sequence of withdrawals during retirement--differing philosophies

[smitcat]

The thing that lot of us are not getting who slogged middle class life but followed third in taxes third in savings and lived on third of the income for close to 40 years as working professionals (but middle income earners) are going to afford much higher lifestyle than they are used to. Just not having ongoing mortgage and kids college tuition made us rich! Realistically if taken at 70 both SS will cover almost current living standard if the couple was earning in 300k. If they have stashed $4m towards retirement in traditional tax deferred account by all measures they need have no worry in retirement unless they want triple their spending! They can double their spending with only little bit of thinking.

This is real and we are facing it. You can run the numbers.
I accept the fact that we over saved but that was because we never got into big life style creep. I suspect quite a few BH are or will be in similar situation.

"The thing that lot of us are not getting who slogged middle class life but followed third in taxes third in savings and lived on third of the income for close to 40 years as working professionals (but middle income earners) are going to afford much higher lifestyle than they are used to. Just not having ongoing mortgage and kids college tuition made us rich! Realistically if taken at 70 both SS will cover almost current living standard if the couple was earning in 300k. If they have stashed $4m towards retirement in traditional tax deferred account by all measures they need have no worry in retirement unless they want triple their spending! They can double their spending with only little bit of thinking."
All very accurate and true for many folks.

"Spending" in retirement can include core needs, additional wants, gifting, charitable, and taxes. Core needs can represent any % of that total spending, maybe a fraction.
One thing is a fact - you have the ability to choose how you spend the funds now but you will not have the ability to choose how to spend them forever. At some point someone else will choose for you ....

[srouen]

I guess our plan is exactly wrong then. We're planning on pulling Roth (contributions) first to keep our income as low as possible during early retirement years, so we can qualify for ACA subsidies. Once my husband hits 59.5, he'll begin taking Roth interest as well.

[FiveK]

I guess our plan is exactly wrong then. We're planning on pulling Roth (contributions) first to keep our income as low as possible during early retirement years, so we can qualify for ACA subsidies. Once my husband hits 59.5, he'll begin taking Roth interest as well.

Marginal tax rates can indeed be high when on an ACA plan. E.g., see Roth Conversion and Capital Gains On ACA Health Insurance.

It would not be appropriate to incur higher marginal rates now if lower marginal rates are expected later.

Depending on your overall situation, pulling from taxable now instead of Roth might be even better....

[FiveK]

The simple chart that displays the amount of time after conversions vs making conversions in higher rates early a better decision.
Otherwise said - the chart which shows conversion tax rate vs time based on after conversion tax rates.
Please note that the chart does not take into consideration those effects that occurr from any inheritance from those accounts.
It shows that a significantly lower tax rate after conversions can make sence if a large enough time frame transpires after conversions.

That's Figure 4 in https://institutional.vanguard.com/cont ... rsions.pdf, correct?

It would be nice if the ending values on the right edge were labeled, but the eyeball test shows agreement between that chart and the calculations in rows 150-166 of the 'Misc. calcs' tab of the personal finance toolbox spreadsheet. That's one of the tools referenced in the "Traditional plus taxable" vs. Roth wiki section.

Note that the Vanguard charts are based on assumptions that won't apply to all: 35% marginal rate for ordinary income; 18.8% marginal rate for QD+LTCG. Further, the "tax-inefficient" scenarios assume the 6%/yr return is all ordinary income. Also, Figure 4 assumes a 40 year span.

Taking a quick look at Figure 2 and comparing with the toolbox results: 23.5% matched exactly for Scenario 3, and 29.7% vs. 29.6% for Scenario 2.

Running multiple scenarios in Pralana allowed us to see optimized outputs for many of these relationships as I had posted in the past. Last time we ran 16 versions plus a baseline it took about 1-1/2 hours including the time to 'chart' their relative outputs on a simple graph for use later.

What was the marginal tax rate for the first year's conversion in each of the 16 runs? Is there a simple English-language explanation for the differences?

