in particular to point out is the sudden tax jump when a couple turns into a single widow. There is a huge and often unexpected increase in tax liability.

marathonfi
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Re: Tax Deferred : Taxable : Tax Free

Post by marathonfi » Thu Dec 05, 2019 11:42 am

36% Tax Deferred : 28% Taxable : 36% Tax Free

36% in tax free was boosted to Mega Backdoor Roth in past 2 years.

rkhusky
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Re: Tax Deferred : Taxable : Tax Free

Post by rkhusky » Thu Dec 05, 2019 1:06 pm

willthrill81 wrote:
Thu Dec 05, 2019 10:35 am
rkhusky wrote:
Sun Dec 01, 2019 10:13 pm
jhawktx wrote:
Sun Dec 01, 2019 11:27 am
rkhusky wrote:
Sat Nov 16, 2019 8:12 am
Currently 57:11:32. Hope to do some serious Roth conversions in the 12% bracket over the next 15 years, perhaps reaching 10:5:85.
85% in Roth?! For the vast majority of people this would be crazy. Most would almost certainly pay more in taxes to build this high of a Roth balance than they would save during withdrawals.
Not at all. With the way that Social Security is taxed, I am estimating that my effective rate on Traditional withdrawals (RMD's) will be about 20%, so if I can convert at a 12% marginal rate, than I come out ahead. If the tax rate goes back up to 15%, I still come out ahead.
He was referencing "the vast majority of people," and I think that he's probably right. But at the same time, no one is an average, and it behooves investors to consider their own circumstances before deciding how much to place where.
Sure. Most people don’t have any retirement savings and will just be living on SS.

It’s only those with other income, like a pension or side job, and/or sizable tax deferred savings, that have to worry about RMD’s having an elevated tax rate due to SS taxation. Those are a small minority of the population, but a bigger share of Bogleheads.

lukestuckenhymer
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Re: Tax Deferred : Taxable : Tax Free

Post by lukestuckenhymer » Thu Dec 05, 2019 1:11 pm

46% Tax Deferred
54% Taxable
0% Tax Free

I'm 32, and the windfall from the sale of my condo inflated the taxable portion. Tax-Deferred will soon overtake it, though.

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Darth Xanadu
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Re: Tax Deferred : Taxable : Tax Free

Post by Darth Xanadu » Thu Dec 05, 2019 1:36 pm

43%: Tax-Deferred
18%: Taxable
39%: Tax-Free
"A courageous teacher, failure is."

stan1
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Re: Tax Deferred : Taxable : Tax Free

Post by stan1 » Thu Dec 05, 2019 1:50 pm

lukestuckenhymer wrote:
Thu Dec 05, 2019 1:11 pm
46% Tax Deferred
54% Taxable
0% Tax Free

I'm 32, and the windfall from the sale of my condo inflated the taxable portion. Tax-Deferred will soon overtake it, though.
Are you looking into Roth IRA contributions (direct or Backdoor) and maybe even Roth 401K contributions would be appropriate at your relatively young age even if you are in a high tax bracket.

lukestuckenhymer
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Re: Tax Deferred : Taxable : Tax Free

Post by lukestuckenhymer » Thu Dec 05, 2019 2:04 pm

stan1 wrote:
Thu Dec 05, 2019 1:50 pm
lukestuckenhymer wrote:
Thu Dec 05, 2019 1:11 pm
46% Tax Deferred
54% Taxable
0% Tax Free

I'm 32, and the windfall from the sale of my condo inflated the taxable portion. Tax-Deferred will soon overtake it, though.
Are you looking into Roth IRA contributions (direct or Backdoor) and maybe even Roth 401K contributions would be appropriate at your relatively young age even if you are in a high tax bracket.
I'm still within the income limits for tax deductible Traditional IRA, but as soon as I surpass them (possibly this year), I'll be contributing to a Roth IRA. I'm comfortable maxing out all Tax Deferred space at the moment since I'm in a very high tax state (California).

