Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

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coachd50
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by coachd50 »

BlueOrange10 wrote: Sun Apr 11, 2021 10:56 am
jason2459 wrote: Sun Apr 11, 2021 10:53 am
BlueOrange10 wrote: Sun Apr 11, 2021 10:50 am
jason2459 wrote: Sun Apr 11, 2021 10:46 am
BlueOrange10 wrote: Sun Apr 11, 2021 10:43 am

Not speculation.

https://www.google.com/amp/s/weartv.com ... -employees
You posted about 30 years from now. That's pure speculation.
It's not speculation. You can go to the social security website and figure how much in future dollars your social security will be worth 30 years from now. Are you telling me the benefit you get from having social security exempt from taxes doesn't increase with inflation?

Again, you posted about speculating what is going to happen with labor shortages and what states may do with social security payments in 30 years.
You never answered my question. Does the tax exempt benefit of social security increase with inflation?
The beauty of this extremely well moderated board is that it doesn't allow itself to get into meaningless back and forth posts attempting to "win". Since we are discussing personal finance, it is important to point out that everyone is free to do what they want, and are not beholden to what others type. You have your beliefs, and can act accordingly. He has his, and can do the same.
Soon2BXProgrammer
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Soon2BXProgrammer »

AnEngineer wrote: Sun Apr 11, 2021 11:44 am
Soon2BXProgrammer wrote: Sat Apr 10, 2021 1:54 pm
AnEngineer wrote: Sat Apr 10, 2021 12:16 pm
Soon2BXProgrammer wrote: Sat Apr 10, 2021 11:34 am
EagertoLearnMore wrote: Sat Apr 10, 2021 8:52 am I'm reading the newest version of Ed Slott's book about retirement savings time bomb, meaning traditional IRA accounts. I have viewed him on PBS and thought he talked quite a bit and could be more succinct. Now I'm trying to get through the book and having great difficulty as the verbiage is so profuse. He writes with even more words than he talks. It literally takes him many pages to get to a thought. I'm reading this book digitally, as I borrowed it from the library. So other than wait a few weeks in a queue to get the book, it's free to read. My personal opinion is that I'm fortunate I did not purchase the book as I would be a very disappointed Boglehead.

The people on this forum provide as much (sometimes more) pertinent information than reading the book. Have others looked at his newest version of the book and your opinions?
Haven't read it, but I've seen his argument elsewhere. While unpopular with bogleheads, i err on the side of Roth with its a 50-50 split decision... Ed might say you should err even more on that side. The argument is that it helps take the risk of future tax rates out of the plan. (and phantom taxes out of the plan.. ACA / IRMMA /FAFSA /etc)

Paula Pant interviewed him: https://affordanything.com/307-the-tax- ... -ed-slott/
It's going to be especially unpopular here (from what I glean of the central thesis as expressed in this thread) as the forum rules specifically advance the thought that considering the possibility of future tax law changes is a bad idea.
We can't discuss a given legislative proposal... That is different then talk about "future tax rates as a whole". (or that's my understanding)

However:
https://www.bogleheads.org/wiki/Traditional_versus_Roth
But if you have strong feelings that taxes will go up or down in the future, you could make adjustments to these numbers.
even talks about general future tax rate changes.
and having the flexibility to control your taxable income to some degree might allow you to better optimize around future tax laws.
It is a fact that rates are near all time lows (depending on what tax bracket your in..).

Even under current law, taxes are scheduled to go up when the TCJA expires.
This is at odds with what is posted on every thread locked for discussing future legislation/ law changes:
The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law
My understanding is the difference and maybe a moderator will weigh in... Individual pending legislation creates a lot of noise while going through the legislative process.... Whereas "i want to create a plan that assumes we have moderate tax increases over the next 50 years" is a plan assumption...
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
Broken Man 1999
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Broken Man 1999 »

We need to be knowledgeable about the tax brackets, and actual tax burden.

Last year I did a TIRA to Roth conversion, so larger than normal income. Went almost to the top of 22% bracket of $171,050.

$197,781 - Total Income
$170,381 - Total Taxable Income
$29,064 - Total Income Tax

That tax works out to be 14.69% of our total income.

Frankly, that isn't much of a load for DW and I, especially since I now have another $100,000+ in my Roth.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
coachd50
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by coachd50 »

Soon2BXProgrammer wrote: Sun Apr 11, 2021 11:53 am
AnEngineer wrote: Sun Apr 11, 2021 11:44 am
Soon2BXProgrammer wrote: Sat Apr 10, 2021 1:54 pm
AnEngineer wrote: Sat Apr 10, 2021 12:16 pm
Soon2BXProgrammer wrote: Sat Apr 10, 2021 11:34 am

Haven't read it, but I've seen his argument elsewhere. While unpopular with bogleheads, i err on the side of Roth with its a 50-50 split decision... Ed might say you should err even more on that side. The argument is that it helps take the risk of future tax rates out of the plan. (and phantom taxes out of the plan.. ACA / IRMMA /FAFSA /etc)

Paula Pant interviewed him: https://affordanything.com/307-the-tax- ... -ed-slott/
It's going to be especially unpopular here (from what I glean of the central thesis as expressed in this thread) as the forum rules specifically advance the thought that considering the possibility of future tax law changes is a bad idea.
We can't discuss a given legislative proposal... That is different then talk about "future tax rates as a whole". (or that's my understanding)

However:
https://www.bogleheads.org/wiki/Traditional_versus_Roth
But if you have strong feelings that taxes will go up or down in the future, you could make adjustments to these numbers.
even talks about general future tax rate changes.
and having the flexibility to control your taxable income to some degree might allow you to better optimize around future tax laws.
It is a fact that rates are near all time lows (depending on what tax bracket your in..).

