Some would call me poor. My income is $31K/yr. I spend about $10K/yr. So my wealth increases by about $20K+/yr. I live simply with no debt. I'm a 74 year old veteran. My only pre-tax account has about $100K balance with RMD about $4K/yr. That $4K goes into another account, I don't spent it. I pay no income tax at all and my property tax is $0/yr also. I could spend 3 times as much and still be stable financially in the current economic climate. I'm OK. My total wealth is slightly greater than $500K. If everything crashes, I would still be OK because I have actually been really poor in the past and I know how to do that too.
The section at 37:22 on ACA planning for age 62-65 is very interesting. I was wondering if you have any videos that cover ACA planning and tax strategies for early retirement from, say, age 50 to 62 ?
Thanks Eric, this is the best planning that I have seen.The examples of the ACA planning and the catchup zone helped me. I would love to see more examples.
This was very well done and aligns with my research into this topic. Some of my friends thought it was nuts for me to say I was delaying social security until 70. When I explained to them it was about tax planning, medical coverage pre age 65, and an overall decumulation strategy they started to get it.
I am not sure I will wait until 70 for SS but watching this video and other ones by Eric has convinced me to delay SS for several years in order to at least convert a large portion of my 401K and IRAs to Roth. I knew I had a tax time bomb with the deferred accounts but I see the reality that converting a large portion now to take the tax hit without SS makes the most sense. Its especially important to convert now knowing that the tax brackets revert back in 2026 so its a definite tax increase at that time.
@@robdupree5687No, the amount you are referring to is the CONTRIBUTION limit to your Roth - not what you can convert into it. There are no limits to how much you can convert into it, but you have to pay taxes on whatever amount you choose to convert.
My father was responsible for running a profitable sawmill for many years. It was his job to get the most lumber yield from every saw log. That wall paper behind you… You don’t need more timber. You need a better plan
This is basically the vidio I have looked for vor years. I have always thought about taxes in this way. Not a tax planner ut accumulated enough knowledge over the years to basically force myself to maximize every year possible into roths from close to when they started. I will be sharing this link with a bunch of people that I hope will watch because you explain it better than I ever could.
This was a terrific presentation. I now understand the WHY behind my financial planner’s recommendations. He says that things will be preferable tax moves, but now I really get it. Thank you so much. I have a lot more confidence in the plan he provided.
Great point on SS. I am delaying until 70 for the reason you mentioned. At least 15% will not be taxed for federal and zero in my state. So in the 25% bracket instead of 31% with state I only pay 21% for a 10% savings, thus I want to maximize that income and COLA.
This was awesome! Everyone who wants to DIY their early retirement needs to watch, study and understand every aspect of this. Sadly, most people are looking for the "one size fits all" answer and won't take the time to comprehend all the moving parts involved.
Special Thanks for the ACA section! My wife is retiring at 62 and we will lose her coverage. We are looking to tip toe thru this ACA zone by paying the ACA HSA high deductible premuims thru my S-corp business and still do some targeted roth conversions especially if the market tanks as in 2020. Traditional IRA's are $1 mil so we have only 10 years to convert before taking SS at 70.
We are retiring at 54 (year we turn 55) plan is to utilize 401k and brokerage until 59.5, balancing each to keep taxes in 12% bracket and qualifying for ACA. From 59.5 until will gradually move income from IRA and 401k avoiding using Roth and Brokerage unless needed to keep tax bracket in 12%. From 70 on, will use both SS and spouse SS and Roth/brokerage to keep taxes close to 0.
You covered exactly what I plan to do. 65 in 6 months. Filing single for the first time in a long time. Starting over. Fixed pension, convert as much to Roth as possible from 401 and willing to take the irmaa hit if it makes sense. Delay ss until forced to take it etc. lots of room left for 2023 to stay under the second irmaa tier, still room under first tier.
Great video once again! Full explanation of the obstacles we will be facing. Fortunately, we have a modest Traditional IRA, good size Taxable account and small Roth. Gives us options to pay minimal taxes. Love your videos
Always good content. I just retired and looked into Roth conversions but now thinking differently. If I divide my assets into 2 buckets, (which are about equal in total) tax deferred where either I or my heirs will pay tax and tax free or step up in basis where heirs pay no tax, which includes stocks, cash equivalents and life insurance. My tax deferred combined with SS and a pension is enough for me to live on even after paying tax for 30 years. So I will treat it like a salary as if I am still working and pay tax as I go. This will allow the non taxed bucket to grow so it becomes a higher % of the total so my heirs collect more tax free.
Excellent segment! Knowledge is power! Especially, since I have 2 government pensions, government 401K, and social security. Fortunately, I also have tax free VA service-connected disability compensation.
This video just came up on my YT feed, playing in the background. While your points about withdrawal optionality and cleanup zones are well-considered, two obvious gaps in your presentation were: 1. The prevent value of paying a tax now vs. 10 years in the future. This is even more relevant now with the higher discount rates. 2. You assume people have no income from their taxable portfolios. This will tend to blow up the zero percent LTCG space. Without that 0% space and accounting for PV, how does your presentation change?
you said to plan for what is going to happen in 25 years of retirement. How do you know what the tax laws/parameters are going to be in 5 years much less 25? Really interested in how you plan for that.
