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tax favorable withdrawal strategies retirement vs legacy

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  • #16







    so i guess a follow up is for those with the means and intent to inherit money to kids, does it make sense after 59 1/2 to transfer aggressively the 401 into the roth IRA in retirement?

    try not to trigger the next tax bracket, if that’s a possibility, and pay the taxes for the inheritability advantages.  how do i know if that’s better than taking the money and investing it so the kids get a step up basis on the taxable?

    interestingly a quick google search shows you can convert 457 plans to roth ira.

    thanks

    sorry for stupid questions.  all these questions about trusts make me rethink a few things.  also i’m finally forced to admit i’m not the poorest kid on the block after decades of denial.

     

     
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    This kind of decision-making requires intrafamily wealth planning/consultation.The answer will depend on many factors and will be different in each situation.

    In my situation my parents were never in anything but the highest federal tax bracket, plus state. Even in retirement. I am in the 33%-35% bracket, and no state. So it was never advantageous for them to convert IRAs to Roths for my benefit. I inherited signficant IRAs which now will throw off significant RMDs and there is nothing I can do to avoid the taxation of them. Nevertheless the net wealth transfer is greater than it would have been if my parents had converted in their tax bracket.
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    again forgive my ignorance, but how do we know the net transfer was optimized by not converting to roth?

    obviously there are a lot of variables.  let's assume that the inheriting child will try to let the money grow rather than take it out.  the roth then would let the money grow tax free forever.  it will start as a smaller base since there would be taxes (at the highest bracket) paid on the conversion.  additionally the conversion will remove rmd's for the parent, is that correct?  so the amount inherited may not be apples to apples either, although i presume with the shorter time frame and the high tax bracket, it will still be smaller, just not as smaller.  of course if the taxable is coming to you, the rmd's are still being inherited at the step up rate.  hence my second question about whether taxable might be just as good as roth.

    thanks for your informative post.  i know i'm probably in the weeds here, and there are too many assumptions to know there is one best path.  i probably just need to gain a bit more information to reassure myself that i can have a reasonable conversation with the financial people.

    it's left unsaid on these boards, but i'm sorry for your loss.

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    • #17
      If you haven't read James Lange's, Retire Secure!  It addresses your question very well.  His writing style is enjoyable to read which is a bonus.  Hope it helps.

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      • #18
        Jim Dahle would add that a 2MM IRA at age 70 would kick off about 72k in RMDs. Still in 15% bracket for MFJ. By the time I get there, the 15% tax bracket will be higher. Maybe all this fretting about RMDs is overblown.

        What do you if an investment in a Roth that goes down? Maybe re-characterize if within the time frame. If money is in taxable account, you can tax loss harvest and write off $3000 against other income. If there are realized LTCG, I don't pay ANY federal tax in the 15% bracket. I can also gift these LTCG to my kids and they pay 0%.

        I think Congress is more likely to mess with Roths than LTCG rates.

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        • #19




          If you haven’t read James Lange’s, Retire Secure!  It addresses your question very well.  His writing style is enjoyable to read which is a bonus.  Hope it helps.
          Click to expand...


          library has it!  thanks!  even though i really asked for a blog and not a book.  no attention span anymore ...  

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          • #20




            Jim Dahle would add that a 2MM IRA at age 70 would kick off about 72k in RMDs. Still in 15% bracket for MFJ. By the time I get there, the 15% tax bracket will be higher. Maybe all this fretting about RMDs is overblown.

            What do you if an investment in a Roth that goes down? Maybe re-characterize if within the time frame. If money is in taxable account, you can tax loss harvest and write off $3000 against other income. If there are realized LTCG, I don’t pay ANY federal tax in the 15% bracket. I can also gift these LTCG to my kids and they pay 0%.

            I think Congress is more likely to mess with Roths than LTCG rates.
            Click to expand...


            if i read the POF correctly, many physicians who retire early may not be in higher brackets.  if you plan to work later and you are a reasonably high earner as a physician, his spreadsheets show significant wealth accumulation.  that is consistent with discussion i have with my retired seniors who remain in the highest tax brackets despite retirement.  again, good problem to have.  possibly they haven't done things to optimize tax brackets, but they do use cpa's.

            for much of their careers there was no such thing as roth, 529, they didn't have hsa, so may not be apples to apples.    of course they have pensions and free health care for life including medications, so definitely not apples to apples for many here.

            it's not a life or death thing, just an efficiency question.

             

             

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            • #21







              If you haven’t read James Lange’s, Retire Secure!  It addresses your question very well.  His writing style is enjoyable to read which is a bonus.  Hope it helps.
              Click to expand…


              library has it!  thanks!  even though i really asked for a blog and not a book.  no attention span anymore …   ????
              Click to expand...


              You present a great question that is too broad to answer in a blog post or comment.  The answer will change depending on future changes to law which the book addresses well.  For us, we plan to use a combination of gifting while we are alive and Lange's Cascading Beneficiary Plan which uses disclaiming strategies.

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              • #22










                If you haven’t read James Lange’s, Retire Secure!  It addresses your question very well.  His writing style is enjoyable to read which is a bonus.  Hope it helps.
                Click to expand…


                library has it!  thanks!  even though i really asked for a blog and not a book.  no attention span anymore …   ????
                Click to expand…


                You present a great question that is too broad to answer in a blog post or comment.  The answer will change depending on future changes to law which the book addresses well.  For us, we plan to use a combination of gifting while we are alive and Lange’s Cascading Beneficiary Plan which uses disclaiming strategies.
                Click to expand...


                i'm a trusting sort.

                my most efficient use of time is for someone smarter than me (dr mom, hatton1, vagabond) to just tell me they investigated and here's what to do.

                so ... thanks!

                signed,

                free rider

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                • #23
                  Thanks q school. I think that I am going to reread Lange's book. I agree that DrMom, Vagabond, and Kamban are all wise.  We are all above 50 have seen many things.  I enjoy posts from all age bands but some who have not been thru adversity I take with a grain of salt.

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