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Author: lethean Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75539  
Subject: Re: IRA for post 65 yr olds Date: 12/6/2010 11:57 AM
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<<<ANY HELP OUT THERE??>>>

mollycat

Certainly, what you describe can seem overwhelming when trying to figure out what to do.

Here's what I did.

1. I used sales in the taxable account for living expenses for 3 years ... until RMDs for the tIRA begin in 2011. Hubby received SS benefits but no pension during that time. There is no pension per se.

2. Also during the time before RMDs, I converted modest amounts from tIRA to Roth. The $$ amount of conversion was determined by using "what if" in Turbo Tax.

3. The goal? To stay within the 15% tax bracket .... while drawing SS benefit, generating stock sales for living expenses (cap gains generated, too), and filling up the 15% bracket with conversions to Roth. I didn't try to be exact about it. Just wanted to be in the ballpark.

4. In 2011 RMDs begin. The picture changes a bit. Those RMDs are fully taxable (as were the conversions previously). But, the RMDs are required now at a designated amount. Hubby still on SS and I'm also on SS now. Taken together? That puts us into the 25% bracket. OK. But it's still not enough to meet expenses.

5. So, do I take more than the RMD from the IRA? Or do some selling in the taxable account? Answer. Use the taxable account to generate the additional $$ needed - that generates cap gains.

6. As it turns out? RMDs $$ withdrawal vs taxable account $$ sales? each year will about 60% vs 40%. Nice to know that up front. The plan.

7. As you keep working with the #s and gain more understanding of taxes and your own situation? Gradually, it will begin to make more sense, and you can begin to develop a plan.

8. Turbo Tax has a slick tool called "what if". First I had to learn how to use Turbo Tax. You can do that, too. (For instance, buy the 2009 program and just plug your #s taken right from your actual tax return into the program using the override function, if necessary.) Then using the "what if" module, you can develop 3 different plans for a given year and SEE the difference in tax. Play around with that module from time to time.

From the information you provided? not complete? I would NOT do a complete conversion of your IRA. Rather, I'd step back first. Learn how to do your own taxes on Turbo Tax. (You can still use a tax preparer. Just use Turbo Tax as a personal learning tool re taxes.) Once you have a better understanding of your own personal tax return? Then you are in a better position to figure out the effect that conversions would have and develop an overall plan of how to proceed going forward.

I decided to follow the "middle" ground ... by trying to use up but stay within the 15% tax bracket while it was still available. An alternate course would have been to minimize tax in the short term by not converting at all.

My advice to you? Do not tread into this area of IRA conversion until you have a decent understanding of your past few years tax returns. The flow of the tax return #s, how they interact, and the tax effect of each component.

Total conversion is an extreme measure. Sounds to me like you are grasping at straws with little understanding of the issues involved. Stop. Regroup. Go back to basics. Learn the fundamentals of your personal tax return. And then develop a plan re conversion.

Good luck.

ML
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