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Years back I was advised to always delay paying taxes as long as possible. This meant IRA's as taxable income deductions and worry about paying the taxes later. I am now of the age to have to take RMD's. The advice to delay paying taxes worked well for me.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
34,759 posts, read 58,161,153 times
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Quote:
Originally Posted by mathjak107
Federal tax is the biggie. it has no bearing on whether your state taxes retirement money or not.
This is the one to watch and plan for. (IRS), State tax I have avoided for 32 yrs, and there are several options to do that.
If my EFFECTIVE (not marginal) tax rate is below 10% I convert from Traditionals to Roth until I trigger a federal increase to 15%, then I whittle it back to the max conversion @ <10% Federal tax and submit.
I run many tax scenerios (takes about 4 hrs to run 20 or so) and make portfolio adjustments during Nov / Dec. On April 14th it takes a couple hours to file. I use Traditional IRA to 'balance' the accts so I am not 'owing'.
I left the std mutual funds about 10 yrs ago and went to equivalent ETF's to avoid the end of yr distributions from mutuals that can really muff up the tax plan.
These generally only make sense early in a career.
In the high tech space I play in it would be ill advised.
Almost no one I know will have anywhere near the income they have now once they retire.
It’s surprising how many people I’ve talked to don’t know Trad IRA and the tax advantages of it. After you hit 50 you can contribute up to $6,000 to the IRA, and by simply doing that I’ve got a tax refund equals to 1/3 of my monthly income! Which gets compounded interest of course together with the IRA I put on my 403b. Since it’s highly improbable that after retiring I’ll have a higher income than I have now, like it’s the case of the majority of the poeple, I really fail to understand the advantages of a Roth vs a Trad. And after all, even if I will be so lucky to have a higher income later, all that bunch of money will be more than enough to maintain our lifestyle (with house paid, kids out of college, no debts) to make us being so contented with that and forget the little extra taxes we’ll have to pay!
I began contributing to a Roth IRA six years ago to put more money away for retirement - I am not eligible for a Traditional IRA as my AGI exceeds the income threshold limit. However I first max out my 401K. Wish I would have started the Roth IRA a few years earlier. If I do find myself in a lower than expected tax bracket during retirement, I would definitely make small transfers to the Roth as Stealth Rabbit explained. But being single and having most of my retirement income in a taxable pension and 401K, I doubt I will find myself in that situation. The 10% and 15% tax brackets are rather low for singles.
It’s surprising how many people I’ve talked to don’t know Trad IRA and the tax advantages of it. After you hit 50 you can contribute up to $6,000 to the IRA, . . .
This is the one to watch and plan for. (IRS), State tax I have avoided for 32 yrs, and there are several options to do that. (Do you live in a state with no state income tax?)
If my EFFECTIVE (not marginal) tax rate is below 10% I convert from Traditionals to Roth until I trigger a federal increase to 15%, then I whittle it back to the max conversion @ <10% Federal tax and submit. When does your EFFECTIVE Tax rate fall 'below 10%'? --- OR Are you saying 'when your Taxable Income is below $17,851? -- When you convert IRA account funds to Roth funds, don't you still have to pay the 'effective tax rate' on the amount converted?
I run many tax scenerios (takes about 4 hrs to run 20 or so) and make portfolio adjustments during Nov / Dec. On April 14th it takes a couple hours to file. I use Traditional IRA to 'balance' the accts so I am not 'owing'. Do you use a standard program (eg; Turbo or H&R Block) or something else?
I left the std mutual funds about 10 yrs ago and went to equivalent ETF's to avoid the end of yr distributions from mutuals that can really muff up the tax plan. -- What about annuity distributions or RMD's?
You've always got interesting approaches to financial management! -- Wonder if you might clarify a few things? -- I'm looking at a similar approach to tax-bracket management, but, haven't worked out the details yet.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
34,759 posts, read 58,161,153 times
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Quote:
Originally Posted by jghorton
You've always got interesting approaches to financial management! -- Wonder if you might clarify a few things? -- I'm looking at a similar approach to tax-bracket management, but, haven't worked out the details yet.
