Author Topic: Trad to Roth conversion - more or less  (Read 20104 times)

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #150 on: October 20, 2021, 06:20:25 PM »
Yeah gotta take care of the big barking dog standing outside the door the first 5-10 years of RE starting at 35(SORR) before i start to look at the long term risk of possibly paying more tax due to over saving 40 years in the future - which is likely the case for everyone on these forums b/c 4% is by design incredibly conservative.

Fortunately, charitable donations can completely alleviate the problem of having to pay higher taxes in your old age.  I'd like to believe that a higher-than-average percentage of people on this website, being smarter than the average bear, will want to use their future wealth to make the world a better place instead of a worse one.

Agreed. This fire following may generate one of the most giving futures for our fellow humans and planet.

lhamo

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Re: Trad to Roth conversion - more or less
« Reply #151 on: October 20, 2021, 07:09:43 PM »
Threads like this are the reason why the MMM forums exist.  This is all of my favorite smart people in one place, solving relevant problems with solid mathematical analyses, and then sharing it freely for constructive criticism.  You folks make my day.

For the record, running the numbers of my family's personal financial situation has suggested that we only convert about $25k from trad to Roth each year (while subsidizing the rest of our spending out of taxable accounts or other income).  Yes, that is likely to result in higher RMD tax liability many years down the line, but it also comes with immediate monetary benefits beyond a lower current tax rate, such as free healthcare and college tuition.  I have paid exorbitant tax rates in the past, and I am happy to pay them again in the future, in exchange for guaranteeing the success of my financial plan during the uncertainties of an early retirement.

And honestly, what's the gripe about getting dinged for big RMDs?  "Oh noes I'm too rich, whatever will I do with all this money?!" is not exactly a position that garners much sympathy with me.  You got the benefit of avoiding all of that early SORR, and your only downside is the off chance that you'll end up with too much money when you're old?  Yea, that sounds like a win-win to me.

If you're really worried about paying higher taxes from your dragon-hoard-style mountain of money when you're old, consider the utility of large charitable donations to people or causes you believe in.  Build a homeless shelter, or donate it to a medical research fund.  Even the most selfish of rich bastards is probably okay with giving every person in their immediate family the gift-tax maximum of $15k, from you and your spouse, every year, for the last 10 years of your lives just to "spend down" their wealth while keeping it all in the family.

Sol!  Nice to see you back!

My strategy and philosophy is pretty much identical to this.  For the next 4-5 years I will probably be limiting Roth conversions + harvested capital gains to around 20-25k/year in order to minimize taxes, health care, and college costs.  Once I am past needing to worry about FAFSA rules I may bump that up quite a bit -- or at least alternate years where I try to minimize income/health costs and do bigger conversions + DAF contributions.  I'll probably do a hefty bit of my converting between ages 65-72 when I don't need to worry about the ACA anymore.   Once I'm taking SS at age 70 a bunch will be gifted, both to family and charities. 

Since i don't think it has been linked in this thread I'll mention that the Bogleheads spreadsheet has a robust Roth conversion planning section -- it is kind of a pain to figure out at first but once you have worked through it once it gets easier to update:

https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

With the strategy outlined above I have managed to come up with a model that minimizes RMDs and keeps me mostly in the 12% bracket from now to age 92, which is as long as it will allow me to plan for.  The 40 year limit is one of the annoying things about the tool for early retirees....   

sol

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Re: Trad to Roth conversion - more or less
« Reply #152 on: October 20, 2021, 10:10:03 PM »
holy crap - sol's back too?

Nah, not back, just reading up on tax advice for my own edification, as the calendar year draws to a close and I need to make some moves.

A quick perusal of the rest of the forum confirms for me my decision to stop participating so much here.  We don't deserve each other.

zolotiyeruki

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Re: Trad to Roth conversion - more or less
« Reply #153 on: October 21, 2021, 07:54:49 AM »
holy crap - sol's back too?

Nah, not back, just reading up on tax advice for my own edification, as the calendar year draws to a close and I need to make some moves.

A quick perusal of the rest of the forum confirms for me my decision to stop participating so much here.  We don't deserve each other.
That's why I generally avoid the "Off-topic" subforum. :)

eyesonthehorizon

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Re: Trad to Roth conversion - more or less
« Reply #154 on: October 23, 2021, 10:59:18 AM »
In a world where we embraced any vague semblance of morality, billionaires should not exist.  At least not anytime before a LOT more inflation.
I was delighted to see you pop up on the board; this is why. I really appreciate your willingness to speak for the possibility of a better culture. The board lost a lot when you made for the door (I know you have reasons, but I'd be willing to follow some other spaces if they were reflective of your combination of prudence, conservation, & moral fiber, just sayin'. Someone's got to fix things. If not us, who?)

Hope you're well!

MustacheAndaHalf

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Re: Trad to Roth conversion - more or less
« Reply #155 on: October 23, 2021, 08:31:27 PM »
Fortunately, charitable donations can completely alleviate the problem of having to pay higher taxes in your old age.  I'd like to believe that a higher-than-average percentage of people on this website, being smarter than the average bear, will want to use their future wealth to make the world a better place instead of a worse one.
Hmm, I never considered using donations to make the world a worse place... a "Dr Evil DAF"?   Reminds me of a line from Reservoir Dogs: "Torture you? That's a good idea. I like that."

The lowest earning years are a good time to do Roth Conversions.  Highest earning years are a good time to setup a Donor Advised Fund.

elysianfields

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Re: Trad to Roth conversion - more or less
« Reply #156 on: November 16, 2021, 01:22:32 AM »
Fortunately, charitable donations can completely alleviate the problem of having to pay higher taxes in your old age.  I'd like to believe that a higher-than-average percentage of people on this website, being smarter than the average bear, will want to use their future wealth to make the world a better place instead of a worse one.
Hmm, I never considered using donations to make the world a worse place... a "Dr Evil DAF"?   Reminds me of a line from Reservoir Dogs: "Torture you? That's a good idea. I like that."

The lowest earning years are a good time to do Roth Conversions.  Highest earning years are a good time to setup a Donor Advised Fund.

How much money would Dr. Evil have in his DAF?

Quote from: Dr. Evil
One MILLion dollars!!!!

And I didn't go to evil medical school for six frickin' years to spend my 'stache making the world a better place!!! bwahaha

Back on topic, I'd like to add my thanks to everyone else's, the value in this thread definitely provides great ROI on the cost of several years' MMM forum membership...