Great video! we are in the withdrawal phase ages 74-77 puzzling about which buckets to use each year; any suggestions on software, videos or books would be appreciated.
You r amazingly excellent on your financial planning. I should have known you before I turned 65, now I’m delaying my SS to offset my Medicare IRMMA payment and planning to convert to Roth this year 2023 though very limited. Thanks a lot.
I really enjoyed this ... ACA and Roth conversions are interesting ... I hope you cover singles more. Note that having a larger taxable account can mean a substantial forced dividends income source.
Hi Eric: This is very informative and very clean. Is there an Excel template you have where in one can enter the tax bracket one will be in and have suggested pull for a given income from Roth, vs Taxable vs Tax deferred...etc., including social security
Eric I really enjoy your style of confering this information. Delaying SS to 70 isn't in the cards when your at 62 but still have 2 minor children at home thru to your 70th birthday. The children are eligible for SS checks if you claim at 62. I would love to see a video on this scenario because most older parents don't know about it.
I waited until I was 66 y/o but it was wonderful to get a monthly check that went directly into their 529. Also there is always the assumption that your health will hold out.
Most deductables on aca are more than 5000 per person. Bronze plans are 9000 per person max out of pocket. If you get the 5000 deductable plans are hundreds per person on premiums
Nice presentation. A couple of times you emphasized "tax savings" but the real criteria to optimize is 'after tax' account value or utility. Working on converting my IRA to Roth prior to SS.
Thanks, great video. Seems like with a larger tax deferred account and need large ROTH conversion, you probably can forget about the ACA subsidy, subject to larger IRMAA penalties and better to delay S.S till 70. Would be nice to see a video for large accounts like $5M (maybe $2.8M in tax deferred, $1.9M in taxable (let says $0.9M LT gain), $0.3M Roth and 12 years to RMD. What will be the best tax efficient withdrawal to reduce taxes? I am sure married couple will do better than a single person since they can convert more in the same tax bracket.
Great suggestion Allan. I am planning on doing some case study withdrawal strategy videos in the future. Something similar to this situation will certainly be on the case study list.
have similar situation 2.8 M taxable, 1.4 Deferred ( IRA/401k ), .3 Roth... Thinking of building Self managed Annuity from Fidelity and move large portion of 2.8M Taxable to Annuity to control the income 2.8 M taxable is generating due to dividends. This video is great. I was planning to use 60-70 10 years to move 1.4 Deferred to Roth at 100K each year ( keeping net under 80K after standard deduction ), while realizing Capital gains in Taxable at zero rate ( however Dividend income really throws it off the track ). Let next generation deal with Annuity related Taxes much later on in case they do not get high income. Its good problem to have to be in position to pay taxes.... :) ... Any other ideas...
Excellent. Thank you; just what I needed to learn (take some gains while I'm in lower income during low fed tax time and before taking social security). I think you referred to it as "cleanup time." I only have 2 years to do this before RFA so this may mean I might want to take ss later so I can do some more clean up before ss. Liked and subbed!
Eric, excellent work. Thank you for sharing this like a teacher. The more you do this the better you get at it, and subsequently so too do those fortunate enough to watch and learn. Well done and well worth the time for your team to invest in. There is a tipping point that is reached (no one quite knows when) where all of these videos and presentations will begin to compound in returns. Keep up the work and stay the course.
Good advice in the catch up zone ..by delaying social security and using less recorded income more taxable income I went from $1550 dollars a month cobra health insurance to $0 monthly $0 deductible ACA /Medicaid insurance.Have to be careful how much of Ira tax deferred account are withdrawn.
Excellent presentation. I like the framework you provided in this presentation. A lot of good food for thought. I was hoping you guys have a SaaS online to use for a reasonable fee of course. Thank you again!
Does it ever make sense for someone that is retired in their 50's and taking ACA, to forgo subsidies to convert IRA to roth and make up the tax loss on growth of the roth? Or is it always better to wait for the "cleanup zone', when medicare kicks in, to do conversions?
It depends on a person's situation. If someone has huge tax deferred balances and estimate RMDs are going to be large and destructive, it may make sense to prioritize conversions vs. a subsidy. It all depends on the situation.
Great video! I project out our assets, income, expenses and taxes for life. I am inflating the standard deduction and tax brackets with inflation. Do most tax advisors’ software do this? This makes RMDs look not as bad as I would have thought.
This is a very comprehensive overview, and a great video - thanks. I’m curious - how many years out from retirement does it makes sense to start planning this? It seems like we’re all guessing at future lax laws right now, but if retirement is farther away, it’s more of a guess. Is it best >7 years out to just focus on balancing the tax allocation buckets as much as possible? New rules will be there when you get there…
Hi there! Great video. Just recently learned about roth conversions with your videos we watched. How does the job & tax cut apply when trying to convert our 401k to roth ira while employed? We called Fidelity & asked if we can convert and they said we couldn’t but We weren’t sure if the representative knew what she was talking about. Thank you soo much for all your great videos!!!