Even under current law, taxes are scheduled to go up when the TCJA expires.
This is at odds with what is posted on every thread locked for discussing future legislation/ law changes:
The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law
My understanding is the difference and maybe a moderator will weigh in... Individual pending legislation creates a lot of noise while going through the legislative process.... Whereas "i want to create a plan that assumes we have moderate tax increases over the next 50 years" is a plan assumption...
Excellent points. I also think part of the disdain for discussing proposed legislation is that it invariably will lead to the tribalized partisan bickering in today's climate.
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JoMoney
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by JoMoney »

^ You're free to make whatever "plan assumptions" you want, but if you're trying to solicit feedback on a hypothetical future state of law you're going to open it up for all kinds of wild assumptions about the possibility of the future. What if income tax moves to a flat tax and/or national sales tax :confused

The math calculations will be whatever they will be, and it's possible to ask how to calculate a formula about your assumption without bringing an underlying narrative of the future with it.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
WhyNotUs
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by WhyNotUs »

RetiredAL wrote: Sat Apr 10, 2021 11:31 pm
Cold hard fact I found now that I am retired: With our $50K in SS, anything past approx $25K additional ($75K gross) puts us into the current 22% bracket. So every $ I convert to my Roth, I pay 22% as Fed Taxes. As a comparison, 22% normally starts around $115K gross for working folks.
What was your effective tax rate?
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AnEngineer
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by AnEngineer »

Soon2BXProgrammer wrote: Sun Apr 11, 2021 11:53 am
AnEngineer wrote: Sun Apr 11, 2021 11:44 am
Soon2BXProgrammer wrote: Sat Apr 10, 2021 1:54 pm
AnEngineer wrote: Sat Apr 10, 2021 12:16 pm
Soon2BXProgrammer wrote: Sat Apr 10, 2021 11:34 am

Haven't read it, but I've seen his argument elsewhere. While unpopular with bogleheads, i err on the side of Roth with its a 50-50 split decision... Ed might say you should err even more on that side. The argument is that it helps take the risk of future tax rates out of the plan. (and phantom taxes out of the plan.. ACA / IRMMA /FAFSA /etc)

Paula Pant interviewed him: https://affordanything.com/307-the-tax- ... -ed-slott/
It's going to be especially unpopular here (from what I glean of the central thesis as expressed in this thread) as the forum rules specifically advance the thought that considering the possibility of future tax law changes is a bad idea.
We can't discuss a given legislative proposal... That is different then talk about "future tax rates as a whole". (or that's my understanding)

However:
https://www.bogleheads.org/wiki/Traditional_versus_Roth
But if you have strong feelings that taxes will go up or down in the future, you could make adjustments to these numbers.
even talks about general future tax rate changes.
and having the flexibility to control your taxable income to some degree might allow you to better optimize around future tax laws.
It is a fact that rates are near all time lows (depending on what tax bracket your in..).

Even under current law, taxes are scheduled to go up when the TCJA expires.
This is at odds with what is posted on every thread locked for discussing future legislation/ law changes:
The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law
My understanding is the difference and maybe a moderator will weigh in... Individual pending legislation creates a lot of noise while going through the legislative process.... Whereas "i want to create a plan that assumes we have moderate tax increases over the next 50 years" is a plan assumption...
Here is a clear counter example. No pending legislation is discussion, only the possibility of social security changing:
viewtopic.php?f=2&t=343877
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JoMoney
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by JoMoney »

WhyNotUs wrote: Sun Apr 11, 2021 12:08 pm
RetiredAL wrote: Sat Apr 10, 2021 11:31 pm
Cold hard fact I found now that I am retired: With our $50K in SS, anything past approx $25K additional ($75K gross) puts us into the current 22% bracket. So every $ I convert to my Roth, I pay 22% as Fed Taxes. As a comparison, 22% normally starts around $115K gross for working folks.
What was your effective tax rate?
Why even convert to Roth? There's no compulsion to pre-pay taxes at a 22% (or whatever the top marginal bracket your reach) rate rather than withdraw the money as you need it at a likely lower blended tax rate.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Soon2BXProgrammer
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Soon2BXProgrammer »

AnEngineer wrote: Sun Apr 11, 2021 12:11 pm
Soon2BXProgrammer wrote: Sun Apr 11, 2021 11:53 am
AnEngineer wrote: Sun Apr 11, 2021 11:44 am
Soon2BXProgrammer wrote: Sat Apr 10, 2021 1:54 pm
AnEngineer wrote: Sat Apr 10, 2021 12:16 pm

It's going to be especially unpopular here (from what I glean of the central thesis as expressed in this thread) as the forum rules specifically advance the thought that considering the possibility of future tax law changes is a bad idea.
We can't discuss a given legislative proposal... That is different then talk about "future tax rates as a whole". (or that's my understanding)

However:
https://www.bogleheads.org/wiki/Traditional_versus_Roth
But if you have strong feelings that taxes will go up or down in the future, you could make adjustments to these numbers.
even talks about general future tax rate changes.
and having the flexibility to control your taxable income to some degree might allow you to better optimize around future tax laws.
It is a fact that rates are near all time lows (depending on what tax bracket your in..).

