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Now being retired at age 74, a large mistake I made for retirement planning was to open IRA's
decades earlier. To me IRA's (of the conventional type) are merely a means for the gov't to force one to pay taxes in future years when you may not need the money meaning RMD's.

Looking back I now recommend younger individuals to merely open brokerage accounts, period. When you retire if you do not need the money it can sit there untaxed (except for dividends, etc.) until needed.

No forced RMD withdrawl engendering taxes due. While I also have a Roth I would not bother with that either if i was starting over. Just more info to the gov't.

Just my thoughts. I currently take my various annual RMD,s, pay the taxes and put it in new brokerage accounts.

I believed (back then - 1970's) that when the government says they have an investment (IRA) that is to help people, I bought into it. Stupid me, it was/is merely a way to force taxes to be paid when perhaps it's not necessary from a personal needs standpoint. NEVER NEVER TRUST THE/ANY GOVERNMENT WHEN IT COMES TO YOUR MONEY !
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Flyer2:"Now being retired at age 74, a large mistake I made for retirement planning was to open IRA's decades earlier. To me IRA's (of the conventional type) are merely a means for the gov't to force one to pay taxes in future years when you may not need the money meaning RMD's."

well, likely you escaped paying 25% tax on your income while you were working. So 1/4 of your IRA was money you would have had to pay to Uncle Sam. Instead, you 'saved' it for the future. If you put that, say, $3000 bucks away, tax deferred - the part you would have paid to Uncle Sam, it's probably five times that or more. Depending what you put it in. Now, you get to give some of it back to Uncle Sam.
And maybe you are not in the 25% tax bracket now/

- ------

"Looking back I now recommend younger individuals to merely open brokerage accounts, period. When you retire if you do not need the money it can sit there untaxed (except for dividends, etc.) until needed."

Well, most folks are probably needing their IRA money by the time they retire.

- --------

"No forced RMD withdrawl engendering taxes due."

You can always, if you retire early, start taking money out......

- ------



"While I also have a Roth I would not bother with that either if i was starting over. Just more info to the gov't."

Why? A ROTH is even better than a broker account- where you DID have to pay taxes on those dividends and interest along the way. With a ROTH, you don't. Ever.

- -------

"Just my thoughts. I currently take my various annual RMD,s, pay the taxes and put it in new brokerage accounts."

You are in the enviable position of not 'needing it'. Same here.

- - -----

"I believed (back then - 1970's) that when the government says they have an investment (IRA) that is to help people, I bought into it."

It probably will help 'most people'. Assuming they put money in it. Most won't be in high tax brackets, and who knows? With Trump in the WH, you might have a 15% tax rate by the time you retire in the future. Or...with a democrat, a 40% tax rate.

- - ----

"Stupid me, it was/is merely a way to force taxes to be paid when perhaps it's not necessary from a personal needs standpoint. NEVER NEVER TRUST THE/ANY GOVERNMENT WHEN IT COMES TO YOUR MONEY !"

Especially one promising all sorts of free benefits like a Sanders....or a Clinton.....


t.
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Flyer2: "Now being retired at age 74, a large mistake I made for retirement planning was to open IRA's decades earlier. To me IRA's (of the conventional type) are merely a means for the gov't to force one to pay taxes in future years when you may not need the money meaning RMD's.

Looking back I now recommend younger individuals to merely open brokerage accounts, period. When you retire if you do not need the money it can sit there untaxed (except for dividends, etc.) until needed.

No forced RMD withdrawal engendering taxes due. While I also have a Roth I would not bother with that either if I was starting over. Just more info to the gov't."


Your first post on TMF is to complain about RMDs that you do not need.

First world problem, all the way.

In addition, you appear to have accepted the tax benefits of IRAs for decades, and now complain when you have hold up your end of the deal - start taking RMDs.

If you want to avoid RMDs, just convert all your IRA money to ROTH IRAs.

Regards, JAFO
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No forced RMD withdrawl engendering taxes due. While I also have a Roth I would not bother with that either if i was starting over. Just more info to the gov't.

This is kind of silly. Your brokerage company gives all your info to the government anyway.

We've had lots of posts lately whining about RMDs, but we never have posts from people complaining about getting the deductions. I wonder why that is?
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There is no question that investing long term buy and hold style (LTBH in Foolish lingo) is advantageous compared to an IRA or pretax 401K rolled over to an IRA. At least from the point of view of taxes paid. With LTBH, you pay taxes only when you sell and then at capital gains rates.