BigJohn
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Re: Tax Deferred : Taxable : Tax Free

Post by BigJohn » Thu Dec 05, 2019 2:43 pm

unclescrooge wrote:
Thu Dec 05, 2019 10:59 am
One thing in particular to point out is the sudden tax jump when a couple turns into a single widow. There is a huge and often unexpected increase in tax liability.
Having first hand experience with this I couldn't agree more although I had run the case and knew what was coming. Anyone that is evaluating Roth conversions should run a tax case post start of RMDs and SS with a single filing status. If you've never looked, I predict it will make your head spin!

casaver
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Re: Tax Deferred : Taxable : Tax Free

Post by casaver » Thu Dec 05, 2019 5:50 pm

65/15/20 not counting 529

47 single parent, in VHCOL and high tax area. marginal tax rate 44% plus 3.8% NIIT

I always max tax-deferred 401 k and contribute to Roth IRA once backdoor was available, and hsa. Not much left after paying for the expensive house and living costs.

Plan to semi-retire/retire to zero income tax state and downsize once kids go to college. Will switch to Roth 401k contribution. Roth conversion can wait until early retirement.

Not everything can be planned ahead.

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LilyFleur
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Re: Tax Deferred : Taxable : Tax Free

Post by LilyFleur » Thu Dec 05, 2019 6:44 pm

BigJohn wrote:
Thu Dec 05, 2019 2:43 pm
unclescrooge wrote:
Thu Dec 05, 2019 10:59 am
One thing in particular to point out is the sudden tax jump when a couple turns into a single widow. There is a huge and often unexpected increase in tax liability.
Having first hand experience with this I couldn't agree more although I had run the case and knew what was coming. Anyone that is evaluating Roth conversions should run a tax case post start of RMDs and SS with a single filing status. If you've never looked, I predict it will make your head spin!
Single, age 60. I lost head of household status this year, so I will be filing as a single from now on. My head is spinning. I looked ahead at RMDs, and I had to sit down 'cuz I got so dizzy.

stan1
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Re: Tax Deferred : Taxable : Tax Free

Post by stan1 » Thu Dec 05, 2019 6:54 pm

LilyFleur wrote:
Thu Dec 05, 2019 6:44 pm
BigJohn wrote:
Thu Dec 05, 2019 2:43 pm
unclescrooge wrote:
Thu Dec 05, 2019 10:59 am
One thing in particular to point out is the sudden tax jump when a couple turns into a single widow. There is a huge and often unexpected increase in tax liability.
Having first hand experience with this I couldn't agree more although I had run the case and knew what was coming. Anyone that is evaluating Roth conversions should run a tax case post start of RMDs and SS with a single filing status. If you've never looked, I predict it will make your head spin!
Single, age 60. I lost head of household status this year, so I will be filing as a single from now on. My head is spinning. I looked ahead at RMDs, and I had to sit down 'cuz I got so dizzy.
Also be aware of the impact of non-spousal inherited IRA if you are in the situation where you might inherit one. If you stand to inherit a large inherited Traditional IRA RMDs could fill up much of the low tax rate capacity you might have in your 60s making your own Roth conversions very more expensive.

AlmstRtrd
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Re: Tax Deferred : Taxable : Tax Free

Post by AlmstRtrd » Thu Dec 05, 2019 9:36 pm

I'm curious for those of you with lots of Savings Bonds that have considerable gains...

Do you include these in Taxable or Tax-deferred? If in Taxable, I'm at:

45% / 46% / 9%

If in Tax-deferred, I'm at:

60% / 31% / 9%

EE-Bonds and I-Bonds make up 15% of my total portfolio (I bought a lot of them back when they were a better deal).

2 bits
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Re: Tax Deferred : Taxable : Tax Free

Post by 2 bits » Thu Dec 05, 2019 10:58 pm

47 : 37 : 16
60/57 3 1/2 years retired looking over my shoulder a bit for sequence of returns risk. Interested in doing some Roth conversations but maybe only because it’s a trick I have become acquainted with and want to use. However it’s touch and go, VPW indicates withdrawing from taxable may be better at this point.
I do some tax gain harvesting. This year I saved some room for Roth conversions. But looking towards next year with some lumpy expenses (it’s the go - go years)I may want to fill the 0% LTCG bracket with more tax gain harvesting.
I am glad I converted to Roth back in the day when that first became available.
I welcome critiques about this program but of course I know that MMMV.
I sometimes think that I am living the life of which my immigrant ancestors dreamed.

scifilover
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Re: Tax Deferred : Taxable : Tax Free

Post by scifilover » Fri Dec 06, 2019 9:57 am

TD 45.5
T 25.5
TF 28

Am not in favor of using any rule-of-thumb such as $1M in thinking about conversions. With just $1M at age 55, it can become $2.5M at 70.5 with less than 6% compound growth. What one must do is do a few projections every 2 or 3 years to see how that TD account is growing. I retired in 2001 (55) just 3 years after Roth became available. For various reasons, I retired with a substantial TD IRA which I had no control of until I retired. 2003 and 2004 were terrific growth years. In 2003 for example, my TD account grew 29% without any contributions. By the beginning of 2005 my TD account was up 50% since retirement and I began to worry about how much my RMD's would be at 70.5.