This was FANTASTIC. It cleared up a number of things for me, and I had to go make a couple of changes to the Excel chart I’m using to estimate future taxes. I especially liked the list of considerations when tax planning, which helps make sure I’m not leaving anything out of my plan and that I’m watching for all the potential trigger points. Also the slide showing what considerations should generally rank higher in weighing alternatives. THANK YOU!
Eric, can you show a forward looking tax plan with forced income (pension) and more detail on incorporating SS? Most pensions range from $70-150k per year for state and fed employees.
@Giselle. Social security benefits are cut via 2/3 of pension. Most high pension earners plus spouse won’t be able to get SS. Just Google Pension and social security offset
So a couple pays $7390 in taxes when taking no social security, and $5449 when taking at 62. You're advising they pay $7390 for an additional 8 years to reach an optimal tax rate of $312 at age 70. Tax wise, they'll break even on that after another 8+ years, but what about the opportunity cost for the $43K/yr that could have been compounding all that time? Like many, I have an RMD problem to clean up. But when I run the numbers, it is consistently worse for me to delay social security. The way I look at, social security is helping to pay the taxes on my Roth conversions and leaving more money in my taxable account.
Excellant presentation. Isn't it true that money you convert to Ruth IRA can not be touched for 5 years (both converted amount plus subsequent earnings)? If that were true, how do you have optionality by "pulling money out of Ruth"? Are you assuming we have a large enough non-converted money in the Ruth account to cover the amount you need to pull? Thank you.
Roughly How low do I need to reduce my 1.5 mil 401k to avoid XS RMD & 401K value creep from causing SocSec tax torpedo? Assuming married jointly filing with annual 47K SS benefit, & wife still working another 10 years earning $80k annually ? Would like to stay in 22-24% bracket ? Thant’s
Thanks Eric, very comprehensive!! Are there any conditions for single filers over 60 to commit Roth Conversions up to 32% (within Catch-Up Zone) and forego some ACA benefits to avoid SS Tax Torpedo and IRMAA penalties in the future?
We only have two years before starting rmd,s and both of us are getting ss so I feel trapped!!! I wish I would have known about this clean up zone before I started social security
Wow. Eric. Full of info. Actually understand everything. unfortunately , I have to do massive Roth conversions before 2026. And balance inherited Ira withdraws. It’s massive. Sigh.
@@SafeguardWealthManagement yes. It’s grown substantially, it went from $340k last year to 1 million now. I have 9 years to take out. All Tesla. Ha ha.
Waiting on SS is a gamble on if you live long enough for not. Are you willing to take that gamble? People seem to be passing much young in my generation that previous so it doesn't appear to me we are actually living longer. Maybe one could take SS at 62 and invest it and then if they die early, at least the heirs will get some of it that the deceased has worked all their life paying into. If you need it, then you at least can take less from your retirement savings since you are getting SS and still leave a bit to the kidos. Everyone preaches delaying and the government hopes you do because they figure you will pass away before breaking even since Life Expectancy is 78 for a male and break even will likely be more like 81.
132% Social Security is only for those born before 1955. From 1955 until 1959 it's between 126% and 132% depending on which year you were born. How about living off cash first if you have it, and then doing Roth conversions. Deplete the cash and then fill it back up with withdrawals from Traditional accounts in later years but before age 70?
You are correct in regards to SS. Regarding living off the cash... it will depend greatly on the situation. If someone has that much cash while still has large tax deferred balances, I would prefer to invest the cash and prioritize conversions but every situation is different
Nicely done. I'm not understanding what "life expectancy factor" I would use if withdrawing IRA at age 65? The table I'm using starts at age 70 or I guess in 2022 72. Do I use the first year for each year until I reach my withdrawal year?
Great! And very thorough and well explained. Might mention in marriage QDRO (with younger spous) and QLACS and one off HSA payment as additional ways to reduce RMDs. Cheers Jef
NIce presentation. However, it would be nice to see more examples and your recommended action plan. Including an explanation as to why they should follow that specific strategy. Nice job!
Great session: Love you channel and the level of expertise. Is there a level of deferred assets below which roth conversion don't make sense? Say i have 850000 in deferred 401k with small pension say 32000 per year. I retire at 60. good chance i will stay in 12 % (or 15) bracket as Married filing jointly. Does doing a 40000 per year roth conversion make sense? does the growth in the roth conversion make the conversion strategy worth while? I have used some calculators that say it doesn't. What are your thoughts?
