So confused about Social Security

[VacationForever]

After you have met time requirements on the ROTH their is no earnings involved for tax purposes. So I don't see how it would count

I decided to do some reading on this... during conversion from 401K/IRA to ROTH IRA, the amount will add to MAGI, in which will affect your Medicare Insurance premiums if you do so at 63, impacting Medicare at age 65, and so on and so forth.

As long as your ROTH IRA withdrawal has met the 5 year requirement and taken out after 59.5, it should not affect MAGI.

 

[sue1947]

I know.... But if I do it before I early retire, the tax implication would be huge while still working. If I wait till I am not working, then I would move it at a rate to keep at 27% or less.

I retired at 53 and I have been doing the above only I keep it to under the 15% rate. That keeps the cap gains non-taxed and there are a few other items that depend on my MAGI so I don't do more. It helps, along with calculators, to run a 'what-if' scenario in a tax program. That helps to find hidden implications you may not have thought of.
I try to rollover when stocks are down so more shares convert. I have full confidence that they will eventually go back up and those gains will be tax free. I think the end of Sept has strong potential for a big downturn so will wait until then for this year's batch.

Sue

 

[rapmarks]

A lot of the options you have now were not available to us, and a lot of taxes that exist now did not exist when we were putting money away in iras. Here is what has turned out to be a mistake, I went to work after I retired to get the Medicare credits as were not covered by social or Medicare. If I had t, we would have stayed on state plan which would cost us about half of what we are paying with same deductible, copay and out of pocket max.


Sent from my iPad using Tapatalk

 

[geekette]

The penalty she was referring to is the Medicare Part B and D premium. As a single, if you have MAGI (all income) above $85K you pay a higher premium. For married filing jointly it is 170K per year. My husband was paying the maximum Medicare premium while we were working. It was $504 per month this year until we sent in a letter to indicate that we now have no more income and his premium dropped back to $134 per month.

So when you start RMD, and your RMD + Social Security exceeds $85K a year, you no longer pay the "standard" Medicare premium. These are the two tables for Part B and D:

Big thank you there. This helps 50ish me understand, and I always appreciate knowledge! The ole make more, pay more deal.

 

[geekette]

Unless I'm missing something at 59.5 I pull as much money as I can each year from IRA/401K, still keep my self in a reasonable tax bracket and roll it all to my ROTH IRA. Yes I pay taxes on withdraws but I move it to an account that earns tax free from that point. If I can get a large chunk moved by 65 Medicare age, I'll no longer have earnings on anything the Roth earns other than dividends. So this should not effect my MAGI thus helping me keep below the thresholds you have posted.

I believe you are correct, as rules sit now, but watch for the conversion rules to change as I feel like there are going to be more limits, restrictions, etc., to clamp back door shut. For myself, I do not plan to convert as I get queasy thinking about paying the tax ahead of time, money I'd rather not part with before forced. Eventual tax free is worth less to me than bird in hand shelter. Pre-tax 401k a very nice thing to have during career.

I plan to live off of mostly 401k>IRA divs, maybe taxable portfolio divs, too, and leave Roth to last running money. At RMD time, I'd prefer to move IRA companies in kind to taxable, first move right before Dec 31 the year I am 70 to decrease the value upon which RMD is calc'd.

I can pay IRA withdrawal taxes from divs I already had coming in plus divs from the companies removed from shelter. Moved companies quit contributing to the growth of IRA, also.

Since my accounts are with same brokerage, it shouldn't be a big deal, move as many companies out of tax shelter as needed to meet min in the rest of years, last bit maybe wait for late Dec to get as close as possible to designing your own next RMD (heh, in theory...).

More valuable to me than cash is keeping my money paying me. Taking a hunk from my pocket to incur advance tax bill is not my style, no stomach for it. I absolutely understand how it is a good strategy for others, but I'm ok with pay as you taxation while I deplete the IRA.

 

[geekette]

A lot of the options you have now were not available to us, and a lot of taxes that exist now did not exist when we were putting money away in iras. Here is what has turned out to be a mistake, I went to work after I retired to get the Medicare credits as were not covered by social or Medicare. If I had t, we would have stayed on state plan which would cost us about half of what we are paying with same deductible, copay and out of pocket max.

ugh, that is maddening!

I get what you're saying, things that weren't available. It happens to every generation in one way or another. millennials have the Roth from get go, taking tax break later, some Boomers have safe (or not) pensions, some elderly cannot afford their illnesses+housing, I'm GenX and not at all sure how any of this is going to go. I am lucky to have HSA for about 6 years, but not nearly enough to get me to 90+ !!! It's hard to say what the landscape of anything will be in 8 years (retirement, I hope), but healthcare is the largest unknown wildcard. I can only expect it to cost a lot more than it does now. Reminds me to fetch a fruit serving...

