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Roth IRA conversion


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2022 Dec 6, 3:20pm   1,623 views  26 comments

by clambo   ➕follow (2)   💰tip   ignore  

I wish I had converted more of my IRAs to Roth previously.
Now is a good time to do it because the Trump tax rates and brackets expire after 2025.
You can convert a SEP IRA from a side job too.
Required Minimum Distributions will begin for me a little after taxes go up.
If you make a lot of dough, get a non-deductible IRA and then convert it to a Roth (called back door Roth).
I recommend a Health Savings Account invested in capital appreciation mutual funds. Fund the shit out of it.
Another possibility is Vanguard Tax Managed Capital Appreciation Fund; it's not going to produce a big 1099, and you have no RMD from it.
A variable annuity also has no RMD; my contract has age 99 to begin my annuity payments.
I'm sort of fucked because I have a lot of unrealized capital gains in stock mutual funds and Apple stock.
I wish I had millions in my Roth and HSA and a municipal bond fund, but I don't.🤬

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6   clambo   2022 Dec 7, 8:06am  

HSAs are great.
You can use them for dental expenses when you're retired. The HSA comes out tax free like a Roth for medical and dental.
I spend more on dental expenses than medical; I have the best dental insurance available from Delta and I still spend big bucks on dental stuff.
Delta pays just 1/2 of the cost of stuff like a crown.
Amalgam fillings only last for so long; they cause trouble after 30 years, and their replacement is usually a crown.
The way to go is CEREC and a Zirconia crown, they do it all in one appointment.
After my crowns, I told the dentist I wanted to replace my amalgam fillings with resin, so my mouth today has no metal in it.
I added it all up and it was a big chunk of change.
I am not getting dental work done in Mexico like many people do, but I can have a cleaning done.
I'm pretty far off the subject, so maybe unwanted.
7   zzyzzx   2022 Dec 7, 10:02am  

Hircus says

Seems to me they could easily just say "first 10 million of cap gains in a roth is tax free" to address the billionaire abuse. Do that, and use the saved tax money to let regular joe contribute more than 6k/yr and I'd vote for it.

Although, the bad part is this adds a burden to everyone to track cap gains.


With Bidenflation better make that 25 million, not 10 million, or at least index that 10M figure with inflation, or somehting. Lots of people are going to have 10 million in a few years.
8   zzyzzx   2022 Dec 7, 10:18am  

clambo says

Delta pays just 1/2 of the cost of stuff like a crown.


I've got 80% of the cost covered. I've had as high as 90% covered. That's with an employer provided policy where I have to chip on some to get better coverage and higher annual limits (going up to $2500 for next year).
9   Ceffer   2022 Dec 7, 12:08pm  

I went through some Monte Carlo stuff a while ago. With Roth, you are playing the margin between today's taxes vs. projected future taxes. You get untaxed earnings, too, plus free use of the money without the Guv's finger up your ass..

However, the horizons for realizing advantages when you are old didn't work out that great and the advantages kind of dissolved against projected life expectancy. Maybe hookers and cocaine today are better than deferred Roth advantages tomorrow.
10   RedStar   2022 Dec 7, 12:15pm  

Does anyone really believe the government will leave your Roth alone after TSHTF?

After all to the commie masses and have-nots you will be just another capitalist pig that deserves to get taxed again.
11   clambo   2022 Dec 7, 12:39pm  

An interesting feature of my Vanguard variable annuity is nobody knows I own it except the insurance company.
Of course I will be taxed on the withdrawals.
Annuities (and IRAs) are immune from civil judgments; ask OJ Simpson.
I'm saving my Vanguard Tax Managed Capital Appreciation Fund for when I am really a geezer.
Ceffer makes a good point; I can't actually enjoy money as much in the future as I can today.
The previous comment is also well taken; my brokeass friends all say I'm "lucky", and they have a wish to become a beneficiary.
12   Ceffer   2022 Dec 7, 1:00pm  

I don't think insurance companies qualify as 'trusted confidential fiduciaries', since they routinely share even confidential information with other insurance companies in a quid pro quo basis.

I have also heard that various retirement vehicles and even IRAs can be attacked in some circumstances, but it tends to be unusual.

Guess I have to get back to stuffing that mattress with currency.
13   Hircus   2022 Dec 7, 1:16pm  

RedStar says

Does anyone really believe the government will leave your Roth alone after TSHTF?

After all to the commie masses and have-nots you will be just another capitalist pig that deserves to get taxed again.


Lately I've put an emphasis on planning for retirement / self sufficiency in ways unlikely to be touched. If my money is in some digital account, I'm totally at the mercy of numerous things out of my control. To me it makes sense to have some fraction of my net worth in a more clever retirement account: assets that I own and physically control, which give me food, water, electricity, shelter, defense, etc...
14   SunnyvaleCA   2022 Dec 7, 2:17pm  

For Californians contemplating fleeing the state for retirement, Roth conversion is a tough one. I'll pay federal and state income taxes on the conversion amount. The marginal state tax rate is 9.3% for singles earning $57,824. So... do I think federal+California taxes will be more or less than just federal taxes at some time in the future.

I actually already do have a Roth from the late 90s. So, I already have some money there that I could use with the reduced restrictions. When of proper age, I could, for example, drain that account to buy my yacht and not pay huge income taxes. It's not necessary for me to have all my IRA money there, as I can just withdraw modestly every year from the traditional IRA without such high taxes.

