Roth conversions plans via RPM -- help me compare

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HomeStretch
Posts: 6548
Joined: Thu Dec 27, 2018 3:06 pm

Re: Roth conversions plans via RPM -- help me compare

Post by HomeStretch »

DebiT wrote: Wed Jun 16, 2021 10:13 pm
HomeStretch wrote: Wed Jun 16, 2021 9:26 pm Roth conversions are a year-by-year decision. Options B - D are the same for the 1st five years (i.e., convert enough to fill the 24% tax bracket). Consider converting in year 1 to fill the 24% bracket, then update your projections annually to see if it makes sense to convert at 24% for year 2. Rinse and repeat.

Are you holding your bond allocation in your tax deferred accounts to slow the expected growth?
Yes, and I will continue to tweak my per account AA in that manner
Your other thread shows you are holding a significant amount of bonds in Taxable and equities in Tax Deferred. Move 100% of your bonds/fixed income, if possible, into Tax Deferred (offset by moving equities into Taxable) to slow the expected growth and, in turn, reduce future RMDs and improve your portfolio’s tax efficiency.
Topic Author
DebiT
Posts: 467
Joined: Sat Dec 28, 2013 1:45 pm

Re: Roth conversions plans via RPM -- help me compare

Post by DebiT »

HomeStretch wrote: Sun Jun 20, 2021 6:23 pm
DebiT wrote: Wed Jun 16, 2021 10:13 pm
HomeStretch wrote: Wed Jun 16, 2021 9:26 pm Roth conversions are a year-by-year decision. Options B - D are the same for the 1st five years (i.e., convert enough to fill the 24% tax bracket). Consider converting in year 1 to fill the 24% bracket, then update your projections annually to see if it makes sense to convert at 24% for year 2. Rinse and repeat.

Are you holding your bond allocation in your tax deferred accounts to slow the expected growth?
Yes, and I will continue to tweak my per account AA in that manner
Your other thread shows you are holding a significant amount of bonds in Taxable and equities in Tax Deferred. Move 100% of your bonds/fixed income, if possible, into Tax Deferred (offset by moving equities into Taxable) to slow the expected growth and, in turn, reduce future RMDs and improve your portfolio’s tax efficiency.
This is my project for tomorrow. I should end up with tIRA being 14/86 stock to bonds
Age 63, life turned upside down 3/2/19, thanking God for what I've learned from this group
Topic Author
DebiT
Posts: 467
Joined: Sat Dec 28, 2013 1:45 pm

Re: Roth conversions plans via RPM -- help me compare

Post by DebiT »

The Stone Wall wrote: Sun Jun 20, 2021 5:53 pm
celia wrote: Sun Jun 20, 2021 12:05 am
Why would you completely spend down the taxable account while letting the tax-deferred grow? That means when you start using up the tax-deferred, EVERY SINGLE DOLLAR YOU NEED FOR LIVING EXPENSES WILL BE TAXED. And if you do early no Roth conversions, your estimated RMDs of $60K (in your early years, increasing as you age) added to your SS of $43K (at age 70) will give you Taxable income of $60K + 43K - $13K (standard deduction) = $90K, which is in the bottom of the current 24% tax bracket, WITHOUT DOING ANY ROTH CONVERSIONS. At that point, tax brackets would have reverted back to 2017 levels, so you would be at the TOP of the 25% bracket, about to fall into the 28% bracket.
+1
I know many people will suggest using the taxable account, but it just seems like one should try to minimize the pre-tax. Why spend your taxable account knowing that the 'major problem' is the pre-tax. If you spend out of pre-tax and do Roth conversions, you end up with a more manageable RMD. This would maintain your taxable account giving you a combination of Roth, taxable, and pre-tax in the future.
I must be missing something here. From now until 72, I have space to make Roth conversions, or at least to take money out of tIRAs in some form. I guess I have been assuming that I would take money out of tIRA as a Roth conversion, and pay taxes plus living expenses from taxable account. If I do that , eventually the taxable account is gone. But that seems ok, because then I have the Roth to use, if needed.

Is there some other way to do that? Would I perhaps take money out of tIRA from now to 72, use part of it to live and put only part of it in the Roth, in order to preserve the taxable account? Is that better? Isn’t money in Roth better than money in taxable, in general?

Based on responses from Celia, Stonewall,and others, I think I’m missing something regarding this aspect.
Age 63, life turned upside down 3/2/19, thanking God for what I've learned from this group
The Stone Wall
Posts: 120
Joined: Thu Mar 22, 2018 1:18 pm

Re: Roth conversions plans via RPM -- help me compare

Post by The Stone Wall »

DebiT wrote: Sun Jun 20, 2021 10:45 pm
The Stone Wall wrote: Sun Jun 20, 2021 5:53 pm
celia wrote: Sun Jun 20, 2021 12:05 am
Why would you completely spend down the taxable account while letting the tax-deferred grow? That means when you start using up the tax-deferred, EVERY SINGLE DOLLAR YOU NEED FOR LIVING EXPENSES WILL BE TAXED. And if you do early no Roth conversions, your estimated RMDs of $60K (in your early years, increasing as you age) added to your SS of $43K (at age 70) will give you Taxable income of $60K + 43K - $13K (standard deduction) = $90K, which is in the bottom of the current 24% tax bracket, WITHOUT DOING ANY ROTH CONVERSIONS. At that point, tax brackets would have reverted back to 2017 levels, so you would be at the TOP of the 25% bracket, about to fall into the 28% bracket.
+1
I know many people will suggest using the taxable account, but it just seems like one should try to minimize the pre-tax. Why spend your taxable account knowing that the 'major problem' is the pre-tax. If you spend out of pre-tax and do Roth conversions, you end up with a more manageable RMD. This would maintain your taxable account giving you a combination of Roth, taxable, and pre-tax in the future.
I must be missing something here. From now until 72, I have space to make Roth conversions, or at least to take money out of tIRAs in some form. I guess I have been assuming that I would take money out of tIRA as a Roth conversion, and pay taxes plus living expenses from taxable account. If I do that , eventually the taxable account is gone. But that seems ok, because then I have the Roth to use, if needed.

Is there some other way to do that? Would I perhaps take money out of tIRA from now to 72, use part of it to live and put only part of it in the Roth, in order to preserve the taxable account? Is that better? Isn’t money in Roth better than money in taxable, in general?

Based on responses from Celia, Stonewall,and others, I think I’m missing something regarding this aspect.
You can easily draw money out of the IRA and use it for living expenses and to also draw out money for Roth conversions (I do this). My goal is to minimize my IRA while maximizing my Roth AND taxable accounts. I don't have your underlying SS benefit, so I am filling up all my lower tier tax brackets with the withdrawals. I do make smaller Roth conversions as a result, but I'm not draining my taxable.

