patrick.net

Misc says

Every 10 years or so there is a quite vocal group of people (funded by billionaires, of course) that really push the idea of doing away with income taxes altogether and going with a national sales tax. If this ever gets passed, it would make the conversion look silly.

If that happens, then indeed the conversion would be silly.

Blue says

When I used 401k to Roth 401k calculator, I remember it make sense only if you have low income and not near retirement age otherwise it makes no sense to convert! Again, your parameters could be different.

Those are exactly my parameters. Low income now, and retired.

But yes, I suppose it's a good problem to have a lot of money trapped by ruinous taxes in a 401(k) rollover.

Patrick says

Blue says

When I used 401k to Roth 401k calculator, I remember it make sense only if you have low income and not near retirement age otherwise it makes no sense to convert! Again, your parameters could be different.

Those are exactly my parameters. Low income now, and retired.

But yes, I suppose it's a good problem to have a lot of money trapped by ruinous taxes in a 401(k) rollover.

It’s good to have problem then!
Now, you need to slow down and find optimal solution(s).

Here is some gambling involved!
Like I mentioned above, plan for next 2 to 3 decades of both growth to offset inflation that’s underestimated by many and withdraw at not too high tax ranges.
I need to mention one thing here that in my observation even in states like CA, majority won’t hit the 13% rate particularly year over year basis.
Stop hating too much on this basis alone.

The other option is convert it in few years at much higher rates. To regain those excess taxes paid on investments needs quite a few years or decades in moderate investment choices. At the same time, it’s not really worth chasing fancy stocks late in retirement except some minor percentage.

It’s not quite trivial but by exploring some strategies including contacting reputed financial experts can help minimize taxes.
Be careful as we all know most “experts” are stupid people before making any changes.

I used to list to Steve Peasely invest stock show 1220AM that he kept saying ‘Experts are always wrong’!

Blue says

plan for next 2 to 3 decades

One issue is that I probably don't have three decades left, maybe not even two. So I'm inclining toward spending some money soon.

stfu says

Seems like the biggest problem of PatNetters is having too much money!

More money than was expected or planned for in retirement.

Patrick says

Blue says

plan for next 2 to 3 decades

One issue is that I probably don't have three decades left, maybe not even two. So I'm inclining toward spending some money soon.

You're healthy as a horse, make that a centenarian!

Blue says

You can just live on RMD, SS and kick the remaining stuff down to kids

One quirk if you plan to leave stuff for the kids. Stocks left to heirs in an IRA must be RMD each year and totally withdrawn by year 10, with a Trad IRA distributions taxed. If you collect stocks over time outside any IRA, you pay no tax on the capital gains if you do not sell and the basis resets when the kid inherits it. For example, someone bought 1,000 of Apple at $3 per share in the 2000s. Now that $3,000 initial investment is worth $259/share or a total of $259,000. When the kid inherits, the basis resets to $259/share so he could cash out with no capital gains tax. The only tax for the parent was the tax on the $1 per year dividend that Apple paid.

HeadSet says

stfu says

Seems like the biggest problem of PatNetters is having too much money!

More money than was expected or planned for in retirement.

That's actually true in my case. I have more than I expected to have, but it's mostly trapped.

This discussion has got me going down the rabbit hole again. From my work using modeling programs including Pralana (subscription service) and the "Retirement Portfolio Model" spreadsheet on Bogleheads I have concluded that you have to pick one goal and pursue that goal:

1) Minimize Taxes
2) Maximize What you want to leave (sub categories - maximize tax advantages for heirs and/or give to charities)
3) Maximize what you want to spend on yourself during your lifetime.

I find that these three goals are often at odds with one another - I can't do one without negatively effecting the others. Anyone else spent time on trying to obtain different goals? I'm always up for new perspectives.

Note: There's some profound differences between the planners. For example "when to take SS". Pralana has wife and I both taking before 63 years old. Open social Security has one taking at 62 and one at 70. The Boglehead RPM shows clear advantages (depending on your chosen goal) of both of us waiting until 70.