[smitcat]

The simple chart that displays the amount of time after conversions vs making conversions in higher rates early a better decision.
Otherwise said - the chart which shows conversion tax rate vs time based on after conversion tax rates.
Please note that the chart does not take into consideration those effects that occurr from any inheritance from those accounts.
It shows that a significantly lower tax rate after conversions can make sence if a large enough time frame transpires after conversions.

That's Figure 4 in https://institutional.vanguard.com/cont ... rsions.pdf, correct?

It would be nice if the ending values on the right edge were labeled, but the eyeball test shows agreement between that chart and the calculations in rows 150-166 of the 'Misc. calcs' tab of the personal finance toolbox spreadsheet. That's one of the tools referenced in the "Traditional plus taxable" vs. Roth wiki section.

Note that the Vanguard charts are based on assumptions that won't apply to all: 35% marginal rate for ordinary income; 18.8% marginal rate for QD+LTCG. Further, the "tax-inefficient" scenarios assume the 6%/yr return is all ordinary income. Also, Figure 4 assumes a 40 year span.

Taking a quick look at Figure 2 and comparing with the toolbox results: 23.5% matched exactly for Scenario 3, and 29.7% vs. 29.6% for Scenario 2.

Running multiple scenarios in Pralana allowed us to see optimized outputs for many of these relationships as I had posted in the past. Last time we ran 16 versions plus a baseline it took about 1-1/2 hours including the time to 'chart' their relative outputs on a simple graph for use later.

What was the marginal tax rate for the first year's conversion in each of the 16 runs? Is there a simple English-language explanation for the differences?

"Note that the Vanguard charts are based on assumptions that won't apply to all: 35% marginal rate for ordinary income; 18.8% marginal rate for QD+LTCG. Further, the "tax-inefficient" scenarios assume the 6%/yr return is all ordinary income. Also, Figure 4 assumes a 40 year span."
Yes but what I have said in the past was and in this post was things such as - no need for the funds, large taxable accounts, larger equity AA, converting for heirs, converting 'early', etc. There have been a few posts on Bogle that seem that they may fit into these similar buckets.

"It would be nice if the ending values on the right edge were labeled, but the eyeball test shows agreement between that chart and the calculations in rows 150-166 of the 'Misc. calcs' tab of the"
Yes - I agree that would be great help or even more detal. Eyeballing it up it appears that the 'difference' in rates under the curve for the efficient scenario to be converted is 8-9% and for the inefficient closer to 20%. (over 40 years each)

"What was the marginal tax rate for the first year's conversion in each of the 16 runs?"
I have not worked on that at all since I have been using RPM and Pralana. Nor have we been measuring an ending marginal rate for one or more years in the future.

[FiveK]

What was the marginal tax rate for the first year's conversion in each of the 16 runs?

I have not worked on that at all since I have been using RPM and Pralana. Nor have we been measuring an ending marginal rate for one or more years in the future.

Checking those marginal rates would be a good practice. Ignoring them runs the risk of not understanding the "why" of model results. Don't know about Pralana, but last I checked RPM reports only tax brackets, not marginal tax rates.

As noted previously:

To achieve [the optimum result], one has independent variables to manipulate, and constraints to stay within. A common set of independent variables for the purpose of this topic is "annual withdrawals/conversions from the various taxable, traditional, and Roth accounts". One could add "when to start taking SS and deferrable pensions" and probably other variables.

Looking at an optimization model's series of Roth conversion amounts isn't as helpful as understanding why the model decided those amounts were optimal. Often (usually? almost always?) they will be amounts that, together with that year's unavoidable income, put one at some tax law boundary (brackets, IRMAA tiers, etc.). That's why some tools allow you to use those boundaries as independent variables, with the Roth conversion amounts then becoming dependent variables.

And that brings us to the "rule of thumb" (vs. running a full non-linear constrained optimization model) suggested by others: assume the complex model results will be at the same tax law boundary each year, and that go to that boundary "this year" based on your expectation for where you will be after all SS, pension, and RMDs are present.

