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Author: uzaname Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75339  
Subject: Investing after retirement Date: 3/19/2006 9:56 PM
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My wife and I have recently retired and would still like to remain investors. Contributions to a traditional IRA as well as a Roth are no longer possible is that right? Since all of our income now is a result of pensions and Social Security is there any acceptable and profitable ways to invest some of our money. Is it still possible to contribute to either of our IRA's? (traditional or Roth?) All input is appreciated. Thank You
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Author: sazani Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50606 of 75339
Subject: Re: Investing after retirement Date: 3/19/2006 10:51 PM
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Open a normal brokerage account and invest your excess retirement income there.

The only thing you should be doing with your IRAS and Roths at this point is drawing them down.

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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50607 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 1:00 AM
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My wife and I have recently retired and would still like to remain investors. Contributions to a traditional IRA as well as a Roth are no longer possible is that right? Since all of our income now is a result of pensions and Social Security is there any acceptable and profitable ways to invest some of our money. Is it still possible to contribute to either of our IRA's? (traditional or Roth?) All input is appreciated. Thank You
----------------

Without "Earned Income" you can't contribute to an IRA. Pensions and Social security are not earned income. Doesn't make any sense, but that's the long and the short of it.

New investments will have to be in Taxable Accounts so make sure that you utilize tax-efficient funds, as much as possible, for your investments. Either that or Tax-managed funds. You could also invest in Savings Bonds, but both EE and I Bonds are not looking too good right now. How about laddered CDs or a good Money Market Account?

Tax Efficiency Levels (Least Tax-Efficient at top):

-Hi-Yield Bonds
-TIPs
-Taxable Bond
-REITs
-Stock Trading Accounts
-Small-Value Stocks/Funds
-Small-Cap Stocks/Funds
-Large-Value Stocks/Funds
-International Stocks/Funds
-Large-Growth Stocks/Funds
-Most Stock Index Funds
-Tax-Managed Funds
-EE and I BTax
-Tax-Exempt Bonds

I'm in about your situation and have been investing in the Total Stock Market Fund (VTSMX) as my core investment for a few years now with very acceptable results. I also invest in the Wellington Fund (VWELX) which has been doing pretty good as well. My International exposure comes from an Exchange Traded Fund for Emerging Markets (VWO). I also have been investing in both EE and I bonds.

So...take your pick! There's always a way to keep invested.

Regards,
Bill



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Author: bighairymike Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50609 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 10:19 AM
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Is it still possible to contribute to either of our IRA's? (traditional or Roth?)

----------------------------------

You can't contribute to either, but you can convert traditional IRA dollars to the Roth. I am retired and that is what I am doing. I choose the amount I convert each year by staying just under the threshold for the 15% tax bracket. I figure that 15% is the best rate I will ever get from Uncle Sugar so I don't want any portion of that bracket to go unused. Also, the RMD's from my traditional will be smaller when that time gets here.





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Author: grevinnan One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50610 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 10:25 AM
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There is no requirement to withdraw funds from the Roth IRA at a certain age unlike the traditional IRA. The Roth IRA's future earnings will continue to remain tax free so you may want to make sure the money is invested to take maximum benefit of the tax free status.

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50612 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 10:48 AM
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I'm no expert, but I think if you put unearned income into an IRA, then you'll pay income taxes on it and it's gains when you take the money out. This would seem like a bad idea to me. I retired 7 years ago, although I still do a little part-time consulting on the side, as in very little. I continue to invest into my taxable portfolio, which I think is a great idea. I could put money into my IRA. In fact, my tax person just asked me to think about opening a qualified plan so I could put more away. I told her that I wasn't interested in putting more money into a tax-deferred plan, since I don't think I'll be in a lower tax bracket when I start taking it out. Also, I fear the Dems might find a way to put an annual tax on the net asset value of 401Ks and IRAs, with a healthy exemption to elimiate their voters from the tax hit. All in all, I think continuing to invest is a good idea, but I'm not really in favor of continuing to put more in tax-deferred accounts, but that's just me.

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50614 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 11:24 AM
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I'm no expert, but I think if you put unearned income into an IRA, then you'll pay income taxes on it and it's gains when you take the money out. This would seem like a bad idea to me

________________________________________________________________________

If you are referring to non-deductible contributions to a Trad IRA. That is a bad idea.

FL has an intangible tax that specifically exempts IRAs and 401Ks.Was that what your political rant was concerning?

buzman







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Author: Dullchisel One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50615 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 11:43 AM
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you said ....
"In fact, my tax person just asked me to think about opening a qualified plan so I could put more away. I told her that I wasn't interested in putting more money into a tax-deferred plan, since I don't think I'll be in a lower tax bracket when I start taking it out"

Still trying to get a handle on this stuff ...