Even under current law, taxes are scheduled to go up when the TCJA expires.
This is at odds with what is posted on every thread locked for discussing future legislation/ law changes:
The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law
My understanding is the difference and maybe a moderator will weigh in... Individual pending legislation creates a lot of noise while going through the legislative process.... Whereas "i want to create a plan that assumes we have moderate tax increases over the next 50 years" is a plan assumption...
Here is a clear counter example. No pending legislation is discussion, only the possibility of social security changing:
viewtopic.php?f=2&t=343877
Acknowledged, I would appeal to the moderators on that one. I would also make sure to frame up that specific issue based on current law and what is scheduled to happen under current law if congress does nothing.
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
Soon2BXProgrammer
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Soon2BXProgrammer »

Soon2BXProgrammer wrote: Sun Apr 11, 2021 12:21 pm
AnEngineer wrote: Sun Apr 11, 2021 12:11 pm
Soon2BXProgrammer wrote: Sun Apr 11, 2021 11:53 am
AnEngineer wrote: Sun Apr 11, 2021 11:44 am
Soon2BXProgrammer wrote: Sat Apr 10, 2021 1:54 pm

We can't discuss a given legislative proposal... That is different then talk about "future tax rates as a whole". (or that's my understanding)

However:
https://www.bogleheads.org/wiki/Traditional_versus_Roth

even talks about general future tax rate changes.



It is a fact that rates are near all time lows (depending on what tax bracket your in..).

Even under current law, taxes are scheduled to go up when the TCJA expires.
This is at odds with what is posted on every thread locked for discussing future legislation/ law changes:
The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law
My understanding is the difference and maybe a moderator will weigh in... Individual pending legislation creates a lot of noise while going through the legislative process.... Whereas "i want to create a plan that assumes we have moderate tax increases over the next 50 years" is a plan assumption...
Here is a clear counter example. No pending legislation is discussion, only the possibility of social security changing:
viewtopic.php?f=2&t=343877
Acknowledged, I would appeal to the moderators on that one. I would also make sure to frame up that specific issue based on current law and what is scheduled to happen under current law if congress does nothing.
LadyGeek wrote: Paging LadyGeek
Can you please clarify the policy on "future tax rates"? Is it we can't talk about pending legislation? Is it we can't make assumption about the future?

If we talk about SS, is it ok to assume benefit cuts, because that is what is going to happen under current law?

the TCJA is going to expire, hence tax rates are scheduled to rise? is that ok?

Please provide some clarification..

Thanks.
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
BernardShakey
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by BernardShakey »

Ed 2 wrote: Sun Apr 11, 2021 8:32 am
livesoft wrote: Sun Apr 11, 2021 8:29 am
BlueOrange10 wrote: Sun Apr 11, 2021 8:24 amThe "standard deduction" for social security is actually not indexed to inflation, so more people will pay taxes on their social security each year.
So if one is making $40K from SS benefits, "tens of thousands" would be at least $20K of taxes on it. OK.
Don’t forget about state taxes. Many will be living in other states like Cali. Want it or not
California doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!
An important key to investing is having a well-calibrated sense of your future regret.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by bsteiner »

Each person may make his/her own assumptions as to future tax rates.

There’s no way to predict future tax rates over a long period of time. During my career the top rate has been as high as 70% and as low as 28%.

I generally use the law as it’s currently scheduled to be in effect.

To the extent you can convert at what’s likely to be a low bracket the odds are in your favor though it may turn out to have been wrong. However to the extent you don’t convert at what’s likely to be a low bracket it may turn out well but the odds are against you.
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jason2459
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by jason2459 »

BernardShakey wrote: Sun Apr 11, 2021 12:40 pm
Ed 2 wrote: Sun Apr 11, 2021 8:32 am
livesoft wrote: Sun Apr 11, 2021 8:29 am
BlueOrange10 wrote: Sun Apr 11, 2021 8:24 amThe "standard deduction" for social security is actually not indexed to inflation, so more people will pay taxes on their social security each year.
So if one is making $40K from SS benefits, "tens of thousands" would be at least $20K of taxes on it. OK.
Don’t forget about state taxes. Many will be living in other states like Cali. Want it or not
California doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!

Or just a generational thing. 8-)

https://en.m.wikipedia.org/wiki/Going_B ... ol_J_song)
"In the short run, the stock market is a voting machine; in the long run, it is a weighing machine" ~Benjamin Graham
BernardShakey
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by BernardShakey »

jason2459 wrote: Sun Apr 11, 2021 12:44 pm
BernardShakey wrote: Sun Apr 11, 2021 12:40 pm
Ed 2 wrote: Sun Apr 11, 2021 8:32 am
livesoft wrote: Sun Apr 11, 2021 8:29 am
BlueOrange10 wrote: Sun Apr 11, 2021 8:24 amThe "standard deduction" for social security is actually not indexed to inflation, so more people will pay taxes on their social security each year.
So if one is making $40K from SS benefits, "tens of thousands" would be at least $20K of taxes on it. OK.
Don’t forget about state taxes. Many will be living in other states like Cali. Want it or not
California doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!

Or just a generational thing. 8-)

https://en.m.wikipedia.org/wiki/Going_B ... ol_J_song)
Ah, maybe so. Love the LL Cool J reference. I'll have ask my 20-something kids about this!
An important key to investing is having a well-calibrated sense of your future regret.
Ed 2
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Ed 2 »

BernardShakey wrote: Sun Apr 11, 2021 12:40 pm
Ed 2 wrote: Sun Apr 11, 2021 8:32 am
livesoft wrote: Sun Apr 11, 2021 8:29 am
BlueOrange10 wrote: Sun Apr 11, 2021 8:24 amThe "standard deduction" for social security is actually not indexed to inflation, so more people will pay taxes on their social security each year.
So if one is making $40K from SS benefits, "tens of thousands" would be at least $20K of taxes on it. OK.
Don’t forget about state taxes. Many will be living in other states like Cali. Want it or not
California doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!
I am from So Cal) more specific from LA. We use this term here.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
RetiredAL
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by RetiredAL »

WhyNotUs wrote: Sun Apr 11, 2021 12:08 pm
RetiredAL wrote: Sat Apr 10, 2021 11:31 pm
Cold hard fact I found now that I am retired: With our $50K in SS, anything past approx $25K additional ($75K gross) puts us into the current 22% bracket. So every $ I convert to my Roth, I pay 22% as Fed Taxes. As a comparison, 22% normally starts around $115K gross for working folks.
What was your effective tax rate?
I calc'd Eff Rate = AGI / Tax Due
2015: 10.2% (15% rate in effect) (last full year of work)
2020: 7.9% (12% rate in effect)

In 2020, I was approx $15K into the 22% SS hump due to Roth conversion.