First, it helps to remember a couple of maxims: “Two things you cannot avoid are death and taxes” and “When things appear to be going well, you’ve obviously overlooked something.” What is the “something”? It’s large dividend income in your taxable portfolio. You have to remember that capital gains and taxes are added together when computing their taxes and how your situation can be affected if an increase in ordinary income will move any dividend income out of the zero-tax range into a higher tax zone of 15 % or 20%. If you fall into this situation where beforehand you are able to get some of your dividends tax-free due to having a low level of ordinary income before making the IRA conversion, if you do a IRA conversion to a Roth IRA or just take the IRA proceeds as ordinary income, the marginal tax that you will pay on your increase in taxable income can be the sum of your marginal ordinary income rate plus 15%. Here’s a possible example: say the sum of unavoidable ordinary income of a couple filing jointly minus their personal deduction is $50,000 and the total of all of their capital gains and dividend income is more than the zero capital gains bracket both before and after making the withdrawal from the tax-deferred retirement account. What will happen in this case is that the marginal tax rate on the increase in total income will be the sum of the tax rate in effect at the upper end of their ordinary income plus 15% plus the taxes owed on the increased ordinary income up to the top of the total income for the couple at the top end of the increased total income. In this simple case, the marginal tax rate on the tax-deferred account will be 12% (the tax rate for $50,000 of taxable ordinary income) plus 15% from the loss of the dividends moved from the zero-tax bracket into the 15 % bracket for a new marginal tax rate of 27%, not zero or 15%. Even delaying filing for Social Security to age 70 will not alleviate this situation. One’s actual situation can be a lot more complicated than this example if state taxes are involved and if one or both member of the couple are receiving Medicare and the large taxable income after making the withdrawal from the retirement account triggers an increase in the couple’s Medicare premium rates. Remember the two maxims from the first paragraph.
Stumbled on this video and it's really informative. I'm in my 40's currently at 24% marginal bracket. My retirements are mostly in 401k tax deferred and taxable investment accounts. Would you recommend switching up 401k to roth for the future years?
Do it. Set aside $ to cover taxes, and be sure to ask your tax advisor about this, but you will have to do the conversions eventually, and the best times to do that are low-income years, and years in which you can easily afford to pay the taxes. You might be able to do all of your conversions penalty-free, beginning at age fifty-nine and a half, but discuss this with your tax advisor before doing anything.
You DON'T have to be 59 1/2 to start rolling $ from trad. to Roth. The underage penalty only applies if you're taking the $ out from a traditional IRA to spend.
Preferentially, emphasize Roth over tax DEFERRED. Do self directed Roth IRAs (if within income limits) and Roth 401k (if employer allows it, and if can stay in 24% bracket when losing the deduction currently associated with tax deferred 401k). I have been retired for a several years, have too large a tax DEFERRED IRA balance and am scurrying to convert to Roth IRA to diminish future impacts of IRMAA and reqd RMDs-wish I had more Roth.
My plan has always been to convert part of my tax deferred 401k into a Roth IRA, live off money from my pensions and what is left of my t401k, let the Roth grow over the next 10 years on my conversions. I would then draw from Social Security at age 70, and live off my pensions, Roth, and Social Security, and hope that my t401k has minimal distributions at 72.
Excellent presentation! It’s so unfair that taxes get more complicated in retirement! My head is spinning….and I have a B.S. in Accounting.
Some would call me poor. My income is $31K/yr. I spend about $10K/yr. So my wealth increases by about $20K+/yr. I live simply with no debt. I'm a 74 year old veteran. My only pre-tax account has about $100K balance with RMD about $4K/yr. That $4K goes into another account, I don't spent it. I pay no income tax at all and my property tax is $0/yr also. I could spend 3 times as much and still be stable financially in the current economic climate. I'm OK. My total wealth is slightly greater than $500K. If everything crashes, I would still be OK because I have actually been really poor in the past and I know how to do that too.
It’s raining knowledge….and it’s free. All you have to do is put a bucket outside and let Eric and Tony fill it.
Hahaha, thanks Stuart. You're the man!
The section at 37:22 on ACA planning for age 62-65 is very interesting. I was wondering if you have any videos that cover ACA planning and tax strategies for early retirement from, say, age 50 to 62 ?
Thanks Eric, this is the best planning that I have seen.The examples of the ACA planning and the catchup zone helped me. I would love to see more examples.
This was very well done and aligns with my research into this topic. Some of my friends thought it was nuts for me to say I was delaying social security until 70. When I explained to them it was about tax planning, medical coverage pre age 65, and an overall decumulation strategy they started to get it.
The caveat is - we don't know when we will "go"
@@ecs1749 You are correct. There are no guarantees in life. I can only plan based on what I know and what I’m comfortable with.
I am not sure I will wait until 70 for SS but watching this video and other ones by Eric has convinced me to delay SS for several years in order to at least convert a large portion of my 401K and IRAs to Roth. I knew I had a tax time bomb with the deferred accounts but I see the reality that converting a large portion now to take the tax hit without SS makes the most sense. Its especially important to convert now knowing that the tax brackets revert back in 2026 so its a definite tax increase at that time.
@@samc9156But aren't Roth conversions limited to $7500 for 2023? I don't consider that a large amount compared to the whole account value.
@@robdupree5687No, the amount you are referring to is the CONTRIBUTION limit to your Roth - not what you can convert into it. There are no limits to how much you can convert into it, but you have to pay taxes on whatever amount you choose to convert.