If you have income from consulting, that goes toward qualifying you for a Roth IRA (as long as it's not TOO much income) .. Right? If you contribute to a Roth, then all the returns from investments are tax free, right?

If you put that money in your taxable portfolio, then returns from that are taxable.

It would seem to me funding the Roth is the better way to go since the higher tax bracket would not matter.

OTOH if you don't qualify for a Roth for whatever reason, then investing in your taxable portfolio may be best due to the higher tax bracket when withdrawn and the tax advantage of long term capital gains and dividends. If the money was put in a regular IRA, it would be taxed as ordinary income when withdrawn. Using the Roth is the key.

Is this right thinking?

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50618 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 1:11 PM
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Ditto on converting the traditional IRA to a Roth, if you still have money in a something like a 401K you may be able to roll it out to a TIRA, then convert it to a Roth The problem with this though is that if you are currently in a low enough tax bracket now that the conversion will be taxed at a low rate, then there is a good possibility that you will still be in a low tax bracket 30 years from now when you need the money so you could end up with less money overall when you might need it the most. I would hate to end up short of cash when I am 95, when I could have had a lot more available from a TIRA. By then if my biggest problem is being in too high a tax bracket, then I figure that I have pretty much won the game.

People tend to get freaked out about the required minimum distributions from the traditional IRA without running the numbers. They really are not as bad as many people assume. The required distribution only starts off at a few percent you won't have to really start drawing down the principle until you are in your late 80's. Check out the tables in the following link.
http://www.irs.gov/publications/p590/ar02.html#d0e12023

(gasp, choke, sound of "heck" freezing over) Another alternative to consider if you are fairly wealthy and high taxes is a big problem is an annuity outside of your retirement accounts. Be careful since they are almost an overpriced bad investment that many buyers regret, but once in a while they do make sense because of their tax advantages for high income people. Getting a good low cost one if it is appropriate will take lots of research and contrary to what some people say, they are actually very complicated investments, not simple ones.

Greg


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Author: Dullchisel One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50619 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 1:33 PM
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RMD

I had looked at the tables and found that my RMD was very close to what I have planned to draw anyway. I was afraid it would throw me into a higher bracket but it probably won't. I just plan to bump up my withdrawals some in the early years to lower the RMD and maybe convert some of the TIRA to Roth to boot.

For married and spouse less than 10 years younger you simply divide your balance at age 70 1/2 by 27.4 to get your RMD.

Dull

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Author: bighairymike Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50620 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 1:58 PM
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there is a good possibility that you will still be in a low tax bracket 30 years from now - watty56

---------------------

No intent to be politial here but IMHO, there is a strong chance that "low tax brackets" won't even exist 30 years from now. 15% now seems like good bet. How could they ever be lower...

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50621 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 2:33 PM
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FL has an intangible tax that specifically exempts IRAs and 401Ks.Was that what your political rant was concerning? <?i>

Actually, I don't think what I said qualifies as a "political rant." I simply was noting that I (along with many other thinking folks) invest with an close eye on the current tax laws and anticipated changes. Over my lifetime, the tax laws have changed quite a bit. Talk of intangible taxes or an intangible-like tax is hot and heavy within the Dem Party. There are Constitutional limitations on federal intangible taxes, but that shouldn't stop a crafty craftsman of federal legislation. Income taxes are almost certainly going to go up in the years to come, regardless of Dems or Repubs, but more so with Dems. Only a fool wouldn't consider these factors when deciding on an investment strategy.



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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50622 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 3:28 PM
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bighairymike:

<<<<there is a good possibility that you will still be in a low tax bracket 30 years from now - watty56 >>>>

---------------------

"No intent to be politial here but IMHO, there is a strong chance that "low tax brackets" won't even exist 30 years from now. 15% now seems like good bet. How could they ever be lower..."

No income tax but a consumption tax, like that FairTax proposes. Pay income tax now, and pay national sales tax when you withdraw from the Roth IRA and spend it.

Or, if taxes change that much, why suppose that Roth IRA withdrawals will remain tax free? I fully expect that one day, when Congress is looking for even more money, Roth IRAs will be taxed like non-deductible, traditional IRAs.

Bad dream weaver, JAFO




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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50623 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 4:17 PM
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>> I fully expect that one day, when Congress is looking for even more money, Roth IRAs will be taxed like non-deductible, traditional IRAs. <<

Doubt it.

