Yes, the fact is that one of you will likely be single for a period of time. It costs more than half of what it cost as a pair to live as a single, you lose the partner’s SS, and taxes for a single person are painful. It’s really important to look ahead to try to minimize the impact on the surviving spouse.
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Our high growth county and municipalities in our county are charging market value if they can get away with it. I believe they are using some factoring of numbers w/o really looking at individual properties.
Our property appraisal (for refi) was less than the tax assessment value, so we emailed in our appraisal and the county lowered our tax value to a few hundred less than this appraisal. Appraisal was less than what we can sell our home for, much less (more than 6 figures less). I think appraisers in our area tend to be conservative.
I feel for the folks in high property tax areas. Our property tax is currently about $100 more than what we pay in homeowner’s insurance.
Obviously a difference between county assessor (which as you say in your area may just actually look at google pictures of properties - they don’t even have to drive around any more), and a paid for assessment (for real estate, financing) which does a walk through and then provides a “Uniform Residential Appraisal Report”.
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I actually have $20,000 go to Roth IRA, and then pay the additional taxes out of 401k in a separate transaction. Yes, we and they understand the tax withholding - and we do both transactions with the same phone call. When I tell them I want $20K net check going to Roth IRA, the separate federal tax payment we make is more than the 20% federal tax withholding requirement.
We don’t carry separate ‘petty cash’. We keep a level of money in our checking account, as well as have an investment account that is a ‘cash’ account for us (earned, after taxes funds).
Our heirs will have plenty (we have two DDs - and currently 4 grandchildren). We convert into Roth IRA what we can - and have done so in the past, but actually I am generally doing better on returns (ST and LT) with our 401k funds than our financial firm is doing with our Roth IRA investments. In 2022, Roth IRA funds were better protected on the down turn year with financial firm, but we are of course paying for their services. Key with our financial firm is balancing our risk with our purchases over the years of various annuities (as stated before, neither DH or I have pensions). Our annuities are providing cash flow (after a year, we withdraw a monthly amount allowed w/o penalty).
Our DDs, when the time comes, probably will get some help from us during the purchase of their homes. Neither currently are homeowners, but that probably will change in the next 3 - 5 years.
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A distinction without a difference. You are taking $20k PLUS a tax amount out of tax-differed accounts and leaving only $20k in a Roth.
I recognize that you understand the issue well,. SoS, but just pointing this out for others still learning.
For example, let’s say your marginal rate is 24%. The transactions are $20k + $4800 tax = $24.8k out of tax-differed account(s) with $20k growing tax-free (10 years after teh last spouse passes, or at least until Congress changes the law). In addition, you still have $4,800 in your taxable investment accounts (money market, annuity, emergency fund, doesnt’ matter), that is also growing but in an account where taxes are due upon every distribution.
Alternatively, the recommendation for most is to convert the full amount $24.8k in this example from a tax-deferred account into a tax-free Roth and then pay the $4800 in taxes out of your taxable cash account. That way $24.8k is growing tax-free, not just $20k.
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Sorry to be picky, but the calculation should be $20K/(1-24%) = $26,316 withdrawn since you also have to pay tax on the amount withdrawn to pay the taxes.
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thanks for the correction.
The example presumes there is $5k (or more for bigger rollovers) easily available outside of 401k/IRA accounts. Not always the case for retirees.
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You have to want to spend the money for taxes (thus converting more to Roth IRA) out of a cash account. We don’t have the luxury or the inclination - and many on this thread do not.
Some on this thread plan to use their resources during their lifetime and don’t ‘plan’ to have resources left for inheritance (or let their kids/grandkids know they are planning to use their resources and not to expect an inheritance).
However most will want to leave and inheritance or a legacy. MIL wanted to be sure to leave the house to their sons, and deeded it over to them a few years before FIL did go to skilled care. MIL only briefly went to skilled care, she had the pension and the higher SS earnings, and the house and a few assets did pass on to their 4 sons.
We are sort of ‘pay as we go’. We do want to leave $$ to DDs at our passing, but our first priority is our QOL while living, and also making sure QOL for kids/grandkids is good while we are living.
Being smart on taxes is good, but not to the detriment of living the way one wants.
