Should I do Roth Conversions or Claim Social Security When I Retire?
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- Опубліковано 7 чер 2024
- Now that you have money saved in your IRA and 401k accounts and you’re starting to prepare for retirement, one of the big questions that you might start asking is what’s the best way to take income once you get into retirement? Should you do Roth conversions, start taking Social Security, or do a combination of the two?
We find that people aren’t typically prepared for the tax surprise that comes along with taking Social Security so we want to take you through another hypothetical example of a couple in this same situation. We’ll show you what would happen if they do Roth conversions upfront versus taking Social Security right away. How do each of these scenarios impact the other option?
Find out how we arrive at each decision and learn about the factors that will help determine what path you should take.
Here’s some of what we discuss in this episode:
0:00 - Intro
0:54 - Hypothetical case details
4:02 - Baseline
8:13 - Focus on Roth conversions
16:20 - Focus on Social Security
21:38 - Scott’s opinion
#rothconversions #socialsecurity #taxplanning #retirement
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my attention span on these type of videos is about 10-15 minutes.
Interesting
for any video
Retired in our 50's and have been living on pension plus some cash from retirement funds. Doing okay by making Roth conversions over the last 5 years and not taking social security yet. Plan to make a couple more Roth conversions then take social security in 2 years probably. We are both the same age so this plan seems to be the best for us tax-wise. Good show.
A lot of variables not mentioned in this video. How much are they spending every year that is coming out of their non taxable accounts? That is money that can grow and make you more money(Tax free). I would also like to see how it affects people who retire at 62. So many examples from advisors start at people being 65 already. That is convenient, they are already on medicare and do not have the ACA healthcare and it's restrictions to deal with. You can tilt this example in many directions. Life is just not that simple.
You could create hundreds of videos based on all the variables you point out. I think his idea to show people the basics which is why he has the disclaimer down below. Personally, I use this as a baseline explanation and then factor in my own variables. Such as spouse is only 60. ACA issue. Etc.
Good video. As you said it’s a case by case basis. There are clearly good reasons. Your example with zero tax is a good one and a no brainer. I am going to defer SS and not convert. I would rather pay more tax later with inflation adjusted dollars and when I may have moved to Florida with zero state tax. Given that the standard deduction and tax brackets are adjusted for inflation, it will take a lot more income in the future to land in the same tax bracket. Taxes paid on Your RMDs will start at lower brackets and will be paid very slowly over many years. if I don’t need my RMDs I can invest them in a brokerage account where I can defer gains indefinitely, harvest losses, and my heirs get a step up in basis and don’t need to empty the account in 10 years as they would with an IRA (including a Roth). Year 1 RMD on $1m IRA is only $40k, which will be in a very low bracket or zero. If you invest what you saved by not converting you can cover your RMD taxes for many years.
Life long Florida resident here...consider Tennessee...another no-state tax state...Florida is not what it was 50 years ago...kinda sleepy, affordable. No more. Best to you.
My focus is to optimize spending rate with Probability of Success and ending retirement after tax value. It should rarely be to minimize total taxes paid especially when Roth conversions are included as opportunities. In this, Roth conversions, IRA consumptions and when to take SS is dictated for you by the optimization process.
What?
So what is the pro or con of just taking an IRA distribution and not spend the after tax accounts when delaying SS. This would decrease their future RMD’s, especially if they delay SS to 70.
BTW, if both of them have adequate earnings records a split strategy of one earlier and one at 70 makes a lot of sense, unless longevity is very low.
Very short answer.
Pro: lower taxes. Mitigate if not Avoid torpedo tax on SS
Cons: portfolio balance
@@AbeFroman-zx5hs The Pro makes sense. As to the Con, the portfolio balance doesn’t change, just the location of the assets, assuming a “portfolio” includes, pre and post tax, brokerage etc.
My question is how to determine whether using pre or post tax money makes more sense when delaying SS, or is it a wash when taking from future RMDs. In the example he was saying they were using their brokerage account for the delay.
@@randolphh8005 I mis read. You’re right. It doesn’t make much difference.
I drained the brokerage account and took advantage of the cap gain exemption.
I’m on my 10th year of retirement
I was able to do a combination of dist and Conversions within the 12% bracket. Clocks ticking so i ramped up to 22 for the last year and the next two of low tax rates. I hit fra later this year but I think I m going to wait until 68. It pretty much ensures zero tax when I turn 73. Yielding the least amount of taxes and highest portfolio.
Good luck!!
PS. I thought of taking wifes early too but the analysis for her works best to wait. That said. I’ve already added a scenario without the spousal benefit because I think democrats own the country now. It’s about a 400k kick in the teeth
@@AbeFroman-zx5hs
Well the latest news is that the Trust Fund should last until 2035. Even then, there is just a shortfall.
No way are any benefits going away for us already eligible.
We all know that no one will propose a solution until the 11th hour, but the problems are easily solved by making our kids take the hit.
And, yes the decision on when a spouse takes is complicated depending on ages and working records, but the fact is that there is a high likelihood of one person dying significantly earlier than the other, meaning that the smaller check goes away sooner. For many couples the smaller earlier check mitigates risk of delaying for the large check. The absolute worst strategy is both taking at 62 when SS income matters to the couple.
It sounds like you have gone through the analysis, which many don’t.
Here is how we are planning. Stop earning income at 58. (Been debt/mortgage free for years.) At 59 1/2 begin drawing down 401k to the Standard Deduction. Live on that annual withdraw to 62, then begin SoSec. Spouse never contributed so gets half of my benefit. She is 5 yrs older so gets her full credit of half of my benefit. Continue to take distribution from 401k to the SoSec provisional income point where no tax is owed. That is about a 15k annual distribution from 401k. What we don’t spend, redirect to our Taxable brokerage account. Meanwhile, brokerage and Roth (his and hers) remain untouched. Frugality is dear friends with Freedom.