I'm 65 with $1.7 Mil What's the Relationship Between Social Security, Taxes, IRAs, Roth Conversions
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- Опубликовано: 14 окт 2024
- I'm 65 with $1.7 Million in my retirement portfolio, what is the relationship between Social Security, Taxes, IRAs, and Roth Conversions? What retirement income strategies should I use to reduce the taxes I pay in retirement? What are the best methods to maximize my social security? In this video, Troy Sharpe explains the relationship between your social security, taxes, IRAs, and Roth Conversions.
00:10 Variables
00:30 Conventional Wisdom Sequence
01:10 IRA Withdrawals, Roth Conversions, Taxes
02:25 Roth Conversions and the Tax Bracket
03:30 Add-Ons & Reduction
05:17 Variables
06:15 Overtime Withdrawal Plan
06:30 Background
07:41 Conventional Wisdom
08:39 Tax Planning
09:33 Add-On Reductions
10:20 Avoid Add Ons
10:47 Required Minimum Distributions
11:18 IRMA
11:30 Comparison Down the Road
12:23 Tax Risk
13:38 Future RMDs at 72
14:15 It's Not if…It's When!
15:37 Tax Schedule
16:30 When You Fail to Plan for Taxes…
16:54 Paying Higher Medicare Premiums
17:55 Strategic Approach to Taxes
19:15 Your Plan Will Be Adjustable
19:33 You Don’t Need Everything Converted!
20:18 It’s all about BALANCE!
21:11 What the Withdrawal Plan Looks Like
22:28 Interest Income is Added into MAGI
23:44 Total Taxes Due
24:50 Thank You for Watching, Contact Us!
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Disclaimer:
This video discusses fixed-income investing and utilizes the 10-year U.S. treasury as a general representative fixed-income investment. Conclusions reached, opinions stated, and downside risks and potential returns presented should not be construed as applying to other types of bonds or fixed-income assets. Other types of fixed-income products carry different levels of risk and return potential and should be evaluated as an element of a diversified portfolio with your specific risk tolerance, investment objectives, and timeline in mind. Nothing in this video is investment advice, an investment recommendation, or an offer to buy or sell any security. Investing involves risk.
#retirementplanning #retirementincome #taxplanning #retirement #rothira #socialsecurity #taxes
Long story short - defer Social Security to 70, do Roth Conversions in low income years prior to RMD’s, use Roth $’s to keep in lower tax brackets.
The only problem I have is if I retire before wife turns 65 I need to keep my income low to qualify for maximum Obama care credits. So from 67 til 70 I could defere, im 62 now. Should I put all my future 401k contributions in ROTH, I would still be in 22% bracket, barely?
@@captainkrunch6372 Put in Roth and you are correct, keep your income low (around 30k) and obamcare will be a couple of bucks or free.....
Best in-depth explanation of how to optimize the amount of ROTH conversions that I have seen. I specifically like that you point out that you don't need to convert everything.
Much appreciate the education you are providing towards retirement. I am 54 and planning on retiring at 62....your information has helped me better understand my options and point out savings opportunities!
I really like this style of presentation vs the many other ways it can be done. But comparing these two particular scenarios is a tricky thing to easily explain! Kudos for taking on the challenge!
I'm 52 with 1.3 million. Retirement is AWESOME 😍
Hey Troy,
You are like a Ninja, slicing and dicing threw retirement scenario’s with precision and ease. I was able to keep up with you but only as a young butterfly. Hopefully someday through your wisdom I will earn my wings lol. Another awesome video as usual.
Young butterfly or annoying moth? lol. Seems like there is more bragging than questions on here. laterz.
I wish you could do this same scenario for a single person.
Very complicated. When to take social security is dicey. Some had planned to take it at 70 and passed away before collecting it.
I’m 57, laid off, since I’m in a “low income” earning year and can retire today anyway, I AM going to take advantage to Convert most IRA $ to ROTHs while we can stay in the 12% bracket before 2026 when the tax brackets and HUGE standard deduction of $24k for married filing jointly ends. I’ll take the “Bird in Hand” because I believe Taxes will most likely go up in the future.
but you will loose the obama care - ACA credits that are around 2000 per month maybe... Gotta figure that into the mix,, it is making things difficult for me personally.
Troy, you really killed it on this one! So many people believe that SS starts when work stops. Defer SS, and you can burn some of the IRA off while you are doing Roth conversions. This strategy definitely works for my situation, and deferring SS is truly an easy decision when your spouse is much younger.
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This. I am amazed at the amount of people and youtube videos that just say to take ss at 62.
Critical point that was quickly mentioned but not emphasized is that the break even point between the two strategies is 85 years old.
I don't use a financial advisor, but if I did, this would be the group I would use. They understand the concepts and have a very useful approach to using modeling and simulation.