The disadvantage is that you don't have the flexibility to move funds around (to respond to changes in the market or new opportunities). Some think the added cost is worth it.

Yes, Roth IRA is the better choice for most especially if you don't quality to deduct your IRA contributions. And also if your investments do well giving you potential for big tax bills from RMDs. (Low contribution limits of Roth IRA make pretax 401k contributions attractive. Roth conversion is possible but often costly.)
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Flyer2 writes,

Now being retired at age 74, a large mistake I made for retirement planning was to open IRA's
decades earlier. To me IRA's (of the conventional type) are merely a means for the gov't to force one to pay taxes in future years when you may not need the money meaning RMD's.

Looking back I now recommend younger individuals to merely open brokerage accounts, period. When you retire if you do not need the money it can sit there untaxed (except for dividends, etc.) until needed.

</snip>


I'm with you Flyer2.

As a young man I was terrified of RMDs. But unlike those who merely bitch and moan about it, I did something and quit my engineering job in 1994 at age 38 and then started whittling down the size of my IRA with 72t penalty-free withdrawals.

20-Year Update: Retired at Age 38 in 1994 -- Lessons Learned
http://www.retireearlyhomepage.com/20year.html

</snip>


intercst
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....If you want to avoid RMDs, just convert all your IRA money to ROTH IRAs....

...and pay a lot of taxes upfront for the "privilege". ;-)

Cheers!
Murph
II Community Lead
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Better to do Roth from the beginning by contributions. If you have an IRA to convert, doing the conversion early (or when stocks take a dip) reduces cost. Later after funds have grown it becomes expensive.

Large IRAs often come from Roll Over of 401k (which has larger contribution limits and often does not allow rollover until late in your career). Roth conversion on those can be costly. Hence, the wisdom of working them down by taking distributions to fund your retirement before pension and Social Security.
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Hi Flyer2, I have a standard offer given to many people who complain about being successful and thus being taxed. Let me provide you tax deductible consulting services which moves the responsibility of paying those pesky taxes from you to me.

Just calculate how much in taxes you wish to save, divide by your tax rate and we'll sign a contract for that amount. My taxes go up and yours down and we're both happy.

Be the first to take me up on my offer!

Jack
Yes, I can get snarky.
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TMFMurph:

<<<....If you want to avoid RMDs, just convert all your IRA money to ROTH IRAs....>>>

"...and pay a lot of taxes upfront for the "privilege". ;-)"

What do you mean, "upfront"? OP wrote that he has been contributing to IRAs since the 1970s when they first became available. At worst, he has delayed taxes since at least 1979 on those first dollars contributed, 37 years. "Upfront" my backside.

Regards, JAFO (;>)
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There is no question that investing long term buy and hold style (LTBH in Foolish lingo) is advantageous compared to an IRA or pretax 401K rolled over to an IRA. At least from the point of view of taxes paid. With LTBH, you pay taxes only when you sell and then at capital gains rates.

Not clear to me that's the case. IRA contributions are deducted at the highest marginal rate.
For people in high tax brackets you are saving 33 cents or more for each dollar contributed to the IRA. To put it an other way, let's say you have $1,000 to invest. You could put it all in what you call LTBH. But if you contribute $1,000 to an IRA, you have an additional $330 dollars in tax savings you can invest in LTBH.

Roughly speaking, even if you stay in the upper brackets in retirement which almost no one does, both scenarios actual turn out to be pretty close to a wash after the taxes are paid. But if you drop down into a lower bracket, then the IRA looks much more attractive.

A couple observations: The point behind the IRA is to give middle class people more money to save. So if you actually save the money, it works out pretty well. The other thing is that the tax advantages of LTBH exist now, but maybe not in the future. Not so long ago, capital gains were taxed at 28%. So if you take the deduction now, at least you are getting the bird in the hand.
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Hi JAFOQ

I don't know about your backside, but I do know that if you convert a traditional IRA to a ROTH, you will pay a lot of taxes for the privilege...versus keeping it in a standard IRA and gradually paying taxes via RMD's. The last time I looked, "upfront" means prior to another event. :-)

Cheers!
Murph
II Community Lead
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TMFMurph: "I don't know about your backside, but I do know that if you convert a traditional IRA to a ROTH, you will pay a lot of taxes for the privilege...versus keeping it in a standard IRA and gradually paying taxes via RMD's."

My backside is very nice, thank you for inquiring.

"The last time I looked, "upfront" means prior to another event. :-)"

OP was complaining about RMDs; I offered a solution to that issue.