The best illustration I ever saw. Thank you🎉
My father was responsible for running a profitable sawmill for many years. It was his job to get the most lumber yield from every saw log. That wall paper behind you… You don’t need more timber. You need a better plan
😂😂
WOW! This is very eye opening. I wish I had seen this ten years ago (71 years old).
Your well-designed slides massively help.
This is basically the vidio I have looked for vor years. I have always thought about taxes in this way. Not a tax planner ut accumulated enough knowledge over the years to basically force myself to maximize every year possible into roths from close to when they started. I will be sharing this link with a bunch of people that I hope will watch because you explain it better than I ever could.
Wow Eric, drop the mic! Well thought out video on this topic!
Thank you John! I really appreciate it!
Fantastic! Extremely useful, intelligent and well thought-out. You’re the best source I’ve found on TH-cam.
This was a terrific presentation. I now understand the WHY behind my financial planner’s recommendations. He says that things will be preferable tax moves, but now I really get it. Thank you so much. I have a lot more confidence in the plan he provided.
Thanks Eric. This is one of the best videos out there that I have watched. It has cleared out a few clouds over me. Really appreciate it.
This is the BEST withdrawal strategy video! Thank you. I think you saved me a lot of taxes from RMD.
Very thought provoking presentation.
Well done sir. Thank you for your time and efforts.
Just found your channel. Fantastic presentation. Appreciate your information on retirement tax planing and strategies. subscribed!
Great point on SS. I am delaying until 70 for the reason you mentioned. At least 15% will not be taxed for federal and zero in my state. So in the 25% bracket instead of 31% with state I only pay 21% for a 10% savings, thus I want to maximize that income and COLA.
4 months to A62, this “clear zone planning” is exactly I need to work on. Thank you!
This was awesome! Everyone who wants to DIY their early retirement needs to watch, study and understand every aspect of this. Sadly, most people are looking for the "one size fits all" answer and won't take the time to comprehend all the moving parts involved.
Thanks Eric!
Yes! All connected and make tangled web tax trap! Cascade into tax Nitemare !
Special Thanks for the ACA section! My wife is retiring at 62 and we will lose her coverage. We are looking to tip toe thru this ACA zone by paying the ACA HSA high deductible premuims thru my S-corp business and still do some targeted roth conversions especially if the market tanks as in 2020. Traditional IRA's are $1 mil so we have only 10 years to convert before taking SS at 70.
Excellent detailed presentation. Thanks
We are retiring at 54 (year we turn 55) plan is to utilize 401k and brokerage until 59.5, balancing each to keep taxes in 12% bracket and qualifying for ACA. From 59.5 until will gradually move income from IRA and 401k avoiding using Roth and Brokerage unless needed to keep tax bracket in 12%. From 70 on, will use both SS and spouse SS and Roth/brokerage to keep taxes close to 0.
Like your plan.. I was going to utilize almost a similar plan 401k and pension.
You covered exactly what I plan to do. 65 in 6 months. Filing single for the first time in a long time. Starting over. Fixed pension, convert as much to Roth as possible from 401 and willing to take the irmaa hit if it makes sense. Delay ss until forced to take it etc. lots of room left for 2023 to stay under the second irmaa tier, still room under first tier.
Great video once again! Full explanation of the obstacles we will be facing. Fortunately, we have a modest Traditional IRA, good size Taxable account and small Roth. Gives us options to pay minimal taxes. Love your videos
One of the best videos on this topic I have seen. Thanks!
Great presentation! Glad to see the ACA benefit being integrated in planning. Most (including myself) don't see this one coming. Ouch!
This was a fantastic explanation, thank you for sharing this information,
Always good content. I just retired and looked into Roth conversions but now thinking differently. If I divide my assets into 2 buckets, (which are about equal in total) tax deferred where either I or my heirs will pay tax and tax free or step up in basis where heirs pay no tax, which includes stocks, cash equivalents and life insurance. My tax deferred combined with SS and a pension is enough for me to live on even after paying tax for 30 years. So I will treat it like a salary as if I am still working and pay tax as I go. This will allow the non taxed bucket to grow so it becomes a higher % of the total so my heirs collect more tax free.
Excellent segment! Knowledge is power! Especially, since I have 2 government pensions, government 401K, and social security. Fortunately, I also have tax free VA service-connected disability compensation.
This was extremely helpful. Thank you!
Excellent information. I may have to hire your firm in the near future.
Thank-You! Such good information.
This video just came up on my YT feed, playing in the background. While your points about withdrawal optionality and cleanup zones are well-considered, two obvious gaps in your presentation were:
1. The prevent value of paying a tax now vs. 10 years in the future. This is even more relevant now with the higher discount rates.
2. You assume people have no income from their taxable portfolios. This will tend to blow up the zero percent LTCG space.
Without that 0% space and accounting for PV, how does your presentation change?
you said to plan for what is going to happen in 25 years of retirement. How do you know what the tax laws/parameters are going to be in 5 years much less 25? Really interested in how you plan for that.
Great video! we are in the withdrawal phase ages 74-77 puzzling about which buckets to use each year; any suggestions on software, videos or books would be appreciated.