Agree. Delaying SS and doing Roth conversions is the best advice, but most FA’s don’t push either because these two strategies lower the account balance in the short term, thereby lowering the 1% amount taken by the FA.
I like a agree with their approach but you really need to consider their investment fees.
@@bobyager8641 What are the Oak Harvest fees? Anyone know?
A wonderful mental tune-up for tax season!
Thanks , I had not hear a good reason to postpone SS ( in my situation) till this . Great info !
Unless you are forced to take SS for health reasons or other financial reasons, deferring SS benefits provides a higher survivor benefit for a lower-earning spouse or for yourself if you are single. SS is an inflation-adjusted annuity, which is very expensive to buy on your own.
few things that are commonly skipped over in these videos....1. for some reason it's always a married couple. us single folks are planning too ya know 2. they seem to assume ppl have a big pile of cash laying around to live on while doing the roth conversions given they never address where that $ is coming from 3. wherever the mystery $ came from to live on while doing years of conversions, its lost earnings potential also needs to be factored in
Are IRMAAs incurred during the years of conversions? The math is fast-moving here but I do not think I saw or heard about that aspect. How much are the IRMAAs for this couple, and is a similar strategic plan feasible for a single filer with say 48k SSA at 70, a similar traditional IRA acct total, but given the lower tax bracket thresholds?
Good point on Roth not going toward MAGI but municipal bonds do. For those that could possibly not pay tax on SS, yes that is a factor. However, with the low income limits that are not indexed for inflation, I would guess 90+% of those watching this video will not be able to avoid paying tax on SS. Thus that is really not an issue unless you bump up against the IRMAA bracket, which does adjust for inflation. In fact, 10 years from now there is a better chance of tripping the 3.8% investment tax surcharge than IRMAA, since that is $250k for married and not adjusted for inflation.
Is it possible for you to do a video like this for a single filer, since the brackets are lower but the qualified acct balance at retirement age between 63-65 will be around the same figure as this couple?
I understand some people feeling the need to leave a large inheritance, but to me it seems like a huge waste to end up with such a giant pile of money at 95 that you didn’t use during your lifetime. Having seen way too many people have their lives cut short, I’m more in the Die with Zero camp than I am the make sure you have millions for the years of 85-100 that most likely won’t be around for and certainly won’t be able to enjoy the same way you could have in your 50’s/60’s/ & 70’s.
go visit some people in nursing homes - before you try to end your life poor. Seriously it is something to try to avoid.
Another point to getting g money out of taxable not mentioned, when a spouce dies those money's will really be supercharged taxed, as now filing single.
If you know how to use tax preparation software you can model for different tax scenarios: We use the tax software to model the following 2023 scenarios: Currently Working (salary + SS benefits + other taxable income), Both Retired (SS benefits & spousal benefits + non-Cola pension + Retirement accounts + other taxable income), One Survivor (survivor SS benefits + non-Cola survivor pension + Retirement accounts + other taxable income). This lets you see if you can pull some retirement funds while in a lower tax bracket and mitigate potential future taxes. Another consideration is asset location, where one keeps asset classes with lower expected future returns (e.g., bonds) in tax-deferred accounts and assets with higher expected returns in taxable or Roth IRA accounts (e.g., stocks).
Keep 'em coming!
Thanks @swright5690!
wow - thanks for explaining that munis are added back into MAGI for tax purposes. I missed that one in my spreadsheet
Can you conduct a Monte Carlo simulation to determine how likely it is that the jacket can ever be buttoned again.
I'm all for the roth conversions specifically for the tax free growth going forward and of course to reduce RMDs. I see you want the couple to defer social security but they need money to live on during those five years of social security deferrals. Having them live on their taxable account savings means they will burn through their cash faster. My approach has been to perform roth conversions while working so that when we stop working we can immediately take social security and don't have to spend from taxable accounts.
When you have 1.7 mil in your IRA who cares. You're not going to out live that money anyway. You're also making part of that up by delaying SS. Not everyone has that much time to convert. This scenario seems to fit people who are close to retiring and are within that 4 or 5 year window.
GEEZ. It would be nice if we all paid a reasonable amount of taxes and didn’t have all of these strategies to avoid taxes which only some people can understand or take advantage of without paying someone to figure out for you! Only in America. We’ve built this complicated system with all these people employed by it. No way to get out now! It’s sad really. Good luck everyone.
Hey Troy, in this example converting to Roth IRA, where did the funds come for paying taxes on the conversion?
Good question. Some folks already saved or could sell a car or cars to have additional funds. I plan to sell 3 cars including the Ferrari.
The other way is that instead of converting let’s say 50k only 40k is converted and 10k is withdrawn to pay for the taxes.
Be careful and make sure the estimated taxes are paid ahead of time.