I began conversions in 2005. I worked at it assiduously. Between 2005 and age 70.5 I managed to move about one third of my 2005 TD balance. Despite this and taking 3 RMD's, I still have about 20% more in TD than I did in 2005. The current value of the Roth has more than doubled the amount I converted. In doing conversions, I transferred assets from TD to Roth without selling anything, so the total of the two accounts is a fair estimate of what my TD would be had I not done any conversions. In transferring assets, I focused on moving more equities to Roth which now represents about 41% of the combined total account value. This means that future RMDs will be 41% lower because of conversions. With 60/40 and more recently 50/50 allocations, The accounts have generated a combined 7% compound return since retirement.

Of course, the past is no predictor of future results. It is important to think about what growth is doing to your TD balance. And, you cannot predict what tax rates might be in the future. They might be higher or lower. To say with certainty that you will be able to take funds from a TD account at XX% tax rate in 10 years is nonsense. All you can know is that what you have converted is TF in the future whatever the tax rate.

Broken Man 1999
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Re: Tax Deferred : Taxable : Tax Free

Post by Broken Man 1999 » Fri Dec 06, 2019 10:58 am

AlmstRtrd wrote:
Thu Dec 05, 2019 9:36 pm
I'm curious for those of you with lots of Savings Bonds that have considerable gains...

Do you include these in Taxable or Tax-deferred? If in Taxable, I'm at:

45% / 46% / 9%

If in Tax-deferred, I'm at:

60% / 31% / 9%

EE-Bonds and I-Bonds make up 15% of my total portfolio (I bought a lot of them back when they were a better deal).
I classify our I-Bonds as tax-deferred, as the taxes are accruing until they are redeemed. If one starts off paying the taxes yearly they should consider them taxable. I also bought a lot when they were a better deal. 3% and 3.6% +inflation adjustment is pretty sweet. Of course the tax bill will be huge, but that is a good problem to have.

So, are you paying taxes on you EE/I-bonds each year, if so you should classify them as part of your taxable holdings. If the taxes are accruing, then you should classify them as part of your tax-deferred holdings.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

AlmstRtrd
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Re: Tax Deferred : Taxable : Tax Free

Post by AlmstRtrd » Fri Dec 06, 2019 11:54 am

Thanks for your reply, Broken Man.

I am paying taxes as I cash in the EE-Bonds at present. Many are maturing between May of 2021 and February of 2023 and I am redeeming those over five years (2019-2023) so as to spread out the gains. This has health care ramifications for me as well. So while I recognize that I have had a tax deferral with these bonds so far, right now I have to deal with the tax consequences. Of course I can see that that is oftentimes the case with tax deferred assets! My I-Bonds maturing between 2029 and 2032 are definitely in the tax-deferred bucket.

pdavi21
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Re: Tax Deferred : Taxable : Tax Free

Post by pdavi21 » Fri Dec 06, 2019 12:09 pm

41:10:49

30:37:33 if counting home as taxable and lump sum pensions as tax deferred.

Broken Man 1999
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Re: Tax Deferred : Taxable : Tax Free

Post by Broken Man 1999 » Fri Dec 06, 2019 12:58 pm

AlmstRtrd wrote:
Fri Dec 06, 2019 11:54 am
Thanks for your reply, Broken Man.

I am paying taxes as I cash in the EE-Bonds at present. Many are maturing between May of 2021 and February of 2023 and I am redeeming those over five years (2019-2023) so as to spread out the gains. This has health care ramifications for me as well. So while I recognize that I have had a tax deferral with these bonds so far, right now I have to deal with the tax consequences. Of course I can see that that is oftentimes the case with tax deferred assets! My I-Bonds maturing between 2029 and 2032 are definitely in the tax-deferred bucket.
So you are selling tax-deferred I-Bonds. And your other ones still not mature are continuing to be tax-deferred.

2030 and 2031 are the years ours will mature. I will probably start redeeming some of them a couple of years early to spread the gains out. We will also be into RMDs.