 

[vacationhopeful]

And every one of us needs to lose weight, eat less sugar, eat more vegetables, exercise more and reduce as much stress from our lives as possible NOW .... all so our future YEARS can be lived with good health, to be active and in the best possible mental state.

And save MORE for those rainy and cold days in our old age in South Florida.

 

[WinniWoman]

All I know is my 70 year old brother-in-law who lives in Wilmington, DE in a house lives on $7500 per year! His property taxes are only $1300 per year out of that! He only needs his SS check (which he took at 64 years old) to survive. (He drove an oil truck for a living.). He is a widower. I am seriously thinking of checking into DE for our future even though it is not really the kind of place we would like to live and is far from our son.

 

[sue1947]

For myself, I do not plan to convert as I get queasy thinking about paying the tax ahead of time, money I'd rather not part with before forced. Eventual tax free is worth less to me than bird in hand shelter. Pre-tax 401k a very nice thing to have during career.

More valuable to me than cash is keeping my money paying me. Taking a hunk from my pocket to incur advance tax bill is not my style, no stomach for it. I absolutely understand how it is a good strategy for others, but I'm ok with pay as you taxation while I deplete the IRA.

This is penny wise and pound foolish. You are not taking into account the NON taxable gains in a Roth. That's the best tax shelter of all. If you take $10000 from an IRA/401K and put it into a Roth, you end up with $67000 after 20 years (assuming a 10% annual return). With the Roth, $57000 is non-taxable while with your regular accounts, all $67K is taxed. Multiply that $57K by 12 years of additional $10K rollovers (59.5 to 71.5 years) and you have $684000 of which only the original rollover amounts ($120K) were taxed. Increase that by whatever multiples of $10K you can do each year and we are talking serious money.

Sue

 

[sue1947]

All I know is my 70 year old brother-in-law who lives in Wilmington, DE in a house lives on $7500 per year! His property taxes are only $1300 per year out of that! He only needs his SS check (which he took at 64 years old) to survive. (He drove an oil truck for a living.). He is a widower. I am seriously thinking of checking into DE for our future even though it is not really the kind of place we would like to live and is far from our son.

There is absolutely no sense in living in a place you don't want to live just to save some money. You will be taxed wherever you live. The method may vary and the amount, but you end up paying one way or the other. Make your decisions about where to live based on your lifestyle and then manage your money and taxes as best you can. The stress you are putting on yourself to try to find that one magical best place will cost you more in the long run.

Sue

 

[VacationForever]

There is absolutely no sense in living in a place you don't want to live just to save some money. You will be taxed wherever you live. The method may vary and the amount, but you end up paying one way or the other.

Sue

I don't understand your statement. There are no state income taxes in certain states and the savings from paying taxes can be significant. Where I live now, there are no state income taxes and my property tax is only half a percent of the value of the home. This city is also consistently rated as one of the safest cities to live in the US.

 

[WinniWoman]

There is absolutely no sense in living in a place you don't want to live just to save some money. You will be taxed wherever you live. The method may vary and the amount, but you end up paying one way or the other. Make your decisions about where to live based on your lifestyle and then manage your money and taxes as best you can. The stress you are putting on yourself to try to find that one magical best place will cost you more in the long run.

Sue

I get what you are saying- but-some money? The property taxes alone in NY or NH are half a SS check! If one of us passes we would be in deep poo poo. To be able to live on under $10,000 per year is incredible to me. One SS check. No stressing about expenses and so on. What we like and what we can afford are two different things.

We essentially have no lifestyle. We work. We come home pooped and we get up and do it all over again. My husband has only one hobby and it is shooting at a range and occasional hunting which he is not good at anyway. He likes to putter around the house and fix things. I like to read and I like to swim. We like living in a small town or rural area. We do like mountains and lakes- which DE does not really have, though they have the ocean.We do wish to be near our son- that is true.

We need reasonable housing cost because we will only get so much for our home due to the bad market here. We need to get out of here because we are isolated - not good in old age. Yes- it does all stress me out thinking about it.

 

[sue1947]

I don't understand your statement. There are no state income taxes in certain states and the savings from paying taxes can be significant. Where I live now, there are no state income taxes and my property tax is only half a percent of the value of the home. This city is also consistently rated as one of the safest cities to live in the US.

What do you pay in sales tax and 'user fees'? How about utility costs. If you want services of some level, you will need to pay for it. You pick the level you are happy with. Whether you pay it via an income tax, sales tax, property tax, higher utilities/taxes etc or a 'user' fee every time you want to go to a park, it's all money out of your pocket. Yes, there are places that are cheaper to live than others, but if you don't like living there, what is the sense? Life is too short to spend much of it being miserable. Mpumilia said she was thinking of living in Delaware even though 'it is not really the kind of place we would like to live and is far from our son." So either find a middle ground of someplace closer to family with lower costs or accept the higher costs and plan around it. Making a decision and planning the finances required results in much less stress and more time to spend enjoying life.