Seems best strategy is withdraw first then make estimated tax payment in first part of year then perform conversion. Not sure. Plan on researching more as I get closer to performing conversions.
One thing is for sure is that I have to have those extra funds mostly set aside.
It’s not the tax $ paid, it’s the %. Example. Convert $100k and pay $25k of tax at 25%. That doubles to $200k tax free in 10 years. If you don’t convert your $100k plus the $25k also doubles to $250k and you pay 20% or $50k (double the tax) you end up with the same $200k after tax. If you pay the same 25% tax as conversion you end up with $187,500 so the Roth wins by $12,500. Except when you defer you don’t pay all the tax in one year, nor is it all at your highest marginal rate. With proper planning, and taking advantage of the standard deduction and low tax brackets which increase every year, you may be able to pay much less % tax and come out ahead even if you pay more $ in tax.
How much Roth conversion per year till 2026 was done on the strategic scenario? What if you don’t have the cash needed to pay for the incremental tax for the Roth conversion?
The biggest advantage to getting those Traditional IRA accounts to "manageable" amounts by age 75 happens when your spouse dies and you don't remarry. Standard deduction cut in half, tax brackets compressed by 50%, IRMAA threshold 50% lower.
When your become a widow(er), your lightly taxed $160k/yr of MFJ retirement income (consisting of small RMDs, SS and qualified dividends) that you were paying less than $10k in taxes will more than triple with IRMAA premiums, increased taxes and taxation of SS.
Your right...and half of us married people will feel that double pain of losing spouse and higher taxes because of it
Excellent video.
Great info !
I withhold from my RMD to pay the tax on Roth conversions.
Are your calculations inclusive of the fees that Oak Harvest Financial group would charge. Fees are also a real cost and most groups like your operate by taking a percentage of funds under management which should be a part of these scenarios you run.
Yes it should!
@@miatafunrun3078 By that, do you mean, yes it does?
@@terrym5513 It means I don't know.
Cool video-how do you know the tax code for 2026? In the example you mentioned the 32% tax table the threshold amounts will be cut in half in 2026? So if you make half of that 364,000 as married in 2026 you will be taxed at 32%? Thanks
That's when the current tax rates expire, congress would have to act to change what's coming.
at 23:40 you state income = $100K of SS income + $25k of taxable RMD's. So provisional income = $75k which would make 85% of SS taxable. $85k taxable SS + $25k taxable RMD= $110k taxable. How are coming up with only paying $4k in taxes?
I'm 68 and retired. I've already converted all to Roth I want to convert. What is left in traditional is allocated to charity which I will disperse via QCD's. My military pension makes my SS taxable.
You sound like me. I'm leaving my Traditional IRA to charity as well as most of my cash investments.
great video
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Maybe I missed something how can they afford their life without any distributions until 70 - they must have almost a million in after tax money. That is a big missing part of this.
Where does their Income stream come from from age 65-69, is it all from taxable investment account, or part deferred investment and part taxable account? It would be helpful to show how much is being converted and from where the living expenses are paid 👍
He covered lots, and skipped back/forth quite a bit on this video, but you are correct - income from 65-69 came from their non-IRA (regular) accounts (when they were also doing Roth conversions) until they reached 70. They waited to take social security at 70.
can they possibly make the system any MORE complicated....... and every single person is different lol
its almost like the government setup the system to b so difficult to navigate that u need to hire a professional..... and the perfect professional
Actually it forces one to learn on their own and manage.
I’m a CPA but I don’t do many tax returns. I’m in corporate management.
I’m not here to give “professional” advice either. There are plenty who are offering “suggestions” here.
Thank goodness to have a forum such as RUclips and channels such as these.
Hi Troy, looking for a scenario with couple with 1m and have rental inc 2K monthly, age 60 wanting to retire now. is it best keeping rental for ever or selling in 7 yrs it has 70 percent equity. and is it best to wait for 67 to receive SS. how would this look haven't seen any videos with this scenario. thx
Knowing when to take social security is simple- know when you are going to die. All of these formulas graphs etc. meaningless if at age 68 you develop cancer and never took it because you waited till 70. They didn't wait to take your money now why will you gambling way to take yours. Obviously the information these videos give his great if you live in a world that's perfect which we don't. Also what about inheritance- if you have a family member of a very old age with big money that she'll probably get does that affect whether or not you should take Social Security. How about real estate investment how much will your home appreciate and can use that to produce income and perhaps renting it out or even selling it none of that is discussed.