As with any rule of thumb, its utility depends on the extent to which it is "close enough". While there are articles (Kitces, etc.) that show a benefit for "smoothing tax rates" vs. depleting taxable, traditional, and Roth accounts in some fixed order, I don't recall seeing any that show smoothing tax rates is a bad idea.

[smitcat]

What was the marginal tax rate for the first year's conversion in each of the 16 runs?

I have not worked on that at all since I have been using RPM and Pralana. Nor have we been measuring an ending marginal rate for one or more years in the future.

Checking those marginal rates would be a good practice. Ignoring them runs the risk of not understanding the "why" of model results. Don't know about Pralana, but last I checked RPM reports only tax brackets, not marginal tax rates.

As noted previously:

To achieve [the optimum result], one has independent variables to manipulate, and constraints to stay within. A common set of independent variables for the purpose of this topic is "annual withdrawals/conversions from the various taxable, traditional, and Roth accounts". One could add "when to start taking SS and deferrable pensions" and probably other variables.

Looking at an optimization model's series of Roth conversion amounts isn't as helpful as understanding why the model decided those amounts were optimal. Often (usually? almost always?) they will be amounts that, together with that year's unavoidable income, put one at some tax law boundary (brackets, IRMAA tiers, etc.). That's why some tools allow you to use those boundaries as independent variables, with the Roth conversion amounts then becoming dependent variables.

And that brings us to the "rule of thumb" (vs. running a full non-linear constrained optimization model) suggested by others: assume the complex model results will be at the same tax law boundary each year, and that go to that boundary "this year" based on your expectation for where you will be after all SS, pension, and RMDs are present.

As with any rule of thumb, its utility depends on the extent to which it is "close enough". While there are articles (Kitces, etc.) that show a benefit for "smoothing tax rates" vs. depleting taxable, traditional, and Roth accounts in some fixed order, I don't recall seeing any that show smoothing tax rates is a bad idea.

"It would be nice if the ending values on the right edge were labeled, but the eyeball test shows agreement between that chart and the calculations in rows 150-166 of the 'Misc. calcs' tab of the"
Yes - I agree that would be great help or even more detal. Eyeballing it up it appears that the 'difference' in rates under the curve for the efficient scenario to be converted is 8-9% and for the inefficient closer to 20%. (over 40 years each)
What do you think of these comments about fig #4 - do they make sense at those %'s?

Another question - If we convert $100 at say 25% in Nov. of last year and then a catastrophy happens and we both perish in Jan. of this year does it not make it a good deal for our heirs if there marginal rates this year will be much greater than 25%?
Another version of that question is if we convert $100 on Nov. lasy year at 25% and the funds get "Roth treatment" for 40 years and then are left to heirs that have a higher tax bracket is that not a better approach then not converting?

"Checking those marginal rates would be a good practice. Ignoring them runs the risk of not understanding the "why" of model results. Don't know about Pralana, but last I checked RPM reports only tax brackets, not marginal tax rates"
Pralana base runs have a marginal rate column of 24% to 28% dependent upon conversion years vs 15% after conversion years.
But I have no idea if everything is considered/included in those marginal numbers that we have all posted on so far.
Wer also have the RPM runs which we check against a couple of the Pralana runs - they mostly agree (within a very small difference)

[FiveK]

It would be nice if the ending values on the right edge were labeled, but the eyeball test shows agreement between that chart and the calculations in rows 150-166 of the 'Misc. calcs' tab of the personal finance toolbox spreadsheet

Yes - I agree that would be great help or even more detal. Eyeballing it up it appears that the 'difference' in rates under the curve for the efficient scenario to be converted is 8-9% and for the inefficient closer to 20%. (over 40 years each)
What do you think of these comments about fig #4 - do they make sense at those %'s?

Yes, given the assumptions the math is the math.