Even the federal government wouldn't do that for money that was put in the Roth IRA while the "deal" was still on the table.

They may very well eliminate the Roth at some point and prohibit additional contributions in future years.

They might go to a national sales tax and negate much of the Roth advantage.

But I don't think money already in a Roth will ever be subject to income tax. I don't think the feds, no matter how revenue hungry, would choose THAT revenue stream. I don't think even the most tax-happy legislator in Congress would propose that for money already contributed in good faith.

#29

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50624 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 4:39 PM
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But I don't think money already in a Roth will ever be subject to income tax. I don't think the feds, no matter how revenue hungry, would choose THAT revenue stream. I don't think even the most tax-happy legislator in Congress would propose that for money already contributed in good faith.

Similar things were said in the early 1980's about the taxation of Social Security benefits. "Older taxpayers are more likely to vote than younger taxpayers. You can't raise their taxes." "You already taxed me on my Social Security contributions. How can you tax them again when I finally get my benefits?" And today WOOFs (Well Off Older Folks) pay taxes on 85% of their SS benefits.

I've got to agree with JAFO on this one. The day will come when some part of Roth IRAs will be taxed. I don't know when. And I don't know how much. But I am confident that it will happen.

--Peter

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Author: KenAtPcs Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50625 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 5:16 PM
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Similar things were said in the early 1980's about the taxation of Social Security benefits.

But the difference being, AFAIK, there was no explicit promise that SS benefits would never be taxed.

If the government breaks a promise such as that, tax cheating will sky rocket. Hell, I've never cheated once on my taxes, but even I would feel a right to do so. If my government can lie to me like that, then I feel no obligation to be a good citizen.

It ain't gonna happen, IMO.

Ken

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50626 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 6:09 PM
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But the difference being, AFAIK, there was no explicit promise that SS benefits would never be taxed.

Perhaps. But if you work through the tax code, it took a specific code section to exclude SS benefits from taxation. Because we start off with taxable income including "all income, from whatever sources derived." Then we start carving out exceptions to that general rule.

And that exception had a lot of history behind it. AFAIK, SS benefits had never been taxable. And those started sometime in the 1930's, I think. That's almost 50 years of precedent for not taxing SS benefits.

Still, I hope you're right. But I'm not planning on it.

And for full disclosure, all of my IRA money is in a Roth IRA. I got it there due to a couple of bad years with virtually no income. So I did the Roth conversion and paid no tax because of my other deductions. Absent that situation, I would not have done the conversion.

--Peter

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Author: KenAtPcs Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50628 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 6:36 PM
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That's almost 50 years of precedent for not taxing SS benefits.

As always, Peter, you make some excellent points. And it's very possible that if I were a generation back, I'd feel as strongly as many did concerning SS benefits being taxed.

So I did the Roth conversion and paid no tax because of my other deductions.

There's the rub with me. I was never eligible to contribute to a Roth while I was working (poor me, eh?), but once I retired, I started doing some Roth conversions every year, as long as the conversion was in the 15% tax bracket (plus CA). So I've paid dearly for the expectation that the gains, if any, in my Roth *won't* be taxed. And I will most definitely feel cheated if the rules are retroactively changed.

OTOH, I've pretty much built-in an expectation that some sort of means testing will prevent me from ever getting any SS benefits. So I'm waiting and expecting that shoe to drop.

Ken

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50630 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 7:33 PM
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There's the rub with me. I was never eligible to contribute to a Roth while I was working (poor me, eh?),

<grinning>
He he. Wanna trade places?

I really don't recommend my method for avoiding tax on Roth conversions. Frankly, it sucks. I'll be paying for those couple of years for a long time. But at least I had the presence of mind to take advantage of the situation I was stuck with. Lemons and lemonade and all that.

Still, I'd have to think long and hard about doing any Roth conversions that involved paying any tax at all. I'm sure you've done your analysis and are satisfied with the trade-offs. So I won't comment further. It's one of those things that ultimately boils down to your own comfort level.

--Peter

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Author: TurkeyBreath Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50631 of 75339
Subject: Re: Investing after retirement Date: 3/20/2006 9:21 PM
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...Income taxes are almost certainly going to go up in the years to come, regardless of Dems or Repubs, but more so with Dems...

Over the years I've had conversations with peoples from all over the world. Most say to the effect 'I can't tell the difference between your Democrats and Republicans or my homeland politicians'. What do you mean, say I? 'There all scoundrels' or similar expressions says they.


