quote:

Originally posted by Fly-Sig:

quote:

Originally posted by Rey HRH:

Once you decide it’s of benefit to do a Roth conversion, then how to fund the tax payment is another simple exercise. If you have money in a taxable account for which you have no better purpose, then you should pay your Roth conversion taxes with it so you can convert more without going over the thresholds i previously mentioned - the maximum of the tax bracket you’re working with or the next IRMAA threshold. Paying for the Roth conversion taxes out of a taxable account is not “superior,” it’s just plain COMMON SENSE . But if the money you have sitting in your taxable account is for this year’s living expenses or the vacation you want to take this year, then still do the Roth conversion and you’ll just have to take the tax payments out of the total conversion amount. Yes, it means you actually convert less money, but what are you going to do, not make the Roth conversion at all?

And you having this discussion with me supports my statement that the advice to pay Roth conversion taxes out of a taxable account is faux sophistication because you’re resistant or unable to understand the simplicity and practicality of what I’m saying.

The part that I bolded is what I took exception to. I agree completely that if your non-retirement monies are needed for near term expenses, then it is not possible to use them. But that is not what you said, or at least not what you implied when calling it "faux sophistication".

Money in a taxable account "with nothing better to do than pay taxes" sounds like you're saying people are being dumb with their non-retirement account investments in general, and/or that paying taxes is a low level use of money.

Mathematically, paying taxes from the taxable account is superior than from the ROTH account, because the ROTH money grows tax free forever. This assumes the person would invest the money in a similar fashion between the ROTH and the brokerage accounts, and that is a good assumption. How many $$ it amounts to depends on the amount of taxes and how long the money can remain invested before being withdrawn.

He seems to not realize that some people have significant assets earning solid returns in brokerage accounts, which is not just money "sitting around with no purpose."

quote:

Originally posted by Sig2340:

quote:

Originally posted by Rey HRH:

I’m seriously asking you. What’s the point of life for you? Working, saving money, and living frugally - I’ve done all three for most of my life up until I stopped working for a living some 5 years ago. But I don’t think those three things make up what this life should be about.

I don't need to work. I have more than enough savings to live out my days, even without Social Security. I own my home outright, and have few expenses because I live within my means.

I work because I've done so since I was 13 and well, I enjoy it.

It’s great that you enjoy working and even though you don’t have to, you plan to work your whole life. And, if I may, this may be the most important conversation in this thread. I don’t see your answer to my question: what’s the point of life for you? Have you even considered the question?

And I’m not saying I know the answer. You came in this thread with a different perspective and I want to learn from your perspective. For me on this issue, it isn’t about right or wrong; it’s about learning from each other as we’ve all arrived at this point along our different journeys.

quote:

Originally posted by Fly-Sig:

quote:

Originally posted by Rey HRH:

Once you decide it’s of benefit to do a Roth conversion, then how to fund the tax payment is another simple exercise. If you have money in a taxable account for which you have no better purpose, then you should pay your Roth conversion taxes with it so you can convert more without going over the thresholds i previously mentioned - the maximum of the tax bracket you’re working with or the next IRMAA threshold. Paying for the Roth conversion taxes out of a taxable account is not “superior,” it’s just plain COMMON SENSE . But if the money you have sitting in your taxable account is for this year’s living expenses or the vacation you want to take this year, then still do the Roth conversion and you’ll just have to take the tax payments out of the total conversion amount. Yes, it means you actually convert less money, but what are you going to do, not make the Roth conversion at all?

And you having this discussion with me supports my statement that the advice to pay Roth conversion taxes out of a taxable account is faux sophistication because you’re resistant or unable to understand the simplicity and practicality of what I’m saying.

The part that I bolded is what I took exception to. I agree completely that if your non-retirement monies are needed for near term expenses, then it is not possible to use them. But that is not what you said, or at least not what you implied when calling it "faux sophistication".

Money in a taxable account "with nothing better to do than pay taxes" sounds like you're saying people are being dumb with their non-retirement account investments in general, and/or that paying taxes is a low level use of money.

Mathematically, paying taxes from the taxable account is superior than from the ROTH account, because the ROTH money grows tax free forever. This assumes the person would invest the money in a similar fashion between the ROTH and the brokerage accounts, and that is a good assumption. How many $$ it amounts to depends on the amount of taxes and how long the money can remain invested before being withdrawn.

You say you take exception to what you bolded but then you actually agree with what you bolded?