Regards, JAFO
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...OP was complaining about RMDs; I offered a solution to that issue...

....and I simply wanted to be sure that he was aware of the tax implications of your solution, which you neglected to mention.

Cheers!
Murph
II Community Lead
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....If you want to avoid RMDs, just convert all your IRA money to ROTH IRAs....

...and pay a lot of taxes upfront for the "privilege". ;-)

Cheers!
Murph
II Community Lead

__________

Make the conversions gradually when your income from other sources is low enough to keep yourself out of the highest tax bracket. DW plans to retire soon, so her income will go to zero. No need for her to collect SS for a while, as my income will support us until I retire at age 70. During those transition years, we will convert IRAs and 401ks to Roth. If we were to not do this, our RMDs would put us firmly in the highest tax bracket, higher than we are now. Despite Trump's proposed tax reform, I am not holding my breath waiting for tax rates to go down, especially at the CT state level.
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Sounds like a good plan, Uconnwbbfan!

Cheers!
Murph
II Community Lead
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During those transition years, we will convert IRAs and 401ks to Roth. If we were to not do this, our RMDs would put us firmly in the highest tax bracket, higher than we are now.

I don't understand the logic (or the math) of converting to a Roth in order to minimize RMD at ~70 years old.

Essentially you are withdrawing everything, paying taxes on it, then putting it into a Roth (where it will compound tax free and have tax free withdrawals.) Just as an example, let's say you convert over a 5 year period. Every year you will likely be pushed into a higher tax bracket and pay the highest marginal tax rate on all the IRA/401k withdrawals, right? If the withdrawals aren't big enough to do this then I don't see why you need to minimize the RMD later in life.
By paying the taxes early you are losing capital right away and it may take a decade or more to break even.
Of course each person's situation and assumptions are different.

I converted ~half my IRA's to Roths ~7 years ago when you could delay the taxes a year and at a low point in the market. With ~10 years until retirement I was unsure (at the time) if it would pay off or not. I think it has because of market gains since then.

Mike
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mschmit writes,

I don't understand the logic (or the math) of converting to a Roth in order to minimize RMD at ~70 years old.

Essentially you are withdrawing everything, paying taxes on it, then putting it into a Roth

</snip>


Most people who use this strategy aren't "withdrawing everything". They're only making sufficient Roth rollovers to top-off their current tax bracket if they believe it will be lower than their tax liability once RMDs commence.

intercst
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I don't understand the logic (or the math) of converting to a Roth in order to minimize RMD at ~70 years old.

The idea behind the strategy is to do it between the years you retire and age 70 1/2. Once you turn 70 1/2, it no longer has significant merit, if any at all.

I converted ~half my IRA's to Roths ~7 years ago when you could delay the taxes a year and at a low point in the market.

I think it was that you could spread out the taxes over two years, not that you could delay them, IIRC. I did the same thing and still the majority of my retirement assets are in a Roth.

With ~10 years until retirement I was unsure (at the time) if it would pay off or not. I think it has because of market gains since then.

I think it has been a brilliant idea for both of us since we paid the taxes outside of the account and now all those gains are tax free.
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I don't understand the logic (or the math) of converting to a Roth in order to minimize RMD at ~70 years old.

The idea behind the strategy is to do it between the years you retire and age 70 1/2. Once you turn 70 1/2, it no longer has significant merit, if any at all.


OK, but note that RMD amount ratchets upward as you get older. Initial sums are smallish.

If you hope to live to 95, Roth conversion becomes more attractive even after RMD's begin. IRS gives your life expectancy at age 70 as 17 years implying 6% of your IRA balance as RMD; at 95, life expectancy is 4.1 years, implying 24% RMD.
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IRS gives your life expectancy at age 70 as 17 years implying 6% of your IRA balance as RMD; at 95, life expectancy is 4.1 years, implying 24% RMD.

I'm not sure where you are getting that info. Your figures for the life expectancy are too low, making your RMD assumptions too high.

The RMD for a 70.5 year old is about 3.6%. Here's the worksheet from the IRS with the life expectancies https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

You don't hit 6% until you're 83. A 95 year old has an RMD of about 11.6%.


--Peter
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Most people who use this strategy aren't "withdrawing everything". They're only making sufficient Roth rollovers to top-off their current tax bracket if they believe it will be lower than their tax liability once RMDs commence.

Thanks. That does make sense to me. Especially since it may be possible to retire and arrange to have a near zero (or low) income before mandatory RMDs kick in.