Sue

 

[VacationForever]

?

What do you pay in sales tax and 'user fees'? How about utility costs. If you want services of some level, you will need to pay for it. You pick the level you are happy with. Whether you pay it via an income tax, sales tax, property tax, higher utilities/taxes etc or a 'user' fee every time you want to go to a park, it's all money out of your pocket. Yes, there are places that are cheaper to live than others, but if you don't like living there, what is the sense? Life is too short to spend much of it being miserable. Mpumilia said she was thinking of living in Delaware even though 'it is not really the kind of place we would like to live and is far from our son." So either find a middle ground of someplace closer to family with lower costs or accept the higher costs and plan around it. Making a decision and planning the finances required results in much less stress and more time to spend enjoying life.

Sue

Sales tax is about 8 percent, not very different from where we formerly lived. Utilities not very different as well. Health insurance through the exchange is cheaper by 3K per year for similar plans. Parking is free. Groceries are slightly cheaper. We did a back of napkin calculation and we came up with a savings of 15K per year where we now live. No traffic congestion, people are nicer, much fewer homeless people in this city, almost not visible. We love our home, our views, our neighbors... our lives are peaceful here. The only downside is that I got to catch an hour flight to see my son since we moved away from him.

 

[isisdave]

Not many have to pay a higher rate for Part B or Part D, at least at first.

The percentage rate for RMDs is under 4% for the first four years. Say a single person is getting $35,000 in SS. He'd have to get $50,000 from his RMD to exceed $85,000 and rate the higher Part B/D premiums ... and that means his IRA would be $1.25 million. For a couple with $60,000 SS to exceed $170,000, that'd be $2.75 million.

The rate goes up in steps. If you're just over the $85k/170k point, you pay $53.50 a month each extra for Part B. To pay the maximum ($295 extra each), you'd have to have a MAGI of $214k/$428k, or an IRA of $4.475/9.2 million. The $134 most of us pay represents about 25% of the cost; the Medicare fund is paying the rest. Anyone who had to buy insurance just before age 65 won't have any trouble believing those numbers. Also remember this is MAGI, not gross income, so you get to deduct your mortgage, taxes, contributions, medical expenses over $10k (and that includes premiums), etc.

There's a surcharge for Part D too, but anyone with these resources probably does not need Part D. In fact, there might be more cost-effective alternatives to Part B, such as independent catastrophic-illness coverage.

You can avoid part or all of your RMD income by making charitable contributions directly from your IRA after age 70.5. These count against your RMD, but not as income. Folks with this amount of income and capital usually have other ways of optimizing their taxes, too.

 

[Sugarcubesea]

This is penny wise and pound foolish. You are not taking into account the NON taxable gains in a Roth. That's the best tax shelter of all. If you take $10000 from an IRA/401K and put it into a Roth, you end up with $67000 after 20 years (assuming a 10% annual return). With the Roth, $57000 is non-taxable while with your regular accounts, all $67K is taxed. Multiply that $57K by 12 years of additional $10K rollovers (59.5 to 71.5 years) and you have $684000 of which only the original rollover amounts ($120K) were taxed. Increase that by whatever multiples of $10K you can do each year and we are talking serious money.

Sue

Do you have to be 59 and a half to convert 401K into Roth?

 

[isisdave]

Only if you are still working for the employer that sponsors it..

https://www.goodfinancialcents.com/can-you-roth-ira-rollover-rules-from-401k/

 

[sue1947]

Do you have to be 59 and a half to convert 401K into Roth?

Once you are no longer employed by the 401K sponsor, you can do a direct rollover to a Roth or regular IRA whenever you want. The key is direct rollover. Set up the Roth first and then have the companies do a direct rollover between the two accounts. That avoids the possibility of the 10% early distribution tax as well as the likelihood of the 401K deducting taxes for you at 20%. Technically, you have a 60 day grace period to rollover the accounts. However, some companies have a policy of deducting income tax at 20% of any money sent out so you will want to do a direct rollover to avoid this. You will then pay taxes as needed.

Sue

 

[VacationForever]

Once you are no longer employed by the 401K sponsor, you can do a direct rollover to a Roth or regular IRA whenever you want. The key is direct rollover. Set up the Roth first and then have the companies do a direct rollover between the two accounts. That avoids the possibility of the 10% early distribution tax as well as the likelihood of the 401K deducting taxes for you at 20%. Technically, you have a 60 day grace period to rollover the accounts. However, some companies have a policy of deducting income tax at 20% of any money sent out so you will want to do a direct rollover to avoid this. You will then pay taxes as needed.