The primary thing to notice about an HSA is that after you turn 65 can use the funds for non-qualified purchases and not pay a penalty! Search for "65" in:
https://apexbg.com/hsa-withdrawal-and-spending-rules/#:~:text=However%2C%20an%20HSA%20owner%20is%20not%20subject%20to,1%20Reaching%20age%2065%3B%20or%202%20Becoming%20disabled.

So, create an HSA, fund it to the max, but then do not use it! When you hit a certain amount in the HSA, you can invest it in the stock market. If you have money in your pocket and you have money in your HSA and you can afford it, spend the money in your pocket instead. The money in the HSA earns tax-free returns whereas the money in your pocket (well... your bank or stock broker) earns taxable returns.

The downsides to HSA are the roughly $3500 annual limit and the eligibility requirement that your health insurance must be "high deductible." Since my COBRA gives me better than Obamacare Silver coverage at lower than Obamacare Bronze prices, I am disqualified due to the deductible.
15   clambo   2022 Dec 7, 2:25pm  

Sunnyvale mentioned what I neglected to mention.
After 65 you can spend your HSA on anything.
16   NuttBoxer   2022 Dec 7, 2:48pm  

clambo says

the Trump tax rates and brackets expire after 2025.


Finally, we'll be able to use itemized deductions again.
17   EBGuy   2022 Dec 7, 3:01pm  

SunnyvaleCA says

For Californians contemplating fleeing the state for retirement, Roth conversion is a tough one.

Thanks for bringing this up Sunnyvale. I've been kicking myself for not doing this the past several years, but now realize the CA taxes are a big unknown to factor into the equation.
18   clambo   2022 Dec 7, 3:07pm  

You could always itemize.
The standard deduction doubled with Trump.

Of course you are paying more in California for your investments always.

California has its own capital gains tax, income tax, real estate gains tax, annuity tax (called premium tax), etc.

There's no way in hell I will support the California tax base anymore.
19   DD214   2022 Dec 7, 3:11pm  

SunnyvaleCA says

For Californians contemplating fleeing the state for retirement, Roth conversion is a tough one


Spend a few hundred on a top notch accountant - same for people moving from California to somewhere else. They can save you a lot of heartaches
20   porkchopXpress   2022 Dec 8, 5:45am  

I have both pre- and post-tax vehicles (401k, IRAs, Roth IRAs and HSA). What I never understood is that why the big push for Roth when taxes may not be higher in the future when you're retired if your income is much lower and you have more assets paid off by then? I would think that gaining the tax advantage now (401k, Traditional IRA) could be important because I make so much more income now than I will in retirement.
21   clambo   2022 Dec 8, 6:18am  

porkchopexpress makes a good point above.
But, some people are surprised that their income doesn't fall much in retirement.
Your results will vary.

I wish I had converted more of my IRA to Roth because I'm making significant income from mutual fund dividends and capital gains from funds which I bought in addition to the tiny IRA limits of the past ($2000/year).

I was not offered a 401K at my first seveal jobs, which would be unusual today. Later I was self-employed and bought a SEP IRA.

I think also it's cheaper to prepay taxes sometimes on my "tax deferred" accounts; they are like my Apple shares with lots of unrealized capital gains.
A giant 401K is a tax time bomb ticking away.

Some guys have children and like the concept of Roth so their heirs pay nothing when they take out the RMDs from the inherited IRA.

The government is seeking ever more clever ways to tax your retirement account.

If I were married and working, I would explore the "variable whole life" life insurance; get the one which is 90% investments in stock funds and 10% insurance component. Later, when the cash value is gigantic, take a loan on the cash value. This is cash in your sweaty hands tax free from the insurance company. You've just gotten your policy equity back free of taxes, like a Roth. Paying back the loan is easy; just die.
22   GNL   2022 Dec 8, 6:24am  

clambo says

You've just gotten your policy equity back free of taxes, like a Roth. Paying back the loan is easy; just die.

There must be some kind of limitation on how much you can borrow depending on your age.
23   clambo   2022 Dec 8, 6:36am  

In general you can borrow up to 90% of the cash value of a life insurance policy.
24   DD214   2022 Dec 11, 8:57am  

clambo says

Now is a good time to do it because the Trump tax rates and brackets expire after 2025.


What's the Standard Deduction for 2022 vs. 2023?

https://www.kiplinger.com/taxes/tax-deductions/602223/standard-deduction
25   DD214   2022 Dec 11, 9:02am  

Is Your Retirement Portfolio a Tax Bomb?

Part 1: Is Your Retirement Portfolio a Tax Bomb?
Part 2: When It Comes to Your RMDs, Be Very, Very Afraid!
Part 3: RMDs Can Trigger Massive Medicare Means Testing Surcharges
Part 4: Will Your Kids Inherit a Tax Bomb from You?
Part 5: How to Defuse a Retirement Tax Bomb, Starting With 1 Simple Move
Part 6: Using Asset Location to Defuse a Retirement Tax Bomb
Part 7: Roth Conversions Play Key Role in Defusing a Retirement Tax Bomb
Bonus article: 2 Ways Retirees Can Defuse a Tax Bomb (It’s Not Too Late!)

https://www.kiplinger.com/retirement/retirement-planning/605109/is-your-retirement-portfolio-a-tax-bomb
26   clambo   2022 Dec 11, 9:28am  

I often look at investing websites, and it's unusual for anyone to mention the biggest threat to your retirement net worth: taxes.

People freak out about the S&P500 or W5000 dropping 15-20%; "stocks crashed as Powell raises interest rates!"

But, taxes on your IRA will be 20% and on capital gains higher, depending on your income.

Medicare went up to $248 per month, because my income was over $85,000 or whichever the number is now.

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