Mike
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I think it was that you could spread out the taxes over two years, not that you could delay them, IIRC.

Yes, that is what I meant.
You only had to pay half in the first year and "delayed" paying the other half till a year later.
Seemed painful at the time.
20/20 Hindsight...a very smart move

Mike
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You only had to pay half in the first year and "delayed" paying the other half till a year later.
Seemed painful at the time.
20/20 Hindsight...a very smart move


Unless it pushed you into a higher tax bracket than you expect to have when you're retired for some/most of the conversion. I did not take advantage of this because I would have been pushed to a higher tax bracket than I am already in, and my current bracket is higher than I expect to have in retirement. I'll wait until I'm retired to do my conversions, and pay the tax when I do them.

AJ
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The RMD numbers are from Table 1 of Appendix B, IRS Publication 590B, 2016 edition, page 43.

https://www.irs.gov/pub/irs-pdf/p590b.pdf

You get different numbers if you use Table 2 or 3, but the effect is the same. Figures do ratchet upward.
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The RMD numbers are from Table 1 of Appendix B, IRS Publication 590B, 2016 edition, page 43.

And if you read closely, that table is basically for inherited IRAs. Interesting info, but not the subject of this particular discussion.

Table 2 is for use when your spouse is the only beneficiary of your IRA AND your spouse is more than 10 years younger than you. That's a handy place to be, as the RMDs are smaller that normal.

Table 3 is the one most people will use (including single people). That is the one I quoted above, and is the place RMD discussions should start unless Table 2 applies.

Figures do ratchet upward.

Yes, because every year you live reduces your remaining life expectancy.

My objection was to your quotation of specific figures which are not going to apply to anyone planning the RMDs from their own IRAs. Your figures were off by about 50%, which is a pretty significant error.

--Peter
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I don't understand the logic (or the math) of converting to a Roth in order to minimize RMD at ~70 years old.
__________

After my wife retires and has no work related income, we will begin converting a portion of our IRAs and 401k into Roths each year such that we will pay a lower marginal rate than we do currently with two incomes (essentially replacing much of her contribution to AGI with conversions). I don't plan to retire until 70, at which time it probably won't benefit to continue converting. In the meantime, we can live comfortably on my income plus her SS as we recently became debt free (paid off the mortgage).
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Most people who use this strategy aren't "withdrawing everything". They're only making sufficient Roth rollovers to top-off their current tax bracket if they believe it will be lower than their tax liability once RMDs commence.

intercst

__________

Exactly right.
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To me IRA's (of the conventional type) are merely a means for the gov't to force one to pay taxes in future years when you may not need the money meaning RMD's.

Looking back I now recommend younger individuals to merely open brokerage accounts, period. When you retire if you do not need the money it can sit there untaxed (except for dividends, etc.) until needed.


Another way to look at it is that you would have paid taxes on the money when you opened your IRAs and contributed each year. So, you'd have less in a brokerage account due to not getting the tax deductions each year back then. Also, any time you sold one investment and bought another outside the IRA, you'd have owed taxes on the gains.

A couple ways to work your way out of this rather nice kind of problem to have (i.e., having more money than you need), are:
-Take out lots more than the RMD and open a brokerage account so you only have the pain of RMDs exceeding your needs for a couple years,
-Donate to charity from the IRAs, because if done correctly, it counts against your RMD but isn't taxed.
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"IRS gives your life expectancy at age 70 as 17 years implying 6% of your IRA balance as RMD; at 95, life expectancy is 4.1 years, implying 24% RMD."

I'm not sure where you are getting that info. Your figures for the life expectancy are too low, making your RMD assumptions too high.


Don't get confused by those IRS figures and mis-interpreting what they say. The IRS is *not* giving a life expectancy. They are mandating the divisor ("Distribution period") for the RMD calculation.
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Rayvt writes,

Don't get confused by those IRS figures and mis-interpreting what they say. The IRS is *not* giving a life expectancy. They are mandating the divisor ("Distribution period") for the RMD calculation.

</snip>


Actually the IRS uses a common Society of Actuaries mortality table for RMDs, so they are giving you the "average" life expectancy.

http://www.journalofaccountancy.com/news/2011/aug/20114461.h...

intercst
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Thanks, I do agree with the no taxes on dividends or interest in a Roth. The only benefit as I see it.
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Hi JonathanRoth,

I'm an average guy who ended up being able to retire comfortably due to discipline.
Started saving towards retirement after my navy service. That was in 1964. The main point being that some consistent savings discipline (always slowly growing it yearly) plus time (compounding) yields a tidy sum after 50 years. Pay yourself first. Same is true for kids college educations (start saving before they're born or at least when they are born). Was not that hard to do and we were at best just in the lower middle when we started out. Didn't have the newest cars or homes back then, let alone fancy expensive vacations, etc. We did have plans and goals and have basically achieved them all. Staying married is also part of the plan, 52 years this August.