You r amazingly excellent on your financial planning. I should have known you before I turned 65, now I’m delaying my SS to offset my Medicare IRMMA payment and planning to convert to Roth this year 2023 though very limited. Thanks a lot.
Thanks Eric, I ditto the comments directly below. Very very well explained. Excellent!
I really enjoyed this ... ACA and Roth conversions are interesting ... I hope you cover singles more. Note that having a larger taxable account can mean a substantial forced dividends income source.
Great Information!!! thanks. Now I have an idea of what to do to plan my tax strategy for each year.
You are phenomenal in this one! Usually I can’t keep up with you. Thanks !
I’ve got taxable, pretax, and Roth accounts. Which account should I take my “fun money” from? (fun money can be used any time…)
Please do some for peep w smaller amounts? So many are for >$1million what about those w
Hi Eric: This is very informative and very clean. Is there an Excel template you have where in one can enter the tax bracket one will be in and have suggested pull for a given income from Roth, vs Taxable vs Tax deferred...etc., including social security
Eric I really enjoy your style of confering this information. Delaying SS to 70 isn't in the cards when your at 62 but still have 2 minor children at home thru to your 70th birthday. The children are eligible for SS checks if you claim at 62. I would love to see a video on this scenario because most older parents don't know about it.
I waited until I was 66 y/o but it was wonderful to get a monthly check that went directly into their 529. Also there is always the assumption that your health will hold out.
Thank you for another great video! I wish you would offer paid consultations for those who manage their retirement plans themselves.
aca strategy was extremely useful. Great information!
Most deductables on aca are more than 5000 per person. Bronze plans are 9000 per person max out of pocket. If you get the 5000 deductable plans are hundreds per person on premiums
Nice presentation. A couple of times you emphasized "tax savings" but the real criteria to optimize is 'after tax' account value or utility. Working on converting my IRA to Roth prior to SS.
Thank you Ralph! I mean them synonymously. Understand the distinction but know that we care about after tax wealth and distributions ultimately.
Thanks, great video. Seems like with a larger tax deferred account and need large ROTH conversion, you probably can forget about the ACA subsidy, subject to larger IRMAA penalties and better to delay S.S till 70. Would be nice to see a video for large accounts like $5M (maybe $2.8M in tax deferred, $1.9M in taxable (let says $0.9M LT gain), $0.3M Roth and 12 years to RMD. What will be the best tax efficient withdrawal to reduce taxes? I am sure married couple will do better than a single person since they can convert more in the same tax bracket.
Great suggestion Allan. I am planning on doing some case study withdrawal strategy videos in the future. Something similar to this situation will certainly be on the case study list.
Great video, I have the similar concern.
How to decide the IRMAA level a single taxpayer with large tax deferred accounts should convert to? Thanks.
have similar situation 2.8 M taxable, 1.4 Deferred ( IRA/401k ), .3 Roth... Thinking of building Self managed Annuity from Fidelity and move large portion of 2.8M Taxable to Annuity to control the income 2.8 M taxable is generating due to dividends. This video is great. I was planning to use 60-70 10 years to move 1.4 Deferred to Roth at 100K each year ( keeping net under 80K after standard deduction ), while realizing Capital gains in Taxable at zero rate ( however Dividend income really throws it off the track ). Let next generation deal with Annuity related Taxes much later on in case they do not get high income. Its good problem to have to be in position to pay taxes.... :) ... Any other ideas...
Excellent. Thank you; just what I needed to learn (take some gains while I'm in lower income during low fed tax time and before taking social security). I think you referred to it as "cleanup time." I only have 2 years to do this before RFA so this may mean I might want to take ss later so I can do some more clean up before ss. Liked and subbed!
So glad I'm a subscriber. I learn something every time. I made notes for my planning. 🙂
Eric, excellent work. Thank you for sharing this like a teacher. The more you do this the better you get at it, and subsequently so too do those fortunate enough to watch and learn. Well done and well worth the time for your team to invest in. There is a tipping point that is reached (no one quite knows when) where all of these videos and presentations will begin to compound in returns. Keep up the work and stay the course.
I really appreciate the kind words Jeffery. We won't be slowing down :)
Thanks for taking the extra time for this comment. Means a lot
Good advice in the catch up zone ..by delaying social security and using less recorded income more taxable income I went from $1550 dollars a month cobra health insurance to $0 monthly $0 deductible ACA /Medicaid insurance.Have to be careful how much of Ira tax deferred account are withdrawn.
So glad to have found your channel! Thanks so much for what you do.❤❤t
Excellent presentation. I like the framework you provided in this presentation. A lot of good food for thought. I was hoping you guys have a SaaS online to use for a reasonable fee of course. Thank you again!
cannyou add a video like this if you must take social security disability (based on different ages, what accounts you should draw from and when)?
Excellent review - thanks!
Does it ever make sense for someone that is retired in their 50's and taking ACA, to forgo subsidies to convert IRA to roth and make up the tax loss on growth of the roth? Or is it always better to wait for the "cleanup zone', when medicare kicks in, to do conversions?
It depends on a person's situation. If someone has huge tax deferred balances and estimate RMDs are going to be large and destructive, it may make sense to prioritize conversions vs. a subsidy. It all depends on the situation.