Another question - If we convert $100 at say 25% in Nov. of last year and then a catastrophy happens and we both perish in Jan. of this year does it not make it a good deal for our heirs if there marginal rates this year will be much greater than 25%?
Another version of that question is if we convert $100 on Nov. lasy year at 25% and the funds get "Roth treatment" for 40 years and then are left to heirs that have a higher tax bracket is that not a better approach then not converting?

Yes to both. Converting at a lower marginal rate beats withdrawing at a higher marginal rate.

Checking those marginal rates would be a good practice. Ignoring them runs the risk of not understanding the "why" of model results. Don't know about Pralana, but last I checked RPM reports only tax brackets, not marginal tax rates

Pralana base runs have a marginal rate column of 24% to 28% dependent upon conversion years vs 15% after conversion years.
But I have no idea if everything is considered/included in those marginal numbers that we have all posted on so far.
Wer also have the RPM runs which we check against a couple of the Pralana runs - they mostly agree (within a very small difference)

Converting at 28% now when withdrawals (or conversions) could be made at 15% later does not make sense. Given that result, one should question either
a) Pralana's optimization algorithm, or
b) User inputs to Pralana (e.g., this is exactly what one might have seen using I-ORP with a higher return in Roth than in traditional).

[smitcat]

It would be nice if the ending values on the right edge were labeled, but the eyeball test shows agreement between that chart and the calculations in rows 150-166 of the 'Misc. calcs' tab of the personal finance toolbox spreadsheet

Yes - I agree that would be great help or even more detal. Eyeballing it up it appears that the 'difference' in rates under the curve for the efficient scenario to be converted is 8-9% and for the inefficient closer to 20%. (over 40 years each)
What do you think of these comments about fig #4 - do they make sense at those %'s?

Yes, given the assumptions the math is the math.

Another question - If we convert $100 at say 25% in Nov. of last year and then a catastrophy happens and we both perish in Jan. of this year does it not make it a good deal for our heirs if there marginal rates this year will be much greater than 25%?
Another version of that question is if we convert $100 on Nov. lasy year at 25% and the funds get "Roth treatment" for 40 years and then are left to heirs that have a higher tax bracket is that not a better approach then not converting?

Yes to both. Converting at a lower marginal rate beats withdrawing at a higher marginal rate.

Checking those marginal rates would be a good practice. Ignoring them runs the risk of not understanding the "why" of model results. Don't know about Pralana, but last I checked RPM reports only tax brackets, not marginal tax rates

Pralana base runs have a marginal rate column of 24% to 28% dependent upon conversion years vs 15% after conversion years.
But I have no idea if everything is considered/included in those marginal numbers that we have all posted on so far.
Wer also have the RPM runs which we check against a couple of the Pralana runs - they mostly agree (within a very small difference)

Converting at 28% now when withdrawals (or conversions) could be made at 15% later does not make sense. Given that result, one should question either
a) Pralana's optimization algorithm, or
b) User inputs to Pralana (e.g., this is exactly what one might have seen using I-ORP with a higher return in Roth than in traditional).

As I said I do not know what is considered in the 'marginal rate' calculations, so making any conclusions ralated to those numbers are assumptions.
Please see your answers to the other two questions above as to the values of conversions with different rates...

[smitcat]

It would be nice if the ending values on the right edge were labeled, but the eyeball test shows agreement between that chart and the calculations in rows 150-166 of the 'Misc. calcs' tab of the personal finance toolbox spreadsheet

Yes - I agree that would be great help or even more detal. Eyeballing it up it appears that the 'difference' in rates under the curve for the efficient scenario to be converted is 8-9% and for the inefficient closer to 20%. (over 40 years each)
What do you think of these comments about fig #4 - do they make sense at those %'s?

Yes, given the assumptions the math is the math.

Another question - If we convert $100 at say 25% in Nov. of last year and then a catastrophy happens and we both perish in Jan. of this year does it not make it a good deal for our heirs if there marginal rates this year will be much greater than 25%?
Another version of that question is if we convert $100 on Nov. lasy year at 25% and the funds get "Roth treatment" for 40 years and then are left to heirs that have a higher tax bracket is that not a better approach then not converting?