It seems to me that life is mainly a discipline and choices made. Do you want gratification now or can you wait for it as the majority of us do get to the retirement part of age.
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Hi Flyer2,

We've done the same thing at about the same time and ended up pretty much in the same place. I'm sorry I don't understand the point you are making, could you please explain?

Regards,

Jack
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Hi Jack,

The main point was that a conventional IRA versus a standard brokerage account is no contest in favor of the brokerage account IMHO.

Granted the IRA allows tax deferred $'s to be invested vs. upfront taxed $'s in a brokerage account.
That said keeping the records (for roughly 50 years) of the changing yearly IRA basis (deducted $'s vs std $'s was a pain in the butt for annual tax purposes. Any company $ match was nice was not large in my case.

The biggest point is that the standard IRA requires the start of RMD's (with ever increasing percentages each year) at age 70 1/2 while a brokerage account does not. In other words if you do not need the money you are still forced to take it and naturally pay the taxes. So I do that and put the RMD's into a standard brokerage account. A brokerage account only has annual taxes due on dividends, interest, etc. unless YOU want to sell some equities and trip that capital gains tax.

Plus back when I got into these (early 1970's) the selection of funds in IRA's was extremely slim while also costly fee wise.

If I was staring over I would not have used the standard IRA's. The ROTH IRA however is a much better option and these days for younger folks with much better funds offered.

Hope this answer helps somewhat. I never stated what I do is logical in other folks mind but works for me. The same reason that when I went to buy a car I had saved the money 1st, then would borrow the money from the bank (probably against a CD from the money I'd saved). Stupid, not to me as this way when the car was paid off I still had my original savings (plus interest) and did not have to re-save it. I also would get a loan (back when) for 1 or 1.5 %. Made sense to me, why force yourself to re-save what you already had saved.

At any rate it worked for us. We now have the pot to you know what in. Life is good, cruises, travel, family, gifts & monetary gifts, charities and with no monetary concerns. WE know the difference between wants and needs and got there. Current problem is the mental change from accumulating some minor wealth to spending same. Working on that and it's a much nicer problem to have than the inverse.

Sorry for the excess bs on my part.

Best regards,

Flyer2
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Previous was for Jonathon.
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Flying:"The biggest point is that the standard IRA requires the start of RMD's (with ever increasing percentages each year) at age 70 1/2 while a brokerage account does not. In other words if you do not need the money you are still forced to take it and naturally pay the taxes. So I do that and put the RMD's into a standard brokerage account. A brokerage account only has annual taxes due on dividends, interest, etc. unless YOU want to sell some equities and trip that capital gains tax."

You have no need to keep your 'basis' in an IRA. Useless exercise. It ALL comes out as regular income.

Second.....if you own individual stocks......at any time, some other company/entity could buy that stock/corporation out. I had some Lubrizol for many years, paying near 5% dividend. Along comes Warren Buffet at buys them out for cash. taxable event for me. Nice gain, 30% premium, but still a gain for me. I've had half a dozen companies bought out, spun off, the spin offs bought out, etc over 40 years.

For individual stocks, there also comes a time to sell some of them, maybe 10 years after you bought them. Cut your losses. Take the tax loss. Bail out before further drops. taxable events.

Even many mutual funds, when times are good, will generate capital distributions which are taxable annually in your 'brokerage account'. Had a LOT of that during the dot com days with the computer and high tech companies as my computer funds and electronic oriented funds bought/sold things.

That said, I like getting the dividends and interest from my brokerage account monthly....and most of it at 15% tax rate - instead of higher (15/23%) on the IRA distribution.


- ------

Flying: "If I was staring over I would not have used the standard IRA's. The ROTH IRA however is a much better option and these days for younger folks with much better funds offered."

Agree....but like you, I didn't have decent 401K till the last 10 years and retired 17.5 years ago.....

- - ------

Flyer:" when I went to buy a car I had saved the money 1st, then would borrow the money from the bank (probably against a CD from the money I'd saved). Stupid, not to me as this way when the car was paid off I still had my original savings (plus interest) and did not have to re-save it."