If in 2020, in addition to our SS $, had I withdrawn or converted to my 2015 AGI level, my effective tax rate would have been approx 9.2% in a 12% rate environment, and that is with only 85% of the SS being taxable.
tj
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by tj »

BlueOrange10 wrote: Sun Apr 11, 2021 8:24 am
livesoft wrote: Sun Apr 11, 2021 8:22 am Sure "tens of thousands" over many years, but not every year. At least not for us.
The "standard deduction" for social security is actually not indexed to inflation, so more people will pay taxes on their social security each year. It's like how more people are being affected by the alternative minimum tax (AMT) each year. The stealth tax increases will get ya in the end :wink:
Social Security doesn't have it's own standard deduction. All taxed income is subject to the same standard deduction which does increase by inflation every year. If one itemizes, it could potentially increase by even more than inflation, but I don't think that's something to look forward to.

The exempt portion of social security is still at 1983 numbers, I would imagine everyone should plan for 85% of their SS to be taxed, if they fall into one of the lower SS brackets, it's a bonus.
marcopolo
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by marcopolo »

RetiredAL wrote: Sun Apr 11, 2021 1:10 pm
WhyNotUs wrote: Sun Apr 11, 2021 12:08 pm
RetiredAL wrote: Sat Apr 10, 2021 11:31 pm
Cold hard fact I found now that I am retired: With our $50K in SS, anything past approx $25K additional ($75K gross) puts us into the current 22% bracket. So every $ I convert to my Roth, I pay 22% as Fed Taxes. As a comparison, 22% normally starts around $115K gross for working folks.
What was your effective tax rate?
I calc'd Eff Rate = AGI / Tax Due
2015: 10.2% (15% rate in effect) (last full year of work)
2020: 7.9% (12% rate in effect)

In 2020, I was approx $15K into the 22% SS hump due to Roth conversion.

If in 2020, in addition to our SS $, had I withdrawn or converted to my 2015 AGI level, my effective tax rate would have been approx 9.2% in a 12% rate environment, and that is with only 85% of the SS being taxable.
What is the significance of effective tax rates in the context of Roth Conversions?

With our progressive tax rates, what really matters when selecting whether or how much to convert, it is the marginal rate that matters. The fact that one paid lower rates for other income does not seem to have any bearing on that decision.
Once in a while you get shown the light, in the strangest of places if you look at it right.
retiringwhen
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by retiringwhen »

My advice is diversify your tax-location just like your asset allocation.

For decades, I always assumed (with good reason) that I would have a lower tax rate in retirement so went all in on pre-tax retirement deferrals. Well, behold here I am in the final stretch before retirement and I really really wish I had a lot more money in Roth as my retirement tax rates will be either equivalent or higher (most surely after one of us dies). I don't have enough time to fix it now even with pre-SS conversions.

In very few case do I see a serious error in splitting the retirement funds 50/50 pre-tax and Roth. It mitigates risks from future tax law changes as well improvements or decreases in your retirement balance.

There are exceptions like young earners with low or no tax liability where all the retirement money should go in Roth until income increases.

Even very high income earners at maximum rates should have a portion in Roth so they use it to mitigate marginal tax woes or future changes in tax law. Roth also has the advantage of decreasing estate size at death thus potentially lessening the impact of Estate taxes.

Mike Piper recently had a great article on why you should be humble about trying to optimize tax-related strategies. I personally look to mitigate and optimize only in the near-term (< 5 years) when it is a slam dunk.

Predicting Tax Legislation is Harder Than Timing the Market
RetiredAL
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by RetiredAL »

JoMoney wrote: Sun Apr 11, 2021 12:16 pm
WhyNotUs wrote: Sun Apr 11, 2021 12:08 pm
RetiredAL wrote: Sat Apr 10, 2021 11:31 pm
Cold hard fact I found now that I am retired: With our $50K in SS, anything past approx $25K additional ($75K gross) puts us into the current 22% bracket. So every $ I convert to my Roth, I pay 22% as Fed Taxes. As a comparison, 22% normally starts around $115K gross for working folks.
What was your effective tax rate?
Why even convert to Roth? There's no compulsion to pre-pay taxes at a 22% (or whatever the top marginal bracket your reach) rate rather than withdraw the money as you need it at a likely lower blended tax rate.
Because when one of us dies, the survivor will be taxed a lot harder, both from rates and the loss of 1/2 the deduction. My modeling, which assumed the same income would be needed to support the same lifestyle, said the actual tax bill to the survivor will double. Much of the survivor's income will be taxed at 22% and the SS hump points will be into the mid 30's. There is one short burst from the hump into the 40's. I see it as a classic case of pay me this amount now, or pay me more later. So I modestly convert.

Math-wise, I should convert more, but right now the taxes are being paid for by withdrawals/conversions. Using/burning IRA to Roth money on taxes is not the most prudent choice today, not knowing what Long Term Care Costs may happen in the future.

ETA: I am very glad is chose in the early years of Roths to fully fund our Roth's over higher funding of deferred into my 401K or into DW's IRA.
RetiredAL
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by RetiredAL »

retiringwhen wrote: Sun Apr 11, 2021 1:26 pm My advice is diversify your tax-location just like your asset allocation.

