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If you can't find something to spend your money on, may I suggest this?

I looked into that, but it just won't fit in my backyard right now.

Pete
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I would think that the market for Roth conversions for those making 400k or more has to be rather small.

Ending the mega-back door Roth for ANY income level is rather significant - and I hope it faces significant opposition.

Ending the backdoor Roth entirely hopefully is DOA. That actually harms many of those this bill would otherwise be designed to help (i.e. households with income below 200k).
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Doesn't limiting ROTH IRA conversions REDUCE current revenue to the Federal Treasury? I thought the goal was to RAISE immediate revenue.
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Doesn't limiting ROTH IRA conversions REDUCE current revenue to the Federal Treasury? I thought the goal was to RAISE immediate revenue.


Wealth envy is different than tax revenue to those who think they are in charge.

Mike
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I almost overlooked this thread and I'm glad I didn't.

I've been planning on doing a 4th quarter Roth IRA conversion anyway, taking a large chunk from one of my regular IRAs. Now this has me thinking about maybe increasing the dollar amount, seeing as it may be my only chance.

Rob
Rule Breaker Home Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
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I've been planning on doing a 4th quarter Roth IRA conversion anyway, taking a large chunk from one of my regular IRAs. Now this has me thinking about maybe increasing the dollar amount, seeing as it may be my only chance. - TMFRob

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Assuming the Dems don't do away with Roth conversions, might I suggest a different strategy for timing Roth conversions is the future.

At the end of the current year, I make a projection of what my taxable income is likely to be in the coming year. Then I determine how much headroom that will leave remaining in the 24% bracket.

Then in January, I do a Roth Conversion for about 80% or so of that headroom. That gets a big chunk of Roth money on the tax free growth road for almost the entire year.

Then in December, I true up my tax projections and make a second Roth conversion to take up the slack.
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Ending the backdoor Roth entirely hopefully is DOA. That actually harms many of those this bill would otherwise be designed to help (i.e. households with income below 200k).


The concept behind the IRA and Roth IRA is to use the tax code to help middle and lower income people save for retirement. That's why they have income limits. The backdoor Roth allows high income people to bypass the income limit. It is tax theater.
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Doesn't limiting ROTH IRA conversions REDUCE current revenue to the Federal Treasury? I thought the goal was to RAISE immediate revenue.

If you do the backdoor Roth properly there is no tax, and hence no revenue. You simply make a non-deductible contribution into your traditional IRA (much easier if your IRA is empty, of course). Then wait 10 or 15 seconds and make the conversion. No taxes paid.
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If you do the backdoor Roth properly there is no tax, and hence no revenue. You simply make a non-deductible contribution into your traditional IRA (much easier if your IRA is empty, of course). Then wait 10 or 15 seconds and make the conversion. No taxes paid. - syke6

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No additional taxes paid.

But you did pay taxes on the funds used to make that non-deductible contribution to your TIRA in the first place.
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I would think that the market for Roth conversions for those making 400k or more has to be rather small.

Not necessarily, when you realize that the Roth conversion itself contributes to that $400K.

IP
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My Traditional IRA was in an index fund. When that dipped in March 2020, I converted the whole thing to a Roth, paying taxes on its value at the time of conversion. It has since more than doubled in value.

It seemed simpler than calculating the piecemeal amounts to convert to avoid any of it slipping up into the next tax bracket. I basically wanted the conversion out of the way before Medicare IRMAA became a factor and before starting to collect Social Security, and the nosedive in value seemed like a good opportunity.

It was a form of market timing, I guess, but I do think that converting on dips, if you can, is another way to save on taxes.
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But you did pay taxes on the funds used to make that non-deductible contribution to your TIRA in the first place.

Right, but the discussion/claim was that backdoor Roth conversions increase tax revenues. If you do them properly there is no tax, so no increase in tax revenue.
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the concept behind the IRA and Roth IRA is to use the tax code to help middle and lower income people save for retirement. That's why they have income limits. The backdoor Roth allows high income people to bypass the income limit. It is tax theater.

It is tax theater, but not for that reason.

But even super-high income people have the same maximum IRA contribution. To somebody making $250,000 or $500,000 a year, what difference does putting $6000 in an IRA make? Either type of IRA.
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To somebody making $250,000 or $500,000 a year, what difference does putting $6000 in an IRA make?

Precisely. And also when the corpus of your existing accounts so far exceed the maximum of your possible annual contribution, you may reach a point asking: what's the point? Adding an additional $6K to a million dollar + account doesn't do a whole lot to move your balance up.

Pete
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Adding an additional $6K to a million dollar + account doesn't do a whole lot to move your balance up.

Yes. At some point it just becomes a game. It's not really making any material difference. Which, if that floats your boat, is fine.

It doesn't float mine. I want to be smart when I stop working (within the next few months) so that I don't run out of money. However, every scenario I run (including the death of social security before I can collect a dime) says I won't run out of money. My 4% draw down will be more money than we spend in a year, and most projections say we'll have more when we die than we have now. So I don't plan to chase ever penny. I want to have a plan, and then execute it. Nothing fancy. Take advantage of O-care until I'm 65, then Medicare. Try to keep the mandatory income down (e.g. RMDs and SS) to keep the tax bracket as low as possible, and then just live my life while I can.

