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Reading through this is one reason I'm kind of glad we're in the "poor folks" section. Barely any savings, both of us get SS and a pension, total of around $46K/year. Kentucky doesn't tax state or federal pensions (I'm retired from the state, wife is a retired civilian employee from Ft. Campbell). Only big tax deal we have is our house. We pay around $500/year, city and county taxes on a house assessed at $90K. My wife says we're not broke, just badly bent.
One of the theories behind the Roth is that earnings grow tax-free and you extract them when you're retired when you presumably have a lower marginal tax rate. That doesn't describe us -- we knew up front our taxable income puts us in the top bracket, and thus when we draw upon money in a Roth account, each dollar is taxed at the top marginal tax rate.
I think you need another mug of coffee before posting, haha.
My husband retired this year due to his pension getting socked by interest rates. He was essentially working for 60% of what he was making before. So he has to take the pension payout in December of this year and June next year or we will get socked gain, which we will on taxes because we have some deferred comp payments. So after next year, our income will dramatically decrease. So I guess we timed it well in one sense, before the tax cuts expire. But there is little we can do to stave off this tax beast. We could fund a charitable foundation. We might do that because I would rather direct where the money goes than have the government do it. We need to meet with a good tax person before the end of the year.
I did plan things around taxes to some extent but when my husband was offered the option of deferred comp, we were only give two options on payout: at separation or retirement. I guess technically he is doing both this year anyway. But later, they added other options, which we chose going forward. However, inflation might have ruined that as a positive outcome. I would have to crunch the numbers to determine. When I set it up, inflation didn't exist. It wasn't on my bingo card.
I had a detailed tax by tax by year plan. Of course it missed the real estate crash.of 2008 the Covid bailouts anf trumps tax bill so basically it was worthless other than for starting a good fire.
Just a heads-up for those who are married. When my mother passed away a while back, my father's Medicare premiums shot up because of IRMAA. He had several pensions, a few tIRAs, several bank accounts and millions in investment accounts. It may have been useful if he had converted some of the tIRA funds to Roth and maybe lightened up on the dividend paying stocks before the bomb went off. I'm not sure if taking these actions would have made much difference in the grand scheme of things, and he certainly could afford the higher premiums, but it certainly took him by surprise.
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Quote:
Originally Posted by lenora
Just a heads-up for those who are married. When my mother passed away a while back, my father's Medicare premiums shot up because of IRMAA. ....
married, filing joint is a big tax wake-up call (what-if) when you become a single filer (of which we have plenty here, and each will eventually become).
I don't see the income need halving, when there are half of us. Certainly not the property tax bill, since neither of us would choose to leave this current home.
Should have done more Roth Conversions during employment and early retirement. Probably from day one. Tax free gains inside the Roth, easily cover the income taxes in just a few years. Stack 40-50 yrs of subsequent tax free earnings and you could be in decent shape for tax exempt Roth withdrawals, especially as a single filer.
married, filing joint is a big tax wake-up call (what-if) when you become a single filer (of which we have plenty here, and each will eventually become).
I don't see the income need halving, when there are half of us. Certainly not the property tax bill, since neither of us would choose to leave this current home.
Should have done more Roth Conversions during employment and early retirement. Probably from day one. Tax free gains inside the Roth, easily cover the income taxes in just a few years. Stack 40-50 yrs of subsequent tax free earnings and you could be in decent shape for tax exempt Roth withdrawals, especially as a single filer.
Seems to me...
Since my father was a member of the "Greatest Generation," the tIRAs weren't huge, maybe $400,000 at the time of his death. But adding in dividend income, two significant pensions, interest, Social Security and probably some capital gains, you're looking at some real money. Since the Boomers had the opportunity to open their tIRAs at a much younger age, my thought was similar to yours. It's much less painful to convert in small bites than wait until it come back to bite ... your spouse.
I retired at 57 (turn 67 next month) and bought fixed annuitized structured notes to fund the years until I draw SS at age 70 and beyond (until 83). I use a reverse amortization table to report interest, so when I turn 70, the payouts from my annuities will be mostly return of capital (not taxed). By keeping my income low, I paid nothing for my Obamacare insurance coverage until I reached Medicare eligibility. I also pay zero tax each year because the interest from my annuities is low and I have a carryover loss that negates all capital gains I might have.
At age 70, I estimate I'll get around 57K (including future colas) annually from SS. I should be able to keep my income low enough so I will pay very little tax. If I earn 10K in interest, I'll owe less than $400 in taxes since only 15% of my SS would be taxed. If I were to earn some additional capital gains, the untaxed portion of SS is not included when determining my IRMAA bracket. That's another way SS is tax advantaged versus other taxable forms of income.
When I turn 73, I'll investigate using a QLAC to defer RMDs from my IRA.
I have no heirs, so my goal is to have enough to self-fund long term care and spend the rest of my savings before I die.
Last edited by mitchmiller9; 08-15-2023 at 08:31 PM..
Well... my small IRA was worth about a quarter of yours in the two years in which I converted... but after Roth conversion, it gained in one year almost 5 times what I paid in taxes (ie, I was immediately compensated for tax payments)... of course, then it crashed again, but it has still regained by now (3.5 years later) more than what I paid in taxes. If the market subsequently does okay, you get your tax payment back pretty soon in Roth.
Likely not if I pay 28 percent or higher on it. IMO. But yes, I could get lucky in that regard.
It sure would pain me to convert at higher than 25%, though.
I just don't think makes any sense.
Converting 100K a year, plus pension and other income, ugh.
As has been alluded to, it's a first world problem, and a nice one at that.
I'm leaning toward topping off maybe the 25% bracket but that's it.
If in 10 years of conversions I only get 100K rolled over at that rate. I think I may just have to live with that.
I'll just have to take by year by year I guess.
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I'm not sure if taking these actions would have made much difference in the grand scheme of things, and he certainly could afford the higher premiums, but it certainly took him by surprise.