For decades, I always assumed (with good reason) that I would have a lower tax rate in retirement so went all in on pre-tax retirement deferrals. Well, behold here I am in the final stretch before retirement and I really really wish I had a lot more money in Roth as my retirement tax rates will be either equivalent or higher (most surely after one of us dies). I don't have enough time to fix it now even with pre-SS conversions.

In very few case do I see a serious error in splitting the retirement funds 50/50 pre-tax and Roth. It mitigates risks from future tax law changes as well improvements or decreases in your retirement balance.

There are exceptions like young earners with low or no tax liability where all the retirement money should go in Roth until income increases.

Even very high income earners at maximum rates should have a portion in Roth so they use it to mitigate marginal tax woes or future changes in tax law. Roth also has the advantage of decreasing estate size at death thus potentially lessening the impact of Estate taxes.

Mike Piper recently had a great article on why you should be humble about trying to optimize tax-related strategies. I personally look to mitigate and optimize only in the near-term (< 5 years) when it is a slam dunk.

Predicting Tax Legislation is Harder Than Timing the Market
I concur. I'm glad I fully funded out Roth's over further funding into deferred. I did not then understand the magnitude of this during retirement when I started our Roth's in the late nineties.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by abuss368 »

Chip wrote: Sun Apr 11, 2021 10:38 am
BlueOrange10 wrote: Sun Apr 11, 2021 10:22 am I find it hard to believe states will exempt retirees from millions in social security benefits 30 years from now when social security benefits grow due to inflation. There will be a labor shortage for states trying to shift the tax burden to the workers
Then you should also find it hard to believe that states will exempt retirees from millions in Roth account withdrawals.
What states tax Roth IRA withdrawals? I am not aware of any.

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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Big Dog »

BernardShakey wrote: Sun Apr 11, 2021 12:48 pm
jason2459 wrote: Sun Apr 11, 2021 12:44 pm
BernardShakey wrote: Sun Apr 11, 2021 12:40 pm
Ed 2 wrote: Sun Apr 11, 2021 8:32 am
livesoft wrote: Sun Apr 11, 2021 8:29 am
So if one is making $40K from SS benefits, "tens of thousands" would be at least $20K of taxes on it. OK.
Don’t forget about state taxes. Many will be living in other states like Cali. Want it or not
California doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!

Or just a generational thing. 8-)

https://en.m.wikipedia.org/wiki/Going_B ... ol_J_song)
Ah, maybe so. Love the LL Cool J reference. I'll have ask my 20-something kids about this!
nah, LL Cool J is a New Yawker, i.e., East Coast term.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by willthrill81 »

BlueOrange10 wrote: Sun Apr 11, 2021 10:36 am
willthrill81 wrote: Sun Apr 11, 2021 10:34 am
BlueOrange10 wrote: Sun Apr 11, 2021 10:06 am
willthrill81 wrote: Sun Apr 11, 2021 10:04 am It's neither easy nor cheap to make yourself 'paper poor' in order to get on Medicaid. Moving a tax-deferred balance into a trust requires realizing the income first and paying taxes accordingly.
Which is the whole point of this thread...tax-deferred balances are a pain to deal with in retirement. Better to go the roth route early and quickly.
I'd rather pay 12% (or 15% if/when rates revert) on tax-deferred withdrawals and Roth conversions in retirement than 22% on Roth contributions now.
Its not really 12% in retirement because of tax brackets not keeping up with inflation and other stealth tax increases
Tax brackets keep track with CPI. I don't know what 'stealth tax increases' you're referring to other than perhaps the taxation of SS benefits that has already been discussed in this thread.

Don't forget that the laws regarding Roth accounts are not immune to change.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Soon2BXProgrammer »

willthrill81 wrote: Sun Apr 11, 2021 3:23 pm I don't know what 'stealth tax increases' you're referring to other than perhaps the taxation of SS benefits that has already been discussed in this thread.
The ACA and IRMMA are effectively taxes because if you can engineer your MAGI lower, then you get a bigger subsidy or you pay less. Besides SS Taxation, those are the two that come to mind... Also, the lower your MAGI the easier to have itemize your medical expenses since they have to pass 7.5% floor. and the FAFSA can be gamed with a low MAGI.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by willthrill81 »

tj wrote: Sun Apr 11, 2021 1:13 pm The exempt portion of social security is still at 1983 numbers, I would imagine everyone should plan for 85% of their SS to be taxed, if they fall into one of the lower SS brackets, it's a bonus.
That's exactly what we do.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Chip »

abuss368 wrote: Sun Apr 11, 2021 2:28 pm What states tax Roth IRA withdrawals? I am not aware of any.
There aren't any. I was trying to point out the futility of speculating on future tax law changes.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by JoMoney »

bsteiner wrote: Sun Apr 11, 2021 12:42 pm Each person may make his/her own assumptions as to future tax rates.

There’s no way to predict future tax rates over a long period of time. During my career the top rate has been as high as 70% and as low as 28%.

I generally use the law as it’s currently scheduled to be in effect.