Money in Roth is better than taxable, but taxable is also better than your IRA! The IRA is the only one of these that 'force' a distribution with the RMD's.
marcopolo
Posts: 4510
Joined: Sat Dec 03, 2016 10:22 am

Re: Roth conversions plans via RPM -- help me compare

Post by marcopolo »

DebiT wrote: Sun Jun 20, 2021 10:45 pm
The Stone Wall wrote: Sun Jun 20, 2021 5:53 pm
celia wrote: Sun Jun 20, 2021 12:05 am
Why would you completely spend down the taxable account while letting the tax-deferred grow? That means when you start using up the tax-deferred, EVERY SINGLE DOLLAR YOU NEED FOR LIVING EXPENSES WILL BE TAXED. And if you do early no Roth conversions, your estimated RMDs of $60K (in your early years, increasing as you age) added to your SS of $43K (at age 70) will give you Taxable income of $60K + 43K - $13K (standard deduction) = $90K, which is in the bottom of the current 24% tax bracket, WITHOUT DOING ANY ROTH CONVERSIONS. At that point, tax brackets would have reverted back to 2017 levels, so you would be at the TOP of the 25% bracket, about to fall into the 28% bracket.
+1
I know many people will suggest using the taxable account, but it just seems like one should try to minimize the pre-tax. Why spend your taxable account knowing that the 'major problem' is the pre-tax. If you spend out of pre-tax and do Roth conversions, you end up with a more manageable RMD. This would maintain your taxable account giving you a combination of Roth, taxable, and pre-tax in the future.
I must be missing something here. From now until 72, I have space to make Roth conversions, or at least to take money out of tIRAs in some form. I guess I have been assuming that I would take money out of tIRA as a Roth conversion, and pay taxes plus living expenses from taxable account. If I do that , eventually the taxable account is gone. But that seems ok, because then I have the Roth to use, if needed.

Is there some other way to do that? Would I perhaps take money out of tIRA from now to 72, use part of it to live and put only part of it in the Roth, in order to preserve the taxable account? Is that better? Isn’t money in Roth better than money in taxable, in general?

Based on responses from Celia, Stonewall,and others, I think I’m missing something regarding this aspect.
I don't think this idea makes sense. I will try to work out an specific example later when I have some time.

But, consider two points.

1) The recommendation for Roth Conversions is usually to pay the taxes out of a taxable account. Taxes are just like any other expenses. If this idea made sense, then why not recommend to always pay the taxes on the conversion out the tIRA withdrawn funds?

2) Spending out of taxable and using that tax space to Roth convert more dollars, effectively acts as doing a large Roth contribution from your taxable account (in addition to conversion). If you had a chance to to continue doing Roth contributions, would sell in taxable to do that? In your situation, with little or no unrealized gains (can sell with no tax consequences), that is an easy decision.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Topic Author
DebiT
Posts: 467
Joined: Sat Dec 28, 2013 1:45 pm

Re: Roth conversions plans via RPM -- help me compare

Post by DebiT »

marcopolo wrote: Mon Jun 21, 2021 1:28 pm
DebiT wrote: Sun Jun 20, 2021 10:45 pm
The Stone Wall wrote: Sun Jun 20, 2021 5:53 pm
celia wrote: Sun Jun 20, 2021 12:05 am
Why would you completely spend down the taxable account while letting the tax-deferred grow? That means when you start using up the tax-deferred, EVERY SINGLE DOLLAR YOU NEED FOR LIVING EXPENSES WILL BE TAXED. And if you do early no Roth conversions, your estimated RMDs of $60K (in your early years, increasing as you age) added to your SS of $43K (at age 70) will give you Taxable income of $60K + 43K - $13K (standard deduction) = $90K, which is in the bottom of the current 24% tax bracket, WITHOUT DOING ANY ROTH CONVERSIONS. At that point, tax brackets would have reverted back to 2017 levels, so you would be at the TOP of the 25% bracket, about to fall into the 28% bracket.
+1
I know many people will suggest using the taxable account, but it just seems like one should try to minimize the pre-tax. Why spend your taxable account knowing that the 'major problem' is the pre-tax. If you spend out of pre-tax and do Roth conversions, you end up with a more manageable RMD. This would maintain your taxable account giving you a combination of Roth, taxable, and pre-tax in the future.
I must be missing something here. From now until 72, I have space to make Roth conversions, or at least to take money out of tIRAs in some form. I guess I have been assuming that I would take money out of tIRA as a Roth conversion, and pay taxes plus living expenses from taxable account. If I do that , eventually the taxable account is gone. But that seems ok, because then I have the Roth to use, if needed.

Is there some other way to do that? Would I perhaps take money out of tIRA from now to 72, use part of it to live and put only part of it in the Roth, in order to preserve the taxable account? Is that better? Isn’t money in Roth better than money in taxable, in general?

Based on responses from Celia, Stonewall,and others, I think I’m missing something regarding this aspect.
I don't think this idea makes sense. I will try to work out an specific example later when I have some time.

But, consider two points.

1) The recommendation for Roth Conversions is usually to pay the taxes out of a taxable account. Taxes are just like any other expenses. If this idea made sense, then why not recommend to always pay the taxes on the conversion out the tIRA withdrawn funds?

2) Spending out of taxable and using that tax space to Roth convert more dollars, effectively acts as doing a large Roth contribution from your taxable account (in addition to conversion). If you had a chance to to continue doing Roth contributions, would sell in taxable to do that? In your situation, with little or no unrealized gains (can sell with no tax consequences), that is an easy decision.
I think sometimes some of the responses understandably don't reflect my own entire context. I'm having a brain fog day, so I'm not going to do my AA redistribution until tomorrow morning, but I already notice a psychological barrier to taking it all the way, because I end up with so much in VTI/VXUS in taxable , and I am so conditioned to not make it necessary to sell stock in a taxable account. I am finding I want to keep at least 5 years of basic expenses plus likely taxes (assuming Roths to fill only 22%) in cash or bond fund in the taxable. I know that you earlier had pointed out that I could raise cash in taxable by selling stock and then replacing equivalent amount in tIRA, but my guy instinct hasn't caught up with that yet.

I also realize I need to get myself to understand what I believe is my new carry-forward loss from my Schedule D this year (bad debt on personal loan to our corporation, now dissolved). It's substantial, nearly $30K. I believe I can use $3K yearly, but am not yet clear if that goes against "ordinary income" or just against "capital gains". And of course I need to find out if my Roth conversion or tIRA distribution is ordinary income, and if it reduces the income or the tax (I suspect the former).

And of course ideally I would understand all of these changes at once, since one impacts the other.