@Mr. Green, thanks for the great spreadsheet.  I've needed to start modeling our income & tax projections, RMDs, Roth conversion options, etc. for a while now, and your heavy lift will make that easier.  Our situation differs, so I'm adapting it to our needs.

As a US Foreign Service employee hanging on for MRA, like @MasterStache I'll receive a pension.  Since I'll retire before age 62 and therefore won't have reached SS eligibility, Uncle Sugar adds an annuity supplement for the period between my retirement and age 62 (aside: some FS folks opine that continuing to work after reaching retirement eligibility makes little sense because you never have another chance at that annuity supplement).  Uncle also contributes to FEHB in retirement at the same rate as for current employees, and my contribution share also remains the same, albeit with post-tax dollars upon retirement (while working, it's pre-tax).  My DW will also receive a small pension.

Thus I can discard with calculations of ACA eligibility, and perhaps post-retirement Medicare part B calculations (I'm not sure whether it makes sense to opt in to Medicare part B - another topic to model and analyze).

OTOH, the income from the pensions (and the annuity supplement in the first few years) will make it difficult to squeeze some tax-free or low-tax-rate Roth conversions into the pipeline.  We've both contributed heavily to taxable TSP and other retirement accounts, and are continuing to contribute to taxable through 2022, our last year to qualify for the AOTC, and we need to keep reducing AGI to maintain eligibility.

I'm using the model to decide whether to shift our TSP contributions to Roth in 2023 and beyond, because that would likely vault us into the 24% marginal tax bracket, keeping in mind that we're among those high-saving folks who will face high RMDs on our traditional funds and the accompanying federal taxes, with little room to convert at lower rates due to our pensions (boo-hoo, I know).

Also, assuming we maintain our health, we'll have so much income that taking SS before age 70 will simply increase our taxes further for little benefit (more tears fall into my beer...).

For ill or good we started contributing to Roth IRAs when they first became available in 1998 - our incomes were much lower then - and have simply continued to make IRA contributions only to Roth since then.  We may have missed out on some tax breaks in the past, and nevertheless have built up large Roth balances rather than adding to our RMD/tax problem.

Upon retirement, we plan to transfer our Roth TSP funds to Roth IRAs, because according to the document Important Tax Information About Your TSP Withdrawal and Required Minimum Distributions,

Quote from: Thrift Savings Plan
The Internal Revenue Code (IRC) requires that you begin receiving distributions from your account in the calendar year you become age 72 and are separated from federal service. Your entire TSP account—both traditional and Roth—is subject to these required minimum distributions (RMDs).

I'm definitely down with @ender 's idea of doing a cash-out refi just before bailing out - get the mortgage while we're still receiving paychecks.

JJ-

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Re: Trad to Roth conversion - more or less
« Reply #157 on: November 16, 2021, 06:31:01 AM »
Upon retirement, we plan to transfer our Roth TSP funds to Roth IRAs, because according to the document Important Tax Information About Your TSP Withdrawal and Required Minimum Distributions,

Quote from: Thrift Savings Plan
The Internal Revenue Code (IRC) requires that you begin receiving distributions from your account in the calendar year you become age 72 and are separated from federal service. Your entire TSP account—both traditional and Roth—is subject to these required minimum distributions (RMDs).

Not to derail the thread, but I will put out there that when you separate from service you are eligible to pull half of your assets out of TSP. I'll caveat that with I'm not sure if retirement counts but my guess it does.

You may want to consider leaving some funds in there depending on balances (maybe not) due to the availability of the G fund and how it pays long/intermediate term rates on a loss protected* short term like asset. That is, if your post retirement AA includes a bond component

Google G fund free lunch to find more.

*Inflation risk is the only downside to this fund
« Last Edit: November 16, 2021, 06:32:48 AM by JJ- »

elysianfields

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Re: Trad to Roth conversion - more or less
« Reply #158 on: November 16, 2021, 07:18:01 AM »
Not to derail the thread, but I will put out there that when you separate from service you are eligible to pull half of your assets out of TSP. I'll caveat that with I'm not sure if retirement counts but my guess it does.

Can you point to TSP documents to this effect?  Their Withdrawing from Your TSP Account for Separated and Beneficiary Participants doesn't mention anything about such a provision.

In my own case, I'll have attained 55+ and can withdraw upon separation in any case.  However, given the rock-bottom management fees, which make Vanguard look downright pricey, I'd prefer to keep much of my traditional funds in TSP as long as possible.

You may want to consider leaving some funds in there depending on balances (maybe not) due to the availability of the G fund and how it pays long/intermediate term rates on a loss protected* short term like asset. That is, if your post retirement AA includes a bond component

Google G fund free lunch to find more.

*Inflation risk is the only downside to this fund

Thanks for the tip.  We're not G fund investors so found this information enlightening.  That said, we feel that our pensions provide a partially inflation-protected annuity and thus aren't considering adding bonds to our portfolios.  Furthermore, since we carry both a mortgage and a HELOC on our property, we don't think adding bonds makes sense for us at this juncture.

JJ-

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Re: Trad to Roth conversion - more or less
« Reply #159 on: November 16, 2021, 08:19:50 AM »


Can you point to TSP documents to this effect?  Their Withdrawing from Your TSP Account for Separated and Beneficiary Participants doesn't mention anything about such a provision.

In my own case, I'll have attained 55+ and can withdraw upon separation in any case.  However, given the rock-bottom management fees, which make Vanguard look downright pricey, I'd prefer to keep much of my traditional funds in TSP as long as possible.
Looks like regs have changed slightly since the TSP modernization act with more withdrawal options so I'll need to review changes. However, partial withdrawals are still discussed and allowed here and here

Old regs i believe had you limited to two withdrawals and if you did a partial withdrawal it had to be half the value actually i think the partial could be any amount but the second had to empty the account completely. It looks like things have changed a bit and you're not stuck with exactly half for a partial so I'll need to read up on it.
Quote
Thanks for the tip.  We're not G fund investors so found this information enlightening.  That said, we feel that our pensions provide a partially inflation-protected annuity and thus aren't considering adding bonds to our portfolios.  Furthermore, since we carry both a mortgage and a HELOC on our property, we don't think adding bonds makes sense for us at this juncture.

