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Old 06-05-2019, 09:01 AM
 
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there is no advantage gain wise to converting so time really is not a factor . Whether stocks double in 5 years and then are dead for 5 years workout the same as if they just double over 10....gain wise the traditional will work out the same if dollars are the same
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Old 06-05-2019, 09:04 AM
 
Location: SoCal
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Originally Posted by mathjak107 View Post
there is no advantage gain wise to converting so time really is not a factor . Whether stocks double in 5 years and then are dead for 5 years workout the same as if they just double over 10
There is. You forgot that RMD too high will kick you into higher premium for Medicare Premium part B. It’s now $470 per person if you have combined income of $750k per couple. I know it’s extreme example.
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Old 06-05-2019, 09:17 AM
 
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Originally Posted by NewbieHere View Post
There is. You forgot that RMD too high will kick you into higher premium for Medicare Premium part B. It’s now $470 per person if you have combined income of $750k per couple. I know it’s extreme example.
There are lots of perks to Roth’s ..but too many people think gains are one of them compared to a traditional but they aren’t....but everything from rmds to medicare premiums, to getting ss taxed as well as Aca subsidies are all benefits of Roth’s ..... but whether you have 5years or 10 years left and can convert the time may not play a roll. It depends on how much will be converted taxes wise
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Old 06-05-2019, 09:20 AM
 
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Originally Posted by Pianist718 View Post
Now, why IRA. I see the benefit of money growth tax free. I see the benefit of not being forced to withdraw money after a certain age. I see benefit of being able to take out what I put in (may have some limitations in my state of NJ), I see the benefit of having a high % of IRA focus on REITs and high dividend stocks/funds. (Let me know if you agree here).

My big questions now are;

1) Lots of opinions I hear where some have huge % of their Roth IRA focused on REITs (mainly for the dividends) and high dividend stocks or funds such as VHDYX (no longer available), now VYM instead. Thoughts?
Good question.

I converted all of our IRA assets from Traditional to Roth, back when this was first allowed (2010ish?). At that point there was a provision to spread out the tax owed on gains over 4-5 years. Since then, we have contributed every year through backdoor conversion, with little to no tax on the conversion, and then tax free forever.

For 20 years or so, I had all assets in a balanced "fund of funds" (Vanguard STAR) which has performed well through ups and downs (9-10% per year). I wanted something I could basically ignore for the long haul. More recently, however, I moved a chunk into REIT (also in Vanguard), for the reasons you suggest. Avoiding tax on high dividends it throws off each year, plus some diversification. That portion has returned 19% over past year, and I'm happy to have done that. It wasn't a "huge %" of the total, but enough to spread things around and counterbalance the market corrections that are inevitably coming. (My personal circumstances: I am heading into retirement, but may not need to tap the IRA funds for a long time, if ever... which is why I really appreciate the no forced withdrawals in Roth. I plan to keep a growing portion in REIT).

Last edited by HeelaMonster; 06-05-2019 at 09:51 AM..
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Old 06-05-2019, 09:34 AM
 
474 posts, read 93,906 times
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Originally Posted by mathjak107 View Post
there is no advantage gain wise to converting so time really is not a factor . Whether stocks double in 5 years and then are dead for 5 years workout the same as if they just double over 10....gain wise the traditional will work out the same if dollars are the same
Perhaps you are referring to a scenario where the traditional has been sitting for some time, in which case I agree that the dollar amount of gain is what counts, more than the time.

But there definitely is a time factor/advantage to converting, if one is using the backdoor conversion on a regular annual basis. Converting immediately, as soon as the non-deductible contribution to traditional IRA has cleared, lessens the chance there will be gains on which tax is owed. In other words, it effectively becomes a tax-free pass-through. I try to make a point of contributing and converting within the same week.

Caveat: The above approach can be modified if you have a crystal ball that guarantees the market will have dropped by the time of some future conversion, so that you are always converting less than or equal to the amount contributed, and no tax owed on conversion. In which case you probably don't need an IRA.
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Old 06-05-2019, 09:50 AM
 
Location: SoCal
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Originally Posted by mathjak107 View Post
There are lots of perks to Roth’s ..but too many people think gains are one of them compared to a traditional but they aren’t....but everything from rmds to medicare premiums, to getting ss taxed as well as Aca subsidies are all benefits of Roth’s ..... but whether you have 5years or 10 years left and can convert the time may not play a roll. It depends on how much will be converted taxes wise
Time to grow. If you have $1million in regular IRA vs $1million in Roth IRA, in 10-20 years. It’s bigger in both account, bigger RMDs with bigger regular IRA, no RMD with Roth. That’s the whole point to put growth where you don’t have to pay tax forever, or until you die. Tax law is in flux as to what’s going to happen to heirs.
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Old 06-05-2019, 09:57 AM
 
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For those interested in more about backdoor conversions from traditional to Roth IRA, here is a pretty good article... a ten-year retrospective, with all the details. I keep waiting for Congress to close what amounts to a loophole, but so far it hasn't happened.

https://www.forbes.com/sites/jimdahl.../#1918f74c5ce7
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Old 06-05-2019, 10:00 AM
 
Location: Denver, CO
1,700 posts, read 4,062,048 times
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Originally Posted by NewbieHere View Post
Time to grow. If you have $1million in regular IRA vs $1million in Roth IRA, in 10-20 years. Itís bigger in both account, bigger RMDs with bigger regular IRA, no RMD with Roth. Thatís the whole point to put growth where you donít have to pay tax forever, or until you die. Tax law is in flux as to whatís going to happen to heirs.

Tax is paid on all retirement savings (except for my HSA), either you do it upfront of defer it. Everyone's situation is going to be different, so maximizing your gains based on when you pay the taxes is the key here. It would not be bright for me to convert my deferred retirement now to Roth and pay 35% tax on that, when I can wait for a better window to convert.
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Old 06-05-2019, 10:20 AM
 
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It depends on the overall plan ...if you can not get your ss taxed ,get an aca subsidy from 62 to 65 and make use of the zero capital gains bracket that conversion at the higher rate may be worth it
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Old 06-05-2019, 10:42 AM
 
Location: SoCal
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Originally Posted by Moonwalkr View Post
Tax is paid on all retirement savings (except for my HSA), either you do it upfront of defer it. Everyone's situation is going to be different, so maximizing your gains based on when you pay the taxes is the key here. It would not be bright for me to convert my deferred retirement now to Roth and pay 35% tax on that, when I can wait for a better window to convert.
All retirement savings? Not Roth, that’s the whole point of Roth. It’s called managing your tax rate. When someone said gain from regular IRA and Roth IRA will be the same, you forgot that you can smooth the tax rate over time. Play around with some tax calculator and you’ll see the difference. It’s a little more complicated when you add SS. At certain income, it doesn’t tax as much.
I’m not suggesting you to convert at 35% tax rate, use your head, nobody here is suggesting that.

Last edited by NewbieHere; 06-05-2019 at 11:20 AM..
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