You say that’s not what I said or implied. But this is what I said, “It’s a faux sophistication when financial advisors say clients should pay for Roth conversion taxes with money outside the IRA. They advise that because their clients are ignorant enough to have money laying around with no intended purpose and the best use for it is to pay Roth conversion taxes.” I say it’s just common sense; I’m saying it’s not high level sophisticated retirement tax planning strategy for the very same reasons you know. You have money in a taxable account and you have money in a Roth IRA; you want to spend the money in your taxable account first because any capital gains, dividends, and interest it earns is taxed and taxes are a drag on your portfolio. You want to maximize the money you convert into a Roth because the more money you have to invest and grow tax free. You don’t need to have an MBA or be a Certified Financial Planner or a CPA to figure that out. But money managers and financial planners tout that as a teaser to the many value adds they bring. And, again, I want to encourage people for whom a Roth conversion makes sense to go ahead and do it even if they have to pay for the taxes out of their IRA. Is it your position that people should do a Roth conversion if they have to pay for the taxes out of their IRA? I’m assuming that’s not your position and, if so, you should have no argument with me. Otherwise, please specify exactly what I said and make your argument as to how what I said is wrong.

If you don’t know what your money is doing for you wherever it is, you are dumb. What else would you call it? But being dumb can be fixed; you can get educated. I still remember what Bob Brinker used to say on the radio, “Nobody is going to care more about your money than you.”

My plan.is simple, max 401, max HSA, dump everything else into stocks. Live off dividends and sales keep 401k to be able to make trades with out tax penalties. My thoughts are that 15% is better than whatever my marginal tax bracket is which I don't see ever being below 22%.

No clue if it's a good strategy, but I'll find out if I die with money in the bank or not.

I've lived cheap all my life, when I do retire, I will no longer live so frugally. I plan on retiring in the Philippines (75% sure). If I do that then I could retire today and live a very nice life. Will probably work 10 more years so that I can retire in US or abroad or a mix.

I have one pharmaceutical penny stock that if it takes off I'll be a millionaire from it alone. Or it could fail medical trials and my 25,000 shares are worthless.

quote:

Originally posted by bigwagon:

He seems to not realize that some people have significant assets earning solid returns in brokerage accounts, which is not just money "sitting around with no purpose."

Here’s what I know and not just realize. If you’re fortunate enough to have significant assets in a taxable brokerage account and you’re not executing a plan to spend it or get rid of it before you start spending or getting rid of your tax-deferred or tax-free accounts, you effectively do have money sitting around for no purpose and you do need a better financial advisor. Taxes when you’re working is the cost of doing business; taxes in retirement is simply barnacles growing on your ship’s hull creating drag. Now, if you have so much money that you don’t care, good for you. But, as I said, my advice is for people like me who aren’t so poor or so rich that they don’t have to worry about any of this. My perspective is for those who should have enough to last their life but need to husband their resources. It can be done without needing to pay a financial advisor for their “special insight” that Roth conversion taxes should be paid with money from a taxable account.

You're using a lot of words to say the same thing over and over again. Nobody here is saying much of anything different than you are, which is that the preferred method of paying taxes on Roth conversions is with taxable dollars if you can do it. That doesn't mean you shouldn't use converted funds under any circumstance, but it also doesn't mean that Roth conversions always make sense for everyone just because they are tax free after conversion.

quote:

Originally posted by Rey HRH:

You say you take exception to what you bolded but then you actually agree with what you bolded?

I disagree with the premise that there are, apparently, many better uses of taxable account monies than paying taxes, as implied in the way you wrote it. Also the absoluteness in some of your statements such that it is "faux sophistication" or that "because their clients are ignorant enough to have money laying around with no intended purpose and the best use for it is to pay Roth conversion taxes", again as if people have money laying around with no intended purpose. And in a recent post, that spending down taxable accounts before touching retirement accounts is having money sitting around with no purpose.

Someone who earned pretty well and delays taking Social Security to age 70 could be getting $5k per month. If their 401k/IRA balance is significant, they will be generating an RMD which could haul 85% of their SS into a high tax bracket. This person might be better off taking some 401k/IRA withdrawals before spending down their taxable accounts, so as to keep their overall taxes lower. In addition, their taxable capital gains will be taxed lower than "income" from the retirement accounts.

For others who retire before age 65, they may be better off letting taxable investments ride so as not to create any taxable events, while withdrawing from a ROTH. This looks poor on paper, and can result in nearly free health insurance from Obamacare. Especially if they're taking Social Security or have a pension.