To the extent you can convert at what’s likely to be a low bracket the odds are in your favor though it may turn out to have been wrong. However to the extent you don’t convert at what’s likely to be a low bracket it may turn out well but the odds are against you.
If you never convert to Roth at all, I would say that's more likely to maximize income at lowest tax rate for most people across their lifespan.
But if you somehow feel compelled to convert, or are trying to optimize taxes for your beneficiaries, then trying to manage it into the lowest tax bracket you can makes sense.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by willthrill81 »

Soon2BXProgrammer wrote: Sun Apr 11, 2021 3:27 pm
willthrill81 wrote: Sun Apr 11, 2021 3:23 pm I don't know what 'stealth tax increases' you're referring to other than perhaps the taxation of SS benefits that has already been discussed in this thread.
The ACA and IRMMA are effectively taxes because if you can engineer your MAGI lower, then you get a bigger subsidy or you pay less. Besides SS Taxation, those are the two that come to mind... Also, the lower your MAGI the easier to have itemize your medical expenses since they have to pass 7.5% floor. and the FAFSA can be gamed with a low MAGI.
Fair enough, though the ACA is only an issue for early retirees, and IRMAA is only going to impact those making far above median incomes in retirement (i.e., $176k for MFJ in 2021).
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by abuss368 »

Chip wrote: Sun Apr 11, 2021 3:31 pm
abuss368 wrote: Sun Apr 11, 2021 2:28 pm What states tax Roth IRA withdrawals? I am not aware of any.
There aren't any. I was trying to point out the futility of speculating on future tax law changes.
While speculation, I would expect RMDs to be included with Roth IRAs before taxation.

I think the risk is small as Roth’s represent a very small part of the investment universe.

Tony
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by TomatoTomahto »

abuss368 wrote: Sun Apr 11, 2021 3:34 pm
Chip wrote: Sun Apr 11, 2021 3:31 pm
abuss368 wrote: Sun Apr 11, 2021 2:28 pm What states tax Roth IRA withdrawals? I am not aware of any.
There aren't any. I was trying to point out the futility of speculating on future tax law changes.
While speculation, I would expect RMDs to be included with Roth IRAs before taxation.

I think the risk is small as Roth’s represent a very small part of the investment universe.

Tony
RMDs are already in Roth 401ks, so not a huge leap. A means test would be a larger leap, but never say never.
I get the FI part but not the RE part of FIRE.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by abuss368 »

TomatoTomahto wrote: Sun Apr 11, 2021 3:43 pm
abuss368 wrote: Sun Apr 11, 2021 3:34 pm
Chip wrote: Sun Apr 11, 2021 3:31 pm
abuss368 wrote: Sun Apr 11, 2021 2:28 pm What states tax Roth IRA withdrawals? I am not aware of any.
There aren't any. I was trying to point out the futility of speculating on future tax law changes.
While speculation, I would expect RMDs to be included with Roth IRAs before taxation.

I think the risk is small as Roth’s represent a very small part of the investment universe.

Tony
RMDs are already in Roth 401ks, so not a huge leap. A means test would be a larger leap, but never say never.
True but rollover to Roth IRA avoids that (at least presently).

Tony
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by TomatoTomahto »

abuss368 wrote: Sun Apr 11, 2021 4:03 pm
TomatoTomahto wrote: Sun Apr 11, 2021 3:43 pm
abuss368 wrote: Sun Apr 11, 2021 3:34 pm
Chip wrote: Sun Apr 11, 2021 3:31 pm
abuss368 wrote: Sun Apr 11, 2021 2:28 pm What states tax Roth IRA withdrawals? I am not aware of any.
There aren't any. I was trying to point out the futility of speculating on future tax law changes.
While speculation, I would expect RMDs to be included with Roth IRAs before taxation.

I think the risk is small as Roth’s represent a very small part of the investment universe.

Tony
RMDs are already in Roth 401ks, so not a huge leap. A means test would be a larger leap, but never say never.
True but rollover to Roth IRA avoids that (at least presently).

Tony
You bet; we are counting on rolling over around 20 minutes after wife retires. :D
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by chemocean »

I was the patron at our public library to request that the library buy the book and was the first to read it.

Couple things that I was aware of that he emphasized concerning Roth conversions to a point:
1) Tax brackets for the surviving spouse are lower and narrower- convert judiciously while filing MFJ.
2) Leave your non-spousal heirs an inherited tIRA that they can manage within their present tax bracket during their 10-year window. Convert more while MFJ if their tax rates after your death are going to be higher than yours in retirement.
3) If you are charitably inclined, leave tIRA balance to take as QCD as part of your RMD until your death. Pay no taxes.
4) Maybe you will have high end-of-life medical expenses that are tax deductible. If your lucky enough not to have these expenses, the balance in your tIRA is should be compatible with #1, #2 and, #3.
5) Converting after RMDs even after 72 while filing MFJ may be advisable considering item #1 and if you have not achieved item #3.

Couple of things that I did not know:
1) RMDs of pre-1987 403(b)s contributions are not required until age 75. However, RMDs on the earnings on those contributions are required at 72 (confirmed recently by TIAA).
2) If you don't name beneficiaries, the inherited IRA go to the estate, which is not a person, and must be withdrawn in 5 years instead of 10.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by bsteiner »

chemocean wrote: Sun Apr 11, 2021 5:21 pm ... If you don't name beneficiaries, the inherited IRA go to the estate, which is not a person, and must be withdrawn in 5 years instead of 10.
It depends on the default provisions of the IRA agreement. Some default to the spouse, or if none then to the issue (descendants), or if none then to the estate. Some default to the spouse, of if none then to the estate. Some default to the estate.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by chemocean »

bsteiner wrote: Sun Apr 11, 2021 5:25 pm
chemocean wrote: Sun Apr 11, 2021 5:21 pm ... If you don't name beneficiaries, the inherited IRA go to the estate, which is not a person, and must be withdrawn in 5 years instead of 10.
It depends on the default provisions of the IRA agreement. Some default to the spouse, or if none then to the issue (descendants), or if none then to the estate. Some default to the spouse, of if none then to the estate. Some default to the estate.
I don't remember that complexity be discussed in Ed's book. Still, he emphasized taking control of the situation by keeping beneficiary designations up to date.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by abuss368 »

TomatoTomahto wrote: Sun Apr 11, 2021 4:09 pm
abuss368 wrote: Sun Apr 11, 2021 4:03 pm
TomatoTomahto wrote: Sun Apr 11, 2021 3:43 pm
abuss368 wrote: Sun Apr 11, 2021 3:34 pm
Chip wrote: Sun Apr 11, 2021 3:31 pm

There aren't any. I was trying to point out the futility of speculating on future tax law changes.
While speculation, I would expect RMDs to be included with Roth IRAs before taxation.

