Another consideration is state tax rate/relocation. I worked in New York State all my life. As soon as I retired to Florida, I began Roth Conversions. So, I avoided ~7% state taxes on those conversions.
Great information as always!! Thanks so much!! Another important factor that is motivating our aggressive conversion strategy is the widow’s penalty. Neither of us want to face that inevitable problem.
James, there is a sixth factor, similar to IRMAA, that you didn’t mention: Net Investment Income surcharge. If a Roth conversion bumps you up above the threshold for the 3.8% NII surcharge in a given year, you will pay more in taxes on your taxable investment income than you otherwise would have. This is another factor that would have a greater impact on people with significant after-tax holdings than those with smaller after-tax investments.
This was a timely video for me. It validated what I am doing with my Roth Conversions is correct. I'm retired at 62 for 13.5 years now and got started on converions a bit later than I should have. I'm currently focuse on my legacy planning and dealing with how much and what type of money asset accounts to leave to my children and grandchildren as they are in very different stages in their lives and the resulting tax brackets. I have steps 1-4 nailed down well but stuggle somewhat with step 5 as it takes a lot of work. I enjoy the content both you and Ari put into your channels. Thanks for all the effort and content you provide.
The big issue is you have to make a Roth conversion by December 31. But you have to pay your taxes by April 15. The government should allow you to make a Roth conversion up until the time you pay your taxes. That way, you can better estimate how much of a Roth conversion to make once you know your tax situation. (You don’t get your brokerage statements until February or March of the following year - so you have to estimate what your IRA Roth conversion is before you have a complete picture of your tax situation) Total BS that the government forces you to make your Roth conversion amount by year end.
Appreciate the content from you and Ari, Thank you. Also, enjoyed the Early Retirement Academy. Using the software, I notice that it's slightly different as I am missing the start/end Roth Conversions options on Tax Strategies. According to RightCapital's documentation, this is a setting so I was wondering if this in an intentional restriction? Thanks again!
"Managing Taxes in Retirement using the Effective Marginal Tax Rate" by Wade Pfau and Joe Elsasser. Eventually, Right Capital will get their act together and make a proper Roth conversion tool rather than having to guess and make compromises.
Love your videos, James. However, I never see you (or others) discuss: Say your software says to convert your TIRA to Roth up to the 24% bracket to avoid large tax rates on your future RMDs. However, as you convert over a few years, the effects of your RMDs becomes less and less. This means you should only be converting up to the 22% bracket, and then to the 12% bracket, and then 10% bracket. The software does not create a schedule of conversion brackets. Thoughts?
At 7:00 you say that sometimes it's not best to fully fill up a tax bracket as much as it's a benefit to fill up a partial tax bracket. I completely agree. As good as RightCapital is, this seems like a limitation of the Tax Strategies section. To determine optimal conversion amounts, shouldn't it let you convert to anywhere in the tax bracket you want? I know that you can attempt to model conversions in the "Current Plan" using Income->Distributions. But that is really cumbersome to compare scenarios.
This is great for strategy. My question is more operational. I will turn 57 this year but I need and want to start withdrawing from my Roth. I contributed the max between 2006 and 2015 and rolledover from my IRA between 2017 and 2020 (so all meet the 5 year rule). I have the rollovers documented with 1099 and I keep my tax files for those years. But I don't have my tax files from the contribution years. Can I confidently withdraw my contrinutions and rollovers assuming the IRS knows not to want to tax me? I wonder if there was something I should have done when filing my contributions and I can't recall whether I did anything special. Thanks
After ten years of Roth conversions, my 2024 & future taxable incomes will be up to the top of the 12/15% tax bracket. And, I'll now be able to get a 0% federal tax rate on my long-term capital gains & qualified dividends. A couple years back I figured out this additional benefit of Roth conversions. I was pretty excited. The top of the 12% bracket ($47,150 for 2024 single) and the top of the long-term capital gains bracket ($47,025 for 2024 single) are different by $125. Thus, I planned my 2024 taxable income to be $47,025. I had $13,000 of long-term capital gains & qualified dividends, thus the additional savings was $1,950 ($13,000 * 15%). Don't pay Uncle Sam a penny more than you have to.
Neither should be taking Social Security until 70. Whether living off the traditional or converting, it is doing the same thing, lowering the balance in the traditional. Save the Social Security until later. Plus, it's guaranteed so no concerns over market fluctuations.
Don't do this!! I know of many horror stories from my retired friends and family!! I will keep my 401ks and Trust fund😂 Doing so will wreck your healthcare subsidies ( We have saved over 200k in those costs so far) and will affect your Medicare costs!! Why listen to advice from someone that isn't retired ??
I can’t take this video seriously….not living off $6500/month with taxes and when I’ve busted my ass! Definitely not waiting until mid 60’s either. Do one for 60-62. Taking social.
Another consideration is state tax rate/relocation. I worked in New York State all my life. As soon as I retired to Florida, I began Roth Conversions. So, I avoided ~7% state taxes on those conversions.
Great information as always!! Thanks so much!! Another important factor that is motivating our aggressive conversion strategy is the widow’s penalty. Neither of us want to face that inevitable problem.
James, there is a sixth factor, similar to IRMAA, that you didn’t mention: Net Investment Income surcharge. If a Roth conversion bumps you up above the threshold for the 3.8% NII surcharge in a given year, you will pay more in taxes on your taxable investment income than you otherwise would have. This is another factor that would have a greater impact on people with significant after-tax holdings than those with smaller after-tax investments.