Would love to see a forward tax strategies with forced income above $70k
Will do in future videos!
Great video! I project out our assets, income, expenses and taxes for life. I am inflating the standard deduction and tax brackets with inflation. Do most tax advisors’ software do this? This makes RMDs look not as bad as I would have thought.
This is a very comprehensive overview, and a great video - thanks. I’m curious - how many years out from retirement does it makes sense to start planning this? It seems like we’re all guessing at future lax laws right now, but if retirement is farther away, it’s more of a guess. Is it best >7 years out to just focus on balancing the tax allocation buckets as much as possible? New rules will be there when you get there…
Hi there! Great video. Just recently learned about roth conversions with your videos we watched. How does the job & tax cut apply when trying to convert our 401k to roth ira while employed? We called Fidelity & asked if we can convert and they said we couldn’t but We weren’t sure if the representative knew what she was talking about. Thank you soo much for all your great videos!!!
This was FANTASTIC. It cleared up a number of things for me, and I had to go make a couple of changes to the Excel chart I’m using to estimate future taxes. I especially liked the list of considerations when tax planning, which helps make sure I’m not leaving anything out of my plan and that I’m watching for all the potential trigger points. Also the slide showing what considerations should generally rank higher in weighing alternatives. THANK YOU!
Thank you so much for the kind words Margaret!
Excellent analysis and explanation.
Thank you Thomas!
Eric, can you show a forward looking tax plan with forced income (pension) and more detail on incorporating SS? Most pensions range from $70-150k per year for state and fed employees.
@Giselle. Social security benefits are cut via 2/3 of pension.
Most high pension earners plus spouse won’t be able to get SS.
Just Google Pension and social security offset
So a couple pays $7390 in taxes when taking no social security, and $5449 when taking at 62. You're advising they pay $7390 for an additional 8 years to reach an optimal tax rate of $312 at age 70. Tax wise, they'll break even on that after another 8+ years, but what about the opportunity cost for the $43K/yr that could have been compounding all that time?
Like many, I have an RMD problem to clean up. But when I run the numbers, it is consistently worse for me to delay social security. The way I look at, social security is helping to pay the taxes on my Roth conversions and leaving more money in my taxable account.
Thanks for the info on the clean up zone. Useful!
I have watched many of your videos. This is the best.
Excellant presentation. Isn't it true that money you convert to Ruth IRA can not be touched for 5 years (both converted amount plus subsequent earnings)? If that were true, how do you have optionality by "pulling money out of Ruth"? Are you assuming we have a large enough non-converted money in the Ruth account to cover the amount you need to pull? Thank you.
Roughly How low do I need to reduce my 1.5 mil 401k to avoid XS RMD & 401K value creep from causing SocSec tax torpedo? Assuming married jointly filing with annual 47K SS benefit, & wife still working another 10 years earning $80k annually ? Would like to stay in 22-24% bracket ? Thant’s
Great information. Could you create another that includes 20% declines in stocks and bonds that occurs on average every 10 years.
Very informative, I think a series of videos breaking this down a bit.
SS is protected to only pay 78% of its monthly benefits in the future. How do you see this affecting the concept of delaying SS?
Thanks Eric, very comprehensive!! Are there any conditions for single filers over 60 to commit Roth Conversions up to 32% (within Catch-Up Zone) and forego some ACA benefits to avoid SS Tax Torpedo and IRMAA penalties in the future?
We only have two years before starting rmd,s and both of us are getting ss so I feel trapped!!! I wish I would have known about this clean up zone before I started social security
Wow. Eric. Full of info. Actually understand everything. unfortunately , I have to do massive Roth conversions before 2026. And balance inherited Ira withdraws. It’s massive. Sigh.
Thank you! Agreed that inheritances can really throw a wrench in a tax plan.
@@SafeguardWealthManagement yes. It’s grown substantially, it went from $340k last year to 1 million now. I have 9 years to take out. All Tesla. Ha ha.
What is so unfortunate about a large inheritance?
Would like to have seen. Numbers for us late 72 year old retiring folk...there have to be more then just me.
Just found your channel. Thanks.
Waiting on SS is a gamble on if you live long enough for not. Are you willing to take that gamble? People seem to be passing much young in my generation that previous so it doesn't appear to me we are actually living longer. Maybe one could take SS at 62 and invest it and then if they die early, at least the heirs will get some of it that the deceased has worked all their life paying into. If you need it, then you at least can take less from your retirement savings since you are getting SS and still leave a bit to the kidos. Everyone preaches delaying and the government hopes you do because they figure you will pass away before breaking even since Life Expectancy is 78 for a male and break even will likely be more like 81.
132% Social Security is only for those born before 1955. From 1955 until 1959 it's between 126% and 132% depending on which year you were born. How about living off cash first if you have it, and then doing Roth conversions. Deplete the cash and then fill it back up with withdrawals from Traditional accounts in later years but before age 70?