Yes to both. Converting at a lower marginal rate beats withdrawing at a higher marginal rate.

Checking those marginal rates would be a good practice. Ignoring them runs the risk of not understanding the "why" of model results. Don't know about Pralana, but last I checked RPM reports only tax brackets, not marginal tax rates

Pralana base runs have a marginal rate column of 24% to 28% dependent upon conversion years vs 15% after conversion years.
But I have no idea if everything is considered/included in those marginal numbers that we have all posted on so far.
Wer also have the RPM runs which we check against a couple of the Pralana runs - they mostly agree (within a very small difference)

Converting at 28% now when withdrawals (or conversions) could be made at 15% later does not make sense. Given that result, one should question either
a) Pralana's optimization algorithm, or
b) User inputs to Pralana (e.g., this is exactly what one might have seen using I-ORP with a higher return in Roth than in traditional).

Regarding IORP - Maybe 6-8 years back we have dozens of runs made on IORP> Even when we tried to 'force' IORP's return problem ratio RPM never gave the same results. A couple of years later when we started running Pralana it also did not come near IORP with Roth results but was clearly very close to RPM.
FWIW - over the years I had been in contact with James Welsch and had delivered to him the problems with Roth conversions as well as two problems with the tax calculations, one problem with the SS calculation, and an additional problem with the automated drawdown choices.
To the best of my knowledge he was only able to correct the SS issue and then the site failed to be updated since.

[FiveK]

Converting at 28% now when withdrawals (or conversions) could be made at 15% later does not make sense. Given that result, one should question either
a) Pralana's optimization algorithm, or
b) User inputs to Pralana (e.g., this is exactly what one might have seen using I-ORP with a higher return in Roth than in traditional).

As I said I do not know what is considered in the 'marginal rate' calculations, so making any conclusions ralated to those numbers are assumptions.

That can be a problem with complex models: users not understanding what is "under the hood" thus having to take the answers on faith, when those answers (for various reasons) might not be correct.

Complex models can be very useful. But if the user can't don hindsight glasses and, given the model results, explain why those results are correct, that's not a comforting situation.

Please see your answers to the other two questions above as to the values of conversions with different rates...

Don't conflate a situation that had a 35% marginal rate and terrible taxable investments with one having decent taxable investments and no more than a 28% marginal rate. In the latter case, the break-even tax rate (BETR) after 20 years would be 24.2% (and after 40 years, 22%), still much higher than 15%.

[smitcat]

Converting at 28% now when withdrawals (or conversions) could be made at 15% later does not make sense. Given that result, one should question either
a) Pralana's optimization algorithm, or
b) User inputs to Pralana (e.g., this is exactly what one might have seen using I-ORP with a higher return in Roth than in traditional).

As I said I do not know what is considered in the 'marginal rate' calculations, so making any conclusions ralated to those numbers are assumptions.

That can be a problem with complex models: users not understanding what is "under the hood" thus having to take the answers on faith, when those answers (for various reasons) might not be correct.

Complex models can be very useful. But if the user can't don hindsight glasses and, given the model results, explain why those results are correct, that's not a comforting situation.

Please see your answers to the other two questions above as to the values of conversions with different rates...

Don't conflate a situation that had a 35% marginal rate and terrible taxable investments with one having decent taxable investments and no more than a 28% marginal rate. In the latter case, the break-even tax rate (BETR) after 20 years would be 24.2% (and after 40 years, 22%), still much higher than 15%.

"That can be a problem with complex models: users not understanding what is "under the hood" thus having to take the answers on faith, when those answers (for various reasons) might not be correct.
Complex models can be very useful. But if the user can't don hindsight glasses and, given the model results, explain why those results are correct, that's not a comforting situation."
Both RPM and Pralana have outputs showing each account change every year as well as running totals for evey account every year. It is not hard to place a 'ruler' along any year and confirm any of the calculations. It is also not hard to use that ruler to get results of account totals for any year to see if you are ahead or behind any other run for yourself and/or heirs. The ability to check each year and the patterns is the exact reason why we were able to detect all of those problems with IORP even though Charles said no one else sent most of those in.