I've said my piece on this elsewhere on managing invested assets separate from fixed income/expenses. Send me a PM if you're curious and I'll point you to the posts. However, looks like you're going to have a pretty low withdrawal rate from your portfolio so you may not need them.
« Last Edit: November 16, 2021, 08:31:18 AM by JJ- »

DaTrill

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Re: Trad to Roth conversion - more or less
« Reply #160 on: November 30, 2021, 06:23:13 PM »
As many of the previous posts have surmised, one can preform 1,000's of calculations and come up with a precise answer based on today's conditions, BUT all these conditions will change between today and any point in the future.  My simple heuristic in these impossible calculations, is to do 50/50.  Shoot for a 50/50 balance between regular and ROTH as any law change can make a perfect decision today a disaster in the future (see 2017 stretch IRA change).   

friedmmj

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Re: Trad to Roth conversion - more or less
« Reply #161 on: December 01, 2021, 08:13:21 AM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #162 on: December 01, 2021, 08:21:28 AM »
As many of the previous posts have surmised, one can preform 1,000's of calculations and come up with a precise answer based on today's conditions, BUT all these conditions will change between today and any point in the future.  My simple heuristic in these impossible calculations, is to do 50/50.  Shoot for a 50/50 balance between regular and ROTH as any law change can make a perfect decision today a disaster in the future (see 2017 stretch IRA change).   

not sure how this is relevant to a withdrawal thread in post fire.

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #163 on: December 01, 2021, 08:26:06 AM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.

i'm 80/20 SCV/LTTs and plan for about 8% returns blended

friedmmj

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Re: Trad to Roth conversion - more or less
« Reply #164 on: December 01, 2021, 08:59:37 AM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.

i'm 80/20 SCV/LTTs and plan for about 8% returns blended

Tough times to be an LTT investor.  I'm actually short the LTT using TTT.  Longer term I think it's a solid approach if you can stomach the swings, but right now I would NOT want to be long LTT.  I am anti-market timing on the equity side but I am more of a market timer and opportunist on the fixed income side.  I am maxing out I-Bonds and have the rest in intermediate TIPs (VIPIX) and ST Bonds.  Cash in HYSA including HM Bradley $100k yielding 3.5%.
« Last Edit: December 01, 2021, 09:02:07 AM by friedmmj »

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #165 on: December 01, 2021, 09:05:48 AM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.

i'm 80/20 SCV/LTTs and plan for about 8% returns blended

Tough times to be an LTT investor.  I'm actually short the LTT using TTT.  Longer term I think it's a solid approach if you can stomach the swings, but right now I would NOT want to be long LTT.  I am anti-market timing on the equity side but I am more of a market timer and opportunist on the fixed income side.  I am maxing out I-Bonds and have the rest in intermediate TIPs (VIPIX) and ST Bonds.  Cash in HYSA including HM Bradley $100k yielding 3.5%.

not too worried about it i have almost 2 years before any money is there and i'd have said similar things this time in 2019 and it would have helped a ton in 2020 in march

friedmmj

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Re: Trad to Roth conversion - more or less
« Reply #166 on: December 01, 2021, 09:09:42 AM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.

i'm 80/20 SCV/LTTs and plan for about 8% returns blended

Tough times to be an LTT investor.  I'm actually short the LTT using TTT.  Longer term I think it's a solid approach if you can stomach the swings, but right now I would NOT want to be long LTT.  I am anti-market timing on the equity side but I am more of a market timer and opportunist on the fixed income side.  I am maxing out I-Bonds and have the rest in intermediate TIPs (VIPIX) and ST Bonds.  Cash in HYSA including HM Bradley $100k yielding 3.5%.

not too worried about it i have almost 2 years before any money is there and i'd have said similar things this time in 2019 and it would have helped a ton in 2020 in march

I suspect you will be fine then.  Just don't be surprised if your LTT drops 30% in a given year and don't panic sell and lock in that loss.

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #167 on: December 01, 2021, 09:16:38 AM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.

i'm 80/20 SCV/LTTs and plan for about 8% returns blended

Tough times to be an LTT investor.  I'm actually short the LTT using TTT.  Longer term I think it's a solid approach if you can stomach the swings, but right now I would NOT want to be long LTT.  I am anti-market timing on the equity side but I am more of a market timer and opportunist on the fixed income side.  I am maxing out I-Bonds and have the rest in intermediate TIPs (VIPIX) and ST Bonds.  Cash in HYSA including HM Bradley $100k yielding 3.5%.

not too worried about it i have almost 2 years before any money is there and i'd have said similar things this time in 2019 and it would have helped a ton in 2020 in march

I suspect you will be fine then.  Just don't be surprised if your LTT drops 30% in a given year and don't panic sell and lock in that loss.

my plan is to have a rising equity glide path to eliminate SORR and don't plan to rebalance in these events i'm very well aware of the volatility of my 2 chosen asset classes. 

friedmmj

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Re: Trad to Roth conversion - more or less
« Reply #168 on: December 01, 2021, 10:09:03 AM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.

i'm 80/20 SCV/LTTs and plan for about 8% returns blended

Tough times to be an LTT investor.  I'm actually short the LTT using TTT.  Longer term I think it's a solid approach if you can stomach the swings, but right now I would NOT want to be long LTT.  I am anti-market timing on the equity side but I am more of a market timer and opportunist on the fixed income side.  I am maxing out I-Bonds and have the rest in intermediate TIPs (VIPIX) and ST Bonds.  Cash in HYSA including HM Bradley $100k yielding 3.5%.

not too worried about it i have almost 2 years before any money is there and i'd have said similar things this time in 2019 and it would have helped a ton in 2020 in march

I suspect you will be fine then.  Just don't be surprised if your LTT drops 30% in a given year and don't panic sell and lock in that loss.

my plan is to have a rising equity glide path to eliminate SORR and don't plan to rebalance in these events i'm very well aware of the volatility of my 2 chosen asset classes.

Is the 80/20 the goal of the rising equity glidepath or the starting point?  Where are you now in terms of allocation?

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #169 on: December 01, 2021, 10:19:05 AM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.

i'm 80/20 SCV/LTTs and plan for about 8% returns blended

Tough times to be an LTT investor.  I'm actually short the LTT using TTT.  Longer term I think it's a solid approach if you can stomach the swings, but right now I would NOT want to be long LTT.  I am anti-market timing on the equity side but I am more of a market timer and opportunist on the fixed income side.  I am maxing out I-Bonds and have the rest in intermediate TIPs (VIPIX) and ST Bonds.  Cash in HYSA including HM Bradley $100k yielding 3.5%.

not too worried about it i have almost 2 years before any money is there and i'd have said similar things this time in 2019 and it would have helped a ton in 2020 in march

I suspect you will be fine then.  Just don't be surprised if your LTT drops 30% in a given year and don't panic sell and lock in that loss.

my plan is to have a rising equity glide path to eliminate SORR and don't plan to rebalance in these events i'm very well aware of the volatility of my 2 chosen asset classes.