You are correct in regards to SS. Regarding living off the cash... it will depend greatly on the situation. If someone has that much cash while still has large tax deferred balances, I would prefer to invest the cash and prioritize conversions but every situation is different
This is great stuff. Very helpful and educational
Awesome overview, thanks!
Nicely done. I'm not understanding what "life expectancy factor" I would use if withdrawing IRA at age 65? The table I'm using starts at age 70 or I guess in 2022 72. Do I use the first year for each year until I reach my withdrawal year?
Great! And very thorough and well explained. Might mention in marriage QDRO (with younger spous) and QLACS and one off HSA payment as additional ways to reduce RMDs.
Cheers
Jef
What kind of sense does it make to tax social security which is itself funded by taxes to support retirees.
thank you for not talking so fast:)
NIce presentation. However, it would be nice to see more examples and your recommended action plan. Including an explanation as to why they should follow that specific strategy. Nice job!
Fair point. I was trying to avoid making this a 3 hour presentation. I am planning on recording case studies in terms of optimal withdrawal strategies
Great session: Love you channel and the level of expertise. Is there a level of deferred assets below which roth conversion don't make sense? Say i have 850000 in deferred 401k with small pension say 32000 per year. I retire at 60. good chance i will stay in 12 % (or 15) bracket as Married filing jointly. Does doing a 40000 per year roth conversion make sense? does the growth in the roth conversion make the conversion strategy worth while? I have used some calculators that say it doesn't. What are your thoughts?
Could you provide a link to your "Putting the Right Assets in the Right Accounts" video you mention at 28:05 please?
First, it helps to remember a couple of maxims: “Two things you cannot avoid are death and taxes” and “When things appear to be going well, you’ve obviously overlooked something.”
What is the “something”? It’s large dividend income in your taxable portfolio. You have to remember that capital gains and taxes are added together when computing their taxes and how your situation can be affected if an increase in ordinary income will move any dividend income out of the zero-tax range into a higher tax zone of 15 % or 20%.
If you fall into this situation where beforehand you are able to get some of your dividends tax-free due to having a low level of ordinary income before making the IRA conversion, if you do a IRA conversion to a Roth IRA or just take the IRA proceeds as ordinary income, the marginal tax that you will pay on your increase in taxable income can be the sum of your marginal ordinary income rate plus 15%.
Here’s a possible example: say the sum of unavoidable ordinary income of a couple filing jointly minus their personal deduction is $50,000 and the total of all of their capital gains and dividend income is more than the zero capital gains bracket both before and after making the withdrawal from the tax-deferred retirement account. What will happen in this case is that the marginal tax rate on the increase in total income will be the sum of the tax rate in effect at the upper end of their ordinary income plus 15% plus the taxes owed on the increased ordinary income up to the top of the total income for the couple at the top end of the increased total income. In this simple case, the marginal tax rate on the tax-deferred account will be 12% (the tax rate for $50,000 of taxable ordinary income) plus 15% from the loss of the dividends moved from the zero-tax bracket into the 15 % bracket for a new marginal tax rate of 27%, not zero or 15%. Even delaying filing for Social Security to age 70 will not alleviate this situation.
One’s actual situation can be a lot more complicated than this example if state taxes are involved and if one or both member of the couple are receiving Medicare and the large taxable income after making the withdrawal from the retirement account triggers an increase in the couple’s Medicare premium rates.
Remember the two maxims from the first paragraph.
Good explanation and advice!
So so awesome. Thank you so much.
Fantastic work Eric
Stumbled on this video and it's really informative. I'm in my 40's currently at 24% marginal bracket. My retirements are mostly in 401k tax deferred and taxable investment accounts. Would you recommend switching up 401k to roth for the future years?
Do it. Set aside $ to cover taxes, and be sure to ask your tax advisor about this, but you will have to do the conversions eventually, and the best times to do that are low-income years, and years in which you can easily afford to pay the taxes. You might be able to do all of your conversions penalty-free, beginning at age fifty-nine and a half, but discuss this with your tax advisor before doing anything.
You DON'T have to be 59 1/2 to start rolling $ from trad. to Roth. The underage penalty only applies if you're taking the $ out from a traditional IRA to spend.
Preferentially, emphasize Roth over tax DEFERRED. Do self directed Roth IRAs (if within income limits) and Roth 401k (if employer allows it, and if can stay in 24% bracket when losing the deduction currently associated with tax deferred 401k).
I have been retired for a several years, have too large a tax DEFERRED IRA balance and am scurrying to convert to Roth IRA to diminish future impacts of IRMAA and reqd RMDs-wish I had more Roth.
Very informative thank you!!
Can one do Roth conversions prior to retiring ? Wonderful how you present this information.
Of course! You can perform a conversion at any time
Good info. Been thinking about this now thay middle age.
Outstanding presentation! Thanks for the information. I look forward to watching your other videos.
Thanks Mike!
My plan has always been to convert part of my tax deferred 401k into a Roth IRA, live off money from my pensions and what is left of my t401k, let the Roth grow over the next 10 years on my conversions. I would then draw from Social Security at age 70, and live off my pensions, Roth, and Social Security, and hope that my t401k has minimal distributions at 72.