I think the risk is small as Roth’s represent a very small part of the investment universe.

Tony
RMDs are already in Roth 401ks, so not a huge leap. A means test would be a larger leap, but never say never.
True but rollover to Roth IRA avoids that (at least presently).

Tony
You bet; we are counting on rolling over around 20 minutes after wife retires. :D
Love it! :sharebeer
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by FoolStreet »

Big Dog wrote: Sun Apr 11, 2021 3:11 pm
BernardShakey wrote: Sun Apr 11, 2021 12:48 pm
jason2459 wrote: Sun Apr 11, 2021 12:44 pm
BernardShakey wrote: Sun Apr 11, 2021 12:40 pm
Ed 2 wrote: Sun Apr 11, 2021 8:32 am

Don’t forget about state taxes. Many will be living in other states like Cali. Want it or not
California doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!

Or just a generational thing. 8-)

https://en.m.wikipedia.org/wiki/Going_B ... ol_J_song)
Ah, maybe so. Love the LL Cool J reference. I'll have ask my 20-something kids about this!
nah, LL Cool J is a New Yawker, i.e., East Coast term.
Daymond John, Founder of Shark tank and CEO of clothing brand FUBU, tells how he cold called LL Cool J in NY to get him to wear FUBU and include mention of the clothing brand during promotional events, like Target commercials. Fascinating story about building a start-up with nothing but grit and creativity. Just like Phil Knight founded Nike, but without the wealthy parents.

Anyway, I grew up in SoCal, too, so lots of kids wearing FUBU and using the term Cali 30 yrs ago.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Johm221122 »

BlueOrange10 wrote: Sun Apr 11, 2021 10:06 am
willthrill81 wrote: Sun Apr 11, 2021 10:04 am It's neither easy nor cheap to make yourself 'paper poor' in order to get on Medicaid. Moving a tax-deferred balance into a trust requires realizing the income first and paying taxes accordingly.
Which is the whole point of this thread...tax-deferred balances are a pain to deal with in retirement. Better to go the roth route early and quickly.
Really? I put up with the pain, thank you. I'll also be one of the majority of people who pay less tax in retirement
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Big Dog »

FoolStreet wrote: Sun Apr 11, 2021 6:27 pm
Big Dog wrote: Sun Apr 11, 2021 3:11 pm
BernardShakey wrote: Sun Apr 11, 2021 12:48 pm
jason2459 wrote: Sun Apr 11, 2021 12:44 pm
BernardShakey wrote: Sun Apr 11, 2021 12:40 pm

California doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!

Or just a generational thing. 8-)

https://en.m.wikipedia.org/wiki/Going_B ... ol_J_song)
Ah, maybe so. Love the LL Cool J reference. I'll have ask my 20-something kids about this!
nah, LL Cool J is a New Yawker, i.e., East Coast term.
Daymond John, Founder of Shark tank and CEO of clothing brand FUBU, tells how he cold called LL Cool J in NY to get him to wear FUBU and include mention of the clothing brand during promotional events, like Target commercials. Fascinating story about building a start-up with nothing but grit and creativity. Just like Phil Knight founded Nike, but without the wealthy parents.

Anyway, I grew up in SoCal, too, so lots of kids wearing FUBU and using the term Cali 30 yrs ago.
Big fan of FUBU and Damon (and LL), but 'Cali' is verboten for the natives.
“Cali” is an abbreviation of “California” that only non-Californians use. Nearly every other U.S. state calls California “Cali,” but Californians hate this. Avoid using “Cali” if you want to seem like a native Californian.
https://ali.usc.edu/blog/the-slang-and- ... ifornians/
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by saveraplenty »

I am on the side of Roth being under appreciated. But most of you know more than me, so I could be very wrong and would appreciate help. Let me know what you think.

My original plan was to defer, retire early at 50, and take SS at 70. This plan gave me 20 years to do Roth converts in the SD, 10%, and 12%; all good!

Then, I married another high income earner, who plans to retire at 65 (or later!?!?). There goes the time for Roth conversions. Spouse's income alone can get close to the top of MFJ 22%. We both have earned over the SS max for many years. I expect our combined SS to get close to the 22% MFJ bracket. As a result, most Trad dollars would be converted in the 24% bracket.

We currently pay at 32% or 35% MFJ bracket depending on the year. Defer at 32% and pay at 24%, still sounds good right? Well then, if you defer, you get hit by the following:

* The money not used to pay taxes gets invests in VTSAX, producing taxable dividends. There goes 0.3% or 0.4% per year (2% *15% or 2%*20%).
* IRMAA hits big in years of conversion.
* Conversions may push us up from 15% to 20% in the Cap Gains rate.
* Not finishing conversions in time results in RMDs, which may push income above the 24% bracket.

Given all this, it appears for our specific situation, Trad and Roth work out to about the same net worth when conversions are complete. Given this, I would prefer Roth because:

* Risk of early death of one spouse, leaving the survivor exposed to Single brackets
* RIsk of tax rates going up
* The need to carefully plan large Roth conversions, which could be easy to screw up
* Even if we go Roth, large employer matches are still going to tax deferred

For reference, at age 36, we have over $700k in tax deferred assets. This is a result of high incomes allowing us to max accounts for many years, very very generous employer matches, and high market returns (dumb luck). Today's balance growing for 30 years will by itself require several million in conversions.

