@deb922 i have no idea which of my posts you are referring to!
lol, this is what I was trying to answer. How to direct cash flow. I like to replicate some sort of paycheck. Since we have a small pension but are not collecting SS yet.
My MIL directed dividends to her checking account, and it worked very well for her. At this point, between SS, RMDs and her LTC insurance payments, she doesnât need the dividends - so she is reinvesting them now.
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Thanks for clarifying! Where are you moving the cash deposits from? This is what I want to do. I chose to take my SS at 67 1/2 because after I retired I wanted to have that additional cash flow as my play money. I didnât want to feel like I was contributing nothing. By the time I retired I was only working very part time anyway, so my âincomeâ was pretty modest. The SS payments kinda counterbalanced that.
In my sisterâs town in Iowa, you leave the basement ceiling unfinished and it is considered an unfinished basement. That helps her on their taxes.
Everything depends on the area and how the tax assessment office works.
My parentsâ home in WI, if their house (with attached garage space) was over a particular square footage, their home property tax bumped up double in cost. Dad had the garage be a very tight 2 car garage (he was a builder) - the tax assessor measured the house more than once! Information is power.
It is worth having a correct house value when the tax assessorâs office uses automatic increases â so once you are overpaying, that trend continues. You might pay for an assessment, and have to spend time with appealing the valuation given.
Not retired yet, but we use a financial advisor (worth it to me to not have to worry about it) and I THINK our cash flow works like this:
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We have rolled over old 401(k)s into IRAs and will add the last ones at retirement.
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We also have a general joint brokerage account. All our after-tax, non-IRA savings goes there. Thatâs where interest and dividends get paid into, also.
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When we retire, we will receive a monthly draw that goes from the joint brokerage account to our checking account in an amount sufficient to cover routine expenses. We expect to have enough âemergencyâ cushion in our checking account to cover the occasional tax bill or extraordinary expense, but if that is depleted, we will take a special withdrawal from our joint brokerage account.
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When social security kicks in, we will lower our monthly draw accordingly. The idea is that the monthly check will feel like a direct deposit paycheck and cover all the basics, but wonât be enough to cause accumulation in the checking account. Instead, any excess will keep earning away in the brokerage account. If we need it, we will dip into âsavingsâ and make an additional withdrawal.
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In the early years of retirement when income is low, we anticipate converting money from our traditional IRAs to Roth IRAs, but will have to weigh how that affects our health care costs (wonât yet be eligible for Medicare).
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Right now it comes out of our rollover IRA. Our financial advisor set it up and has taxes taken out so it operates like a paycheck.
Our finances are pretty simple.
My in laws decided to roll over their dividends into their checking account, so they have more money to play with. My fil loved to play around with the dividends but heâs getting older and less acute. So now itâs going to cash.
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@CMA22 explained it much better than I did. Exactly how we are managing our finances. Except that weâve already are retired.
Except that in our early gogo years of retirement, our income hasnât been that low, so it hasnât worked out to convert to a ROTH IRA.
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This is how we do it. Our financial advisor has it set up for a monthly draw from our IRA, and taxes are sent out for federal and state before the net amount hits our account. We have a meeting in the fall where we discuss the amount we can roll over for the year. I follow a financial forum online, and so many of the people on that forum are anti-financial advisor ⊠they do it themselves, so they arenât paying someone to do it. H and I are simply more comfortable working in tandem with a professional, so weâre fine with paying for assistance.
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We have a âmonthly paycheckâ from our Schwab accounts, similar to CMA22 info above. It is coordinator by our fee-only financial advisor, and we have quarterly meetings to discuss and adjust. (I am 7 years younger than my husband, so my 401K is still at Fidelity - not needed yet.). The strategy includes rollovers to Roth each year to avoid RMD concerns down the road, so we endure some resulting IRMAA pain⊠but only for my husband since Iâm still a few years away from Medicare. It is getting harder to find easy savings/investment sources for our tax bill. So even though it is not recommended, I feel like we should start thinking about having taxes withheld at the next Roth rollover.