TB

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50632 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 5:13 AM
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No intent to be politial here but IMHO, there is a strong chance that "low tax brackets" won't even exist 30 years from now. 15% now seems like good bet. How could they ever be lower...

How about a ZERO tax bracket?

Between SS and withdrawals from my IRA for the past two years, we've paid ZERO taxes -- state or federal. That's with a total income of about $40,000 for the two of us (including SS).

Low brackets DO exist. A lot depends on your deductions, of course.

Vermonter

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50633 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 5:16 AM
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The day will come when some part of Roth IRAs will be taxed. I don't know when. And I don't know how much. But I am confident that it will happen.

Better believe it.

Does anyone truly think that a trillion dollars (!) will be allowed to just sit there without ANY taxes being taken from it, when the government is spending like a drunken sailor?

I bet it will. Which one reason is why I haven't bothered to convert my regular self-directed IRA to a Roth -- that and the fact that I have no desire to pay taxes now on the IRA money to do so!

Vermonter

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50634 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 5:20 AM
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uzaname:

Congratulations on your retirement! May I ask your ages? I'm 65 and my wife is 64. We retired early, about age 58, so have been retired now for several years. I hope you enjoy your R&R as much as we do!

Our income comes solely from our combined SS and a tiny pension that I have, plus occasional withdrawals from my self-directed IRA, which I still manage myself. My goal is to always keep the IRA "up" where it was or higher, despite withdrawals, and I've been able to do that for about 6 years now.

Good luck!

Vermonter


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Author: alstroemeria Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50643 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 12:17 PM
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As a Democrat and therefore privy to what Democrats discuss, I can tell you that an annual tax on reritement accounts is not it. What IS on the table is bringing back the top tax bracket of 35% for taxable income over $350,000/year that Presidetn Bush did away with, and if necessary a bracket above that for incomes over $500,000 or maybe $1,000,000--note that those refer to ANNUAL INCOME, not savings. If you are lucky enough to worry about having a taxable income over $350,000/year, I doff my hat to you, sir.

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Author: alstroemeria Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50644 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 12:38 PM
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Between SS and withdrawals from my IRA for the past two years, we've paid ZERO taxes -- state or federal. That's with a total income of about $40,000 for the two of us (including SS).

I read somewhere that almost a third of American adults pay no federal taxes, and I assumed most of those folks had incomes under $25, maybe $30k. But RV, you have an average American income ($40k), so I can't imagine how you manage it! My Mom took $43k in income last year--SS and T-IRA--and pays federal taxes I think in the 15% bracket. Plus state taxes (oddly high in South Carolina--7%). Of course, she's a widow with little to deduct (mainly property and state taxes).

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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50645 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 12:45 PM
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But RV, you have an average American income ($40k), so I can't imagine how you manage it!

I've seen some of RV's stock picks. He's probably reducing his income with his investment losses.

IF

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50646 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 1:00 PM
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As a Democrat and therefore privy to what Democrats discuss, I can tell you that an annual tax on reritement accounts is not it. What IS on the table is bringing back the top tax bracket of 35% for taxable income over $350,000/year that Presidetn Bush did away with, and if necessary a bracket above that for incomes over $500,000 or maybe $1,000,000--note that those refer to ANNUAL INCOME, not savings.

I have heard several major Dems in the Senate and House mention on TV that they would support a tax on what they call "excess" amounts being sheltered in 401Ks, IRAs, and taxable portfolios. Say what you want, but the fact is that many Dems are looking at investment portfolios as the place to go. You can bring back all the higher tax brackets you want, but you still wouldn't get enough money to support the Dem's wish list.

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50647 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 1:15 PM
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>> I have heard several major Dems in the Senate and House mention on TV that they would support a tax on what they call "excess" amounts being sheltered in 401Ks, IRAs, and taxable portfolios. <<

The $64 question, then, is what they consider "excess". Would this be some sort of "wealth tax" whereby the same dollar is taxed year after year? That's a terrible idea.

In an era where Social Security is becoming insecure and pensions are going the way of the dodo, I'm not sure interfering with the incentive to save for retirement is a good idea. For many young people today, that's all they'll be able to count on if they plan to retire.

#29

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Author: SooozFool Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50648 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 1:20 PM
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>>I have heard several major Dems in the Senate and House mention on TV that they would support a tax on what they call "excess" amounts being sheltered in 401Ks, IRAs, and taxable portfolios<<

Sources, please? I'd really like to know who exactly is proposing a special tax on 401Ks and IRAs, and what exactly they're proposing to do with those particular retirement savings accounts.