Is the 80/20 the goal of the rising equity glidepath or the starting point?  Where are you now in terms of allocation?

80.20 start - my current AA is far too complicated to explain b/c of all my company stock and 401k options. but if i control the dollar 100% its in SCV currently. there is next to nothing for the avg forum user to learn from my plans because they are incredibly A - Typical of people around here.

Mr. Green

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Re: Trad to Roth conversion - more or less
« Reply #170 on: December 01, 2021, 04:06:00 PM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.
We are retired now and keep an 80/20. No plans to change it for the foreseeable future.

friedmmj

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Re: Trad to Roth conversion - more or less
« Reply #171 on: December 01, 2021, 07:57:33 PM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.
We are retired now and keep an 80/20. No plans to change it for the foreseeable future.

I would consider dropping your modeled return at 80/20 to 4% real.  Bonds are yielding negative real returns so that 20% needs to be factored in. 

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #172 on: December 02, 2021, 05:26:15 AM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.
We are retired now and keep an 80/20. No plans to change it for the foreseeable future.

I would consider dropping your modeled return at 80/20 to 4% real.  Bonds are yielding negative real returns so that 20% needs to be factored in.

are you a bogglehead or something? these are insanely conservative numbers and even going with your suggested AA of a 50/50 or 60/40 has longterm negative affects on longevity of your stash.  I mean your 54 and are probably getting SSA in a few years so this may not matter much to you but these are incredibly TOO conservative projections and asset allocations in general IMO. 

friedmmj

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Re: Trad to Roth conversion - more or less
« Reply #173 on: December 02, 2021, 07:43:33 AM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.
We are retired now and keep an 80/20. No plans to change it for the foreseeable future.

I would consider dropping your modeled return at 80/20 to 4% real.  Bonds are yielding negative real returns so that 20% needs to be factored in.

are you a bogglehead or something? these are insanely conservative numbers and even going with your suggested AA of a 50/50 or 60/40 has longterm negative affects on longevity of your stash.  I mean your 54 and are probably getting SSA in a few years so this may not matter much to you but these are incredibly TOO conservative projections and asset allocations in general IMO.

I do hang out on Bogleheads but do not consider my self to be a "Bogglehead" lol.  I probably spend as much time here as there.  More to the point, I did not recommend 50/50 or 60/40 for a young retiree.  I just referenced those allocations as examples of where most retirees eventually gravitate towards.  I'm retiring in a couple months and plan to get to 60/40 within a few years by spending down on the cash side (currently closer to 50/50).  I think what a lot of folks are overlooking is that bonds are likely to yield negative returns on an inflation adjusted basis for a long time to come until the Fed figures out how to normalize monetary policy.  If you're going to have a significant bond allocation, you need to factor that in.  One way I am mitigating this is to max out I-Bond purchases ($20k per year for a married couple) which are guaranteed to yield at least the same as inflation.
« Last Edit: December 02, 2021, 08:00:28 AM by friedmmj »

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #174 on: December 02, 2021, 08:32:45 AM »

I needed that extra control to be able to really squeeze the juice out of the portfolio in order to "die with zero" or something close to it. I really like that it pulls the whole portfolio down close to 500k by our early 70's and then it's just a slow burn through the money because by that point our spending will drop with less mobility and poorer health to where Social Security and dividends will make up the majority of our spending needs.

The more I fine-tune this thing, the more it blows my mind how high the incomes get. I've stated before that I use a fairly conservative 5% ROI after inflation. The historical average is closer to 7%.


Just curious, what is your current and planned asset allocation in retirement?  If you are 100% stock then I think your 5% real return is achievable, but for most retirees, a 60/40 or 50/50 allocation is more common.  I am planning to be around 60/40 and my assumption is that stocks will yield 5% real while bonds will yield negative 0.5% real.  This results in a blended real return of around 3%.
We are retired now and keep an 80/20. No plans to change it for the foreseeable future.

I would consider dropping your modeled return at 80/20 to 4% real.  Bonds are yielding negative real returns so that 20% needs to be factored in.

are you a bogglehead or something? these are insanely conservative numbers and even going with your suggested AA of a 50/50 or 60/40 has longterm negative affects on longevity of your stash.  I mean your 54 and are probably getting SSA in a few years so this may not matter much to you but these are incredibly TOO conservative projections and asset allocations in general IMO.

I do hang out on Bogleheads but do not consider my self to be a "Bogglehead" lol.  I probably spend as much time here as there.  More to the point, I did not recommend 50/50 or 60/40 for a young retiree.  I just referenced those allocations as examples of where most retirees eventually gravitate towards.  I'm retiring in a couple months and plan to get to 60/40 within a few years by spending down on the cash side (currently closer to 50/50).  I think what a lot of folks are overlooking is that bonds are likely to yield negative returns on an inflation adjusted basis for a long time to come until the Fed figures out how to normalize monetary policy.  If you're going to have a significant bond allocation, you need to factor that in.  One way I am mitigating this is to max out I-Bond purchases ($20k per year for a married couple) which are guaranteed to yield at least the same as inflation.

this thread is about roth to trad conversion if you want to start a thread about negative bond returns you could do that. we're muddying up a very very useful thread with opinions of returns on asset allocations.

friedmmj

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Re: Trad to Roth conversion - more or less
« Reply #175 on: December 02, 2021, 08:43:10 AM »
Guilty as charged Boarder42!

To get this back on track, I would like to bring to your attention an excellent model that I found on my beloved Boglehead forum lol.

https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

Seriously though, this is a really great and free tool that does help a lot with Roth conversion strategies and scenarios.  I like to model the rates of return in real terms (i.e., ignoring inflation) so that you are looking at everything in today's dollars.  This is actually what made me think about the negative returns on bonds that I referenced earlier.  I'd be happy to help anyone who is interested in using it but maybe finds it a bit overwhelming.
« Last Edit: December 02, 2021, 08:44:48 AM by friedmmj »

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #176 on: December 02, 2021, 08:54:36 AM »
Guilty as charged Boarder42!

To get this back on track, I would like to bring to your attention an excellent model that I found on my beloved Boglehead forum lol.

https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

Seriously though, this is a really great and free tool that does help a lot with Roth conversion strategies and scenarios.  I like to model the rates of return in real terms (i.e., ignoring inflation) so that you are looking at everything in today's dollars.  This is actually what made me think about the negative returns on bonds that I referenced earlier.  I'd be happy to help anyone who is interested in using it but maybe finds it a bit overwhelming.

now this looks fun to lay with.