Fun times.
Age 63, life turned upside down 3/2/19, thanking God for what I've learned from this group
marcopolo
Posts: 4510
Joined: Sat Dec 03, 2016 10:22 am

Re: Roth conversions plans via RPM -- help me compare

Post by marcopolo »

DebiT wrote: Mon Jun 21, 2021 1:52 pm
marcopolo wrote: Mon Jun 21, 2021 1:28 pm
DebiT wrote: Sun Jun 20, 2021 10:45 pm
The Stone Wall wrote: Sun Jun 20, 2021 5:53 pm
celia wrote: Sun Jun 20, 2021 12:05 am
Why would you completely spend down the taxable account while letting the tax-deferred grow? That means when you start using up the tax-deferred, EVERY SINGLE DOLLAR YOU NEED FOR LIVING EXPENSES WILL BE TAXED. And if you do early no Roth conversions, your estimated RMDs of $60K (in your early years, increasing as you age) added to your SS of $43K (at age 70) will give you Taxable income of $60K + 43K - $13K (standard deduction) = $90K, which is in the bottom of the current 24% tax bracket, WITHOUT DOING ANY ROTH CONVERSIONS. At that point, tax brackets would have reverted back to 2017 levels, so you would be at the TOP of the 25% bracket, about to fall into the 28% bracket.
+1
I know many people will suggest using the taxable account, but it just seems like one should try to minimize the pre-tax. Why spend your taxable account knowing that the 'major problem' is the pre-tax. If you spend out of pre-tax and do Roth conversions, you end up with a more manageable RMD. This would maintain your taxable account giving you a combination of Roth, taxable, and pre-tax in the future.
I must be missing something here. From now until 72, I have space to make Roth conversions, or at least to take money out of tIRAs in some form. I guess I have been assuming that I would take money out of tIRA as a Roth conversion, and pay taxes plus living expenses from taxable account. If I do that , eventually the taxable account is gone. But that seems ok, because then I have the Roth to use, if needed.

Is there some other way to do that? Would I perhaps take money out of tIRA from now to 72, use part of it to live and put only part of it in the Roth, in order to preserve the taxable account? Is that better? Isn’t money in Roth better than money in taxable, in general?

Based on responses from Celia, Stonewall,and others, I think I’m missing something regarding this aspect.
I don't think this idea makes sense. I will try to work out an specific example later when I have some time.

But, consider two points.

1) The recommendation for Roth Conversions is usually to pay the taxes out of a taxable account. Taxes are just like any other expenses. If this idea made sense, then why not recommend to always pay the taxes on the conversion out the tIRA withdrawn funds?

2) Spending out of taxable and using that tax space to Roth convert more dollars, effectively acts as doing a large Roth contribution from your taxable account (in addition to conversion). If you had a chance to to continue doing Roth contributions, would sell in taxable to do that? In your situation, with little or no unrealized gains (can sell with no tax consequences), that is an easy decision.
I think sometimes some of the responses understandably don't reflect my own entire context. I'm having a brain fog day, so I'm not going to do my AA redistribution until tomorrow morning, but I already notice a psychological barrier to taking it all the way, because I end up with so much in VTI/VXUS in taxable , and I am so conditioned to not make it necessary to sell stock in a taxable account. I am finding I want to keep at least 5 years of basic expenses plus likely taxes (assuming Roths to fill only 22%) in cash or bond fund in the taxable. I know that you earlier had pointed out that I could raise cash in taxable by selling stock and then replacing equivalent amount in tIRA, but my guy instinct hasn't caught up with that yet.

I also realize I need to get myself to understand what I believe is my new carry-forward loss from my Schedule D this year (bad debt on personal loan to our corporation, now dissolved). It's substantial, nearly $30K. I believe I can use $3K yearly, but am not yet clear if that goes against "ordinary income" or just against "capital gains". And of course I need to find out if my Roth conversion or tIRA distribution is ordinary income, and if it reduces the income or the tax (I suspect the former).

And of course ideally I would understand all of these changes at once, since one impacts the other.

Fun times.
You are contemplating a lot of changes. There is nothing wrong with being apprehensive and taking it slow. I also think it is perfectly fine to do things in less than optimal way if it makes you uncomfortable. Most of the things we are discussing have relatively small effects compared to major things that you were already doing right.

As for the capital losses you are carrying over, they will first cancel out any capital gains you have each year. If you still have losses left, you can offset up to $3k of ordinary income each year, and continue to rollover the rest for future years.

Quick example:

30k losses previously carried over

$5k of capital gains in current year.
This gets canceled out, and uses up $5k of your carry over.
May or may not reduce your taxes depending on cap gains tax rate of your bracket.

$3k used against ordinary income. This directly reduces your AGI by $3k, and taxes due by your marginal rate applied to the $3k.

You would then be left with $22k of losses to carry forward to future use.
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
Posts: 4510
Joined: Sat Dec 03, 2016 10:22 am

Re: Roth conversions plans via RPM -- help me compare

Post by marcopolo »

marcopolo wrote: Mon Jun 21, 2021 1:28 pm
DebiT wrote: Sun Jun 20, 2021 10:45 pm
The Stone Wall wrote: Sun Jun 20, 2021 5:53 pm
celia wrote: Sun Jun 20, 2021 12:05 am
Why would you completely spend down the taxable account while letting the tax-deferred grow? That means when you start using up the tax-deferred, EVERY SINGLE DOLLAR YOU NEED FOR LIVING EXPENSES WILL BE TAXED. And if you do early no Roth conversions, your estimated RMDs of $60K (in your early years, increasing as you age) added to your SS of $43K (at age 70) will give you Taxable income of $60K + 43K - $13K (standard deduction) = $90K, which is in the bottom of the current 24% tax bracket, WITHOUT DOING ANY ROTH CONVERSIONS. At that point, tax brackets would have reverted back to 2017 levels, so you would be at the TOP of the 25% bracket, about to fall into the 28% bracket.
+1
I know many people will suggest using the taxable account, but it just seems like one should try to minimize the pre-tax. Why spend your taxable account knowing that the 'major problem' is the pre-tax. If you spend out of pre-tax and do Roth conversions, you end up with a more manageable RMD. This would maintain your taxable account giving you a combination of Roth, taxable, and pre-tax in the future.
I must be missing something here. From now until 72, I have space to make Roth conversions, or at least to take money out of tIRAs in some form. I guess I have been assuming that I would take money out of tIRA as a Roth conversion, and pay taxes plus living expenses from taxable account. If I do that , eventually the taxable account is gone. But that seems ok, because then I have the Roth to use, if needed.

