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tax favorable withdrawal strategies retirement vs legacy

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  • Hatton
    replied
    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.

    Leave a comment:


  • q-school
    replied










    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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    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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    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

    Leave a comment:


  • Dr. Mom
    replied







    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.

    Leave a comment:


  • q-school
    replied




    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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    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.

     

     

    Leave a comment:


  • q-school
    replied




    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 ...  

    Leave a comment:


  • ReFinDoc
    replied
    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.

    Leave a comment:


  • Dr. Mom
    replied
    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.

    Leave a comment:


  • q-school
    replied







    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.

     

     
    Click to expand…


    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.

    Leave a comment:


  • FIREshrink
    replied




    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.

     

     
    Click to expand...


    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.

    Leave a comment:


  • ENT Doc
    replied
    Try this:

    https://www.i-orp.com/gamma/index.html

    Generally, I like the idea of doing a Roth conversion up to the standard deduction/exemption amount and then living off dividends/CG from taxable up to the 15% tax bracket, with any remaining from Roth funds.  $0 tax with that strategy.  But chances are you won't be able to pull enough down from your 401k with that strategy which is why it gets a little tricky and why the above website helps.

    Leave a comment:


  • q-school
    replied
    Hard to know what bracket a seven year old will be in someday. Right now he can't even wear matching socks.

    So the waters are murky.

    Alright I feel better just sticking my head back in the sand and pretending to be poor again. I guess I will just do what I always do--- tell my wife to stop spending. That strategy has served us well for decades.

    Thanks.

    Leave a comment:


  • Craigy
    replied
    If passing the most money to your children is the goal, you want to minimize the taxes paid, whether they be paid by you during your life, or by your children after your death (and also by your estate, if you end up having a taxable estate, but that's another discussion).

    If you're my parent, and you've got a $1M IRA, and you pay 40% income tax, and I'm your kid and I pay at a 25% marginal rate, I'd rather you just leave me the $1M IRA and I'll pay the $250k tax, netting me $750k.  If you burn up $400k on tax making roth conversions, I'm going to net only $600k.

    But this involves a lot of future-predicting, what bracket do you foresee your kids being in when you die, what the rules will be on the transfer of these accounts when you die, how will your children elect to handle these accounts, etc.  A lot can change between now and then.  If you can do a lot of low-tax conversions then it lowers this risk, but it's going to be difficult to plan perfectly.

    Leave a comment:


  • PhysicianOnFIRE
    replied


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


    Only if it's a governmental plan. Then, you can rollover to IRA and convert to Roth IRA. Non-governmental 457(b) plans cannot be rolled over.

    Once you're retired (whether it's 49 1/2, 59 1/2 or whatever age), it may very well be a good idea to do Roth conversions up to the top of your income tax bracket (and maybe even the next one), particularly if you're looking at a likely RMD problem. Tax gain harvesting up to the top of the 15% bracket may also be an option.

     

    Leave a comment:


  • q-school
    replied
    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.

     

     

    Leave a comment:


  • Craigy
    replied
    A Roth is one of the best retirement accounts to inherit and a tax-deferred IRA is one of the worst.  Thus, better to spend down the IRA in the most tax-efficient way possible during your life, if you are able, while preserving your roth and other post-tax assets.

    In theory the step up in basis could go away if the new plan to eliminate the estate and generation-skipping transfer tax happens.  This is still unclear, and time will tell.  In that event, a Roth may be superior to a regular post-tax account as well.

    Every problem in the first world is a first world problem.  And event the second and third world has to pay taxes.

    Leave a comment:

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