Patrick says

I have more than I expected to have, but it's mostly trapped.

I see what you did there. You get to gloat about being rich, but if any relative asks you to share, "it's trapped."

Lol it is kind of convenient in that way.

But frustrating as well.

https://m.youtube.com/watch?v=LIP63k2uGuk

Maga_Chaos_Monkey says

https://m.youtube.com/watch?v=LIP63k2uGuk

An excellent but flawed explanation. In her scenario, you pay $35K in taxes on a Roth conversion with cash or by selling income-generating (tax inefficient) assets from an after-tax account. Then she compares the “lost” income on the $35K with the growth she expects to achieve in the Roth.

Well, you significantly changed your asset balance in the conversion, so it’s not an apples to apples comparison. Of course you come out way ahead if you convert cash (or other poor performing assets) to equities - and the stock market rally keeps going - especially if the money ends up in a Roth.

I have cash for a reason. If that reason didn’t exist, I’d have nothing but growth stocks in my after-tax portfolio. And if that were the case, her math wouldn’t come out so good.

To be clear, I think there are reasons for doing Roth conversions. I just hate how complicated it is. And I really wanted to like this chick, too.

I think part of her point (or all? I was falling asleep watching it) was to not use part of the rollover to pay the taxes, so you maximize $ going into the tax shelter. But yeah, good to have cash.

"Brevity is the soul of wit."
That girl takes too long.

The problem with all those Roth conversion videos is that they are for poor people filling up their 12% federal tax bracket.

Because my retirement investments are IRA, Roth IRA, a modest SEP-IRA, and a variable annuity, my actual net worth is largely in non-retirement accounts. IRA contribution limits previously were low ($2000) unlike today.

I think my first RMD from the IRAs will be about $20,000; so the tax owed won't be that bad.
The variable annuity doesn't have an RMD and of course my other accounts don't either.

I gave some money to a couple people and decided to just transfer some shares to them; they'll get stuck with the capital gains tax.
Boo hoo.

clambo says

I gave some money to a couple people and decided to just transfer some shares to them; they'll get stuck with the capital gains tax.

Now that is interesting. Someone asks you for $10k and you give them $10k in Apple stocks you bought long ago, so they net far less than the $10k after paying the cap gains tax. Kinda like giving a $100 Series E Savings Bond that only cost you $50 and won't be worth $100 for years. Even funnier if they do not realize the situation until tax time.

stfu says

3) Maximize what you want to spend on yourself during your lifetime.

It may sound selfish but this is most important for me. The only two things certain are death and taxes. I want to travel and enjoy whatever time I have between retirement and old age.

What's left, if anything is left, I'll probably give away to causes that matter to me and earmark enough for my kids that they can get a leg up, financially speaking.

I have a decade or two before I hang it up for good, so this is all academic. As I age, my perspective may change. But for now, I didn't work this hard to leave it to my kids. They can chart their own path.

The goal is to have a large enough nest egg to live off the interest / dividends and not touch the principal.

Headset, I gave them MSFT stock, I'm hanging onto my shares of AAPL for a while longer.

If the recipients of the shares hold them long enough, they'll make money at least.

All the 401(k) money that gets put into the housing market is going to be removed from the stock market.

Not saying that's good or bad, but that's what's going to happen.

@patrick I think Trump listened to your 401k idea. Now we will find out how it works out. I don’t think its a bad idea, I think it’s good actually.

Houses don't appreciate as fast as the stock market but I agree it seems fair enough to have your 401(k) money in real estate rather than the stock market.

In fact, it's already perfectly legal to buy a house as an investment in a self-directed 401(k). You just aren't allowed to live in it. Maybe all that's really going to change is that you'll be able to live in it.

It's one of those tradeoffs, everyone understands it. Hurts retirement, but if it puts a family into a house, might be ok.

Re: Tapping your 401k to buy a house. This is just Trump stream of consciousness throwing shit at the wall. Just like the 50 year mortgage, the transferrable mortgage, the 10% cap on loan rates, his 'plan' to fix healthcare etc... It will never go anywhere.

