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Old 04-24-2015, 12:33 AM
 
Location: RVA
2,164 posts, read 1,264,175 times
Reputation: 4451

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Yes, we say that all time. Much better to have to pay too much in taxes, then have no income and pay none... Our pension is currently 108% funded, and the company well run, nothing like an Enron. My post was more for expressing my understanding the different savings and job paths that can lead to the same end, which was a revelation of sorts. For instance, I divorced when younger after a 10 year disaster of a marriage. It was literally a disaster after one year, and I spent the next nine in dysfunctional counseling, fights, and separations. I know now that she was planning all along to string it out to get as much as she could, including SS. So had I gone the less secure route, I would have lost much more than I did. I also realize that the numbers I used were very basic and incorrect. You don't pay 25% effective tax when you are in the $120k range, your actual effective tax load is far less, more like 18%, so the lower the actual effective tax rate, the more I would have to have, earned income tax free, to break even. More like $40k tax free. With a much higher chance of losing it. Having too much in RMDs is also not a bad place to be. In reality, IF my savings go as the income calculators suggest, it appears I will be able to invest my first few years of RMDs in to after tax vehicles, that will need to be low tax generators, like Munis, which can be used to offset the later needed withdrawals form my regular IRAs.
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Old 04-24-2015, 01:27 AM
 
71,463 posts, read 71,652,652 times
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why do you want your rmd's to be in low tax generators like muni's ? especially if it is n=money you may not be planning to eat with dfor 20 years ?

also muni's can be poor choices when in lower tax brackets .

i will take my rmd's and put them in to what ever they were invested in continuing the planned allocation.
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Old 04-24-2015, 10:10 AM
 
Location: Wisconsin
21,534 posts, read 43,962,244 times
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Agree with MJ on that. Invest just as you always have. You have plenty of income. Again, do yearly Roth conversions.
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Old 04-24-2015, 10:30 AM
 
Location: Central Massachusetts
4,800 posts, read 4,842,106 times
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Quote:
Originally Posted by mathjak107 View Post
it depends on your brackets. if you have a decent amount of money in your ira's the conversions would have to be pretty big to effect much and that may leave you in a higher tax bracket than you would be just letting the ira's sit.

if you can fill up the 15% bracket with conversions if you have space left it pays . better to be taxed at 15% now than 25% or higher later when rmd's and ss kick in.

after the first year or so i will no longer be in that 15% bracket because the cash we set aside will be spent . my projections show if i take early ss we would have 36k in ss combined ,21k pension and 60-75k in distributions from our taxable account from the funds we hold which we have no control over taking as the funds have to pay it out..

there is little sense throwing conversion income on top of that , it would be killer. so now you see why conversions don't really help once you get past the 15% bracket.

once the cash we set aside is gone we will spend down the ira money first. that should help reduce rmd's.

all in all it isn't a good tax plan that we have but that is because of my failing to see the real value down the road of roth income and how it plays along with everything else.


one thought i have is to slowly convert some of the funds in the taxable account over to etf's giving us better control since distributions are way less in etf's and index funds . then i can spend down more of the ira money before rmd's without increasing our tax bracket early on.


this stuff makes my hair hurt .
Thanks mathjak. You always teach me something. I read through the highlighted line and went "what did he just say?" I had not heard or remembering hearing about etf's. So I had to do some research. Interesting I wonder if I was the only one that picked up on that that didnt know what you were saying. I like them on first glance and will consider them as a lot of my savings is pre-tax so I will need to do some manuvering and adjusting as time passes.

Quote:
Originally Posted by Perryinva View Post
That IS a good point. Having $500k in retirement savings all in a tax deferred 401k is worth $50k less than the same account where $200k of it is in a Roth. I KNOW that also means that the Roth person should theoretically have $550000.
Quote:
Originally Posted by DaveinMtAiry View Post
Yes but keep in mind if you are talking about a 401 you will be contributing more on a weekly basis with a traditional over a Roth, obviously. So at the end of the line your balance will be significantly higher with a traditional 401 over a Roth.

I really enjoyed this thread. I wish that I had caught it from the beginning. I was here but I just didnt really put my mind on to it or I ignored it or some other reason but I read it from the beginning.

I chose these two comments not for any bad reasons but because in all the discussions to this point about how much tax and how much the value of a traditional to Roth compare we have missed one point. It may not be true for every 401k/403b traditional but it is for the majority and that is the matching aspect. Yes it is essentially your money once you are vested but over the life of the growing of the value a good portion of that money you put in was matched. In my case it was 5% me 5% them. In thinking about that I counted that as gaining 100% interest/gain. So as you withdraw that money think on how much of it was contributed by you personally and how much was contributed by your employer. Paying 25% will not seem so odious. Escpecially if you were able to use the income to compound and that compounded exponentially.