Sue

Can you take a distribution (and pay taxes) from a Rollover IRA and convert to Roth? Most publications I have seen is about rollover/conversion from an employer 401K to Roth?

 

[Sugarcubesea]

Once you are no longer employed by the 401K sponsor, you can do a direct rollover to a Roth or regular IRA whenever you want. The key is direct rollover. Set up the Roth first and then have the companies do a direct rollover between the two accounts. That avoids the possibility of the 10% early distribution tax as well as the likelihood of the 401K deducting taxes for you at 20%. Technically, you have a 60 day grace period to rollover the accounts. However, some companies have a policy of deducting income tax at 20% of any money sent out so you will want to do a direct rollover to avoid this. You will then pay taxes as needed.

Sue

Sue, thank you. That is great info

 

[sue1947]

Can you take a distribution (and pay taxes) from a Rollover IRA and convert to Roth? Most publications I have seen is about rollover/conversion from an employer 401K to Roth?

Yep. In fact, that used to be required. You had to rollover a 401K to a regular IRA and then could rollover to Roth. Now, you can rollover to a Roth directly from either. Everything else is the same as well, i.e. do the direct rollover and pay taxes etc.

Sue

 

[sue1947]

I seem to have become a cheerleader for Roth IRAs. I don't want to leave the impression I think Roth IRA are the best option for everybody. It depends on the individual situation. I think there is a place for both regular and Roth IRA. However, I suspect many of us started investing when the regular IRA was the only option. I was then too slow to realize the power of the Roth IRA so I've ended up with most of my money in regular IRAs and I am now trying to make up for lost time.
My advise to others: look at your individual situation. I'd max out the upfront tax deduction when in a high tax bracket, especially later when there aren't as many years for earnings to accumulate and then put the rest in a Roth. The longer timespan you have, the more the Roth makes sense and, if I was just starting out now, it would be all Roth.

But whatever type of account, my best advise is to save as much as you can as early as you can. Having any amount of savings is a great safety net for life's surprises. I hesitated a lot before opening my first IRA because I didn't know what the future held; what if I need the money for X, y or z? Then a newspaper article showed that the break even point for the tax advantages vs consequences was 7 years and I realized I wasn't tying the money up for 30 years, but just for 7 and I dove in. Then when the Roth came out, I didn't want to pay the taxes and only rolled over a small amount. So my advise isn't based on what I did, but what I now know I should have done with my 20/20 hindsight. Whatever I spent the extra money on is long forgotten, worn out or discarded. The money I did save allowed me to retire early and allows me to travel, on the cheap, but still... Having that choice to live where I want and how I want is priceless.

Sue

 

[VacationForever]

Yep. In fact, that used to be required. You had to rollover a 401K to a regular IRA and then could rollover to Roth. Now, you can rollover to a Roth directly from either. Everything else is the same as well, i.e. do the direct rollover and pay taxes etc.

Sue

Thank you!

 

[Sugarcubesea]

I seem to have become a cheerleader for Roth IRAs. I don't want to leave the impression I think Roth IRA are the best option for everybody. It depends on the individual situation. I think there is a place for both regular and Roth IRA. However, I suspect many of us started investing when the regular IRA was the only option. I was then too slow to realize the power of the Roth IRA so I've ended up with most of my money in regular IRAs and I am now trying to make up for lost time.
My advise to others: look at your individual situation. I'd max out the upfront tax deduction when in a high tax bracket, especially later when there aren't as many years for earnings to accumulate and then put the rest in a Roth. The longer timespan you have, the more the Roth makes sense and, if I was just starting out now, it would be all Roth.

But whatever type of account, my best advise is to save as much as you can as early as you can. Having any amount of savings is a great safety net for life's surprises. I hesitated a lot before opening my first IRA because I didn't know what the future held; what if I need the money for X, y or z? Then a newspaper article showed that the break even point for the tax advantages vs consequences was 7 years and I realized I wasn't tying the money up for 30 years, but just for 7 and I dove in. Then when the Roth came out, I didn't want to pay the taxes and only rolled over a small amount. So my advise isn't based on what I did, but what I now know I should have done with my 20/20 hindsight. Whatever I spent the extra money on is long forgotten, worn out or discarded. The money I did save allowed me to retire early and allows me to travel, on the cheap, but still... Having that choice to live where I want and how I want is priceless.

Sue

I have 9 to 10 years left before I retire and reach 65. So I'm thinking I should put 2% in my company plan. Dang, I feel like my head spins with all the choices. I need to do a ton of research

 

[Luanne]

I have 9 to 10 years left before I retire and reach 65. So I'm thinking I should put 2% in my company plan. Dang, I feel like my head spins with all the choices. I need to do a ton of research

I haven't read all of your posts, so I may have missed this, but does your company offer a matching plan for what you put into an IRA or 401K? If it does, I would suggest putting in the max your company will match, and more if you can.