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OT: a 'Perfect Storm' for Roth IRA conversions

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#1 Rogerdodger



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Posted 31 December 2018 - 02:51 PM

Trading is great in a ROTH account: less "taxing" paperwork/record keeping!



How the new tax law creates a 'perfect storm' for Roth IRA conversions ...


Today’s federal income tax rates might be the lowest you’ll see for the rest of your life


Tax brackets have been temporarily lowered and the standard deduction is DOUBLE this year.

Additionally, for owners of sole proprietorships, S Corporations and partnerships, if your taxable income is below $315,000 if married filing jointly, or $157,500 if single, your pass-through deduction is equal to 20% of your qualified business income (QBI)


After reaching age 70½, you can still make annual Roth IRA contributions.

You cannot make any more contributions to traditional IRAs after you reach age 70½.

Unlike with a traditional IRA, you don’t have to start taking annual required minimum distributions (RMDs) from Roth accounts after reaching age 70½, plus RMDs may effect your tax bracket just when the brackets increase.


There are income limits on ROTH contributions but there is a back door where contributions to a regular IRA are converted to ROTH.


In 2026, the pre-TCJA rates and brackets are scheduled to come back into force.


May  you all have the best ever new year.

Edited by Rogerdodger, 31 December 2018 - 02:59 PM.

#2 pdx5



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Posted 31 December 2018 - 11:09 PM

Thanks for another interesting post, RD.

But I do have a question. What is so wrong about RMD's?

Those give me a chance to spend some of my money which otherwise I may not.

What good is having money if one does not spend some of it?

RMD is like 5-6% of IRA value on December 31st. 

I am actually enjoying thoroughly that money which come out of the IRA each year and

goes into my cash account. In your 70's, your years are numbered, whether you like it or not.

Most of the time the IRA account grows by 5% so it is like a gift which goes on giving.


Besides, we get a decent tax deferral by shoving some money in IRA during working years.

So i do not begrudge the RMD being taxed when withdrawn. With Roth, you get no tax benefit

during high income working years. Agreed it is great for trading. But if you have not accumulated

enough by age 70.5 to start living in style, I would posit there is something not right.

Edited by pdx5, 31 December 2018 - 11:12 PM.

"Money cannot consistently be made trading every day or every week during the year." ~ Jesse Livermore Trading Rule

#3 cycletimer



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Posted 01 January 2019 - 12:29 PM

<<<But I do have a question. What is so wrong about RMD's?>>>

Here’s the downside to RMD’s. If you have a sizable IRA, no mortgage debt and zero deductions, you’re F*cked! For example, my Mother is age 79, no debt, sizable IRA balance and her RMD in 2018 was $284k. This is her sole source of income and her tax bracket is high (despite residing in TX, zero income tax state). Imagine if one resides in a state with income tax on top of federal taxes. RMD’s are a pain in the arse.

#4 pdx5



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Posted 01 January 2019 - 09:00 PM

Your mother needs to spend that money for herself, before it is too late, because no one can take with them to heaven.

Otherwise all that money will be inherited by you! Oh I get it now  lighten.gif

"Money cannot consistently be made trading every day or every week during the year." ~ Jesse Livermore Trading Rule



    Mark S. Young

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Posted 02 January 2019 - 12:50 PM


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