I imagine there will be cries emanating from every corner of Bogleland when the I-Bonds carrying the great rates start maturing, and the taxman must be paid. :shock:

Easy come, easy go.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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LilyFleur
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Re: Tax Deferred : Taxable : Tax Free

Post by LilyFleur » Fri Dec 06, 2019 1:38 pm

stan1 wrote:
Thu Dec 05, 2019 6:54 pm
LilyFleur wrote:
Thu Dec 05, 2019 6:44 pm
BigJohn wrote:
Thu Dec 05, 2019 2:43 pm
unclescrooge wrote:
Thu Dec 05, 2019 10:59 am
One thing in particular to point out is the sudden tax jump when a couple turns into a single widow. There is a huge and often unexpected increase in tax liability.
Having first hand experience with this I couldn't agree more although I had run the case and knew what was coming. Anyone that is evaluating Roth conversions should run a tax case post start of RMDs and SS with a single filing status. If you've never looked, I predict it will make your head spin!
Single, age 60. I lost head of household status this year, so I will be filing as a single from now on. My head is spinning. I looked ahead at RMDs, and I had to sit down 'cuz I got so dizzy.
Also be aware of the impact of non-spousal inherited IRA if you are in the situation where you might inherit one. If you stand to inherit a large inherited Traditional IRA RMDs could fill up much of the low tax rate capacity you might have in your 60s making your own Roth conversions very more expensive.
Thank you for your comment. I actually have been taking RMDs from an inherited IRA (mid 5-figures). This year my RMD went entirely to federal and state taxes. I want to liquidate this inherited IRA fairly early on so that my children don't have to deal with it. (I have learned here that inheriting an inherited IRA can be complicated, and I want to keep things streamlined for my children.)
I just read a Kitces article on Roth conversions, and I realize I fall into a group of people for whom conversions--and taxes--will be expensive. But, not doing the conversions will eventually be very expensive, when and if I hit 80 years of age. (if the market crashes between now and then, I will have less of a tax problem)
This website has been quite valuable, helping me to understand the complexity of my financial situation and my tax problems :oops:

HeelaMonster
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Re: Tax Deferred : Taxable : Tax Free

Post by HeelaMonster » Fri Dec 06, 2019 2:50 pm

47:33:20 (TD:T:TF)

With Roth conversions starting next year...

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FIREchief
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Re: Tax Deferred : Taxable : Tax Free

Post by FIREchief » Fri Dec 06, 2019 6:52 pm

celia wrote:
Sat Nov 16, 2019 1:10 am
3:43:54

Yep, that's correct. The majority of our assets are now in Roth. I'm a big believer in Roth conversions as those who read my Roth conversion posts know.
Very nice! :beer
I followed the advice I give others in mapping out our income for each year until we hit 72 before we even retired. Basically I did enough Roth conversions to keep us at the same Taxable Income each year and thus our taxes pretty much stayed the same during our early retirement years.


This is a great approach. Unfortunately, many are unable to do this prior to retirement in a meaningful way. My Megacorp was a house of cards for decades. Boom/Bust/Truths/Lies/etc. that (perhaps deliberately) kept everybody guessing about their future for most/all of their careers. Crappy way to spend a workweek, but if played correctly a key enabler of FIRE. For this reason, I tended to assume worse case scenario up until FIRE. That meant put everything possible into tIRA and assume that when the RIF comes, I would be in a much lower tax bracket for the duration. Fortunately, that didn't happen and I made it to a safe departure point. It was at that point that I aggressively hit the gas on Roth conversions, and I'll have my foot on that pedal until at least IRMAA qualification, and perhaps until RMDs commence. Hopefully I'll get up into Celia's range.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

marcopolo
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Re: Tax Deferred : Taxable : Tax Free

Post by marcopolo » Fri Dec 06, 2019 10:46 pm

grayfox wrote:
Thu Dec 05, 2019 10:21 am
mtmingus wrote:
Sun Nov 10, 2019 9:57 am
What are your asset allocations among the three major categories:

Tax Deferred (Regular 401k, Traditional IRA)
Taxable (non-retirement brokerages)
Tax Free (Roth)
?

We are guilty of top heavy 68:7:25.

Thinking of paying tax now for Roth Conversions when possible without bumping up the federal marginal rate. It's state tax free in the great state of Illinois.
In Dec-2018 I was at Tax : tIRA : Roth = 27 : 66 : 7 and looking at massive RMDs. I forget the exact numbers but iORP showed like $90,000 per year in taxes when I am 85-90.