Flyer:"I also would get a loan (back when) for 1 or 1.5 %. Made sense to me, why force yourself to re-save what you already had saved."

I saved up and bought the car for cash. Usually got a better deal. And in most car loans, you are paying for life insurance to insure they get paid..and other fees that add hundreds to the cost of buying the car.

If you were saving $300 a month, you'd just continue to save $300 a month toward the next new car in 8 or 10 years. simple.

- -----




- - - --
Flyer: " Current problem is the mental change from accumulating some minor wealth to spending same. Working on that and it's a much nicer problem to have than the inverse."

Yep, my spending is a lot less that the potential SWR I could be taking. I've got to step things up. Approaching 71. Always been an LBYM. That's why I could retire at 52.5





t
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You have no need to keep your 'basis' in an IRA. Useless exercise. It ALL comes out as regular income.

Sorry, that's not correct. If you make (or have made) non-deductible contributions, unless you want to pay taxes on the contributions twice, then there is a need to report the basis on Form 8606 each year you make non-deductible contributions, and to continue to track/report the basis. If you do so, then the percent of the withdrawal allocated to the basis will be tax free and will not be taxed as ordinary income.

AJ
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Hi Telegraph,

My car buying was still cash as far as any car dealer knew. My dealing was strictly a secured loan (CD) from a bank. No need for any life insurance, etc.

By not spending the saved cash it was always there. Plus if my discipline wavered regarding saving future money it was already there. Never did waver though.

BTW, 74 yo here and still ride a Kawasaki 750 Vulcan and my 73 yo wife rides with me. Sold my last aircraft about 7 years ago due to open heart surgery, valve job. Sold last cruising sloop 3 years ago as getting too taxing. Perhaps a trawler in the future ?

Flyer2
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Thanks, AJ you are 100% correct. I didn't want to go into all that detail as I assumed
understood the why. You put it forth nice and succiently !
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"BTW, 74 yo here and still ride a Kawasaki 750 Vulcan and my 73 yo wife rides with me. Sold my last aircraft about 7 years ago due to open heart surgery, valve job. Sold last cruising sloop 3 years ago as getting too taxing. Perhaps a trawler in the future ?"


How about some cruises on SMALL ships of 20-100 passengers? leave the driving and MAINTENANCE to them!


My dad had power boats for 40 years...the first ones self built kits....then a 17 footer for use on Lake George where he 'retired' and spent the summers. After 10 years.....it got to be a chore to haul the gas cans down (100 HP outboard) , uncover the boat, etc. In bad weather it had to get moved to a buoy 50 feet out..... and eventually he got tired of it. Only used it when company arrived. On 32 mile, 4 mi wide lake, but there is only so much cruising you can do! He bought a 22 foot self righting sailboat....did that for about six years and that too got to be a lot of work - half an hour to uncover and get ready to sail...go sailing in mornings or afternoon...wind would always die mid day.....up the lake...down the lake.... was fun for a few years....then only got used when company arrived......so he wound up selling it.

My sis took the 17 footer - and used it 3 or 4 times a summer in the cheasapeake bay......and that was it.....that wasn't enough to keep things going and she wound up selling it.... It was a lot of work to go cruising for 2 or 3 hours ......had to be put in each time.

Never had the urge to have my own boat.... been in enough...was the 'chief driver' for years and years of water skiing.....probably well over 1000 hours.....

Boats are holes in the water into which you keep throwing cash each year......

Enjoy the motorcycle...... I do things 4 wheel.....normal car.....

t
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A brokerage account only has annual taxes due on dividends, interest, etc.

That's not exactly true in all cases. It depends on what you invest in and how the dividends/distributions are taxed or deferred

In 2016 68.7% of the dividends/distributions I received in my taxable accounts were tax deferred from MLP's or securities paying Tax deferred ROC and 92% of all dividends/distributions received were tax deferred In all accounts including IRA's

I avoid selling equities so as not to trigger voluntary taxable events. That has also given me the opportunity to allow the distributions to grow and they have reached the level far above my needs so about 70%-75% of distributions received are dripped or reinvested. The RMD's I deduct each year are my largest taxable event, and the money is also transferred to a taxable account and the excess above my needs are also reinvested.
I've been retired 14 years and live entirely off the income in my portfolios as I have no pension, or annuity. SS is very minimal and doesn't even cover the FED and STATE taxes that I pay


Total dividends/distributions received in 2016 increased 24.8% above the dividends/distributions received in 2015. So that keeps growing in addition to the portfolio also after removing living expenses all these years.

b&w
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Thinking about river cruising on a paddle wheeler. The Mississippi and out west in WA.
Not in Europe. Couldn't take it over there. Dining was great but if I saw another OLD building or Cathedral I'd have jumped off a tall bridge. Partly because no one seemed to know how to actually make an extra dry martini.