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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50649 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 2:05 PM
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I have heard several major Dems in the Senate and House mention on TV that they would support a tax on what they call "excess" amounts being sheltered in 401Ks, IRAs, and taxable portfolios.

So reduce the contribution limits (but wait, Wall Street's lobbyists wouldn't like that).

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50650 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 2:22 PM
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>> So reduce the contribution limits (but wait, Wall Street's lobbyists wouldn't like that). <<

Not only that, but if you start taxing large IRAs and 401Ks above and beyond their normal income tax when withdrawn, AND if you keep the 15% cap on taxation of dividends and capital gains, what would be the remaining benefit to having tax-deferred investment accounts? If they start taxing IRA and 401K balances even if you don't withdraw the money, seems to me a taxable account would probably look a LOT better.

#29

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Author: prometheuss Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50651 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 2:53 PM
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As a Democrat and therefore privy to what Democrats discuss, I can tell you that an annual tax on reritement accounts is not it. What IS on the table is bringing back the top tax bracket of 35% for taxable income over $350,000/year that Presidetn Bush did away with, and if necessary a bracket above that for incomes over $500,000 or maybe $1,000,000--note that those refer to ANNUAL INCOME, not savings.

I have heard several major Dems in the Senate and House mention on TV that they would support a tax on what they call "excess" amounts being sheltered in 401Ks, IRAs, and taxable portfolios. Say what you want, but the fact is that many Dems are looking at investment portfolios as the place to go. You can bring back all the higher tax brackets you want, but you still wouldn't get enough money to support the Dem's wish list.


Exactly! The added tax brackets are for their campaign. They want to tell voters they are making the rich pay more while their opponents are not. They know that these brackets will not yield much in additional tax revenue. Very high income folks know how to minimize taxes and the same politicians are selling them tax breaks for campaign contributions. So it is a political win-win situation.

The separate problem of actually finding more tax revenue means that they must find a way to go where there is money and folks without enough power to protect it. Our retirement savings are a prime target.

Regards,
Prometheuss


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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50652 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 2:56 PM
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Sources, please? I'd really like to know who exactly is proposing a special tax on 401Ks and IRAs, and what exactly they're proposing to do with those particular retirement savings accounts.

Unfortunately it is true:

http://www.philly.com/mld/philly/news/politics/13723833.htm

TRENTON - Expand the sales tax to include clothes and online purchases. Tax 401(k) retirement accounts. Raise the gas tax. Consider a temporary increase in the state income tax.

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Author: SooozFool Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50653 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 3:25 PM
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>>Unfortunately it is true:

http://www.philly.com/mld/philly/news/politics/13723833.htm

TRENTON - Expand the sales tax to include clothes and online purchases. Tax 401(k) retirement accounts. Raise the gas tax. Consider a temporary increase in the state income tax.
<<

So in New Jersey, there's talk of taxing 401K's. I still don't understand this. Does this mean NJ would tax earnings inside 401K's even if nothing's being drawn out of them? Wouldn't federal law governing 401K's pre-empt that? This is confusing!



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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50654 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 3:26 PM
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SooozFool: >>I have heard several major Dems in the Senate and House mention on TV that they would support a tax on what they call "excess" amounts being sheltered in 401Ks, IRAs, and taxable portfolios<<

<<<<Sources, please? I'd really like to know who exactly is proposing a special tax on 401Ks and IRAs, and what exactly they're proposing to do with those particular retirement savings accounts.>>>>

Hawkwin "Unfortunately it is true:

http://www.philly.com/mld/philly/news/politics/13723833.htm

TRENTON - Expand the sales tax to include clothes and online purchases. Tax 401(k) retirement accounts. Raise the gas tax. Consider a temporary increase in the state income tax."


I looked at your link, it was discussing advisors to the governor of NJ, not "several major Dems in the Senate and House".

"Expand the sales tax to include clothes and online purchases. Tax 401(k) retirement accounts. Raise the gas tax. Consider a temporary increase in the state income tax.

With New Jersey's finances "perilously close to ruin," Gov. Corzine's budget advisers have recommended these unpopular solutions and more to fill what they estimate to be a $6 billion hole in the state's budget."

So your link does not support SooozFool's original statement!!! Nothing that a little selective editing on your part could not attempt to fix.

Regards, JAFO




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Author: SooozFool Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50655 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 3:29 PM
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<<SooozFool: >> have heard several major Dems in the Senate and House mention on TV that they would support a tax on what they call "excess" amounts being sheltered in 401Ks, IRAs, and taxable portfolios<<

So your link does not support SooozFool's original statement!!!