Could you do a show on esop’s😊
My advice, have a a glass of water handy when you are making a video.😁
No disrespect but how are you taking tax risk off the table by converting? Do you have the magic knowledge of what the tax brackets will be, when I will die, what growth rates will be on my IRA? There is risk whether you convert or not. The ONLY variable that matters is the % tax you (or your heirs) ultimately pay on the assets period. Nothing else matters. When you defer, you can take advantage of the standard deduction and low tax brackets that both increase each year for inflation. You also spread out the tax over many years and pay with future dollars vs paying the Roth conversion at your highest marginal rate all up front. Example if you are at the top of the 12% bracket and convert $100k you will pay 22% or $22k plus state tax. If you move to Florida in retirement no state tax and even if you are in the future 28% tax bracket, your EFFECTIVE tax rate can be less than 20%.
End of retirement? You mean death. Great plan for those with heirs. As a single person with no heirs or obligations, a good life retirement is for my money to end when I do.
An interesting thought, into your 60s you are an accumulator….why not look at being a bit more of a giver to the distance of the goal line …. Would be interesting to establish a leg of your plan that locks in say a 7-8% return but spends down a bit of the accumulation…think charitable gift annuity, similarly if you have kids, grandkids …effective gifting in your mid late 70s early 80s can slow or stop the growth … we need to come to grips with the minute we take that final breath the pile of wealth means nothing to you….consider plans that make you feel rewarded that by say 83, that break even point, you still have 1.5 million but you have enriched others, you just might find you have gained much much more than a fatter portfolio
Hi Richard! Thanks for sharing your thoughts and perspective!
Remember the 5 year rule when converting to a Roth.
in my case having a pension ensures I will always have 85% of my SS taxed
Who wants to be in the lowest tax bracket while retired?? I would rather be earning more and paying additional taxes.
do you pay taxes on Dividends distributed from a ROTH IRA or 401k?
Dividends within a tax-deferred account (401k, Traditional IRA) are not taxed until you withdraw funds from those accounts. Then the entire distribution is subject to taxes. Roth IRAs are not table as long as you are older than 59 1/2 and have the Roth IRA open for a minimum of five years.
How are you paying the conversion tax, from outside the IRA or from inside the IRA?
They have to be paid outside of the IRA. Therefore, you must have the money for the tax conversion in another account.
@@williamrogers1219 I think you are wrong. Why should the government care where the money comes from as long as they get their cut?
@@dancasey9660 If you try to pay the taxes from a tax-deferred account, you have to keep borrowing more money and paying ever-increasing taxes on the conversion.
If I understand this, your "Tax Strategy" is a way to avoid what's called "The Tax Torpedo"?
How can anyone with a conscience tax Social Security? It was a tax to begin with. People are paying taxes on a tax? The heck? Only a politician could think this makes sense. An American politician especially.
Taxing SS is a way to increase the money going back into the SS Fund. Many people do not make enough money to have SS taxed.
What are your thoughts on purchasing deferred annuity with Roth IRA funds to start at the age of 85 as an income source for future healthcare costs if one never purchased coverage at earlier age
No annuities
Never good to put IRA money into an annuity. Keep your Roth invested in dividend paying stocks, index funds or broad based ETFs.
If you want to mitigate future healthcare costs, you could look into Medicare Supplemental Plan G, which would make it easier for planning healthcare costs.
I’m worth about the same, but heavily invested in real estate.
Thank you for the comment, @ginalowe9103!
Gave you a thumbs up but the subscribe button is gone😮. Hope you turn up in my algorithm again.
Lots of projections and guesses. Your projection what we will live 30-years after retiring is an example of a pure guess. Future tax amounts are again a pure guess.
You have to plan, otherwise, you are flying by the seat of your pants., which is not a good strategy.
Taxes all over the place!
I don't like paying taxes any more than the next guy. Or the next Texan. .... But I'm comfortably retired with a nice income. So I look for the best tax situation, pay what I owe and live my good life. Don't stress it...
It’s only for millionaires? How about blue collar workers. Single.
Your worried with 1.7 Mil ? Your pulling our leg right ? Really, "Get Serious"
Inflation and taxes can eat that up during a long life span.
1.7 million is a good amount for retirement, but it is not an excessive amount, it still requires monitoring and good decisions. Not saying you need this much to retire, but it doesn’t make it a slam dunk.
Honestly, I realize many people would be happy with $1.7 million and yes it is a lot of money.....but if one wants to enjoy retirement and travel and spend on whatever.....it isn't that much.
I know many high income earners who have saved nothing and spend wildly. 1.7$ for someone with low spend-burn rate will be fine but not all.
PLEASE STOP THE VERY ANNOYING NOISES!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Republicans are going to end social security. Vote Democrat
11:16 - "we're getting out of IRMAA brackets, we don't have to worry about our modified adjusted gross income or the surtax on Medicare premiums." Can you explain this? Does this mean the monthly income no longer falls into the brackets as the amount is now so large?
17:35 - what was the total taxes paid for this base strategy so I can compare it to the strategic approach?
23:44 - what was the average rate paid for this strategic approach so I can compare it to the this base strategy?