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #177 on: December 02, 2021, 09:11:26 AM »
well playing around with that for 15 mins just further solidified how safe our plans are even if i use 6% avg annual returns really this all comes down to SORR.  I'll have to dig in more to how this handles conversions. Basically it appear my only mechanism to control annual conversions is to increase my minimum taxable account balance

also it appears to draw down IRAs without penalties unless i'm missing something. 
« Last Edit: December 02, 2021, 09:15:33 AM by boarder42 »

friedmmj

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Re: Trad to Roth conversion - more or less
« Reply #178 on: December 02, 2021, 09:40:54 AM »
well playing around with that for 15 mins just further solidified how safe our plans are even if i use 6% avg annual returns really this all comes down to SORR.  I'll have to dig in more to how this handles conversions. Basically it appear my only mechanism to control annual conversions is to increase my minimum taxable account balance

also it appears to draw down IRAs without penalties unless i'm missing something.

 I believe it draws down your taxable account completely before using any funds from IRA in conversions.  You tell the model how much you want to withdraw per year from IRAs.  I will look into the penalty logic.

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #179 on: December 02, 2021, 09:55:35 AM »
well playing around with that for 15 mins just further solidified how safe our plans are even if i use 6% avg annual returns really this all comes down to SORR.  I'll have to dig in more to how this handles conversions. Basically it appear my only mechanism to control annual conversions is to increase my minimum taxable account balance

also it appears to draw down IRAs without penalties unless i'm missing something.

 I believe it draws down your taxable account completely before using any funds from IRA in conversions.  You tell the model how much you want to withdraw per year from IRAs.  I will look into the penalty logic.

if you know how to modify this logic it could be modified to work better here but i'm not sure how much better it would be than the case study spreadsheet

friedmmj

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Re: Trad to Roth conversion - more or less
« Reply #180 on: December 02, 2021, 11:06:58 AM »
well playing around with that for 15 mins just further solidified how safe our plans are even if i use 6% avg annual returns really this all comes down to SORR.  I'll have to dig in more to how this handles conversions. Basically it appear my only mechanism to control annual conversions is to increase my minimum taxable account balance

also it appears to draw down IRAs without penalties unless i'm missing something.

 I believe it draws down your taxable account completely before using any funds from IRA in conversions.  You tell the model how much you want to withdraw per year from IRAs.  I will look into the penalty logic.

if you know how to modify this logic it could be modified to work better here but i'm not sure how much better it would be than the case study spreadsheet

I reread my last post and realized I wrote someting incorrect and stupid.  It definitely uses your IRA as the funding source for the Roth conversion.   Your expenses are deducted from your taxable account as a running balance.  Regarding IRA withdrawals other than conversions, you need to tell the model those annual amounts which you can set up in a time series.

Also, the readme tab explains the answer to your penalty question

"Limitations

1. Non-deductible (after-tax) contributions to your traditional IRAs are not considered in calculating taxes on withdrawals.  All traditional IRAs are assumed to have been ""tax-deductible"" when funded.

2. The model does not calculate pre-59 1/2 traditional IRA or Roth withdrawal penalties, or the penalty on withdrawing Roth earnings within five years of opening the Roth if over age 59 1/2."

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #181 on: December 02, 2021, 11:26:45 AM »
well playing around with that for 15 mins just further solidified how safe our plans are even if i use 6% avg annual returns really this all comes down to SORR.  I'll have to dig in more to how this handles conversions. Basically it appear my only mechanism to control annual conversions is to increase my minimum taxable account balance

also it appears to draw down IRAs without penalties unless i'm missing something.

 I believe it draws down your taxable account completely before using any funds from IRA in conversions.  You tell the model how much you want to withdraw per year from IRAs.  I will look into the penalty logic.

if you know how to modify this logic it could be modified to work better here but i'm not sure how much better it would be than the case study spreadsheet

I reread my last post and realized I wrote someting incorrect and stupid.  It definitely uses your IRA as the funding source for the Roth conversion.   Your expenses are deducted from your taxable account as a running balance.  Regarding IRA withdrawals other than conversions, you need to tell the model those annual amounts which you can set up in a time series.

Also, the readme tab explains the answer to your penalty question

"Limitations

1. Non-deductible (after-tax) contributions to your traditional IRAs are not considered in calculating taxes on withdrawals.  All traditional IRAs are assumed to have been ""tax-deductible"" when funded.

2. The model does not calculate pre-59 1/2 traditional IRA or Roth withdrawal penalties, or the penalty on withdrawing Roth earnings within five years of opening the Roth if over age 59 1/2."

no idea how to do what you're saying here.  i have withdrawals from IRAs starting later - in general its pretty common for bogglehead stuff to need  reasonable modifcations to work here.

DaTrill

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Re: Trad to Roth conversion - more or less
« Reply #182 on: December 02, 2021, 03:33:31 PM »
As many of the previous posts have surmised, one can preform 1,000's of calculations and come up with a precise answer based on today's conditions, BUT all these conditions will change between today and any point in the future.  My simple heuristic in these impossible calculations, is to do 50/50.  Shoot for a 50/50 balance between regular and ROTH as any law change can make a perfect decision today a disaster in the future (see 2017 stretch IRA change).   

not sure how this is relevant to a withdrawal thread in post fire.

If Traditional/ROTH ratio is high, withdraw more from Traditional, until balanced 50/50 with ROTH.  The uncertainty of policy changes over the next 50 years makes any precise calculation meaningless.     

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Re: Trad to Roth conversion - more or less
« Reply #183 on: December 02, 2021, 04:34:13 PM »
As many of the previous posts have surmised, one can preform 1,000's of calculations and come up with a precise answer based on today's conditions, BUT all these conditions will change between today and any point in the future.  My simple heuristic in these impossible calculations, is to do 50/50.  Shoot for a 50/50 balance between regular and ROTH as any law change can make a perfect decision today a disaster in the future (see 2017 stretch IRA change).   

not sure how this is relevant to a withdrawal thread in post fire.

If Traditional/ROTH ratio is high, withdraw more from Traditional, until balanced 50/50 with ROTH.  The uncertainty of policy changes over the next 50 years makes any precise calculation meaningless.     

I can't say I agree with this sentiment. Of course your calculations will become less precise when you're modeling farther into the future where more unknowns apply. That doesn't mean we should throw our hands up in the air and say it's impossible to know what will happen so we should just go 50/50. Suppose under current law, Roth looks better for you than pre-tax. Current law would therefore point you to bias your contributions toward Roth. By going 50/50 you're betting on a law change in a particular direction: namely that Congress will make Roth look like a worse idea than it does today. You're neglecting that they could just as easily go the other way! Of course it's prudent to run through some modeling where Congress does make Roth accounts look worse and make sure you'll fare okay in that scenario, but that's a different thing entirely from betting on that law change to happen.

