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Location: Was Midvalley Oregon; Now Eastside Seattle area
13,073 posts, read 7,515,583 times
Reputation: 9798
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Quote:
Originally Posted by mathjak107
it’s basics that should be understood regardless
Ok,
But who doesn't have an IRA/40X? {most likely Elon M. He doesn't take Income}
Those high wage earners should have known better to accumulate so much in deferred tax products; But they were too busy doing what they do and not understanding the basics.
My excuse is that we were always in the lowest tax brackets yet I aspired to be in the higher brackets
I Listened to the media.
the Goal is to have retirement Income. Qualified accounts was the instant gratification. The pie-in-sky was just that, until one climbed the mountain and got the pie. Then discovered it was an 8" pie when you wished it was a 12" deep dish pie that some were eating. It however is a still a pie, that you would never would have gotten unless you climbed the mountain.
Off to the farmer's market to see if I get pie/cobbler ingredients- Washington nectarines.
YPMV
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,073 posts, read 7,515,583 times
Reputation: 9798
Wife didn't trust me. She decided to take the car while I was going to take to ebike. She bought 10#.
(DB2, too. We used to a have a commercial peach farm, and we never let anything go to waste, even wind falls).
I bought smoked salmon collars. Used to have a family beach house (sister's).
Last edited by leastprime; 08-26-2023 at 02:25 PM..
if your bracket is 24% it can never be more than 24% of the ira balance in total no matter what it is .
since the money that represents the taxes was 24% of it , and since the tax money moves in lock step with the ira balance every percent up or down still is proportional..
regardless of how much each rmd is it can never add up to more than 24% due on that amount nor can it ever be more then 24% in total on the whole ira balance .
a 24% tax on the ira is just that , whether i convert the whole thing tomorrow or i let it compound for decades and let the rmds deplete it as i move it into the taxable account less taxes of 24%
24% in total is 24% and as long as the tax money follows the ups and downs of the ira they will match up .
you will always have the tax money in the due amount and roth and traditional / taxable balances will be the same at that point all the money is out of the ira assuming no other differences are taking place changing the equation
can someone else explain this to her , i am so done with this
If your tax bracket is 24%, the tax on RMD can never be more than 24% of the IRA balance, but it is always a variable % of total IRA+Berkshire balance before tax. With Roth conversion, the one-time tax is approximately 20% of the total IRA+Berkshire balance before tax.
In both cases, you are dealing with a total of two accounts. In Roth conversion, one account is brought to zero via one time tax which equals 20% of the total assets, and the other account continues growing. Without Roth conversion, RMDs are being moved between two accounts with 24% RMD lost to taxes, but these 24% of RMD taxes are a variable % of total assets in two accounts. As a result of taxes on RMDs, the total sum of money in two accounts is steadily decreasing, while the total in Roth is increasing, and eventually the total of money in two accounts falls below the Roth balance. That is what happens with totals. My examples demonstrate that.
If your tax bracket is 24%, the tax on RMD can never be more than 24% of the IRA balance, but it is always a variable % of total IRA+Berkshire balance before tax. With Roth conversion, the one-time tax is approximately 20% of the total IRA+Berkshire balance before tax.
In both cases, you are dealing with a total of two accounts. In Roth conversion, one account is brought to zero via one time tax which equals 20% of the total assets, and the other account continues growing. Without Roth conversion, RMDs are being moved between two accounts with 24% RMD lost to taxes, but these 24% of RMD taxes are a variable % of total assets in two accounts. As a result of taxes on RMDs, the total sum of money in two accounts is steadily decreasing, while the total in Roth is increasing, and eventually the total of money in two accounts falls below the Roth balance. That is what happens with totals. My examples demonstrate that.
wrong wrong
the taxable account is increasing with every rmd contribution to it and has been 24% higher all along when combined with the ira offsetting any taxes paid .
every step of the way whether up or down the traditional and taxable account have had a higher value then the roth reflecting the 24% additional tax money it has held since day one …
it isn’t until all the money in the ira is taxed that the roth and the traditional/ taxable are the same
the two accounts added together exceed the value of the roth right up until the end by the amount of taxes still due on the balance in the ira
go read the article i posted ..all the math is professionally done instead of arguing …
here go learn , instead of wasting everyone’s time with your nonsensical incorrect assumptions because you won’t take the time to learn why you are wrong
One of the common assumptions often made is a Roth will provide more money at retirement. This may or may not be true. Let’s compare a Roth vs. a Traditional IRA using an average income tax of 25% and 5% rate of re- turn for each account. When the tax rates and the rates of return are identical, would one option put more dollars in your pocket during retirement?
For this example, both of our savers have reviewed their budgets and determined they can afford to contribute about $75 each month.
The Roth saver will pay taxes first, and then make the monthly post-tax contribution to the IRA. At a 25% tax rate, in order to contribute $75 they must earn $100. $25 will be paid in taxes and the remaining $75 contributed to the Roth IRA. At retirement, the distributions will be tax-free.
The Traditional IRA saver will pay taxes when they take distributions, but because they are not paying taxes up front, the $25 dollars that would have gone to taxes can instead go into the IRA. Their $100 contribution will result in the same $75 reduction as the Roth saver.
Now let’s apply the 5% rate of return over a 20-year time- frame* and then deduct the 25% in taxes the Traditional IRA saver would pay on distributions during retirement.