Perhaps the Canadian cross country train from Montreal to Vancover. Seems like that might be a nice trip with great scenary.



Lived in Spain for a while also Iceland & Cuba, Navy days.
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"In 2016 68.7% of the dividends/distributions I received in my taxable accounts were tax deferred from MLP's or securities paying Tax deferred ROC and 92% of all dividends/distributions received were tax deferred In all accounts including IRA's"


MLPs and similar just return your capital....while decreasing your 'basis' toward zero. So when you go to sell them, your gain is a whole lot more. It's just YOUR MONEY being returned

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"70%-75% of distributions received are dripped or reinvested. "

Great....

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"The RMD's I deduct each year are my largest taxable event, and the money is also transferred to a taxable account and the excess above my needs are also reinvested."

So far I haven't spent much of the RMDs...more than I need to live on......so it's getting re-invested and a part of it donated to charitable organizations.

Did buy a new car last year......old one was 7 years old with 177K miles. Usually run them to 8 years and 200K miles but bought 'early'.

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"I've been retired 14 years and live entirely off the income in my portfolios as I have no pension, or annuity. SS is very minimal and doesn't even cover the FED and STATE taxes that I pay"

Well......I've been retired 17.5 years. Started RMD last year. $5K/yr pension that pays the real estate taxes. SS pays all the medicare and nearly all the fed taxes. Everything else from my investments is income. No state tax in TX.

Last year.......after all deductions - the total percentage of taxes on income was 14.7%


t.
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"Not in Europe. Couldn't take it over there. Dining was great but if I saw another OLD building or Cathedral I'd have jumped off a tall bridge"

Ah , yes....the ABC tours.....as the Brits say.....Another Bloody Castle.......Another Bloody Cathedral.......another Bloody CityCenter...... which seem to be the highlights of just about all tours and river cruises

on the river cruises you can actually see the ruins of dozens of castles along the rivers......every few miles......up on the hilltops and occasionally down below at strategic points.


Now, Germany did have a few different castles or things to see...Neu Schwanstein - the Disneyland type castle...and the mad Ludwigs Linderhof palace - worth seeing......


t
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MLPs and similar just return your capital....while decreasing your 'basis' toward zero. So when you go to sell them, your gain is a whole lot more. It's just YOUR MONEY being returned

No-It is not my money being returned. It is the MLP giving me their money to spend tax deferred or reinvest tax deferred without the gov't getting their hands on the money. It is their money because the value of the MLP in my portfolio keeps increasing in value besides the distributions being deferred. They have to wait for me to sell. And if I don't sell---THEY DON'T GET THEIR HANDS ON IT.
I have no reason to sell and and it will probably get passed on to my heirs at a stepped up basis.



b&w
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"It is not my money being returned. It is the MLP giving me their money to spend tax deferred or reinvest tax deferred without the gov't getting their hands on the money. It is their money because the value of the MLP in my portfolio keeps increasing in value besides the distributions being deferred. They have to wait for me to sell. And if I don't sell---THEY DON'T GET THEIR HANDS ON IT."

SOmewhat true. Many MLPs are for a set duration - 10 or 20 years and then expire...and the funds returned.

While the MLP may be increasing in value.....your basis is decreasing in value for all that 'deferred money'.

And.....if you live to 95, with a 10% or more SWR...you'll have to be selling something if in your IRA to pay the taxman.

Congress may change the law so your heirs only get the 'cost basis' of your stocks when they inherited them, and have to pay any and all cap gains when they sell...or maybe immediately.....who knows? The treasury needs a lot of money from boomers to pay the bills.


t.
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>>>> Many MLPs are for a set duration - 10 or 20 years and then expire...and the funds returned.<<<<


It appears you know nothing about MLP's---So why do you talk about them? MLPs are not trusts. They are partnerships. I would suggest you read an MLP Primer. You can find them on google.

Thanks for the pleasant conversation so far, but I see no reason to continue. Good luck

b&w
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MLP:

http://thecollegeinvestor.com/5202/investing-mlps-yields-hig...



and

"The tax advantages and higher yields of MLPs do not guarantee their future total return performance, and MLPs are coming off of an extremely strong performance run from 1996-2013 in which they nearly doubled the market’s annualized return. It’s easy for investors to forget about master limited partnerships risks during bull markets.