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Re: Trad to Roth conversion - more or less
« Reply #184 on: December 03, 2021, 12:16:37 PM »
If taxes go down or income limits go up or market tanks, Traditional balance is better.  If taxes go up or limits go down or market rips ROTH is better.  50/50 is not throwing up one's hands but providing an accurate estimate as opposed to a precise estimate.  When dealing with uncertainty, accuracy is more valuable than precision.  Of the two scenarios, which is more valuable estimate if you were traveling to LA on December 1st? 1. The high temperature at LAX on December 1st 2022 is estimated to be 72.56812 or 2. There is a 95% chance the high temperature at LAX on December 1st 2022 will be between 70.2 and 75.6.
 
As it is quite easy to find a "#", many retirees focus on the exact temperature when the far more valuable estimate is establishing a 95% confidence interval. 

All of these estimates should also be conditioned by current and expect tax bracket for each individual and the estimated duration in each bracket.  If income limits/tax rates are rise/fall, I would raise the Trad/ROTH to maybe 55/45 or if income limits/tax rates fall/rise, I would adjust to 45/55 Trad/ROTH.     

 

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Re: Trad to Roth conversion - more or less
« Reply #185 on: December 03, 2021, 01:23:09 PM »
Okay, but why suggest a 50/50 ratio for everyone right now? The current incentive structure heavily favors one over the other for quite a lot of people. 50/50 is saying "ignore the current rules and assume they're as likely as not to completely flip it in the opposite direction by the time you withdraw."

Going along with your weather analogy, it might or might not rain in LA next week. It probably won't, but it might. Do I go 50/50 and make sure half my suitcase is full of waterproof clothes, or do I take a look at the existing pattern and pack mostly for dry days? I think it makes more sense to do the latter. Pack a small umbrella just in case, but leave the waterproof pants at home.

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Re: Trad to Roth conversion - more or less
« Reply #186 on: December 04, 2021, 04:00:14 PM »
Average for all should be 50/50, but not one person could be 50/50.  Any point estimate for an individual is useless, all the provider of this stat is communicating is their lack of statistical knowledge.  The 95% confidence interval for optimal Trade/ROTH ratio is between 60/40 to 40/60.  Anyone providing more precision than this does not understand the underlying assumptions of their point estimate and should be asked to explain why they haven't shared their Nobel prize winning new statistical procedures or ignored.       

Policy uncertainty overwhelms all point estimates for anyone over any time period where tax policy can change (Once a year, See tax act 2017).  Point estimates are also a pet-peeve for anyone who understands statistic as they are useless, regardless of how many spreadsheets are used. 

For packing, one would do more of a Bayesian/Random Walk estimate and wait until the day before travel before making any climate estimates.  Random Walk is basically the best predictor of tomorrow is today and Bayes would use today's estimate as the primary variable in tomorrow's climate.               

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Re: Trad to Roth conversion - more or less
« Reply #187 on: December 04, 2021, 06:14:45 PM »
The 95% confidence interval for optimal Trade/ROTH ratio is between 60/40 to 40/60.

From where do you derive this confidence interval, and to whom does it apply?

The traditional vs. Roth decision comes down chiefly to current marginal tax rate compared against your expected marginal tax rate when you withdraw. It's impossible to be perfectly accurate when estimating your tax rate decades in advance. We agree on this. Someone who expects a similar income during retirement to what they have today could do well with a 50/50 ratio because policy changes could easily make either choice look best in hindsight. Hedging your bets with a 50/50 ratio seems quite reasonable in this case. For someone making $300k today and planning to spend $50k in retirement it's a completely different story. Congress would need to triple the tax rate for the $50k bracket during this person's retirement in order for Roth to have been a better decision. I'll happily bet against that happening. An allocation heavily biased against Roth would make sense in this case.

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Re: Trad to Roth conversion - more or less
« Reply #188 on: December 06, 2021, 04:14:10 PM »
I maintain my position that each person's portfolio makeup, goals, and age can have an effect that requires a far more specific plan than "just be 50/50." My goal is to maximize the access to our money over our lifetimes. That can be accomplished a couple different ways, as my extensive posts in this thread have laid out, but all of them require a steady movement of money from tIRA to Roth. I'm sure we'd be 50/50 at some moment in time but we're not going to stop there because that would be inefficient and not allow us to accomplish our objective.

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Re: Trad to Roth conversion - more or less
« Reply #189 on: December 07, 2021, 12:29:48 PM »
The 95% confidence interval for optimal Trade/ROTH ratio is between 60/40 to 40/60.

From where do you derive this confidence interval, and to whom does it apply?


Take samples from investors and estimate the ex-post optimal Trad/Roth ratio for a standard desired duration.  One would have the average optimal Trad/ROTH ratio, the standards deviation of the optimal estimates, population size and follow below formula.  One could define the population by age, current tax rate or any variable of interest.  It would be laborious to collect the data and only provide limited useful information for a specific time period, specific current tax rate, age, retirement date.  But demonstrates the challenge of providing useful Trad/ROTH ratio and why the point estimates, although easy to calculate, are statistically useless for someone who understands the limitations of the estimate.

For example, one could look back 20 years and estimate that the optional Trad/Roth ratio the investor should have maintained for the past 20 years should have been 35/65, another person could have been 55/45, another, another, a few hundred, estimate mean and standard deviation and follow formula for optimal estimate with CI.  The calculation is simple, but the data collection is costly and complex.     

https://www.itl.nist.gov/div898/handbook/prc/section1/prc14.htm 

For example, a 100(1−α) % confidence interval for the mean of a normal population is
Y¯±z1−α/2σN−−√,
where Y¯ is the sample mean, z1−α/2 is the 1−α/2 critical value of the standard normal distribution which is found in the table of the standard normal distribution, σ is the known population standard deviation, and N is the sample size.

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Re: Trad to Roth conversion - more or less
« Reply #190 on: January 03, 2022, 05:41:59 PM »
This is a great discussion and I'm just now discovering how complicated this all gets.  I'm planning to FIRE in a few months.  At this point, I've way over-saved unless I seriously inflate my lifestyle.  This is in part due to trying to prepare for healthcare if the ACA does not survive (even though I think it will at this point).  Also, I was fortunate to inherit an IRA from my grandparents (my parents passed it on to me and my siblings) a few years ago but I've been basically ignoring it since I wanted to make it on my own.  Plus with COVID the last couple years, I wasn't as eager to FIRE anyway.  I'm 32 so will still be retiring from my career very young.