I did a mega-conversion in 2019 and it now shows 30 : 47: 23
although I have not paid the FIT out of the taxable yet.
I already moved to LCOL state that does not tax roth conversions, which saves tens of thousands in state taxes in 2019.

I plan to do more mega-conversions for the next four or five years until it is 0 : 0 : 100

After age 70, I will have no RMDs, keep all my social security and pay no federal or state income taxes.
:idea: I would rather pay big FIT now, and nothing for the rest of my long life.
Do you have a very large pension?

otherwise, it seems you might be paying a much higher tax rate on you "mega conversion", than you would by leaving some money in the tax deferred.
Once in a while you get shown the light, in the strangest of places if you look at it right.

diy60
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Re: Tax Deferred : Taxable : Tax Free

Post by diy60 » Fri Dec 06, 2019 11:08 pm

Tax deferred: 55%
Taxable: 19%
Roth/HSA: 26%

Post Roth conversion I project to be

Tax deferred: 30%
Taxable: 5%
Roth/HSA: 65%

smectym
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Re: Tax Deferred : Taxable : Tax Free

Post by smectym » Sat Dec 07, 2019 12:18 am

retiredjg wrote:
Sun Nov 10, 2019 2:58 pm
mtmingus wrote:
Sun Nov 10, 2019 9:57 am
We are guilty of top heavy 68:7:25.
“Most everybody is top heavy. The limits for 401k and IRA make it that way and only people who both make and save a lot of money will/should have anything in taxable.”

Wait a sec we have all kinds of money in taxable. I believe in a balanced approach, both to investing, and to depleting tax-deferred and post-tax assets in retirement.

As for Roth, we’ve looked at it. If you’re in a high income tax state, as we are, and still in not the lowest tax bracket in retirement, not sure it pencils out.

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watchnerd
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Location: Seattle, WA, USA

Re: Tax Deferred : Taxable : Tax Free

Post by watchnerd » Sat Dec 07, 2019 2:01 am

mtmingus wrote:
Sun Nov 10, 2019 9:57 am
What are your asset allocations among the three major categories:

Tax Deferred (Regular 401k, Traditional IRA)
Taxable (non-retirement brokerages)
Tax Free (Roth)
?

We are guilty of top heavy 68:7:25.

Thinking of paying tax now for Roth Conversions when possible without bumping up the federal marginal rate. It's state tax free in the great state of Illinois.
We're:

44% Tax Deferred
47% Taxable
9% Tax Free


But I'm not sure what that ratio is supposed to imply for Roth conversions?
Tax Sheltered: 30% US Stock | 30% ex-US Stock | 40% TTM || Taxable: 20% US Stock | 20% ex-US Stock | 30% TTM | 30% Munis || RSU/ESPP

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grayfox
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Re: Tax Deferred : Taxable : Tax Free

Post by grayfox » Sat Dec 07, 2019 6:39 am

marcopolo wrote:
Fri Dec 06, 2019 10:46 pm
grayfox wrote:
Thu Dec 05, 2019 10:21 am

In Dec-2018 I was at Tax : tIRA : Roth = 27 : 66 : 7 and looking at massive RMDs. I forget the exact numbers but iORP showed like $90,000 per year in taxes when I am 85-90.

I did a mega-conversion in 2019 and it now shows 30 : 47: 23
although I have not paid the FIT out of the taxable yet.
I already moved to LCOL state that does not tax roth conversions, which saves tens of thousands in state taxes in 2019.

I plan to do more mega-conversions for the next four or five years until it is 0 : 0 : 100

After age 70, I will have no RMDs, keep all my social security and pay no federal or state income taxes.
:idea: I would rather pay big FIT now, and nothing for the rest of my long life.
Do you have a very large pension?

otherwise, it seems you might be paying a much higher tax rate on you "mega conversion", than you would by leaving some money in the tax deferred.
Preliminary Turbotx 2019 shows that I will be paying 31.6% of the mega-conversion to Uncle Sam. Paid out of taxable account. Back when I contributed to tIRA decades ago, I was in 33% tax bracket most of the time, so it appears that I am withdrawing at a lower tax rate than when I contributed.

