I am a 64 year old debt free single male. If I take SS at age 65 Ex: 20,000 per year it will be tax free money. Each year I wait to take SS my SS will increase by 8%. If I wait to take SS and withdraw 20,000 from my 401K/IRA I will pay 12% Fed tax plus State tax. I believe it would make financial sense to take SS at age 65. I am retiring at age 65. Am I missing something about paying 12% plus State tax each year to earn 8% each year from SS ? Thank You
You didn't say what your desire monthly income is. It will be much lower. Your standard deduction will be over 15k and will wash most of the taxes owed. Check out the AARP 1040 tax calculator and consult with a tax professional
Here’s what people forget: The standard IRA or 401(k) tax deductions that one could take advantage of while employed and earning helped immediately to put more money in your pocket - to use for expenses while starting your career and life. OK but then is there a time to convert to a ROTH IRA? In some cases YES - but if you are close to retirement (or retired) then you probably don’t want to convert to a ROTH IRA and pay 25% or more in taxes WHEN THE MONEY YOU CONVERT IS JUST GOING TO SIT THERE! Now if you at age 65 are going to convert $400k to a ROTH IRA and immediately pay at least $100,000 in taxes BUT THEN NOT INVEST THAT MONEY just have it sit, well then I say DON’T CONVERT. And even if you do plan to invest that $400,000 - likely better to keep it in the IRA and then take funds out WHEN YOU NEED THEM and pay a lower tax at a lower tax rate (you don’t suddenly have $400k of income in one year!) And the RMD is really not that much - less than 4% initially and unless you live until age 100 you’d likely withdraw those funds each year anyway!! This “convert to ROTH IRA” is a bit of a fad now- but everyone needs to study before jumping and find-out what is right for them. SCS on 1 Feb 2022
You can invest Roth IRA funds the same way you choose to invest funds in a conventional IRA: mutual funds, ETFs, stocks, bonds. It does not just sit there unless you let it! You are correct that you do NOT want to convert too much in a single year. They should be staged according to your marginal tax rate. The money in a Roth IRA is just as accessible as in a conventional IRA. It is not a fad. It is a legitimate way to avoid paying taxes in a higher bracket when RMDs must be made annually. If it doesn't help you, don't do it.
So well said. There is some risk of not converting if tax rates go up but there is not a ticking time bomb. Year 1 RMDs are less than 4% of your balance, which in the 25% tax bracket is less than 1% of your IRA balance. If you have a $1m IRA plus SS and no other income, you are likely not going to pay any tax when taking advance of the annual increase in the standard deduction.
A quick question: I am ready to begin converting tax-deferred rollover IRA funds to Roth IRA funds. I will be paying the tax due with other after-tax funds (NOT withheld from the conversion). How and when do i pay the taxes due? Quarterly payments, or can I wait until I file income taxes for 2022 in Q1-2023 without incurring late penalties?
I don't want to sacrifice some of the principle that can leagally go into the Roth account and be tax exempt once there. I have answered my own question... Go to IRS online and submit an online payment using a checking account, just as most people submit quarterly payments. Pay with after tax money that isn't eligible for Roth tax exemption.
I put all my 403b contributions into Roth 403b account. I also put max contribution per year into a 457b plan that my employer offers. The 457b has a self directed feature that allows me to purchase individual stocks or ETF’s that my 403b does not allow. I therefore like the 457b and have accumulated nearly half a million in that account alone. Problem with 457b though, no Roth conversion feature, so all growth will be taxed fully upon withdrawal. Do you have any insight regarding how one might limit future tax burden on 457b plan?
Taxes rates wont be increasing for another couple years. right now would be the perfect time to do Roth conversions. You can do that using a Roth IRA similar to what you did with your 403b or you can utilize an IUL for that as well
Andrew, how do we get that special offer you mentioned on doing Roth Conversion Review mentioned at 54:30 of the Ed Slott: How to Avoid the Retirement Savings Tax Time Bomb You Tube video you did on April 29, 2021?
Tax preparers are NOT financial advisors.
I am a 64 year old debt free single male.
If I take SS at age 65 Ex: 20,000 per year it will be tax free money.
Each year I wait to take SS my SS will increase by 8%.
If I wait to take SS and withdraw 20,000 from my 401K/IRA I will pay 12% Fed tax plus State tax.