Is there some other way to do that? Would I perhaps take money out of tIRA from now to 72, use part of it to live and put only part of it in the Roth, in order to preserve the taxable account? Is that better? Isn’t money in Roth better than money in taxable, in general?

Based on responses from Celia, Stonewall,and others, I think I’m missing something regarding this aspect.
I don't think this idea makes sense. I will try to work out an specific example later when I have some time.

But, consider two points.

1) The recommendation for Roth Conversions is usually to pay the taxes out of a taxable account. Taxes are just like any other expenses. If this idea made sense, then why not recommend to always pay the taxes on the conversion out the tIRA withdrawn funds?

2) Spending out of taxable and using that tax space to Roth convert more dollars, effectively acts as doing a large Roth contribution from your taxable account (in addition to conversion). If you had a chance to to continue doing Roth contributions, would sell in taxable to do that? In your situation, with little or no unrealized gains (can sell with no tax consequences), that is an easy decision.

Ok. I ran some numbers for your scenario, and I think this is an exceedingly bad idea.

Let's say you are willing to withdraw from your tIRA up to the top of the 24% bracket.
To simplify a bit, I have rounded some number in your portfolio, and am ignoring the dividends that come from your taxable account. They will not change the outcome much. I am ignoring state taxes, but they would work the same way. I am also ignoring IRMAA as they will be the same in both alternatives.

I assumed $82k of spending as stated in an earlier post.

For 2021, the top of the 24% bracket is at $164,925, add in your standard deduction, and you can withdraw up to $177,475 and stay in the 24% marginal tax bracket.

Case 1: Preserve Taxable account, live off tIRA withdrawals and Roth Convert.
Starting balances: Roth: $0; Taxable: $600,000; tIRA: $1,400,000

You would withdraw the maximum to stay in 24% bracket ($177,475), you would pay $33,603 in taxes, spend $82,000, and convert $61,872 to a Roth IRA.

Case 1 Ending Balances: Roth: $61,872; Taxable: $600,000; tIRA: $1,222,525



Case 2: Use taxable account to pay for living expenses and taxes, Roth Convert as much as possible.

Since you are sitting on mostly cash and bonds in taxable right now (little/no capital gains) and have capital loss carry overs, there would be no taxable income when withdrawing funds from your taxable account. So, to stay within the 24% bracket, you could withdraw the same $177,475.
You would owe the same $33,603 in taxes. Add to that, the $82,000 required for living expenses, results in $115,603 to be withdrawn from the taxable account. The entire $177,475 can be put into the Roth IRA.

Case 2 Ending balances: Roth: $177,475; Taxable: $484,397; tIRA: $1,222,525


I would much rather be in the second scenario. You have moved a lot more money into a Roth account while paying the same taxes, and lowering your tIRA by the same amount.

As your taxable account grows and you start to incur some capital gains taxes, the benefit of doing this will slowly reduce, but always still come out ahead because some of the taxable withdrawal will always be return of capital.
Once in a while you get shown the light, in the strangest of places if you look at it right.
marcopolo
Posts: 4510
Joined: Sat Dec 03, 2016 10:22 am

Re: Roth conversions plans via RPM -- help me compare

Post by marcopolo »

The Stone Wall wrote: Sun Jun 20, 2021 5:53 pm
celia wrote: Sun Jun 20, 2021 12:05 am
Why would you completely spend down the taxable account while letting the tax-deferred grow? That means when you start using up the tax-deferred, EVERY SINGLE DOLLAR YOU NEED FOR LIVING EXPENSES WILL BE TAXED. And if you do early no Roth conversions, your estimated RMDs of $60K (in your early years, increasing as you age) added to your SS of $43K (at age 70) will give you Taxable income of $60K + 43K - $13K (standard deduction) = $90K, which is in the bottom of the current 24% tax bracket, WITHOUT DOING ANY ROTH CONVERSIONS. At that point, tax brackets would have reverted back to 2017 levels, so you would be at the TOP of the 25% bracket, about to fall into the 28% bracket.
+1
I know many people will suggest using the taxable account, but it just seems like one should try to minimize the pre-tax. Why spend your taxable account knowing that the 'major problem' is the pre-tax. If you spend out of pre-tax and do Roth conversions, you end up with a more manageable RMD. This would maintain your taxable account giving you a combination of Roth, taxable, and pre-tax in the future.
Perhaps I am missing something (certainly possible), but to me this seems like exceedingly bad advice for the OP's situation.
Can you please take a look at my post just prior to this one, and discuss what if anything I may have done wrong in the analysis?
Perhaps your situation is different such that this approach makes sense, if so can you describe the scenario? I would like to understand under what conditions spending from the tIRA, rather than taxable, would make sense.
Once in a while you get shown the light, in the strangest of places if you look at it right.
The Stone Wall
Posts: 120
Joined: Thu Mar 22, 2018 1:18 pm

Re: Roth conversions plans via RPM -- help me compare

Post by The Stone Wall »

marcopolo wrote: Mon Jun 21, 2021 10:46 pm
The Stone Wall wrote: Sun Jun 20, 2021 5:53 pm
celia wrote: Sun Jun 20, 2021 12:05 am
Why would you completely spend down the taxable account while letting the tax-deferred grow? That means when you start using up the tax-deferred, EVERY SINGLE DOLLAR YOU NEED FOR LIVING EXPENSES WILL BE TAXED. And if you do early no Roth conversions, your estimated RMDs of $60K (in your early years, increasing as you age) added to your SS of $43K (at age 70) will give you Taxable income of $60K + 43K - $13K (standard deduction) = $90K, which is in the bottom of the current 24% tax bracket, WITHOUT DOING ANY ROTH CONVERSIONS. At that point, tax brackets would have reverted back to 2017 levels, so you would be at the TOP of the 25% bracket, about to fall into the 28% bracket.
+1
I know many people will suggest using the taxable account, but it just seems like one should try to minimize the pre-tax. Why spend your taxable account knowing that the 'major problem' is the pre-tax. If you spend out of pre-tax and do Roth conversions, you end up with a more manageable RMD. This would maintain your taxable account giving you a combination of Roth, taxable, and pre-tax in the future.
Perhaps I am missing something (certainly possible), but to me this seems like exceedingly bad advice for the OP's situation.
Can you please take a look at my post just prior to this one, and discuss what if anything I may have done wrong in the analysis?
Perhaps your situation is different such that this approach makes sense, if so can you describe the scenario? I would like to understand under what conditions spending from the tIRA, rather than taxable, would make sense.
My case is certainly different primarily because my spending is less than half of the OP's and nearly all of my taxable is capital gains. so your statement:

"As your taxable account grows and you start to incur some capital gains taxes, the benefit of doing this will slowly reduce, but always still come out ahead because some of the taxable withdrawal will always be return of capital."

has more control. With proper allocation of funds between the accounts, I think she can make significant changes in her accounts with more modest conversions and staying away from significant 24% marginal taxes.
PaulieLilly
Posts: 22
Joined: Sun May 31, 2020 12:06 pm

Re: Roth conversions plans via RPM -- help me compare

Post by PaulieLilly »

fyi ... Kitces has a good article on this subject:
https://www.kitces.com/blog/tax-efficie ... ing-needs/
Topic Author
DebiT
Posts: 467
Joined: Sat Dec 28, 2013 1:45 pm

Re: Roth conversions plans via RPM -- help me compare

Post by DebiT »

marcopolo wrote: Fri Jun 18, 2021 3:05 pm
DebiT wrote: Fri Jun 18, 2021 11:34 am
marcopolo wrote: Fri Jun 18, 2021 12:32 am


Since you will be a single filer, your SS + RMD will put you near the top of the 22% bracket.