"Please see your answers to the other two questions above as to the values of conversions with different rates...[/quote]Don't conflate a situation that had a 35% marginal rate and terrible taxable investments with one having decent taxable investments and no more than a 28% marginal rate. In the latter case, the break-even tax rate (BETR) after 20 years would be 24.2% (and after 40 years, 22%), still much higher than 15%."
We do not use marginal tax to optimize the models - we optimize spendable dollars.
- if you agree with both of the Roth conversion questions above then we have no issues with any conversions
- if you also agree that Roth conversions paid with taxable funds enhances the transaction that is another positive
- if you agree there is a positive gained from the number of years in the Roth than that is a factor as well
- if you agree that less efficiency can come from tax drag in taxable accounts there is a positive there
The results of all of these as well as our changing AA is what feeds the yearly lines in the RPM and Pralana outputs.

You had asked for an article that indicates Roth conversions with lower marginal rates after conversions could be helpful and I sent you one.
These are the reasons why I suggest that folks that have these comments in their post run their own numbers on RPM and/or Pralana - larger taxable acounts, at least one is younger, no or low need for spending tax deferred, goals for heirs , etc.

[Roly]

What's the simplest rule to withdraw in retirement? I have HSA, Roth, 401K and taxable, in addition to social security and pension. I do have a heir but I am more interested in simplicity for myself and the spouse. It may not be perfect but good enough. Is there one?

[2pedals]

What's the simplest rule to withdraw in retirement? I have HSA, Roth, 401K and taxable, in addition to social security and pension. I do have a heir but I am more interested in simplicity for myself and the spouse. It may not be perfect but good enough. Is there one?

Roly, it depends
You might want to read the following wiki
https://www.bogleheads.org/wiki/Retirem ... n_priority

[Roly]

@2pedals, thank you. Wiki page is very helpful. I think it is summarized nicely in 3 points below for me. Plus that I don't want to touch HSA/RHRP (will be just about 100K at retirement) due to young age of one spouse.

@KlangFool, I like your 3 points, it seems simple and perfect (for my situation).
A) The spending is from 2 to 3 years of expense in cash buffer.
B) The refilling of the cash buffer is from the taxable dividend and interest income. And, from the Roth account.
C) The tax management is from Roth conversion and taxable gain dependent on the amount of taxes I want to pay each year.

I do have a unique situation with younger spouse being only 53 at retirement (11 years apart), so need to keep income low @ no taxable withdrawals, for many years in order to get PTC(Primary Tax Credit) for ACA (Healthcare Marketplace) premiums. That also means that RMDs (Required Minimum Distributions) will be huge, when time comes. Just deal with it? Or, there's a strategy for this situation?

[FiveK]

@2pedals, thank you. Wiki page is very helpful. I think it is summarized nicely in 3 points below for me. Plus that I don't want to touch HSA/RHRP (will be just about 100K at retirement) due to young age of one spouse.

@KlangFool, I like your 3 points, it seems simple and perfect (for my situation).
A) The spending is from 2 to 3 years of expense in cash buffer.
B) The refilling of the cash buffer is from the taxable dividend and interest income. And, from the Roth account.
C) The tax management is from Roth conversion and taxable gain dependent on the amount of taxes I want to pay each year.

I do have a unique situation with younger spouse being only 53 at retirement (11 years apart), so need to keep income low @ no taxable withdrawals, for many years in order to get PTC(Primary Tax Credit) for ACA (Healthcare Marketplace) premiums. That also means that RMDs (Required Minimum Distributions) will be huge, when time comes. Just deal with it? Or, there's a strategy for this situation?

You have identified the high-level strategy for C) but the ACA premium tax credit calculations do complicate things.