Ouch, please don't attribute the original claim to me . . . I don't believe it's true, which is why I asked for the sources that back it up. Plus, if I'm wrong and it IS true, I really don't understand how such proposals, if they exist, would work.

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Author: alstroemeria Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50656 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 3:37 PM
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they would support a tax on what they call "excess" amounts being sheltered in 401Ks, IRAs, and taxable portfolios

I agree--idiots! This would not be popular with the rank & file--not the ones I know, anyway. In fact, my husband got so ticked at someone calling from the DNC for his annual donation that he gave them an earful and said he's waiting for them to shape up before he donates again. I wish more Republicans would try that now.

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Author: SooozFool Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50657 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 3:45 PM
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>>they would support a tax on what they call "excess" amounts being sheltered in 401Ks, IRAs, and taxable portfolios

I agree--idiots! This would not be popular with the rank & file
<<

This is why I can't believe this is true. I know the Dems have been, ummm, struggling these last years, but day-yum! This'd be a suicidal proposal. I only wish I felt more confident that it isn't true, lol!

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50658 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 3:49 PM
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>> This is why I can't believe this is true. I know the Dems have been, ummm, struggling these last years, but day-yum! This'd be a suicidal proposal. I only wish I felt more confident that it isn't true, lol! <<

The electorate is increasingly turning away from the Bush Administration. It's a golden opportunity for Democrats to take back at least one house of Congress this year as a result. But as long as they keep coming up with same old class-envy ideas and they stand behind the same old gang of Democratic leaders, they'll probably not capitalize on it and remain irrelevant.

I think a lot of people want to see the Democrats as a feasible alternative to keep the right wing of the GOP in check, but until saner voices step up to lead the party, they may either keep reluctantly voting Republican or just not vote at all.

#29

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Author: FCorelli Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50659 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 3:49 PM
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I agree--idiots! This would not be popular with the rank & file--not the ones I know, anyway. In fact, my husband got so ticked at someone calling from the DNC for his annual donation that he gave them an earful and said he's waiting for them to shape up before he donates again. I wish more Republicans would try that now.

Heh heh. That's what I did. Told them not to expect anything from me. When they asked "Why" I told them GW Bush. Then I chnaged my party registration to "Not Affiliated". It seems to have killed the junk mail.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50660 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 3:50 PM
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With New Jersey's finances "perilously close to ruin," Gov. Corzine's budget advisers have recommended these unpopular solutions and more to fill what they estimate to be a $6 billion hole in the state's budget."

So your link does not support SooozFool's original statement!!! Nothing that a little selective editing on your part could not attempt to fix.

Regards, JAFO


I did not add my own comments, other than to say it is true that [dem(s) are talking about taxing 401ks]. I would think Corzine's budget advisors just might qualify as dems, but I honestly don't know. Govs. usually seek advice from members of their own party.

I supplied the link for anyone to read. There was no attempt on my part to be deceptive. It is also why I specifically listed the first paragraph of the article from Trenton.

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50663 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 5:41 PM
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alstroemeria:

Our combined SS is MOST of that total or about $25K/year. We also have a lot of deductions like medical insurance most of last year for both of us at $600/month, plus a small mortgage (with interest deduction) and property taxes (deductible), plus usual contributions, etc.

Also, I turned 65 last year which brings in another deduction, I think. My wife will hit 65 this year, too.

Does that help clarify?

Vermonter



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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50665 of 75339
Subject: Re: Investing after retirement Date: 3/21/2006 6:34 PM
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SooozFool:

JAFO: <<<<So your link does not support SooozFool's original statement!!!>>>

"Ouch, please don't attribute the original claim to me . . . I don't believe it's true, which is why I asked for the sources that back it up."

My apologies! I thought I had backed through sufficient posts to get the attributions correct.

Sorry, JAFO


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Author: uzaname Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50686 of 75339
Subject: Re: Investing after retirement Date: 3/23/2006 6:33 PM
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Hello "Big Mike" I'm also a fishing sort of guy. So one fisherman to another, can you elaborate on the IRA/Roth conversion ? I have just retired and have never given any thought to making such a conversion. What is the 15% rate you speak of ? Is that the rate you are taxed at when you retire and exactly how much money should I convert to stay under the threshold you mentioned ? I'm enjoying retirement so far but it can get confusing at times. As a young man I didn't further my education because it was "too expensive" and now as an older man I'm beginning to find out how expensive not having a good education can be. Thanks for your help big feller
Bill

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Author: bighairymike Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50687 of 75339
Subject: Re: Investing after retirement Date: 3/23/2006 7:02 PM
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Well, lets start with the tax rates. There is no specific rate you are taxed when you retire. Your income is taxed just like any other taxpayer. The sources of your income may be different but the tax rates are the same. Taxes are progressive. So the more you make the higher percentage you pay. 2006 rates are thus:

10% on the first $7,550, plus
15% on any amount over $7,550 but less than $30,650, then
25% on any amount over $30,650 but less than $74,200

And they go up from there...