(Do you live in a state with no state income tax?), yes, With so many great options + US protectorates and SD, works well for me. Many of my 'internet wealth friends' live FT in Virgin Islands (kinda...)
When does your EFFECTIVE Tax rate fall 'below 10%'? I have lots of deductions, investment props, and businesses (variable depreciation on certain asset classes + use of section 179's) that I can tweak to make the best sense. I never intentionally avoid taxes, as we (USA) have it VERY ez and cheap, BUT stuff like the Bush Tax cuts for Capital Gains gave me an opportunity to 'reset' my 1031 and equity portfolio cost basis valuations and still be at < 10% effective tax (tax due / AGI). Usually I am 6-8% when all is said and done. I usually give away 20 - 40% of my GROSS (since age 15) not everyone is keen on that approach. (I live frugally to avail that, personal choice; Your Prioroities are certainly different in many ways, and rightfully so.) Seems that being a senior with limited income and expenses that back you into std deduction CAN provide tax challenges to reducing Effective tax. Thus my ROTHs will avail me a 'tool'. (for income and spending).
I use both Turbo or H&R Block + I pay and EXCELLENT 'enrolled agent' to validate my scenerios. He only requires $40 / hr for listening / running numbers. CHEAP help, and he is ULTRA conservative = CHEAP insurance.
What about annuity distributions or RMD's? Bear in mind I am a YOUNG retiree... far below SS age and don't ever expect RMD's to be a problem, especially if they keep allowing 'contributions' from RMD's. It is far less likely I will even live to age 70.5 (family history, LOTS of risky hobbies, and not so cautious lifestyle (farming: very stressful, VERY dangerous))
Financial and investment strategies is a PT passion. I am not one to follow the crowd (at my own peril). I watched my parents and inlaws go broke more than once each after age 50. I am not keen on going there. I am the very 1st generation EMPLOYEE in family, all predecessors were far more intelligent and successful. (with LOTS of hard knocks). I was a 32 yr caregiver for a disabled parent who 'checked-out' at age 49. THAT taught me a lot. (as did mindlessly riding a tractor for driving a semi or 16 hrs / day till age 25)
Be open to interesting ideas, and ask LOTS of questions. (I attend as many planning classes as possible, and my PT employer PAYS for it all) ANd I only take the info in and seldow follow THIER plan.
And IBD rule... Have a plan AND follow it, and KNOW why and when you must change your plan. The FOLLOW your new plan (tracking progress and validating returns).
No magic... I got 'Paid-by-the-hour' most of my career. (gave me more time to scheme)
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
34,759 posts, read 58,161,153 times
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Quote:
Originally Posted by chrl04
It’s surprising how many people I’ve talked to don’t know Trad IRA and the tax advantages of it. ...I really fail to understand the advantages of a Roth vs a Trad. ...
(ALL IRA's enjoy the 'catch-up' - ROTH is not for everyone, but for some of us, it is essential.) I.e. Such as my kids.... They got ZERO funds for college from me, BUT I had matched their wages into their self managed ROTHs since they were age 12. They had oodles of money for college by age 18, AND FAFSA didn't even conder their IRA's (or their houses they had built in Jr High). So... they got CHEAP student loans that paid them HEALTHY returns (investing 'equivalent' amounts) into APPL (bought below $70) and NFLX (both were sold for 1000% returns) and student loans consolidated for 2.7% for 20yrs .
Most important ROTH benefit for me is:"Contributions are always withdrawn tax-free.
Earnings are federally tax-free after the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, death, disability,
I will have no pensions (40 yrs with employer, but NEW CEO took the $$$ to Monte Carlo and 'doubled down... she is now unemployed),
My only income will be what I manage to eek out of my portfolio..
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