So I've budgeted more for healthcare than would be necessary if I can keep my income low and get a subsidy.  My state has separate healthcare programs for under 200% FPG.  If I can keep my income as a single person at around $25,759, I can get health insurance for ~$20 a month (it was $70 a month before the Rescue plan so maybe will change back) with low OOP costs.  On the other end of the spectrum, I can get health insurance on the open market.  I've found what looks like a good PPO plan, HSA eligible for ~$250 with $7k deductible/OOP max so $10k worst case.  I'm young and healthy so don't expect high OOP costs but anything can happen.  Obviously premiums will go up as I age.  Subsidies may start making more sense as I get older, but for now I think either be <200% FPG or get no subsidies and focus on conversions.  I've budgeted $7k per year for healthcare.  Dental and vision are included in the state plan but would be OOP for the open market route.

If I go the state plan route and keep income under $25.7k, taxes would be under $1200 total (fed + state) and I'd get a bigger property tax refund as well which would probably pay for about half my property tax.  Based on my current lifestyle and planned retirement lifestyle, I could easily live off this, taking an additional $7.2k out of Roth per year to pay my mortgage (PI only).  This would allow me a decent travel/entertainment budget and still cover all essentials, plus a decent chunk for house maintenance and car replacement funds.  I have enough Roth principal now to pay off my mortgage or make regular payments until it's paid off.  So basically, I'd be happy to live at $25.7k (adjusted for inflation) indefinitely.  BUT, this puts me at like a 1.9% WR.  So I'm pretty sure my assets are gonna grow quite a bit at that rate.  It's also very likely that I'll inherit a big chunk of change from my parents at some point (hopefully in a long, long time) since they over-saved even more than me.  I haven't even considered social security either.  With only 11 years or so of earnings, it won't be a ton but won't be nothing either.

I do have a decent chunk in taxable and Roth thanks to the mega backdoor (wish I'd started earlier and put less in taxable!).  My breakdown is approximately 25% taxable, 21% Roth, 4% HSA, 26% Traditional 401k, 24% inherited IRA.  Doing some modeling assuming 6% returns, my 401k alone could grow to around $4M by the time RMDs start if I do no conversions before then.  The inherited IRA RMDs start to get quite large too if I don't take out enough early on.  Then if I let the taxable account grow, the dividends will start to become significant and the basis will be low compared to gains.  It's all a giant balancing act with too many moving parts and unknowns to really plan for.

For 2022, I'll have employer healthcare for part of the year.  I'll do one last dental and vision checkup before I retire.  Then I plan to do the $250/mo open market plan for the rest of the year.  I'll convert enough to keep my income at the top of the 0% dividend/LTCG bracket ($41,675).  I still have some carryover capital losses from the 2020 crash.  $3k for this year and $2700 next year.  So next year I'll stay on the open market plan and do another conversion year to make use of the last of the capital losses.

Then I'm thinking of alternating between staying under 200% FPG and doing conversions.  Taxes will be almost $7k more in conversion years so that hurts a bit.  In market downturns, I can convert more.  In normal good market years, I can donate to my DAF to offset some of the income.  I'll also do QCDs when I get to RMD age, so I'm ok having a bit of a higher balance.  I'm not sure if I'll do every other year while I'm younger, or do a conversion every several years.  Probably just see what my balances look like each year and re-evaluate.  I was originally planning to just keep my income under 200% FPG as long as I could.  And if I end up with a ton, then I'll have more than I need and would be fine paying higher taxes and donating more.  But it probably makes sense to try and convert more while I'm younger and healthcare costs are lower.  I'd rather have the low OOP costs in my 50s rather than 30s.  Then again, maybe some day we'll have more affordable healthcare for everyone.  One can dream.

Sorry for the novel.  This thread really got me thinking about this and running the numbers.  I'm really grateful for this place and all the smart people here.  With the ACA considerations, how much to convert can be a really complicated question.  It's great to hear everyone's perspective on it.

sol

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Re: Trad to Roth conversion - more or less
« Reply #191 on: January 13, 2022, 03:06:49 PM »
Maybe a helpful note for anyone making annual Roth IRA pipeline rollovers:  it turns out you have to actually invest your money after the coversion.  Once your finances are on FIRE autopilot, it's easy to overlook these things.

We made our first rollover at the end of 2020, and our second at the end of 2021.  But after the rollover was complete the money was deposited into my settlement fund, and it sat there for all of 2021 while the market spiked 20%.  Not that a little extra cash buffer is necessarily a bad thing in my asset allocation, and one year of rollover funds is a drop in the bucket in the grand financial plan, but I'm still a little peeved that I left thousands of dollars of gains on the table by not logging back in to ensure that my rollover was properly assigned to the individual funds I wanted it to be in.

Oops.

Hopefully all of you are smarter than I was.  But just in case you're not, here's a tip:  after you complete your conversion, make sure to assign the balance to the correct fund(s) you have chosen in your AA. 


zolotiyeruki

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Re: Trad to Roth conversion - more or less
« Reply #192 on: January 13, 2022, 04:05:07 PM »
Maybe a helpful note for anyone making annual Roth IRA pipeline rollovers:  it turns out you have to actually invest your money after the coversion.  Once your finances are on FIRE autopilot, it's easy to overlook these things.

We made our first rollover at the end of 2020, and our second at the end of 2021.  But after the rollover was complete the money was deposited into my settlement fund, and it sat there for all of 2021 while the market spiked 20%.  Not that a little extra cash buffer is necessarily a bad thing in my asset allocation, and one year of rollover funds is a drop in the bucket in the grand financial plan, but I'm still a little peeved that I left thousands of dollars of gains on the table by not logging back in to ensure that my rollover was properly assigned to the individual funds I wanted it to be in.

Oops.

Hopefully all of you are smarter than I was.  But just in case you're not, here's a tip:  after you complete your conversion, make sure to assign the balance to the correct fund(s) you have chosen in your AA.
Definitely a worthy reminder.  I made a similar mistake when I helped my kids open their Roth IRAs last year--the money sat in their accounts for a few weeks, and missed several percentage points of gains.  I haven't made that kind of mistake a second time!

tj

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Re: Trad to Roth conversion - more or less
« Reply #193 on: January 18, 2022, 08:02:58 AM »
Maybe a helpful note for anyone making annual Roth IRA pipeline rollovers:  it turns out you have to actually invest your money after the coversion.  Once your finances are on FIRE autopilot, it's easy to overlook these things.