Aside from this, the personal exemption is $3,300 and the standard deduction is $5,150 for single.

So putting it all together:

15% bracket max is $30,650, plus $3,300 personal exemption, plus %5,150 standard deduction = $39,100.

You mention you are just retired but don't give your age. Under 65 the IRS assesses a 10% penalty on TIRA distributions, but your conversion to a Roth is not considered a distribution so no penalty. Just pay the regular tax which is 15% in this illustration. Money converted to the Roth can earn and grow and when eventually withdrawn from the Roth, there is no tax at all. Capital gains and dividends in a Roth is about the only area I know where you can actually produce some tax free earnings.

Putting it another way, if your adjusted gross income is 39,100 you would have a taxable income of $30,650 after subtracting personal exemption and standard deduction.

And $30,650 is the max amount that gets the 15% rate. If you had another $1,000 of income, you would pay $250 tax on it because that $1,000 would be into the 25% bracket.

So lets say you have $20,000 of other income (interest, dividends, W-2 incime from a part time job). Then you could covert $19,100 from your TIRA to your Roth and would only have to pay 15% tax on that conversion. $20,000 of other plus $19,100 converted = the $39,100 max shown above.

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Author: TurkeyBreath Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50688 of 75339
Subject: Re: Investing after retirement Date: 3/23/2006 8:53 PM
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...So lets say you have $20,000 of other income (interest, dividends, W-2 incime from a part time job). Then you could covert $19,100 from your TIRA to your Roth and would only have to pay 15% tax on that conversion. $20,000 of other plus $19,100 converted = the $39,100 max shown above...

And, if you're 65 you get an additional deduction of, IIRC, $1,250. Half of your Social Security income is not counted as taxable income. Bighairymike, do I have this correctly. Or is the first $25,000 of combined SS and other income, not taxed?

TB


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Author: bighairymike Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50689 of 75339
Subject: Re: Investing after retirement Date: 3/23/2006 9:23 PM
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And, if you're 65 you get an additional deduction of, IIRC, $1,250. Half of your Social Security income is not counted as taxable income. Bighairymike, do I have this correctly. Or is the first $25,000 of combined SS and other income, not taxed?

TB


------------------

Huh! You talking to me?

I retired at 53 and am only 55 now so I haven't studied up on the particulars of Social Security. I can say this though. I do my mothers taxes, she is 85 and lives on a small pension, some interest, and Social Security. So heres how it works for her. Take one half of your SS income and add it to all your other income. If that total is more than $25,000 (single filing status since my father passed away), then your SS becomes taxable.


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Author: TerryMcK Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50691 of 75339
Subject: Re: Investing after retirement Date: 3/23/2006 11:51 PM
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It is my understanding that the max portion of SS that can be taxed is 85%, and that would be if you have income over $50K.



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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50693 of 75339
Subject: Re: Investing after retirement Date: 3/24/2006 1:36 AM
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Well done BHM. Rec duly given.

The only thing I can add is that the specific numbers you used are for Single persons in 2006. Married folks have different numbers, and the figures for all are adjusted for inflation each year.

You've got the concept down correctly.

--Peter

PS - There's a Tax Strategies board here that would also be a good resource for these tax-oriented questions.

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Author: Matt1344 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50694 of 75339
Subject: Re: Investing after retirement Date: 3/24/2006 2:00 AM
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"Under 65 the IRS assesses a 10% penalty on TIRA distributions, but your conversion to a Roth is not considered a distribution so no penalty."

I believe the no penalty age is 59 1/2 for a TIRA...

Regards, Ken

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Author: Matt1344 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50695 of 75339
Subject: Re: Investing after retirement Date: 3/24/2006 2:15 AM
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"Half of your Social Security income is not counted as taxable income."

Hi TB,

If you have a copy of the 2006 1040 Forms and Instructions booklet from the IRS... check on page 28 for the SS worksheet...

There are several factors that will determine how much of your SS is taxable, 85% of it is the maximum subject to taxes. For lower income folks there may not be much that gets taxed.