I believe it would make financial sense to take SS at age 65. I am retiring at age 65. Am I missing something about paying 12% plus State tax each year to earn 8% each year from SS ? Thank You
You didn't say what your desire monthly income is. It will be much lower. Your standard deduction will be over 15k and will wash most of the taxes owed. Check out the AARP 1040 tax calculator and consult with a tax professional
Here’s what people forget: The standard IRA or 401(k) tax deductions that one could take advantage of while employed and earning helped immediately to put more money in your pocket - to use for expenses while starting your career and life. OK but then is there a time to convert to a ROTH IRA? In some cases YES - but if you are close to retirement (or retired) then you probably don’t want to convert to a ROTH IRA and pay 25% or more in taxes WHEN THE MONEY YOU CONVERT IS JUST GOING TO SIT THERE! Now if you at age 65 are going to convert $400k to a ROTH IRA and immediately pay at least $100,000 in taxes BUT THEN NOT INVEST THAT MONEY just have it sit, well then I say DON’T CONVERT. And even if you do plan to invest that $400,000 - likely better to keep it in the IRA and then take funds out WHEN YOU NEED THEM and pay a lower tax at a lower tax rate (you don’t suddenly have $400k of income in one year!) And the RMD is really not that much - less than 4% initially and unless you live until age 100 you’d likely withdraw those funds each year anyway!! This “convert to ROTH IRA” is a bit of a fad now- but everyone needs to study before jumping and find-out what is right for them. SCS on 1 Feb 2022
You can invest Roth IRA funds the same way you choose to invest funds in a conventional IRA: mutual funds, ETFs, stocks, bonds. It does not just sit there unless you let it!
You are correct that you do NOT want to convert too much in a single year. They should be staged according to your marginal tax rate. The money in a Roth IRA is just as accessible as in a conventional IRA. It is not a fad. It is a legitimate way to avoid paying taxes in a higher bracket when RMDs must be made annually. If it doesn't help you, don't do it.
So well said. There is some risk of not converting if tax rates go up but there is not a ticking time bomb. Year 1 RMDs are less than 4% of your balance, which in the 25% tax bracket is less than 1% of your IRA balance. If you have a $1m IRA plus SS and no other income, you are likely not going to pay any tax when taking advance of the annual increase in the standard deduction.
A quick question: I am ready to begin converting tax-deferred rollover IRA funds to Roth IRA funds. I will be paying the tax due with other after-tax funds (NOT withheld from the conversion). How and when do i pay the taxes due? Quarterly payments, or can I wait until I file income taxes for 2022 in Q1-2023 without incurring late penalties?
Have the tax withheld by the custodian at the time of conversion
I don't want to sacrifice some of the principle that can leagally go into the Roth account and be tax exempt once there. I have answered my own question... Go to IRS online and submit an online payment using a checking account, just as most people submit quarterly payments. Pay with after tax money that isn't eligible for Roth tax exemption.
I wish I'd heard of Ed 20 years ago.
I put all my 403b contributions into Roth 403b account. I also put max contribution per year into a 457b plan that my employer offers.
The 457b has a self directed feature that allows me to purchase individual stocks or ETF’s that my 403b does not allow.
I therefore like the 457b and have accumulated nearly half a million in that account alone.
Problem with 457b though, no Roth conversion feature, so all growth will be taxed fully upon withdrawal.
Do you have any insight regarding how one might limit future tax burden on 457b plan?
Taxes rates wont be increasing for another couple years. right now would be the perfect time to do Roth conversions. You can do that using a Roth IRA similar to what you did with your 403b or you can utilize an IUL for that as well
Is that term or whole life ins
Ed uses permanent insurance. Term can hold no cash
46:57 any expectation that the QCD age (70.5) will rise along with the RMD age (72, maybe 75 under subsequent legislation)?
Andrew, how do we get that special offer you mentioned on doing Roth Conversion Review mentioned at 54:30 of the Ed Slott: How to Avoid the Retirement Savings Tax Time Bomb You Tube video you did on April 29, 2021?
Hi Fred, thank you for showing interest in our video! We have your contact info and will follow up with you soon. Thank you!
@@BayntreeWealthAdvisors Thank you.
18:45 @Ed Slott, do you have any accumulated value in qualified deferred annuities? 😉
“Sell it all!” best line of the episode, like a home school margin call, lol.
21:54 exactly right - those who will be in a lower tax bracket in retirement aren’t likely to be among the audience here
17:42 pure wisdom there, truly enjoying this episode