The reason you do not benefit from the 8 years of 0% tax rate is because when that higher income hits, each marginal dollar coming out as RMD is taxed st 22%. In those 8 lower income years, you could withdraw some of that money at 10 and 12%. This will then reduce the size of you RMDs as well.

Another thing I might suggest is to change how you balance you AA across accounts. Right now you have a lot of equities in your tIRA, and a lot of bonds and cash in your taxable account. You would probably be better served by keeping as much of desired equity allocation as possible in your Roth and taxable accounts. The tIRA should hold mostly bonds and cash, and only enough equities as needed to meet you over all desired AA. This will slow the growth of your tIRA, with more growth taking place in taxable and Roth accounts. This will lower you RMDs, so less is being taxed at the higher marginal rate.
It seems I have 3 main tasks before me.
1. Decide on my Roth strategy, with the goal of maximizing my spendable income.
2. Figure out my cash needs from now until age 72 RMD from current cash in taxable account. Simple math, will do later. Has to come from somewhere, wouldn't want to add to tIRA withdrawals
3. Figure out how to redistribute my AA across my accounts especially the large existing accounts. Giant task, let's hold off for now

Without referring to RPM, it seems that I have 2 potential Roth strategies

1. If I believe tax rates will stay the same, then it seems I would convert by filling the 12% bracket, and verify my IRMAA penalty if any is no higher than doing nothing.

2. If I believe tax rates will increase in 2026 as per current law, then fill up the 22% bracket starting now, since reducing the tIRA by definition reduces my RMD. Again need to look at IRMAA penalty compared to doing nothing.

Either strategy requires me calculating what the current likely growth rate of my tIRA is, going forward, at my current AA and later as I manage to change the AA, to make sure my RMD estimates aren't too low. At current 35/65 going forward I doubt it's very high, in fact it's scary low, but the overall AA works in all my tools, so I'll leave it alone.

If the metric is to keep marginal rates as level as possible, it seems that I've simplified my Roth strategy question.

Does all this seem correct?

I think this is reasonable.

One small tweak I might make (not a huge deal) would be to keep most of the cash and fixed income (identified in item 2) in your tax deferred account. Keep equities in taxable.

If/when you need to tap the cash, you simply sell equities in taxable to raise the needed cash and buy an equivalent amount of equities in the tax deferred account. This will maintain your overall AA, while being more tax efficient.
I know that this was answered above, and I suspect I'm just needing to hear it repeated and/or expanded. If I needed to sell equities in taxable to raise cash, and the stock market was down, I think you're saying that it wouldn't matter because I would be swapping fixed income for equities in the tIRA. So you're saying it wouldn't be truly taking a loss in terms of my overall portfolio, correct? Therefore not the same as investing potentially needed cash in equities, something of course I have never ever done during accumulation years.

Thanks again. Old mindsets are hard to change, but I am learning.
Age 63, life turned upside down 3/2/19, thanking God for what I've learned from this group
marcopolo
Posts: 4510
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Re: Roth conversions plans via RPM -- help me compare

Post by marcopolo »

DebiT wrote: Tue Jun 22, 2021 12:42 pm
marcopolo wrote: Fri Jun 18, 2021 3:05 pm
DebiT wrote: Fri Jun 18, 2021 11:34 am
marcopolo wrote: Fri Jun 18, 2021 12:32 am


Since you will be a single filer, your SS + RMD will put you near the top of the 22% bracket.

The reason you do not benefit from the 8 years of 0% tax rate is because when that higher income hits, each marginal dollar coming out as RMD is taxed st 22%. In those 8 lower income years, you could withdraw some of that money at 10 and 12%. This will then reduce the size of you RMDs as well.

Another thing I might suggest is to change how you balance you AA across accounts. Right now you have a lot of equities in your tIRA, and a lot of bonds and cash in your taxable account. You would probably be better served by keeping as much of desired equity allocation as possible in your Roth and taxable accounts. The tIRA should hold mostly bonds and cash, and only enough equities as needed to meet you over all desired AA. This will slow the growth of your tIRA, with more growth taking place in taxable and Roth accounts. This will lower you RMDs, so less is being taxed at the higher marginal rate.
It seems I have 3 main tasks before me.
1. Decide on my Roth strategy, with the goal of maximizing my spendable income.
2. Figure out my cash needs from now until age 72 RMD from current cash in taxable account. Simple math, will do later. Has to come from somewhere, wouldn't want to add to tIRA withdrawals
3. Figure out how to redistribute my AA across my accounts especially the large existing accounts. Giant task, let's hold off for now

Without referring to RPM, it seems that I have 2 potential Roth strategies

1. If I believe tax rates will stay the same, then it seems I would convert by filling the 12% bracket, and verify my IRMAA penalty if any is no higher than doing nothing.

2. If I believe tax rates will increase in 2026 as per current law, then fill up the 22% bracket starting now, since reducing the tIRA by definition reduces my RMD. Again need to look at IRMAA penalty compared to doing nothing.

Either strategy requires me calculating what the current likely growth rate of my tIRA is, going forward, at my current AA and later as I manage to change the AA, to make sure my RMD estimates aren't too low. At current 35/65 going forward I doubt it's very high, in fact it's scary low, but the overall AA works in all my tools, so I'll leave it alone.

If the metric is to keep marginal rates as level as possible, it seems that I've simplified my Roth strategy question.

Does all this seem correct?

I think this is reasonable.

One small tweak I might make (not a huge deal) would be to keep most of the cash and fixed income (identified in item 2) in your tax deferred account. Keep equities in taxable.