Due to dad’s excellent business sense, he built up and left an estate, inherited by 4 siblings and I 15 years after his passing and at the time mom passed. Mom did not ‘spend down’ but lived her same QOL - their properties generated the cash flow for her. Since we only have 2 children, I do expect, even with the time value of money, to be able to leave at least what dad left to siblings and me. However, that is w/o care needs that can gobble up an estate.
I am going to ‘drill down’ a bit on our long term financials in our next financial planner meeting, with consideration for RMD with single person. DH and I are both 67, so some time to make adjustments on the years before RMDs come into play.
Information is power.
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Most RMD charts list just the life expectancy factor. This one also does the simple math to show percentage. (I assume it will get updated for age 73 change).
Most retirees won’t feel any RMD pain, especially in early years (about 4%). In this group probably more likely than in general population. But if you have significant IRA/401K balance(s), there might be RMD considerations. If not… the Roth rollover decision is mostly a guessing game regarding future tax rates. For those who care about heir tax situation, that might also be a factor.
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As stated before most people will not have to worry about RMDs or IRMAAs. I do understand the population on this thread is much different than the general population.
One thing I want to point out for those people that are trying to keep the amount of taxes as small as possible for their heirs. Many people will convert an IRA to a Roth so there isn’t a timeframe the IRA will need to liquidate and also the fact that the heirs might be at their peak earnings with high tax rates. I get that. If you do that conversion do not sell after tax stocks/mutuals to fund the taxes for the Roth conversion. The reason is that when you pass stocks/mutuals to your heirs they get a step up in basis and all those gains are just wiped away.
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There is now, unless you are an “eligible designated beneficiary”:
https://smartasset.com/taxes/irs-inherited-ira-10-year-rule
I was trying to convey there isn’t a timeframe on Roth IRA to liquidate, but there is a timeframe on a normal IRA. I guess I was clear as mud on that.
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The 10 year rule applies to Roth IRAs too
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The Roth conversion/RMD question has a lot of variables. We expect to leave our kids significant inherited IRA’s which, under current rules, would need to be fully distributed within 10 years. That would be brutal if it were to occur in their high tax rate years, especially if they’re in NYC, as they are now.
We’ve already converted the vast majority of our IRA’s to Roths, and are seriously considering converting the rest over the next few years, at a 24% rate and no State tax.
But even that calculation is complicated by the question of what happens with the 2017 tax cuts that are set to expire in 2024.
Which leads to a question.
Any opinions on whether or not the expiring individual tax cuts will be extended?
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Your guess is a good as any. I know a lot business people that were sure the current administration was going to raise the corporation rates but that didn’t happen.
Given that the current rates are set to expire unless congress acts I seriously doubt they will do anything and they will expire. My question is do we get our SALT deductions back if it does expire? I lost on the last tax rate cut.
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Agree with gpo613 that any of us would be guessing, but my guess is that rates will revert as paying interest charges on the deficit requires every penny the gov’t can collect. No idea on SALT deduction but fear it will not return. Hope I am wrong about that.
Re: Converting to top of 24% bracket. I have advised my son to fully fund his Roth 401K while in the 24th while also paying state tax since today’s 24% will be 28% in less than two years. (Granted, slightly wider bracket in '26.) Also, I have to imagine that his income will push him into a higher bracket in the future.
Contributing the max to a 401K for say 40 years and allowing it to grow for a total of 50 years really results in a high RMD.
Your NYC dwelling children will thank you if they should inherit during their peak earnings years.
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The SALT deduction limit is scheduled to expire after the 2025 tax year. Given that it is one of the largest tax expenditures on the books, and that over 90% of the benefit goes to people with $100k or higher incomes, it seems ripe to be kept, but any changes to the law when the current tax laws sunset will require Congress to act, and what are the chances of that?
I took a first pass at my taxes, and for the first time in over 30 years the standard deduction will be higher than my itemized deductions. I’m a bit surprised at that!
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Yes, I realize the limit is set to expire, but I am not optimistic it will be allowed to. As I commented above, I hope I am wrong.
Like everyone, I would benefit from an extension of the expiring tax rates. On the other hand, I believe a tax hike is necessary to start on the road to fiscal sanity.
My guess is that Congress will lack the political will to “raise taxes” and there won’t be a full regression to the old rates.
“Balance the Budget” is just talk.
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Probably an appropriate question for the Political thread.