I am thinking at this point forward, we should go with Roth for a while. But I don't have a lot of confidence in figuring this out. Do you have any thoughts or feedback for me?

Thanks a ton, saver
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Soon2BXProgrammer »

saveraplenty wrote: Sun Apr 11, 2021 8:30 pm I am on the side of Roth being under appreciated. But most of you know more than me, so I could be very wrong and would appreciate help. Let me Do you have any thoughts or feedback for me?
I agree with your analysis.. Not the same situation as you, but as long as I continue to work, I am converting to Roth to the top of the 22% bracket. If i don't our pretax assets will mothball higher and higher into the 22% bracket if returns are poor. If returns are high, then they could escalate.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by retiringwhen »

saveraplenty wrote: Sun Apr 11, 2021 8:30 pm Then, I married another high income earner, who plans to retire at 65 (or later!?!?). There goes the time for Roth conversions.
A perfect example why diversification early makes sense. Plans and situations often change with more (or less) success in careers, inheritances, etc.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by averagedude »

I have the opinion that the most likely tax bombs for people with significant traditional retirement assets will be the result of a spouse dying or high investment returns, One is a bad problem to have, but the other will be a good problem to have.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by RadAudit »

While we're talking about Roth vs/ tIRA, what is the impact on the portfolio value - tax deferment of contributions and savings in a tIRA until 72 - vs paying taxes on contributions and never taxing distributions in a Roth?

Just to make it entertaining, you can use an RMD schedule and / or an assumed 4% withdrawal rate.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by willthrill81 »

RadAudit wrote: Sun Apr 11, 2021 9:25 pm While we're talking about Roth vs/ tIRA, what is the impact on the portfolio value - tax deferment of contributions and savings in a tIRA until 72 - vs paying taxes on contributions and never taxing distributions in a Roth?

Just to make it entertaining, you can use an RMD schedule and / or an assumed 4% withdrawal rate.
If the tax rate at the time the contributions are made is equal to the tax rate when withdrawals are made, then the after-tax wealth of both the tax-deferred and Roth accounts will be identical.

Since you know what your current tax rate is, the question then becomes what you believe your tax rate will be at the time you make your withdrawal. For most retirees, their tax rate in retirement will be lower. This favors tax-deferred contributions.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by abuss368 »

Vanguard has always recommended tax diversification within a portfolio.

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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Grt2bOutdoors »

willthrill81 wrote: Sun Apr 11, 2021 10:34 am
BlueOrange10 wrote: Sun Apr 11, 2021 10:06 am
willthrill81 wrote: Sun Apr 11, 2021 10:04 am It's neither easy nor cheap to make yourself 'paper poor' in order to get on Medicaid. Moving a tax-deferred balance into a trust requires realizing the income first and paying taxes accordingly.
Which is the whole point of this thread...tax-deferred balances are a pain to deal with in retirement. Better to go the roth route early and quickly.
I'd rather pay 12% (or 15% if/when rates revert) on tax-deferred withdrawals and Roth conversions in retirement than 22% on Roth contributions now.
Those who are doing Mega Back Door Roth's are likely in or past 22% tax bracket on their contributions. If the idea is to get more dollars into tax advantageous investment vehicles then the current tax bracket should not be the primary determinant of preference.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by willthrill81 »

Grt2bOutdoors wrote: Sun Apr 11, 2021 10:24 pm
willthrill81 wrote: Sun Apr 11, 2021 10:34 am
BlueOrange10 wrote: Sun Apr 11, 2021 10:06 am
willthrill81 wrote: Sun Apr 11, 2021 10:04 am It's neither easy nor cheap to make yourself 'paper poor' in order to get on Medicaid. Moving a tax-deferred balance into a trust requires realizing the income first and paying taxes accordingly.
Which is the whole point of this thread...tax-deferred balances are a pain to deal with in retirement. Better to go the roth route early and quickly.
I'd rather pay 12% (or 15% if/when rates revert) on tax-deferred withdrawals and Roth conversions in retirement than 22% on Roth contributions now.
Those who are doing Mega Back Door Roth's are likely in or past 22% tax bracket on their contributions. If the idea is to get more dollars into tax advantageous investment vehicles then the current tax bracket should not be the primary determinant of preference.
Certainly if the choice is between Roth or taxable, you take Roth every time.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB

Post by Grt2bOutdoors »

willthrill81 wrote: Sun Apr 11, 2021 10:10 pm
RadAudit wrote: Sun Apr 11, 2021 9:25 pm While we're talking about Roth vs/ tIRA, what is the impact on the portfolio value - tax deferment of contributions and savings in a tIRA until 72 - vs paying taxes on contributions and never taxing distributions in a Roth?

Just to make it entertaining, you can use an RMD schedule and / or an assumed 4% withdrawal rate.
If the tax rate at the time the contributions are made is equal to the tax rate when withdrawals are made, then the after-tax wealth of both the tax-deferred and Roth accounts will be identical.

Since you know what your current tax rate is, the question then becomes what you believe your tax rate will be at the time you make your withdrawal. For most retirees, their tax rate in retirement will be lower. This favors tax-deferred contributions.
You have to look at the current balances saved, time to actual retirement and conduct a reasonable projection of future value of the account. You can use a range of growth rates, but those with meaningful balances today ought to have the view that the account balance will only grow further especially if there is a decent amount of time left until they actually retire. And just to throw one more wrinkle in the calculation and I believe it was mentioned earlier, those with spouses will eventually become a single again at some point, then the RMD will be significant and at single tax bracket rates. But as you say, first world problems.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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