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Post by diverdown6 on Apr 25, 2024 22:28:53 GMT
Hi all,
I retired at age 54 due to health reasons, but I am now closing in 57 and health is looking much better, so maybe I will live for a while after all. My first issue is cash flow pre-59.5 before I can access regular IRAs - I don't have enough in taxable accounts to last until 59.5. I could start a SEPP, but instead I am thinking of covering spending needs over the next 33 months with half taxable accounts and half from withdrawal of Roth contributions (I did the max contributions every year from 1998-2022). At the same time, I would convert regular IRA $$ to Roth up to the top of the 15% bracket and I should have enough taxable account cash to pay for the taxes on that also if I am spending from the Roth. I could potentially do this past 59.5 as long as I have taxable $$ to pay taxes (which will run out at some point). After that, I could split spending between Roth and regular IRAs to keep the tax rate low.
Does anyone have any thoughts on this plan? Anything I am not thinking of?
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Post by yogibearbull on Apr 25, 2024 22:44:14 GMT
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Post by diverdown6 on Apr 26, 2024 1:28:39 GMT
To draw from Roth IRA, and simultaneously do Roth Conversions from T-IRA looks complicated to avoid 10% penalty. What are you looking at regarding simultaneous conversions and avoiding the 10% penalty? |
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Post by yogibearbull on Apr 26, 2024 12:02:15 GMT
Each Roth Conversion starts a new 5-yr clock on that money. So, with successive Roth Conversions, your R-IRA will eventually limit your qualified withdrawals. This 5-yr rule exists to prevent simple flows through R-IRA. Any mistakes may be costly.
There are at least 2 5-yr rules (initial & for Roth Conversions), 3 when inherited R-IRAs are considered.
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Post by Chahta on Apr 26, 2024 12:54:53 GMT
Each Roth Conversion starts a new 5-yr clock on that money. So, with successive Roth Conversions, your R-IRA will eventually limit your qualified withdrawals. This 5-yr rule exists to prevent simple flows through R-IRA. Any mistakes may be costly. There are at least 2 5-yr rules (initial & for Roth Conversions), 3 when inherited R-IRAs are considered. I guess I was asleep at the wheel. I assumed that once a person met the "5 year rule", that person was qualified. Didn't realize each conversion started the clock over again. But I am way safe since I don't foresee using my Roth until the Old Folks Home is occupied. |
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Post by liftlock on Apr 26, 2024 20:46:00 GMT
Each Roth Conversion starts a new 5-yr clock on that money. So, with successive Roth Conversions, your R-IRA will eventually limit your qualified withdrawals. This 5-yr rule exists to prevent simple flows through R-IRA. Any mistakes may be costly. There are at least 2 5-yr rules (initial & for Roth Conversions), 3 when inherited R-IRAs are considered. The 5 year rules are confusing. I have read multiple conflicting interpretations. Bob Carlson, editor of the excellent" Retirement Watch" newsletter, explains why the rules become less important once a taxpayer reaches age 59 and 1/2. www.forbes.com/sites/bobcarlson/2021/09/29/what-you-need-to-know-about-the-confusing-roth-ira-five-year-rule/?sh=59dfa91b4b48 |
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Post by diverdown6 on Apr 27, 2024 18:21:06 GMT
It appears contributions are not subject to the 5 year rule: www.investopedia.com/ask/answers/05/waitingperiodroth.asphttps://www.investopedia.com/ask/answers/05/waitingperiodroth.asp"True, direct contributions to a Roth can be withdrawn anytime, without tears (or taxes). Withdrawals of other sorts of funds, however, are more restricted: Access to them is subject to a waiting period, known as the five-year rule. The five-year rule applies in three situations: You withdraw earnings from your Roth IRA. You convert a traditional IRA to a Roth IRA. You inherit a Roth IRA." "1. You can always withdraw contributions from a Roth IRA with no penalty at any age." So, I'm not sure why conversions would change that (contributions tax & penalty free). I'll find something IRS official to confirm that. |
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kent
Ensign
Posts: 43
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Post by kent on Apr 27, 2024 19:23:19 GMT
It is my understanding that only earnings on converted funds are subject to the five year rule, the principle for the converted funds are always accessible as tax free withdrawals from the ROTH (they were already taxed during the conversion)!
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Post by diverdown6 on Apr 27, 2024 21:01:38 GMT
I do see where this article indicates the 10% penalty DOES apply to distribution of principal pre-59.5 if conversions have been done in the previous 5 years. I wish articles like this would quote official sources, meh. I'll look for something official.
Obviously, this would have me do the SEPP distributions and pay taxes from taxable accounts rather than take Roth distributions (even with no conversions). That way I could still use my 0% tax bracket for most of the distributions. (That was why I had thought of doing conversions while simultaneously taking Roth distributions, to use the 0% bracket for the next couple of years.)
Once I finish the SEPP (which will be after I am 59.5), I should be able to do conversions while using the Roth, while again trying to stay below the 22% bracket.
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Post by diverdown6 on Apr 27, 2024 21:05:13 GMT
It appears principal distributions from Roths are always income-tax free, but would still be subject to the 10% penalty if I did a Roth conversion within 5 years. This makes sense.
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Post by diverdown6 on Apr 27, 2024 21:06:35 GMT
It appears principal distributions from Roths are always income-tax free, but would still be subject to the 10% penalty if I did a Roth conversion within 5 years. This makes sense. Sorry, I meant to quote kent in this reply, this reply is in response to his comment. |
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Post by liftlock on Apr 28, 2024 21:01:32 GMT
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