I plan on converting the rest over 4 or 5 years. The longer I can stretch it out, the less I will have to hand over to Uncle Sam. I may convert little less next year and pay around 30.3%, estimated from TurboTax 2019.

As far as I am concerned, if I had a $3 million tIRA, I would gladly pay Uncle Sam $1 million now, convert to a $2 million Roth, and not have to deal with taxes ever again. In other words, I would rather have a $2 million Roth than a $3 million tIRA.

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mtmingus
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Re: Tax Deferred : Taxable : Tax Free

Post by mtmingus » Sat Dec 07, 2019 7:10 am

grayfox wrote:
Sat Dec 07, 2019 6:39 am
marcopolo wrote:
Fri Dec 06, 2019 10:46 pm
grayfox wrote:
Thu Dec 05, 2019 10:21 am

As far as I am concerned, if I had a $3 million tIRA, I would gladly pay Uncle Sam $1 million now, convert to a $2 million Roth, and not have to deal with taxes ever again. In other words, I would rather have a $2 million Roth than a $3 million tIRA.
So sad that a lot of "your money" is actually not yours.

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grayfox
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Re: Tax Deferred : Taxable : Tax Free

Post by grayfox » Sat Dec 07, 2019 7:21 am

mtmingus wrote:
Sat Dec 07, 2019 7:10 am
grayfox wrote:
Sat Dec 07, 2019 6:39 am
grayfox wrote:
Thu Dec 05, 2019 10:21 am

As far as I am concerned, if I had a $3 million tIRA, I would gladly pay Uncle Sam $1 million now, convert to a $2 million Roth, and not have to deal with taxes ever again. In other words, I would rather have a $2 million Roth than a $3 million tIRA.
So sad that a lot of "your money" is actually not yours.
Why sad? I deferred paying 33% in taxes when I contributed. Taxes were deferred, not eliminated. Eventually the taxes will be paid, at whatever the current rate is.

Nobody owns all of their tIRA. Some percent of that ira money is not yours, but belongs to Uncle Sam. Do people forget that was the deal you made when you contributed to your tIRA? If they want to, Congress can raise taxes rates to 50% and claim half your traditional IRA. Or 70%. You agreed to that when you opened your traditional ira.

james22
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Re: Tax Deferred : Taxable : Tax Free

Post by james22 » Sat Dec 07, 2019 7:29 am

55% : 20% : 25%

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TomatoTomahto
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Re: Tax Deferred : Taxable : Tax Free

Post by TomatoTomahto » Sat Dec 07, 2019 7:46 am

grayfox wrote:
Sat Dec 07, 2019 7:21 am
Nobody owns all of their tIRA. Some percent of that ira money is not yours, but belongs to Uncle Sam. Do people forget that was the deal you made when you contributed to your tIRA? If they want to, Congress can raise taxes rates to 50% and claim half your traditional IRA. Or 70%. You agreed to that when you opened your traditional ira.
Absolutely!
What my gut tells me is that not doing conversions now is a large bet that
1 tax rates won’t go up, although they are legislated to revert in 2026
2 they and their spouse will live equal amounts of time (and not get divorced)
3 the estate exclusion will remain as generous as it is today, although they will revert (iirc, in 2026)
4 tax rates don’t go up beyond the legislated reversion
5 estate exclusions don’t become markedly less generous
6 the market returns on their tax deferred assets aren’t very good
7 and so on

That’s a bet I’m not willing to make. I might be wrong, but my sense is that the size of my worst case error is 2%, but the size of my best win is more like 5-15%.

Could taxation on Roths change retroactively? I make that a low probability.
Could income tax change to a consumption based tax? Possibly, but I think it highly unlikely, other than as an additional tax, not a replacement.
Okay, I get it; I won't be political or controversial. The Earth is flat.

rkhusky
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Re: Tax Deferred : Taxable : Tax Free

Post by rkhusky » Sat Dec 07, 2019 8:06 am

TomatoTomahto wrote:
Sat Dec 07, 2019 7:46 am
Could taxation on Roths change retroactively? I make that a low probability.
Could income tax change to a consumption based tax? Possibly, but I think it highly unlikely, other than as an additional tax, not a replacement.
Congress could easily require RMD's for Roth IRA's (already required for Roth 401k's) and some have already proposed closing that loophole. Probably wouldn't affect someone with 100% Roth much, but it would increase taxation. Taxes on those in the 12% bracket and below unlikely to increase much and probably not those in the 22% bracket either.

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