We made our first rollover at the end of 2020, and our second at the end of 2021.  But after the rollover was complete the money was deposited into my settlement fund, and it sat there for all of 2021 while the market spiked 20%.  Not that a little extra cash buffer is necessarily a bad thing in my asset allocation, and one year of rollover funds is a drop in the bucket in the grand financial plan, but I'm still a little peeved that I left thousands of dollars of gains on the table by not logging back in to ensure that my rollover was properly assigned to the individual funds I wanted it to be in.

Oops.

Hopefully all of you are smarter than I was.  But just in case you're not, here's a tip:  after you complete your conversion, make sure to assign the balance to the correct fund(s) you have chosen in your AA.

This isn't necessarily the case. I've converted mutual fund holdings from Traditional IRA to Roth IRA at Vanguard. The invested funds stayed in tact. It seems odd that your broker would have sold to cash when doing the conversion...

boarder42

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Re: Trad to Roth conversion - more or less
« Reply #194 on: January 18, 2022, 08:42:42 AM »
Maybe a helpful note for anyone making annual Roth IRA pipeline rollovers:  it turns out you have to actually invest your money after the coversion.  Once your finances are on FIRE autopilot, it's easy to overlook these things.

We made our first rollover at the end of 2020, and our second at the end of 2021.  But after the rollover was complete the money was deposited into my settlement fund, and it sat there for all of 2021 while the market spiked 20%.  Not that a little extra cash buffer is necessarily a bad thing in my asset allocation, and one year of rollover funds is a drop in the bucket in the grand financial plan, but I'm still a little peeved that I left thousands of dollars of gains on the table by not logging back in to ensure that my rollover was properly assigned to the individual funds I wanted it to be in.

Oops.

Hopefully all of you are smarter than I was.  But just in case you're not, here's a tip:  after you complete your conversion, make sure to assign the balance to the correct fund(s) you have chosen in your AA.

This isn't necessarily the case. I've converted mutual fund holdings from Traditional IRA to Roth IRA at Vanguard. The invested funds stayed in tact. It seems odd that your broker would have sold to cash when doing the conversion...

same here.  My rollover at etrade rolled over the shares of the stock i wanted rolled. and they stayed invested.

eyesonthehorizon

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Re: Trad to Roth conversion - more or less
« Reply #195 on: January 20, 2022, 04:39:24 PM »
Maybe a helpful note for anyone making annual Roth IRA pipeline rollovers:  it turns out you have to actually invest your money after the coversion.  Once your finances are on FIRE autopilot, it's easy to overlook these things. ...

This isn't necessarily the case. I've converted mutual fund holdings from Traditional IRA to Roth IRA at Vanguard. The invested funds stayed in tact. It seems odd that your broker would have sold to cash when doing the conversion...
My guess is that sol was rolling from a 401k or other qualified plan account (not an IRA) at the retirement plan provider to a separate financial institution (one he chose himself.) Most plan providers only want to distribute cash (unless it's internal at the same firm - which can be an easy way around that limitation, & afterward you can transfer the shares wherever.)

DaMa

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Re: Trad to Roth conversion - more or less
« Reply #196 on: January 20, 2022, 05:28:09 PM »
At Vanguard, I transferred from a rollover ira to a roth ira.  There was no selling.  They just moved shares between the two accounts.  I remember it being effortless.  Not so at Fidelity.

At Fidelity, they had to sell the tIRA shares and buy the RIRA shares, and I can't see how much it actually is until they put out a statement (or call).  I was over my target by $235 for 2021.  This is the 2nd year that I did this at Fidelity, and it was annoying. MPP, I know.

This year, I can't go over, because of the ACA subsidies.  I'm considering moving all my holdings to Vanguard.

tj

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Re: Trad to Roth conversion - more or less
« Reply #197 on: January 21, 2022, 09:20:44 AM »
Maybe a helpful note for anyone making annual Roth IRA pipeline rollovers:  it turns out you have to actually invest your money after the coversion.  Once your finances are on FIRE autopilot, it's easy to overlook these things. ...

This isn't necessarily the case. I've converted mutual fund holdings from Traditional IRA to Roth IRA at Vanguard. The invested funds stayed in tact. It seems odd that your broker would have sold to cash when doing the conversion...
My guess is that sol was rolling from a 401k or other qualified plan account (not an IRA) at the retirement plan provider to a separate financial institution (one he chose himself.) Most plan providers only want to distribute cash (unless it's internal at the same firm - which can be an easy way around that limitation, & afterward you can transfer the shares wherever.)

It seems like it would be a real pain to do annual rollovers from an Employer Plan versus sending it all to an IRA at once.

MustacheAndaHalf

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Re: Trad to Roth conversion - more or less
« Reply #198 on: January 22, 2022, 08:24:11 AM »
80.20 start - my current AA is far too complicated to explain b/c of all my company stock and 401k options. but if i control the dollar 100% its in SCV currently. there is next to nothing for the avg forum user to learn from my plans because they are incredibly A - Typical of people around here.
A few considerations for 100% SCV (small cap/value).  First, Larry Swedroe would be impressed, and I'd suggest his books for staying the course with SCV.  Second, SCV can underperform for many years before it catches up, which is why I stopped tilting SCV myself.  Third, SCV invests against big tech (large cap/growth) since they're opposites, and those big tech companies have huge advantages.

Those caveats aside, international small/value can be difficult, but it's important.  U.S. and international trade off performing better, with international having better value characteristics (P/E, p/b) right now.  I'd suggest using etdb's list, and then search for each on Morningstar's websites to get the 9-box weights.
https://etfdb.com/etfdb-category/foreign-small-mid-cap-equities/

Or you could say I was picking small/value ETFs incorrectly and ignore that advice - and since I did give up on SCV, I'd have to say it's a fair point.

terran

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Re: Trad to Roth conversion - more or less
« Reply #199 on: January 22, 2022, 08:43:48 AM »
At Fidelity, they had to sell the tIRA shares and buy the RIRA shares, and I can't see how much it actually is until they put out a statement (or call).  I was over my target by $235 for 2021.  This is the 2nd year that I did this at Fidelity, and it was annoying. MPP, I know.

Strange, I did a traditional to Roth conversion at Fidelity at the end of 2021 and they transferred shares just fine. I used the online "Transfer" workflow. It's best to do soon after market close to make sure it's completed that day once you know the closing value, but not at the next days closing value. I've gotten/seen different answers about the timing, but the earliest I've seen is to submit the transfer before 6pm EST.