Roth Conversion and Capital Gains On ACA Health Insurance along with Whether, when, and how much to convert could be useful to you. Are they?

[smitcat]

What's the simplest rule to withdraw in retirement? I have HSA, Roth, 401K and taxable, in addition to social security and pension. I do have a heir but I am more interested in simplicity for myself and the spouse. It may not be perfect but good enough. Is there one?

- You will need a bunch more detail to figure out the best withdrawal strategy in retirement. Kitces has a great overview with some clear charts here...
https://www.kitces.com/blog/tax-efficie ... ing-needs/
- You may also want to utilize one of the more detailed calculators such as RPM and Pralana to review your choices.
RPM
https://www.bogleheads.org/wiki/Retiree_Portfolio_Model
Pralana
https://pralanaretirementcalculator.com/
- Lastly, what is the purpose of your emergency fund in retirement? We have not needed one in many years.

[Roly]

@FiveK and @smitcat - Thank you, for the links. This is a little overwhelming for me, I need handholding. I need help on different issues that are really tied together, and thinking of where to post.

[FiveK]

What's the simplest rule to withdraw in retirement? I have HSA, Roth, 401K and taxable, in addition to social security and pension. I do have a heir but I am more interested in simplicity for myself and the spouse. It may not be perfect but good enough. Is there one?

Yes: predict your marginal tax rate on traditional distributions after you will be taking SS and RMDs, and aim for the top of that marginal rate for the current year.

Managing Taxes in Retirement using your Marginal Tax Rate has more info, and this annotated chart is a good example of what another BH poster did.

You can use a comprehensive tool or, for simplicity, just compound growth rates on your taxable and traditional balances for the future prediction.

There are all sorts of "but what if...?" (e.g., "...tax law changes?", "...one of us passes away unexpectedly?", "...we change our minds about something?, etc.) things one might consider, but you asked for the simplest (and, by the way, it's a good) way to start. Of course, review and update annually.

[FiveK]

@FiveK and @smitcat - Thank you, for the links. This is a little overwhelming for me, I need handholding. I need help on different issues that are really tied together, and thinking of where to post.

Starting your own topic, using the format suggested in Asking Portfolio Questions, would be good.

Include questions about things where you could use handholding. Remember, nobody here knew any of this until they learned it, and it isn't taught in most schools.

Good luck!

[Roly]

@FiveK - thanks so much.

Posted here -
viewtopic.php?t=438637

[Fat Tails]

One other thing to consider is that if married and if the taxable account has appreciated assets, it may be better to hold these until the first spouse passes, then the second spouse gets a step up in basis. Assuming a community property state. Then those assets can be spent without increasing your taxable income.

[GaryA505]

One other thing to consider is that if married and if the taxable account has appreciated assets, it may be better to hold these until the first spouse passes, then the second spouse gets a step up in basis. Assuming a community property state. Then those assets can be spent without increasing your taxable income.

Is this true for a joint (JWROS) account as well? We have about 40% of our assets in a taxable brokerage account so that would be nice (for my wife of course, not for me cause I'll be gone).

EDIT: We're in a community property state.

[rs9876lg]

One other thing to consider is that if married and if the taxable account has appreciated assets, it may be better to hold these until the first spouse passes, then the second spouse gets a step up in basis. Assuming a community property state. Then those assets can be spent without increasing your taxable income.

I don't think this works for joint account.

[GaryA505]

One other thing to consider is that if married and if the taxable account has appreciated assets, it may be better to hold these until the first spouse passes, then the second spouse gets a step up in basis. Assuming a community property state. Then those assets can be spent without increasing your taxable income.

I don't think this works for joint account.

Apparently it does, and it's 100% in Community Property states:

https://www.quickenloans.com/learn/join ... hased%20it.

https://epiccapital.com/the-importance- ... s%20100%25.

[sc9182]

One other thing to consider is that if married and if the taxable account has appreciated assets, it may be better to hold these until the first spouse passes, then the second spouse gets a step up in basis. Assuming a community property state. Then those assets can be spent without increasing your taxable income.