But that's just me. YMMV.
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I'm in no position to do a detailed analysis of your alternatives, and not really qualified to even if I had the data. But one of the rules of thumb I have heard repeated many times, and tend to follow is Don’t let the tax tail wag the investment dog. You might be doing a bit of that, I'm not sure.

My 4% draw down will be more money than we spend in a year, and most projections say we'll have more when we die than we have now.

That sounds good. Have you thought about spending more in a year than you have been spending? Retirement can offer opportunities to do things that a working life makes impossible. Travel is one that is often listed, but hobbies too. And in a few years having someone else mow the lawn, or come in every week or two to clean, might seem less like indulgences and more like necessities.
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MataroPete asks,

<<To somebody making $250,000 or $500,000 a year, what difference does putting $6000 in an IRA make?>>

Precisely. And also when the corpus of your existing accounts so far exceed the maximum of your possible annual contribution, you may reach a point asking: what's the point? Adding an additional $6K to a million dollar + account doesn't do a whole lot to move your balance up.

</snip>


It depends on how you invest the $6,000.

I personally know a guy who put $12,500 into DELL in 1992 and it was worth $3 MM plus by the end of the decade.

Someone like a Mitt Romney or Peter Thiel with access to private equity deals unavailable to the general public could do even better with a $6,000 stake. (Mitt had a $100 MM+ IRA when he ran for President in 2012 and he was building a car elevator in his beach house to boot.)

https://thecaucus.blogs.nytimes.com/2012/03/27/for-romney-a-...

intercst
(disappointed he has no place to put a car elevator)
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I'm hopeful that we'll spend a bit more, mostly on travel. Due to work we were limited on travel time. Once retired, and when the world pandemic subsides, I hope to spend at least three months out of the year seeing the world. There was a 30+ day cruise we couldn't do, but now we can (if they offer it again...it included Tierra del Fuego and Antarctica).

1poorguy
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There was a 30+ day cruise we couldn't do, but now we can (if they offer it again...it included Tierra del Fuego and Antarctica).

</snip>


They're now putting restrictions on the number of cruise ships allowed into Antarctic waters because of the environmental damage all the diesel fuel they burn causes.

I did an Antarctic cruise on Holland America back in 2008 when the Bush Economic Collapse had everyone pulling back on cruise travel. I think I paid $4,600 for a 28-day cruise. You're unlikely to see that kind of bargain in the future with capacity restrictions and more wealthy people with money to spend bidding up prices.

2008 Winter Trip -- South America and Antarctic Peninsula
https://www.retireearlyhomepage.com/antarctic/antarctica_1.h...

</snip>


intercst
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Precisely. And also when the corpus of your existing accounts so far exceed the maximum of your possible annual contribution, you may reach a point asking: what's the point? Adding an additional $6K to a million dollar + account doesn't do a whole lot to move your balance up.

If you are investing $6K anyway would you rather invest it in a taxable account, or spend literally 30 extra seconds and make it non-taxable?

Hypothetically, if you invested $6K a year for ten years and got 7-ish% return you'd wind up with close to $100K. So...that's 60K in principle and $40K in gains, so if it were a taxable account you'd pay $6K on the withdrawal of the gains at 15% LTCG rate.

Or if it were a Roth, you'd pay zero. I'll spend five minutes of my life for $6K.

And if you retire before Medicare kicks in, Roth withdrawals do not count as MAGI which can be important for ACA subsidies so that's a good reason to make Roth contributions as well.

And the SWR doesn't know about your tax situation. $6K in tax avoidance is gravy. That goes straight into your pocket. Even if you have a $2 million portfolio that's a nice little bump in the withdrawal phase.

Or don't. But it is free money lying right here in front of you.
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If you are investing $6K anyway would you rather invest it in a taxable account, or spend literally 30 extra seconds and make it non-taxable?

Oh, I agree with your sentiments. Why not stick it in a non-taxable account v. 'what's the point' in general? And certainly if you have no other place to put it to work with such benefits (your "investing $6K anyway" phrase).

What I'm seeing is that my Roth now has stocks that move more than $6K in a day (not a complaint!) and I do a little option trading that often amounts to more than that in a week. I also keep about 10% in cash so I can add new companies without cashing out older ones. The overall amount of the account is virtually unaffected by any $6K additions.

That was my only point about "what's the point?"

But, yes, you are entirely correct in your assessment of the benefits of the Roth features - I'm just looking at alternative places to actually spend the money and, lately, I've come up short!

Pete
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Hey, Peter! If you can't find something to spend your money on, may I suggest this?

https://www.migaloo-submarines.com/

I like the smaller one. The M2 is more than enough. I don't need a helipad. Though the M5 is sweet.
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If you can't find something to spend your money on, may I suggest this?

I looked into that, but it just won't fit in my backyard right now.

Pete
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