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Thatâs only advantageous if the RMDs (+SS) will kick you into a higher tax bracket. If your tax bracket will remain the same, there is little value for the Roth conversion (unless your Roth is solely for your high tax heirs).
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@notrichenough, it is hard to know what the actual valuation was at the time we bought and what it should be today. First, the lot is relatively unique (on a river, surrounded by conservation land and a horse farm, and the only house at the end of a long street so canât see neighbors). It is in a major metropolitan area, though I would call it an exurb. Second, we bought at a very good price in Jan 2020. People are very surprised by the price we paid. (The seller really did not want to sell and when we saw the house, there was peeling paint and a vintage motorcycle in the entry foyer and beds were not made). The assessed value is 43% above the price we paid. My guess is that we paid about a fair bit below market value at the time and that the assessed valuation is 33% above my guess of market value at the time. Prices did go way up during the Pandemic for no obvious reason. I donât know what the current increase should have been. But, my recollection is that the assessed valuation usually lags market value a bit.
I donât think we would succeed in contesting it because we have done a major renovation with a very skilled architect â there will likely be an article in some architecture magazine about the architectâs collaboration with ShawWife. The town assessor visited early in the construction so the assessed valuation may be probably below what the assessment would have been post-renovation.
Iâm guessing that a big contributor to the property tax jump was the extra tax the town imposed on higher end homes, though I canât quite figure out how the redistributive part of the tax works.
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The Roth IRA money is not considered in the RMD figure, that is why converting 401k or regular IRA to Roth IRA is advantageous. And what we convert doesnât move us to a higher tax bracket with current federal taxes.
I donât mind paying taxes using money from 401k to pay for this. It is a healthier source for me than our checking account and our private investment account (not tied to retirement).
Key really is planning the set up and having the cash flow one needs in retirement, and not running out of funds. We like what we have set up, and it sounds like others are liking theirs as well - tweaking as necessary.
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@SOSConcern, when you convert, doesnât that put you in a very high tax bracket?
We have converted a lot to Roths. The tax implication was - ouch.
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Not big amounts $20,000 and then an additional $5,000 for taxes (so $25K)/year. We are retired. We had SS income (some not taxed) and the cash flow we have from our annuities. Occasionally I have had an additional amount needed to boost our checking account (on a year we have not done this conversion from 401k to Roth IRA.) We stay under the Medicare joint income amount (so we donât pay âextraâ for Medicare B), and remain in the lower tax bracket (donât go up a tax bracket).
Definitely have to be careful.
Being careful also plays into buying and selling a home - taking the funds from the sale of a home to go into another instead of having more flexibility with buying/moving stuff/selling. Have to plan to keep within the taxable limitations.
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Not sure if intentional or not, but property valuations in our county are typically less than market value. To get it appraised would not help in contesting, as the appraised value would be higher than assessed value.
My gripe is that our property seems to be assessed higher than surrounding properties. But it is very hard to âcompareâ. Most others are ranches or two story. Ours is a split level. Many (not ours) have walk-out basements that have been updated. Our basement is still fully unfinished. Ours has very few updates except structural (roof) and HVAC. No new kitchen, baths, windows, etc. But assessors donât look at the interiors, even though it makes a significant difference on value when selling.
Understand, but it is financially sub-optimal for most.
If you say, convert $10k from a 401k/IRA to a Roth, and have 20% withheld from taxes, only $8k goes into the Roth to grow tax-free for your heirs.
OTOH, if you convert $10k and pay the $2k of taxes out of petty cash, you now have $10k growing tax-free for your heirs. (and $2k less in petty cash)
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Thanks for explaining this.
We have a modest yet comfortable for us retirement. I donât see how converting to a ROTH helps us.
Youâve explained it in a way that a dummy like me can understand.
Our parents have lived a long life and Iâm not that concerned about my heirs tax burden. I think thatâs the reason to convert.
Or to avoid IRMAA with our RMD. Which I donât see being an issue either.
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Donâ;t forget, that some day, the âourâ (plural) will be single, and the tax bracket cut in half, but the RMD will continue. Thus, you could go from the 22% bracket (married filing joint) to the 32% bracket (single).
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