This table shows the performance of energy MLPs relative to US stocks and bonds from 1981 through 2013. MLPs underperformed US stocks by nearly 3% per year with higher price volatility"

Unlike blue chip dividend stocks and dividend aristocrats, which increase their dividends primarily as a result of earnings growth, most MLPs need to borrow money or issue new units to continue growing their distributable cash flows.


When times were good, MLPs enjoyed easy access to capital because they almost looked like bonds with their stable cash flows and clear returns. Their high yields were also an easy sell to yield-starved investors.

https://www.simplysafedividends.com/master-limited-partnersh...


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"The collapse of oil prices in 2014-15 has caused many energy master limited partnerships (MLPs) to cut their distributions, and some of them may even become insolvent."

In practice, many MLPs go well beyond this limit, paying distributions out of cash flow or even borrowing to pay distributions when cash flow is inadequate.

That makes them dangerous investments, especially when cash flow can change sharply as a result of, say, declining oil prices. My colleague Alan Gula recently wrote a column about these dangers and the “dividend death watch.”

At the same time, the high yields attract income-seeking investors, whose investments can then be used to finance more acquisitions and pay even higher distributions.

But eventually it all goes wrong, as happened to Linn Energy LLC (LINE) in 2015. LINE had to stop paying distributions, and its stock then lost 95% of its value.

Nevertheless, there are still a number of MLPs with high yields and cash flow that should cover payouts going forward.

Bear in mind that you should expect a higher yield on these companies than on a bond or a conventional company’s distributions, because pipelines and other energy service equipment assets have a finite life. Think of the stock as a 20- to 40-year annuity without assurance of full principal repayment at maturity


https://www.wallstreetdaily.com/2016/01/06/mlps-oil-prices-i...



t
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It appears you know nothing about...

When reading anything written by telegraph, that's a given. It's pretty much all MUS.

-IGU-
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Flyer2,

You wrote, The main point was that a conventional IRA versus a standard brokerage account is no contest in favor of the brokerage account IMHO.

Perhaps I misunderstand the context here, but I don't see how this can be ... no contest in favor of the brokerage account.

A brokerage account can win in very narrow circumstances, but as far as I can tell it losses in most scenarios.

BTW, I'm assuming we're talking about tax consequences here. I have only ever used a broker for my IRA, so I don't see the distinction there since the costs and performance would otherwise be identical.

As for tax consequences, the taxable account can win if your investments have very little churn and spin off very little in dividends AND you would otherwise be in a high tax bracket in retirement. But to compare apples to apples, you have to remember to discount each taxable contribution by your marginal tax bracket, apply taxes on any realized gains and dividends throughout the period - including the draw - and of course apply your retirement tax bracket to the IRA.

Which wins varies depending on a number of factors, but from what I can tell the taxable account winning is hardly a sure thing.

Basically with any IRA you just pay taxes once. Now with a traditional IRA, this means you pay at your regular retirement income tax rate even on the gains. With a Roth IRA you pay the taxes up-front - same as a taxable account. Now no one I know would reasonably argue that it's better to forgo eligible Roth IRA contributions in favor of a taxable account - because only under one so-called best-case scenario does the taxable account ever match the Roth IRA. (When your retirement capital gains rate is 0% and you have no interest or non-qualified dividends.)

Another common analysis is that given the same tax rates at contribution and withdrawal, traditional and Roth IRAs produce identical results, given the same starting pre-tax dollars and identical investments.

This leads to the obvious conclusion that the only way for a taxable account to actually match or beat a traditional IRA is based solely on differences in your tax rates. Now in the case of the taxable account, you have the added complexity that taxable events can be forced by interest and dividend payments throughout the life of the account. This creates an additional drag on performance relative to the traditional IRA. However with the taxable account you can recover some or all of this difference (and in some cases more, though this is hardly a sure thing) by having a lower tax bracket due to capital gains tax rates.

But capital gains tax rates have not always been lower than regular income rates ... and they may rise again in the future. Also since you incur some "friction" along the way, you generally need most if not all of this difference just to catch back up with the tax-deferred account.

Given this uncertainty and limited value, I have a hard time with the idea of sticking with just a taxable account.

Full disclosure: I have a mix of taxable, traditional and Roth accounts. My taxable liquid (investments + cash) assets currently stand at 40% of the total. My current retirement target is 2020, with 2022 at the outside.

- Joel
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