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Avilynn
02-23-2005, 6:54 PM | Post #138307 |
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Hi Copie,
I am posting this post specifically for you.
I am referring to your post at Conv. 2'178 which I copied below.
31. Vig:
copie| 02-20-05 | 10:51 PM
I have not changed my mind on rolling over to a Roth all I can. Guess I will always be figuring the best way to do it. What if I put off SS one year and use some sale of stock to pay say up to a 100000 at a time. What if I roll over the first of Nov. and then sell the stock in Jan. 2006 and pay the est. tax. The capital gains tax would be in 2006. See what I am doing is playing " what if". How much will it help me if I transfer money from taxable(sale of stock) to tax free(Roth) on my SS tax? I have a mind full of what if I do it this way or that way. See where I am coming from?
I did not have it straight in my mind on the tax for the spouse. See once one of us dies then you loose some deduction then and more if one of us is over 65.
It all boils down to someone has to pay some tax and when is the best time to do it.
I have even worked out the payback on rolling over the total money my Long term health care would pay for three years and using the prem. that I will save to pay back the taxes. Guess I love to figure every angle.
Copie
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Well, while glancing at today's WSJ I see that our pal Jonathan Clements recommends the same approach. Here is an excerpt from it:
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Let's say you retire at age 62. At some point in the next eight years, you will want to start taking your monthly Social Security benefit. Up to 85% of that money could be taxable. Similarly, after age 70, you will have to begin minimum distributions from your retirement accounts, and that will also boost your taxable income. Put it together, and it looks like Uncle Sam has you on the ropes.
You will, however, have a little time before you start Social Security and before required minimum distributions kick in. During those years, the stocks and bonds in your taxable accounts will generate dividends and interest, and you may also receive a company pension. But beyond that, how much taxable income you have is at your discretion.
MANIPULATING INCOME: Want to turn this to your advantage? Suppose that, once you are in your 70s, you will likely be taxed at 25% or more, thanks to Social Security and required retirement-account distributions.
To soften that blow, you might tap your IRA and 401(k) even earlier. My advice: While in your 60s, withdraw enough from your retirement accounts each year so that -- when these sums are combined with your other income -- you get to the top of the 15% federal income-tax bracket, but no further. That will allow you to shrink your IRA and 401(k), reducing the amount that might get dunned at 25% later on.
If you are married filing jointly and take the standard deduction, you could have gross income of as much as $75,800 in 2005 and still be in the 15% bracket. Meanwhile, if you are single, the figure would be $37,900. If you are age 65 or older, both amounts would be modestly higher, because you qualify for a larger standard deduction.
You could, of course, spend these withdrawals. But if you don't need the cash, you might instead convert small chunks of your IRA to a Roth IRA each year. Once the money is in a Roth, it will grow tax-free and it won't be governed by the minimum-distribution rules that affect 401(k)s and regular IRAs.
Indeed, if you want to make your kids happy, you will leave your Roth untouched and instead bequeath the account to them. Your children would be subject to minimum-distribution rules. Still, they could spread their Roth withdrawals over their lifetime, giving them years of tax-free growth. "The Roth is the best asset you can inherit," Mr. Lange argues.
A Roth conversion makes most sense if you can pay the resulting tax bill with taxable-account money. If you have to dip into your IRA to pay the conversion tax, you can still come out ahead, Mr. Lange says. But the case isn't as strong, so you should probably convert only if you are anxious to avoid minimum-distribution rules during your lifetime or, alternatively, if you are sure that whoever empties the Roth -- whether it's you or your heirs -- will be in a higher tax bracket than you are today.
As you gauge how much income to generate in your 60s, don't forget about Social Security. As a rule, you should take reduced Social Security benefits at age 62 if you don't expect to live beyond your early 80s. Meanwhile, those with a better family health history might delay benefits until their full Social Security retirement age, thereby garnering a larger monthly check.
If you were the family's main breadwinner, also factor in your spouse's life expectancy. The reason: If your spouse outlives you, his or her survivor's benefit will hinge on the size of your monthly check.
Originally posted in thread: 2194
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