As a general advice, yes pay taxes from your taxable account if you don't have a pressing need for the cash is the best math.

Lordy. The title of this thread is
“Retirement planning kept simple”.
But complexity abounds. I’m glad to pay my financial guy to deal with it for me. Well over a decade with good results. I hired him before I retired.

Save enough money that you can't screw it up. Savings rate is probably more important than return, and start early. A dollar invested in your early 20s, given the historical return of the stock market, would be worth around $88 at 65. If you like this kind of stuff, The Money Guy on YouTube is excellent. Its the channel of Abound Wealth, a company in Franklin, Tn. They are good at actually keeping it simple

Rey, you have a habit of doing the same things in retirement planing threads. You have made your point. Let it be plz. Geeeezzz.

quote:

Originally posted by bigwagon:
You're using a lot of words to say the same thing over and over again. Nobody here is saying much of anything different than you are, which is that the preferred method of paying taxes on Roth conversions is with taxable dollars if you can do it. That doesn't mean you shouldn't use converted funds under any circumstance, but it also doesn't mean that Roth conversions always make sense for everyone just because they are tax free after conversion.

Exactly my point - I’m not saying anything different and, yet, people are taking exception to what I said. Thus, I respond. Everything you said is what I’ve been saying. I’ve not anyone here they’re wrong so I’m not the one arguing with anyone. I’m responding to people who are arguing against what i said.

I keep saying the same thing because, while people seem to disagree with what i say, they have yet to make a case as to how what i said is wrong.

quote:

Originally posted by Fly-Sig:

I disagree with the premise that there are, apparently, many better uses of taxable account monies than paying taxes, as implied in the way you wrote it. Also the absoluteness in some of your statements such that it is "faux sophistication" or that "because their clients are ignorant enough to have money laying around with no intended purpose and the best use for it is to pay Roth conversion taxes", again as if people have money laying around with no intended purpose. And in a recent post, that spending down taxable accounts before touching retirement accounts is having money sitting around with no purpose.

You’re simply mistating what i said in the two things. I won’t repeat what I’ve already said about “faux sophistication.” If you’re personally offended, so be it.

It’s the same as you mistating my position that spending down taxable accounts before touching retirement accounts is “having money sitting around with no purpose.” Spending money down in taxable accounts before retirement accounts is the right purpose for money in taxable accounts. And that should include using it to pay for Roth conversion taxes.

quote:

Someone who earned pretty well and delays taking Social Security to age 70 could be getting $5k per month. If their 401k/IRA balance is significant, they will be generating an RMD which could haul 85% of their SS into a high tax bracket. This person might be better off taking some 401k/IRA withdrawals before spending down their taxable accounts, so as to keep their overall taxes lower. In addition, their taxable capital gains will be taxed lower than "income" from the retirement accounts.

I believe lowering taxes today is a better strategy than hoping to pay lower taxes in the future. Since you positioned the choice as an either / or and not a combination of both, I say spending down the taxable account and paying long-term capital gains is better than withdrawing from the deferred tax account and subjecting it to the graduated tax brackets. In actual practice, it would be a combination of both which also includes Roth conversions.

quote:

For others who retire before age 65, they may be better off letting taxable investments ride so as not to create any taxable events, while withdrawing from a ROTH. This looks poor on paper, and can result in nearly free health insurance from Obamacare. Especially if they're taking Social Security or have a pension.

The discussions have been around Roth conversions, yes? So someone who has a Roth account would be very familiar with how Roth accounts work and they wouldn’t need this discussion. That is exactly what i did for 4 years while I waited for Medicare - enjoyed premium healthcare coverage by paying zero premiums because my tax returns didn’t go above 2x or 4x (I forget the threshold) the Federal Poverty Level for my household.

quote:

As a general advice, yes pay taxes from your taxable account if you don't have a pressing need for the cash is the best math.

And that’s what I said. You say, “if you don’t have a pressing need” and I said, “if you don’t have anything better to do with it.” So you did finally agree with me.

quote:

Originally posted by old rugged cross:
Rey, you have a habit of doing the same things in retirement planing threads. You have made your point. Let it be plz. Geeeezzz.

Yeah, I’m done with this thread even if someone responds to me. I do only respond and I’ll try so many different words to say the same things consistently in hopes that people would understand what I’m saying. I’ve always been for continuing discussions but I can see people aren’t seeing what I’m saying.