If/when you need to tap the cash, you simply sell equities in taxable to raise the needed cash and buy an equivalent amount of equities in the tax deferred account. This will maintain your overall AA, while being more tax efficient.
I know that this was answered above, and I suspect I'm just needing to hear it repeated and/or expanded. If I needed to sell equities in taxable to raise cash, and the stock market was down, I think you're saying that it wouldn't matter because I would be swapping fixed income for equities in the tIRA. So you're saying it wouldn't be truly taking a loss in terms of my overall portfolio, correct? Therefore not the same as investing potentially needed cash in equities, something of course I have never ever done during accumulation years.

Thanks again. Old mindsets are hard to change, but I am learning.
That is largely correct.

First take the simple case where we ignore tax-adjusted values and only consider market losses.
If you have $10,000 in equities in taxable and $10,000 in bonds/cash in tIRA and the market gets cut in half so that the equity position is down to $5000. Now, you need to raise $2000 for spending. You can sell $2000 of the equity in taxable account and purchase $2000 of equities in tIRA. This will result in $3000 in equities in taxable and $2000 in equities tIRA and $8000 in bonds/cash in tIRA. This is the same outcome you would have if withdrew from the cash position. An added benefit is that since you are selling for a loss in a taxable account, you can also get a tax benefit for your capital loss in this scenario.

Where this gets a little complicated is that the money in tIRA will owe taxes someday. Some people tax-adjust their asset allocation, others ignore that issue and treat it like discussed above. If you do choose to tax-adjust your AA, then you would need to purchase an equivalent tax-adjusted amount in the tIRA to maintain the same AA going forward. So, instead of buying $2000 in equities in tIRA, you would buy $2564, so that discounting it by 22% would leave you with $2000 in tax-adjusted equity position.

Note: If you are going to do this kind of tax-adjusted AA, you really should do it right from the start, not just when you make changes like above. That is, the $10k/$10k starting scenario would not really be a 50/50 AA, but would rather be 56/44 starting AA.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Topic Author
DebiT
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Re: Roth conversions plans via RPM -- help me compare

Post by DebiT »

OK, thank you. I am going to save this to help me remember the logic. I've probably got most of this figured out in terms of how to balance my own comfort level vs what might be "optimal". A nice middle of the road approach, which seems to produce the most even results, is to fill the 22% bracket until age 72. Results in less IRMAA than doing nothing, and way less than other more aggressive options. It also occurs to me that breaching higher IRMAA tiers might be a bad idea if those "penalty" rates were to change.

A remaining question, which I posted again on another thread, is how to be positive that I can withdraw funds in a new Roth before 5 years are up.
https://www.irs.gov/pub/irs-pdf/p590b.pdf

They refer to the IRS publication 590-B at this link
https://www.irs.gov/pub/irs-pdf/p590b.pdf
but the flowchart on page 32 sure does seem to contradict what everyone is saying. I want to know for sure, so I finally emailed my former accountant.

I think I'm recognizing if I reallocate the taxable , which I'm living on, and then stock market went low and stayed low, I would potentially have a problem. Not saying the math would say so, but my gut wants to know if I can get that money if I want it, early on.

Again, thank you for your patient and excellent explanations.
Age 63, life turned upside down 3/2/19, thanking God for what I've learned from this group
marcopolo
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Re: Roth conversions plans via RPM -- help me compare

Post by marcopolo »

DebiT wrote: Tue Jun 22, 2021 1:31 pm OK, thank you. I am going to save this to help me remember the logic. I've probably got most of this figured out in terms of how to balance my own comfort level vs what might be "optimal". A nice middle of the road approach, which seems to produce the most even results, is to fill the 22% bracket until age 72. Results in less IRMAA than doing nothing, and way less than other more aggressive options. It also occurs to me that breaching higher IRMAA tiers might be a bad idea if those "penalty" rates were to change.

A remaining question, which I posted again on another thread, is how to be positive that I can withdraw funds in a new Roth before 5 years are up.
https://www.irs.gov/pub/irs-pdf/p590b.pdf

They refer to the IRS publication 590-B at this link
https://www.irs.gov/pub/irs-pdf/p590b.pdf
but the flowchart on page 32 sure does seem to contradict what everyone is saying. I want to know for sure, so I finally emailed my former accountant.

I think I'm recognizing if I reallocate the taxable , which I'm living on, and then stock market went low and stayed low, I would potentially have a problem. Not saying the math would say so, but my gut wants to know if I can get that money if I want it, early on.

Again, thank you for your patient and excellent explanations.
Hopefully, the answer from your accountant will ease your mind.

In the mean time, you have received good information in that other thread. The table posted by "Duckie" shows the category you fall into right now in the green highlighted section. Since you don't meet the 5-year holding rule, your withdrawals are not "qualified". This put you in the lower right box on the flow chart on page 32, which says the portion allocable to earning is taxable (and penalties). That is true, but that also means the portion allocable to contributions and conversions (when over 59.5) are NOT taxable. The nice thing is that since you are doing partial withdrawals, you are allowed to take them in order (see link in Duckie's post), rather than in pro-rata basis. So, you can first withdraw all of your contributions and conversions without any taxes or penalties, as long as you don't withdraw more than you contributed or converted (i.e., don't withdraw ant earnings). Once the 5 year clock has been hit, you can also withdraw earnings portion.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Topic Author
DebiT
Posts: 467
Joined: Sat Dec 28, 2013 1:45 pm

Re: Roth conversions plans via RPM -- help me compare

Post by DebiT »

Thank you. It always catches me when these things are not clear, which is so often true. I know there is a correct answer, but it is not easy to see the source of it. Still I respect the collective wisdom of this group.
Age 63, life turned upside down 3/2/19, thanking God for what I've learned from this group
Topic Author
DebiT
Posts: 467
Joined: Sat Dec 28, 2013 1:45 pm

Re: Roth conversions plans via RPM -- help me compare

Post by DebiT »

OK, I am now checking back in. Somehow things seem to have fallen into place, and I think it's become very clear what to do. I even managed to get I-ORP and RPM to be somewhat on the same page, by removing my paid for house from both of them. I would very much like to hear input regarding where I am now, most especially if I seem to be missing anything important.

To review my status and assumptions, nearly 64, retired, on widow survivor SS until I take my own much higher benefit at 70. Chief concern is cash flow for myself, secondarily heirs. Portfolio total about $1.9M, with 2/3 in t401K and IRA, and 1/3 taxable. Overall AA 35/65. Just finished redistributing taxable vs TDA AAs, so now taxable is about 65/17/19 (that's the best I could do and stay comfortable) and TDAs are 21/79. RPM projects a growth rate of 2.4% for TDAs. I set Roth account AA at 35/65 in RPM, and was accurate with the other two. If I were to change Roth to 100% stocks, it exaggerates the results, which isn't what I was looking for.