Just my thoughts. I do want to avoid paying more taxes then I have to. Tax avoidance is legal, tax evasion is not.
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Old 04-24-2015, 10:33 AM
 
71,463 posts, read 71,652,652 times
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hey golf. you must be getting closer and closer to retirement too by now. i have 56 working days left.
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Old 04-24-2015, 10:41 AM
 
Location: Central Massachusetts
4,800 posts, read 4,842,106 times
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Quote:
Originally Posted by mathjak107 View Post
hey golf. you must be getting closer and closer to retirement too by now. i have 56 working days left.

I am getting closer. As I see it now. I have 5 more weekends to go. Now will I take the retirement (full time) whch is 30 September or try to find a job that will cover 2 more years I do not know yet. I would like to because I am still only 57 right now and I think even though I am sure I can survive finacially from that starting point. I worry about my burning out my golf game too soon. I have some options full time and part time I am exploring. Right now the focus is full time federal employment in a different agency (FEMA, VA are two). The reaction to application to interview to hire is slow so I have those in place now. The part time thoughts are golf courses (mowing the greens before I golf in the afternoon) or hardware stores like Homedepot and Lowes. Other options are bagging groceries or being a Walmart greeter (Hi welcome to Walmart! Are you seriously going to go walking around the store with your butt cheeks exposed like that?") What do you think? Walmart here I come?
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Old 04-24-2015, 12:37 PM
 
14,255 posts, read 23,974,521 times
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Quote:
Originally Posted by golfingduo View Post
Other options are bagging groceries or being a Walmart greeter (Hi welcome to Walmart! Are you seriously going to go walking around the store with your butt cheeks exposed like that?") What do you think? Walmart here I come?

You better hurry. Most Walmart stores are eliminating the greeter positions.

I always wanted to do that job but honestly, I have NOT had the time since I have retired. No kidding.
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Old 04-24-2015, 02:35 PM
 
71,463 posts, read 71,652,652 times
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you can be the receptionist for the new walmart express dentistry----15 teeth or less. lol
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Old 04-24-2015, 03:00 PM
 
Location: RVA
2,164 posts, read 1,264,175 times
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Naturally, the order of saving is ALWAYS take the matching first, as nothing beats THAT ROI. But if your 401k has a Roth, that's moot, anyway. So if your effective tax at the time was less than midpoint 25%, then contributing to an external Roth, after the match, then back to tax deferred 401 or IRA, makes perfect sense.

True Story! In my case, I (embarrassingly) mistakenly thought that the after tax contribution in our 401k plan, which didn't exist until after Roths came out, was a Roth! In fact, it was/is not! So for years I was contributing mostly to pre-tax, but significantly to after tax, assuming I was earning non-taxable on my after tax contributions. I believed this mainly because the plan actually shows our account divided in to 3 separate blocks ; Pre-tax, After- tax, and Company Contributions all with the earnings earmarked from those accounts, because they track basis on earnings.. Why on earth would I NOT think that earnings in the After Tax block were NOT tax-free? When I had around $120k in that block, I had a discussion with some other employees, that started with they could not understand why ANYONE would contribute After tax to their 401k. I assumed they somehow (this was around 2011) had never heard of a Roth, and they enlightened me that our 401K After Tax was NOT a Roth. I about crapped my pants!! I realized, I had just WASTED a TON of potential earnings, by paying tax on a lot of that money, maybe 2/3s, up front, with NO benefit. I was fit to be tied, I can tell you. But I had no one to blame but myself, as I am a firm believer of "Your life is your OWN responsibility..period". Miraculously , the back door Roth happened, and I found myself able to salvage the future lost tax free earnings, by rolling the After tax portion of my 401k in to my Fidelity IRA Roth which only had like $15k in it (because I thought a second, non 401k Roth was allowed, again, I didn't do my homework correctly). Thanks to the back door Rollover, I have about $120k in my Roth now, with many years left to earn on it. Of course, I immediately killed any after tax contributions to my 401K, and am maxed out on tax deferred, pre-tax contributions. I then add the $6.5k to my Roth.

As to what to do with unused funds that I will be required to pay tax on, due to RMDs exceeding my needs, that's 10 years from now. I was only suggesting that it might make sense to have some tax advantaged after tax investments to increase my percentage of non-volatile income, since at this time, I essentially have none! All my savings (except the 6+ months emergency funds at 1%) is in retirement accounts, all of it to be fully taxed, except the Roth.

I'm always open to learning why this would not be a smart or safe move.
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Old 04-24-2015, 03:06 PM
 
71,463 posts, read 71,652,652 times
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the question is what would your allocations have been if you didn't have to take rmd's ?

that really should be the plan.

in my case my intentions are to just buy the same fidelity funds i have in my ira in my taxable account since i am comfortable with a 50/50 allocation.. if i find the volatility a bit to much i can always go more to my income and capital preservation model and less in the growth and income model since i use a mix of the two evenly split..
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