This is all about Trump is starting to get worried about the mid terms.

Instead of tax cuts, he should have concentrated on prosecuting employers of illegals. Enforcing existing laws that make the way healthcare operates in this country illegal. Perp walk for Albert Bourla (CEO of Pfizer).

From Market-Ticker :

Arrests, 8 USC 1324 (Employers): 2 Indictments, 15 USC Ch 1 (Med/Ph): 0
Indictments (Covid manslaughter): 0 Tariff "caves"/suspensions: Four

stfu says

Re: Tapping your 401k to buy a house. This is just Trump stream of consciousness throwing shit at the wall. Just like the 50 year mortgage, the transferrable mortgage, the 10% cap on loan rates, his 'plan' to fix healthcare etc... It will never go anywhere.

This is all about Trump is starting to get worried about the mid terms.

Instead of tax cuts, he should have concentrated on prosecuting employers of illegals. Enforcing existing laws that make the way healthcare operates in this country illegal. Perp walk for Albert Bourla (CEO of Pfizer).

From Market-Ticker :

Arrests, 8 USC 1324 (Employers): 2 Indictments, 15 USC Ch 1 (Med/Ph): 0
Indictments (Covid manslaughter): 0 Tariff "caves"/suspensions: Four

Agreed

clambo says

Headset, I gave them MSFT stock, I'm hanging onto my shares of AAPL for a while longer.

If the recipients of the shares hold them long enough, they'll make money at least.

Clambo, how does giving stock shares work without it being a transaction or tax event for both parties ?

stfu says

This is all about Trump is starting to get worried about the mid terms.

I agree. He sees house prices falling and is worried about midterms, so the 401(k) thing is a way to boost housing prices, even though higher house prices are BAD.

On the other hand, why not let people buy a house to live in using 401(k) money, since they can already buy investment real estate using 401(k) money?

stfu says

Instead of tax cuts, he should have concentrated on prosecuting employers of illegals. Enforcing existing laws that make the way healthcare operates in this country illegal. Perp walk for Albert Bourla (CEO of Pfizer).

The reason those things don't happen is mostly campaign donations.

Employers of illegals are huge donors, as are the AMA, hospital association, and Pfizer.

FortWayneHatesRealtors says

patrick I think Trump listened to your 401k idea.

That's what I was thinking too.

Floki; herewith the process of giving shares to someone.

At the Vanguard page, I scrolled down to the stocks portion.
I clicked the stock. There was a menu somewhere "gifting" (gift isn't a verb, but oh well).
To give someone shares, you need information:

1. name of recipient
2. brokerage where he has an account, and its DTC number
3. account number

Each brokerage has a number called "DTC Number" to identify it.

If the recipient has a brokerage account where you have your brokerage account, it's not necessary to indicate DTC number.

Patrick is an economic prophet.

clambo says

Floki; herewith the process of giving shares to someone.

At the Vanguard page, I scrolled down to the stocks portion.
I clicked the stock. There was a menu somewhere "gifting" (gift isn't a verb, but oh well).
To give someone shares, you need information:

1. name of recipient
2. brokerage where he has an account, and its DTC number
3. account number

Each brokerage has a number called "DTC Number" to identify it.

If the recipient has a brokerage account where you have your brokerage account, it's not necessary to indicate DTC number.

Ahh thx Clambo for the tips. So "gifting" is the more general process then. I'll check it out.

floki says

DTC number

Creepy organization at the center of all finance:

DTC is a subsidiary of the Depository Trust & Clearing Corporation (DTCC), a holding company that owns and oversees multiple financial market utilities. It operates as a limited-purpose trust company under New York State banking law and is registered as a clearing agency with the U.S. Securities and Exchange Commission (SEC). DTC is also a member of the U.S. Federal Reserve System.

Its core functions include:

Custody and safekeeping of over 3.5 million securities issues valued at $87.1 trillion, including equities, bonds, money market instruments, and municipal securities from more than 170 countries.

https://www.dtcc.com/client-center/dtc-directories