If I do nothing, I will pay 0 taxes from now until age 72, and will then touch into the 24% bracket for 15 years, with an average tax rate in those years of about 20% . I told RPM to model the tax rates changing as current law is written, and it takes that into account. So far, I didn't model if rates don't change

I then modelled only 2 cases, filling the 22% bracket from now until 72 and stopping (plan A) , vs filling the 12% bracket until age 72 and stopping (plan B). Plan A keeps me within the first IRMAA tier, and plan B has no IRMAA. Results are below. Plan A seems much better than doing no Roths, and much better than plan B, for me and for heirs. Much less IRMAA, much more in Roth compared to taxable at end, than doing nothing.

So, am I missing anything important in this model? It seems like it gives me a good direction for this year, and probably for the next several. As time goes on I can learn more about how to re-evaluate each year.

Thanks so much for all the previous help. It's made a gigantic difference so far.

P.S. code formatting a table isn't easy. Found post about saving an Excel sheet in fixed width space delimited format, only partially successful. This is as good as I can get it!) HTML is way easier!

Code: Select all

			
	                Base	A 22	B 12
Ending portfolio	217500	432800	342100
IRMAA	                18400	8600	0
over how many years	13	8	0
Total Fed taxes paid	708100	494400	622900
			
Account balances at end			
Roth	                      0	1379000	604000
Taxable	              -75000	-1128000	-506000
IRA	              292000	183000	244000
			
I338 heir impact	0	222300	127550

Age 63, life turned upside down 3/2/19, thanking God for what I've learned from this group
DSBH
Posts: 257
Joined: Tue Jul 21, 2020 3:31 pm
Location: Texas

Re: Roth conversions plans via RPM -- help me compare

Post by DSBH »

DebiT wrote: Sat Jun 26, 2021 2:43 pm ...
If I do nothing, I will pay 0 taxes from now until age 72, and will then touch into the 24% bracket for 15 years, with an average tax rate in those years of about 20% . I told RPM to model the tax rates changing as current law is written, and it takes that into account. So far, I didn't model if rates don't change

I then modelled only 2 cases, filling the 22% bracket from now until 72 and stopping (plan A) , vs filling the 12% bracket until age 72 and stopping (plan B). Plan A keeps me within the first IRMAA tier, and plan B has no IRMAA. Results are below. Plan A seems much better than doing no Roths, and much better than plan B, for me and for heirs. Much less IRMAA, much more in Roth compared to taxable at end, than doing nothing.
...

Code: Select all

			
	                Base	A 22	B 12
Ending portfolio	217500	432800	342100
IRMAA	                18400	8600	0
over how many years	13	8	0
Total Fed taxes paid	708100	494400	622900
			
Account balances at end			
Roth	                      0	1379000	604000
Taxable	              -75000	-1128000	-506000
IRA	              292000	183000	244000
			
I338 heir impact	0	222300	127550

1. Looks like your 3 cases all have negative balances for the Taxable account. Did you try to turn on the "Use auto withdrawals" flag (Setup cell I30)?

2. When using RPM I prefer to compare different Roth conversion cases using the Total After-tax Portfolio Values. For instance, I would look at the T-IRA valuation in the last year of the case and then enter one last Roth conversion which zeroes out the T-IRA account value, hence giving tax-free Roth and after-tax Taxable (hopefully with the step-up basis intact) and zero Tax-deferred to heirs.
John C. Bogle: "Never confuse genius with luck and a bull market".
Topic Author
DebiT
Posts: 467
Joined: Sat Dec 28, 2013 1:45 pm

Re: Roth conversions plans via RPM -- help me compare

Post by DebiT »

DSBH wrote: Sat Jun 26, 2021 6:50 pm
DebiT wrote: Sat Jun 26, 2021 2:43 pm ...
If I do nothing, I will pay 0 taxes from now until age 72, and will then touch into the 24% bracket for 15 years, with an average tax rate in those years of about 20% . I told RPM to model the tax rates changing as current law is written, and it takes that into account. So far, I didn't model if rates don't change

I then modelled only 2 cases, filling the 22% bracket from now until 72 and stopping (plan A) , vs filling the 12% bracket until age 72 and stopping (plan B). Plan A keeps me within the first IRMAA tier, and plan B has no IRMAA. Results are below. Plan A seems much better than doing no Roths, and much better than plan B, for me and for heirs. Much less IRMAA, much more in Roth compared to taxable at end, than doing nothing.
...

Code: Select all

			
	                Base	A 22	B 12
Ending portfolio	217500	432800	342100
IRMAA	                18400	8600	0
over how many years	13	8	0
Total Fed taxes paid	708100	494400	622900
			
Account balances at end			
Roth	                      0	1379000	604000
Taxable	              -75000	-1128000	-506000
IRA	              292000	183000	244000
			
I338 heir impact	0	222300	127550

1. Looks like your 3 cases all have negative balances for the Taxable account. Did you try to turn on the "Use auto withdrawals" flag (Setup cell I30)?

2. When using RPM I prefer to compare different Roth conversion cases using the Total After-tax Portfolio Values. For instance, I would look at the T-IRA valuation in the last year of the case and then enter one last Roth conversion which zeroes out the T-IRA account value, hence giving tax-free Roth and after-tax Taxable (hopefully with the step-up basis intact) and zero Tax-deferred to heirs.
1. I don’t like that feature. I’d rather see the real life status, which means the taxable account will run out and I’ll be using the Roth at a certain point on top of RMDs.

2. I could do that. I’m not in front of computer right now, but I’m pretty sure Plan A would again come out a clear winner. I will check that though, thank you.
Age 63, life turned upside down 3/2/19, thanking God for what I've learned from this group
DSBH
Posts: 257
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Location: Texas

Re: Roth conversions plans via RPM -- help me compare

Post by DSBH »

DebiT wrote: Sat Jun 26, 2021 8:55 pm
DSBH wrote: Sat Jun 26, 2021 6:50 pm
DebiT wrote: Sat Jun 26, 2021 2:43 pm ...
If I do nothing, I will pay 0 taxes from now until age 72, and will then touch into the 24% bracket for 15 years, with an average tax rate in those years of about 20% . I told RPM to model the tax rates changing as current law is written, and it takes that into account. So far, I didn't model if rates don't change

I then modelled only 2 cases, filling the 22% bracket from now until 72 and stopping (plan A) , vs filling the 12% bracket until age 72 and stopping (plan B). Plan A keeps me within the first IRMAA tier, and plan B has no IRMAA. Results are below. Plan A seems much better than doing no Roths, and much better than plan B, for me and for heirs. Much less IRMAA, much more in Roth compared to taxable at end, than doing nothing.
...