In both examples our savers have earned $100 in income but the Roth saver gives up 25% of this to taxes which reduces the amount they can contribute each month. Our Traditional IRA saver must pay taxes when they take distributions, but if they are taxed at the same 25% rate, they end up with the same $30,827.53. The argument can be made that the Roth saver essentially paid less overall in taxes but what tangible financial benefit did they gain?”
Last edited by mathjak107; 08-26-2023 at 04:20 PM..
in our example here the reason we use a tax managed etf or stock like apple in the taxable is because we are assuming we are contributing the max to the iras so in order to even up the additional tax dollars we need to invest we use a tax managed etf or stock that spins off nothing taxable .
if any is sold to pay the taxes on the rmds then taxes on that would range from zero if a couple can stay in the zero capital gains bracket or run 12-15% .
the taxable account can also write off losses to offset gains it paid taxes on .
it can be inherited and pay zero taxes if one keeps it intact and takes the money for taxes from the rmd and puts all the rmd money left in to our taxable account
so there are lots of outcomes we can have for the money .
but at the core the following is always true
time does not matter , only gains , losses and tax rates matter
and once we get equal dollars in we get equal balances out in both when all taxes are paid on the ira …the traditional and taxable accounts will always have a higher balance until all taxes on the ira are paid .
after that point the roth does have the advantage of not having variations down the road as far as all the different outcomes the taxable account can have when it comes to their own gains and losses
Last edited by mathjak107; 08-26-2023 at 04:23 PM..
the taxable account is increasing with every rmd contribution to it and has been 24% higher all along when combined with the ira offsetting any taxes paid .
every step of the way whether up or down the traditional and taxable account have had a higher value then the roth reflecting the 24% additional tax money it has held since day one …
it isn’t until all the money in the ira is taxed that the roth and the traditional/ taxable are the same
the two accounts added together exceed the value of the roth right up until the end by the amount of taxes still due on the balance in the ira
go read the article i posted ..all the math is professionally done instead of arguing …
here go learn , instead of wasting everyone’s time with your nonsensical incorrect assumptions because you won’t take the time to learn why you are wrong
Ok, I asked my SIL who is a mechanical engineer that worked briefly for the IRS in some math capacity between her real jobs (after Toyota closed the plant where she was the R&D director). She says, assuming your permanent 24% tax bracket, your calculation would work if your heirs withdrew the entire accounts on the day you died. In that case, they would get the same amount whether they liquidated tradIRA+Berkshire or Roth - at any point during the life of the accounts.
If you liquidated in your lifetime the accounts in 24% bracket, you'd be liable for 15% tax on capital gains in B, plus 24% in trad IRA, vs. 24% on trad IRA at the time of Roth conversion. If your heirs kept the accounts, assuming mandatory RMDs (taxable from trad IRA or not taxable from Roth), my scenario would apply, ie, after-tax value of combined trad IRA + Berkshire would drop below Roth eventually).
the taxable account is increasing with every rmd contribution to it and has been 24% higher all along when combined with the ira offsetting any taxes paid .
every step of the way whether up or down the traditional and taxable account have had a higher value then the roth reflecting the 24% additional tax money it has held since day one …
it isn’t until all the money in the ira is taxed that the roth and the traditional/ taxable are the same
the two accounts added together exceed the value of the roth right up until the end by the amount of taxes still due on the balance in the ira
go read the article i posted ..all the math is professionally done instead of arguing …
here go learn , instead of wasting everyone’s time with your nonsensical incorrect assumptions because you won’t take the time to learn why you are wrong
Good points! I agree with what you are trying very hard to convey. I have stopped engaging as I simply have too much on my plate and don’t have the time to read long posts and parse examples here.
If someone follows my basic math that I shared earlier, it shows pretty much that. The example in this publication comparing contributions to Roth vs. Pre-Tax IRA. And, it is quite clear. The simple math I provided for the retiree with no earnings and, therefore, no IRA contributions. It tackled that scenario (only conversion to Roth or not being the options). They all have the same outcome stated really well in your last post -
Time does not matter, only gains, losses and taxes matter.
Good points! I agree with what you are trying very hard to convey. I have stopped engaging as I simply have too much on my plate and don’t have the time to read long posts and parse examples here.
If someone follows my basic math that I shared earlier, it shows pretty much that. The example in this publication comparing contributions to Roth vs. Pre-Tax IRA. And, it is quite clear. The simple math I provided for the retiree with no earnings and, therefore, no IRA contributions. It tackled that scenario (only conversion to Roth or not being the options). They all have the same outcome stated really well in your last post -
ever Time does not matter, only gains, losses and taxes matter.
Kavm, sorry for misleading you with my post that contained a small, but turns out significant, arithmetic mistake. Ok, my math doesn't hold in principle, if a person does not want to withdraw from his accounts ever + if the heirs liquidate everything on the day of his death. But if they liquidate everything on that day, then in that scenario trad IRA + Berkshire can only equalize with Roth on that day post-tax, ie, they cannot be higher or lower than Roth. So, I was wrong saying that trad IRA + Berkshire ALWAYS must drop lower than Roth in the infinity of time - in case of liquidation of all accounts on the day of holder's death, that would not happen. I was wrong in principle, because there is an exception from what I said. And that exception conforms to Mathjak's posts (which I hope are being read by every 20 year old golddigger waiting for the day the 99 year old husband dies, yippeee!! :-).
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