I don't think this works for joint account.

Apparently it does, and it's 100% in Community Property states:

https://www.quickenloans.com/learn/join ... hased%20it.

https://epiccapital.com/the-importance- ... s%20100%25.

++1
Great points. If only one/you can convince some of those aggressive Roth conversion hawks on the forum - that what possibly they incurred LTCG/STCG amount to withdraw from Brokerage assets used to pay taxes on their tIRA to Roth conversions -- they could have avoided those taxes near 100% fully (upon one spouse's demise) -- if they didn't sell in brokerage in the first-place !!

Also - try to convince, fear-mongers of "higher single-spouse tax brackets" that -- the "step-up basis" on Brokerage, business, Primary-Home (a bit paperwork may be required to preserve the MFJ higher-limit of LTCG), any any step-up basis assets TAX-Free that is (sorry for yelling this from roof-top)!! On-top, the second-to-die spouse can pass those assets over period of time - with more built-in LTCG to heirs or to charities -- who in-turn get Step-up again (or non-taxed in case of charities);

For folks who have Rental properties over their lifetime - any of those accumulated Rental-depreciation taken over multiple-decades, may be reduced/written-off too ..

** No tax-expert, no investment advice is doled out here; Please check with your respective recourses/experts

[GaryA505]

One other thing to consider is that if married and if the taxable account has appreciated assets, it may be better to hold these until the first spouse passes, then the second spouse gets a step up in basis. Assuming a community property state. Then those assets can be spent without increasing your taxable income.

I don't think this works for joint account.

Apparently it does, and it's 100% in Community Property states:

https://www.quickenloans.com/learn/join ... hased%20it.

https://epiccapital.com/the-importance- ... s%20100%25.

++1
Great points. If only one/you can convince some of those aggressive Roth conversion hawks on the forum - that what possibly they incurred LTCG/STCG amount to withdraw from Brokerage assets used to pay taxes on their tIRA to Roth conversions -- they could have avoided those taxes near 100% fully (upon one spouse's demise) -- if they didn't sell in brokerage in the first-place !!

Also - try to convince, fear-mongers of "higher single-spouse tax brackets" that -- the "step-up basis" on Brokerage, business, Primary-Home (a bit paperwork may be required to preserve the MFJ higher-limit of LTCG), any any step-up basis assets TAX-Free that is (sorry for yelling this from roof-top)!! On-top, the second-to-die spouse can pass those assets over period of time - with more built-in LTCG to heirs or to charities -- who in-turn get Step-up again (or non-taxed in case of charities);

For folks who have Rental properties over their lifetime - any of those accumulated Rental-depreciation taken over multiple-decades, may be write-off too ..

** No tax-expert, no investment advice is doled out here; Please check with your respective recourses/experts

This is another good reason to hold more equity assets in taxable accounts, something I've been thinking about.

[rs9876lg]

Unless very respected BH confirms it I am not yet believing that basis gets stepped up for the surviving spouse

[doobiedoo]

Unless very respected BH confirms it I am not yet believing that basis gets stepped up for the surviving spouse

Yes, the step-up in basis is real.
https://www.fidelity.com/learning-cente ... p-in-basis

I got the step-up when my spouse died.
And by putting a rental property in the B trust, I got to depreciate it all over again at the new basis!

[GaryA505]

Unless very respected BH confirms it I am not yet believing that basis gets stepped up for the surviving spouse

It's in IRC 1014(b)(6) which provides for a basis adjustment for 100% of community property (for both spouse's shares on the first death). This is only for community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). The result in other states will vary.

[Roly]

This has a lot of great info for me, thank you, BHers.

Can someone shed light on how it works in NC (not a communal state), is 100% reduced to 50% and that is it? It applies only to state taxes, right? Gains (without step-up basis) will still incur Federal taxes?

@FiveK - Rollover enough to get to top of your marginal tax bracket, is very helpful to me.