Code: Select all

			
	                Base	A 22	B 12
Ending portfolio	217500	432800	342100
IRMAA	                18400	8600	0
over how many years	13	8	0
Total Fed taxes paid	708100	494400	622900
			
Account balances at end			
Roth	                      0	1379000	604000
Taxable	              -75000	-1128000	-506000
IRA	              292000	183000	244000
			
I338 heir impact	0	222300	127550

1. Looks like your 3 cases all have negative balances for the Taxable account. Did you try to turn on the "Use auto withdrawals" flag (Setup cell I30)?

2. When using RPM I prefer to compare different Roth conversion cases using the Total After-tax Portfolio Values. For instance, I would look at the T-IRA valuation in the last year of the case and then enter one last Roth conversion which zeroes out the T-IRA account value, hence giving tax-free Roth and after-tax Taxable (hopefully with the step-up basis intact) and zero Tax-deferred to heirs.
1. I don’t like that feature. I’d rather see the real life status, which means the taxable account will run out and I’ll be using the Roth at a certain point on top of RMDs.

2. I could do that. I’m not in front of computer right now, but I’m pretty sure Plan A would again come out a clear winner. I will check that though, thank you.
Yes Plan A looks like a clear winner and I think is a good plan, without the final year Roth conversion comparison. For myself I'd like to run a lot of scenarios, and for a dozen scenarios it's more convenient to compare 12 numbers vs 36.

Since you model the tax rates changing per current law, in Plan A you convert in a 22% marginal rate from 2021 to 2025 and in a 25% marginal rate from 2026 forward to avoid taking RMD in a 25% marginal rate for most of the RMD period. As such it might be possible to get to similar results to Plan A by converting some more from 2021-2025 and some less starting in 2026. If you are open to a few more scenarios I would suggest running a Plan C as follows:

1. Fill the 22% bracket till 2025 (part of Plan A till 2025), and
2. Fill the 12% bracket from 2026 till 72 and stopping (part of Plan B beginning in 2026),
3. Compare Plan C with Plan A, Plan C should have a lesser portfolio value than Plan A,
4. Add $5,000 to the annual converted amounts from 2021-2025, and compare "Plan C new portfolio value" vs "Plan C value before 5K addition":
5. If "Plan C new portfolio value" is greater than "Plan C value before 5K addition", go back to and repeat step 4 (and add $5,000 more),
6. If "Plan C new portfolio value" is less than "Plan C value before 5K addition", go back $5,000 and stop.
7. Compare the recently obtained highest Plan C portfolio value vs Plan A portfolio value. If C is less than A then it's not such a good idea. If C is equal to or greater than A then some valuable information is obtained by doing the exercise whichever decision you make.
John C. Bogle: "Never confuse genius with luck and a bull market".
Topic Author
DebiT
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Joined: Sat Dec 28, 2013 1:45 pm

Re: Roth conversions plans via RPM -- help me compare

Post by DebiT »

This looks like a good exercise, and thankfully I have plenty of time to optimize, so I’ll give it a try. I’ve decided my aggravation if I overpaid (laws change and tax rates stayed lower) would be worse than if I left some tax savings on the table (laws stay in place, tax rates go up)

It took me awhile, but now I see what you’re saying about that final value. However, isn’t it impacted negatively by a very large tax bite if 6 figures are taken out at once? I would think using a multiplier like .75 if I was in 25% bracket would work also? Does that make any sense?
Age 63, life turned upside down 3/2/19, thanking God for what I've learned from this group
DSBH
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Re: Roth conversions plans via RPM -- help me compare

Post by DSBH »

DebiT wrote: Sun Jun 27, 2021 11:56 am It took me awhile, but now I see what you’re saying about that final value. However, isn’t it impacted negatively by a very large tax bite if 6 figures are taken out at once? I would think using a multiplier like .75 if I was in 25% bracket would work also? Does that make any sense?
Yes the final portfolio value is negatively impacted if larger amounts are taken out in the first few years, but it could be positively impacted by the avoided taxes from a higher marginal rate during the RMD years for the case without conversion. The question for me is how to get to the highest positive net difference between the 2 cases for the whole study period.

I am not aware of any definite optimization formulations that anyone can use, perhaps except for this - viewtopic.php?t=286154 - that I haven't had a chance to learn yet, therefore the suggested iterative method. I have been doing a bunch of scenarios to find that optimum point with my own case using RPM.

It is entirely possible that I will never find the "optimum" solution, but I think that I will find what's "good enough" for my case, and that I will enjoy the journey to towards that goal.
John C. Bogle: "Never confuse genius with luck and a bull market".
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2pedals
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Re: Roth conversions plans via RPM -- help me compare

Post by 2pedals »

Have you considered using Pralana Gold. It's $99 and it can give you a alternative check on what you're trying to do. What I found when using Pralana Gold there is a very wide range of historical possiblies of future portfolio values based on historical records. It kind of makes Roth conversion planning look small in comparison. Don't get me wrong, I do like the doing like Roth conversions in early retirement but sometimes planned assumptions are wrong and you are just making best guesses at what you think may work best for you in the future. You're just making educated guesses. Also I do think you need to adjust all your accounts so that they have the same percentage of equity and bonds. So that the Roth conversions are not overstated or understated based on what your desired asset allocation is.
Topic Author
DebiT
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Re: Roth conversions plans via RPM -- help me compare

Post by DebiT »

2pedals wrote: Sun Jun 27, 2021 9:23 pm Have you considered using Pralana Gold. It's $99 and it can give you a alternative check on what you're trying to do. What I found when using Pralana Gold there is a very wide range of historical possiblies of future portfolio values based on historical records. It kind of makes Roth conversion planning look small in comparison. Don't get me wrong, I do like the doing like Roth conversions in early retirement but sometimes planned assumptions are wrong and you are just making best guesses at what you think may work best for you in the future. You're just making educated guesses. Also I do think you need to adjust all your accounts so that they have the same percentage of equity and bonds. So that the Roth conversions are not overstated or understated based on what your desired asset allocation is.
No, I'm not planning on using that. I'm not as concerned about modelling future portfolio values as I am about optimizing taxes, and I think I've settled on a reasonable plan. I also use Jim Otar's purchased Otar Retirement Calculator, which does aft-casting (historical) runs to see how likely you are or not to run out of money, and what to do about it. I seem to be in good shape even without the Roth conversions, and those only serve to increase my portfolio, so they will help. According to it, I will either have money to leave my sons, now with the bulk in a Roth, or worst case, it seems, I might have to sell my house when I'm 95 or 98. In all likelihood, I will want to do that before that age and move into rented senior independent living or assisted living.

So, RPM has helped me a great deal to figure some things out, and this group, once again, has helped me figure out RPM. Thank you all!
Age 63, life turned upside down 3/2/19, thanking God for what I've learned from this group
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