This was a timely video for me. It validated what I am doing with my Roth Conversions is correct. I'm retired at 62 for 13.5 years now and got started on converions a bit later than I should have. I'm currently focuse on my legacy planning and dealing with how much and what type of money asset accounts to leave to my children and grandchildren as they are in very different stages in their lives and the resulting tax brackets. I have steps 1-4 nailed down well but stuggle somewhat with step 5 as it takes a lot of work. I enjoy the content both you and Ari put into your channels. Thanks for all the effort and content you provide.
Outstanding video!
Wish I saw this before I did my 2024 Roth conversion. I'll do better this year. Thanks
Very nice checklist. Love the detail.
Excellent video James! Thanks!
Wow. Another great video James. I'm glad I have access to the academy.
Great video, James. Anyway to give us Retirement Planning Academy users access to the "Conversions End" slider in Right Capital?
Another excellent video. We need you!
Fantastic news mostly #4 ❤🎉
This was excellent! Thank you.
What about factoring in QCDs?
The big issue is you have to make a Roth conversion by December 31. But you have to pay your taxes by April 15. The government should allow you to make a Roth conversion up until the time you pay your taxes. That way, you can better estimate how much of a Roth conversion to make once you know your tax situation. (You don’t get your brokerage statements until February or March of the following year - so you have to estimate what your IRA Roth conversion is before you have a complete picture of your tax situation) Total BS that the government forces you to make your Roth conversion amount by year end.
Appreciate the content from you and Ari, Thank you. Also, enjoyed the Early Retirement Academy. Using the software, I notice that it's slightly different as I am missing the start/end Roth Conversions options on Tax Strategies. According to RightCapital's documentation, this is a setting so I was wondering if this in an intentional restriction? Thanks again!
"Managing Taxes in Retirement using the Effective Marginal Tax Rate" by Wade Pfau and Joe Elsasser. Eventually, Right Capital will get their act together and make a proper Roth conversion tool rather than having to guess and make compromises.
Excellent information.
Love your videos, James.
However, I never see you (or others) discuss:
Say your software says to convert your TIRA to Roth up to the 24% bracket to avoid large tax rates on your future RMDs. However, as you convert over a few years, the effects of your RMDs becomes less and less. This means you should only be converting up to the 22% bracket, and then to the 12% bracket, and then 10% bracket. The software does not create a schedule of conversion brackets. Thoughts?
At 7:00 you say that sometimes it's not best to fully fill up a tax bracket as much as it's a benefit to fill up a partial tax bracket. I completely agree. As good as RightCapital is, this seems like a limitation of the Tax Strategies section. To determine optimal conversion amounts, shouldn't it let you convert to anywhere in the tax bracket you want? I know that you can attempt to model conversions in the "Current Plan" using Income->Distributions. But that is really cumbersome to compare scenarios.
Hmmm, I'm going to have to dig a little deeper into that Terminal Tax portion. I'm hoping you'll do a video digging into that strategy.
This is great for strategy. My question is more operational. I will turn 57 this year but I need and want to start withdrawing from my Roth. I contributed the max between 2006 and 2015 and rolledover from my IRA between 2017 and 2020 (so all meet the 5 year rule). I have the rollovers documented with 1099 and I keep my tax files for those years. But I don't have my tax files from the contribution years. Can I confidently withdraw my contrinutions and rollovers assuming the IRS knows not to want to tax me? I wonder if there was something I should have done when filing my contributions and I can't recall whether I did anything special. Thanks
After ten years of Roth conversions, my 2024 & future taxable incomes will be up to the top of the 12/15% tax bracket. And, I'll now be able to get a 0% federal tax rate on my long-term capital gains & qualified dividends. A couple years back I figured out this additional benefit of Roth conversions. I was pretty excited.
The top of the 12% bracket ($47,150 for 2024 single) and the top of the long-term capital gains bracket ($47,025 for 2024 single) are different by $125. Thus, I planned my 2024 taxable income to be $47,025. I had $13,000 of long-term capital gains & qualified dividends, thus the additional savings was $1,950 ($13,000 * 15%).
Don't pay Uncle Sam a penny more than you have to.
Please elaborate #5, did any parameters change midway thru their conversion journey
Thanks
Other factors. Death of a spouse forcing remaining spouse into single brackets. Also NIIT impact. Net investment income tax should be considered.
if you pass your stock to your beneficiary, will they have the stock base as current price, effectively making 0 capital gain?
For ppl relying on ACA, they can't even fill 12% bracket without getting hit with high premium payments
Neither should be taking Social Security until 70. Whether living off the traditional or converting, it is doing the same thing, lowering the balance in the traditional. Save the Social Security until later. Plus, it's guaranteed so no concerns over market fluctuations.
Don't do this!! I know of many horror stories from my retired friends and family!! I will keep my 401ks and Trust fund😂
Doing so will wreck your healthcare subsidies ( We have saved over 200k in those costs so far) and will affect your Medicare costs!! Why listen to advice from someone that isn't retired ??
First
so, don't leave money to your daughter if she is a doctor or high income earner. Leave to your nephew who is struggling with paycheck by paycheck.
I can’t take this video seriously….not living off $6500/month with taxes and when I’ve busted my ass! Definitely not waiting until mid 60’s either. Do one for 60-62. Taking social.