Regards, Ken

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Author: bighairymike Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50698 of 75339
Subject: Re: Investing after retirement Date: 3/24/2006 11:04 AM
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"Under 65 the IRS assesses a 10% penalty on TIRA distributions, but your conversion to a Roth is not considered a distribution so no penalty."

I believe the no penalty age is 59 1/2 for a TIRA...

Regards, Ken


-------------------

Duh! Of course... <sound of BHM smacking head with mouse>

Thanks Ken....



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Author: uzaname Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50722 of 75339
Subject: Re: Investing after retirement Date: 3/25/2006 10:06 PM
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Hello Vermonter and thank you for the kind wishes. I retired a little early and will begin collecting SS this July. I have an IRA and my wife has a 401K and also a small Roth that she opened a few years ago. Never got to put too much money in the Roth for a variety of reasons. My health was largely the reason though. When I found out that my pension and SS were not considered "Earned Income" a few rather glaring lights went on. I'm not sure about doing things like converting the monies from our traditional IRA's into the Roth. One feller on this board mentioned converting just enough to "Stay under the 15% threshold" and I'm not sure how that works. I'm just trying to get all my ducks in a row and get the most bang for my bucks without doing anything to upset our dear uncle. It is a little confusing but with the help of the kind folks on these investment boards I imagine that in time it will all start to come into focus. The Mrs. and I are enjoying our retirement tremendously. It feels like one long vacation and our time is ours to do with as we please. Heck it doesn't get much better than this. Thank You again for your kind words.
Bill

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Author: uzaname Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50723 of 75339
Subject: Re: Investing after retirement Date: 3/25/2006 10:42 PM
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My thanks to BHM, TB and everyone else that contributed to my education. You are all kind and thoughtful people and your help is very much appreciated.
Bill

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50734 of 75339
Subject: Re: Investing after retirement Date: 3/27/2006 5:46 AM
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uzaname:

The Mrs. and I are enjoying our retirement tremendously. It feels like one long vacation and our time is ours to do with as we please. Heck it doesn't get much better than this.

Yes, indeed! Same here.

We never converted any of our IRA's to Roths becuase I think you have to wait 5 years to withdraw from the Roth -- and you also pay taxes when you convert, so why do it now? Know what I mean?

I'm no expert on all that.

Just look carefully before acting.

Good luck!

Vermonter

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50777 of 75339
Subject: Re: Investing after retirement Date: 3/29/2006 2:55 PM
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Under 65 the IRS assesses a 10% penalty on TIRA distributions, but your conversion to a Roth is not considered a distribution so no penalty

You can also withdraw from a TIRA penalty free at any age using the "substantially equal periodic payments" (SEPP) rule.

See: http://www.retireearlyhomepage.com/wdraw59.html

OTOH, if you don't need the money, I'd say it's a good idea to convert it to a Roth up to the 25% tax rate.

-murray

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Author: PayingFool Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50779 of 75339
Subject: Re: Investing after retirement Date: 3/29/2006 4:06 PM
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Under 65 the IRS assesses a 10% penalty on TIRA distributions, but your conversion to a Roth is not considered a distribution so no penalty

You can also withdraw from a TIRA penalty free at any age using the "substantially equal periodic payments" (SEPP) rule.

See: http://www.retireearlyhomepage.com/wdraw59.html

OTOH, if you don't need the money, I'd say it's a good idea to convert it to a Roth up to the 25% tax rate.

-murray



Murray is correct about SEPP, but the OP's quoted statement about "under 65" is not correct. The age at which the 10% early withdrawal penalty is not longer applicable is 59 1/2.

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 50782 of 75339
Subject: Re: Investing after retirement Date: 3/29/2006 8:51 PM
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PayingFool writes,

<<<Under 65 the IRS assesses a 10% penalty on TIRA distributions, but your conversion to a Roth is not considered a distribution so no penalty

You can also withdraw from a TIRA penalty free at any age using the "substantially equal periodic payments" (SEPP) rule.

See: http://www.retireearlyhomepage.com/wdraw59.html

OTOH, if you don't need the money, I'd say it's a good idea to convert it to a Roth up to the 25% tax rate.

-murray >>>


Murray is correct about SEPP, but the OP's quoted statement about "under 65" is not correct. The age at which the 10% early withdrawal penalty is not longer applicable is 59 1/2.


That's not entirely true.

There's also a "minimum of five years" rule associated with SEPPs. So if you started taking SEPP withdrawals at age 58, you'd have to continue them to age 63 to avoid the 10% penalty.

intercst


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