Growing you Nest Egg and Investing thread - no politics

[SVonhof]

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I like that I am above average.

I am actually going to drop my 401k allotment down some, since I am doing so well and had been maxing out (I am in the over 50 catch-up timeframe, but I am way above the averages). Our financial planner said he has no problem with it, based on where we are positioned.

I won't be dropping it completely, but back to pre-50 year old numbers.

 

[TheHeez]

Qualified charitable distributions allow eligible IRA owners up to $100,000 in tax-free gifts to charity | Internal Revenue Service

IR-2023-215, Nov. 16, 2023 — The Internal Revenue Service today reminded individual retirement arrangement (IRA) owners age 70½ or over that they can transfer up to $100,000 to charity tax-free each year.

www.irs.gov

Another way to handle Required Minimum Distributions from an tax deferred IRA is to go through the hoops of donating the money directly to a charity.
I looked into Roth Conversions but the money would be tied up for five years.

The reasoning being that if my investments do really well, I can share the wealth with a preferred charity instead of having to pay taxes on RMDs.

The QCD (Qualified Charitable Donation) is a great tool for folks to handle their RMD and donations at the same time. Not so great if you have a really big RMD and/or need the money.

ROTH conversions are also a great tool, but don’t replace the RMD ie. doing a conversion adds taxable income on top of the income generated by the RMD. So the sweet spot is doing the conversions before RMD age, ideally after earned income decreases (retirement).

Also, the ROTH 5 year rule is on earnings. You can always access the principle of a ROTH. Best strategy IMO is navigate the tax brackets each year and do your ROTH contributions in your retirement plan or IRA. Use traditional contributions to get into a lower bracket if possible, then stack ROTH (I am a big ROTH proponent).

 

[Bohnson]

Roth seems like the way to go. The back door Roth is a good tool for high earners.

 

[CTRosarian]

So the sweet spot is doing the conversions before RMD age, ideally after earned income decreases (retirement).

• You cannot contribute more to an IRA than your earned income for the year. So if you earned less than the maximum contribution limit, the dollar value of your earned income is the most you can contribute.

I got this from a Fidelity web page. Once you are retired and living off passive income your opportunity for a Roth Conversion goes away.

Who can contribute to a Roth IRA? | Fidelity

You can contribute to a Roth IRA if you meet certain key requirements. Learn more about whether you're eligible.

www.fidelity.com

 

[TheHeez]

• You cannot contribute more to an IRA than your earned income for the year. So if you earned less than the maximum contribution limit, the dollar value of your earned income is the most you can contribute.

I got this from a Fidelity web page. Once you are retired and living off passive income your opportunity for a Roth Conversion goes away.

Who can contribute to a Roth IRA? | Fidelity

You can contribute to a Roth IRA if you meet certain key requirements. Learn more about whether you're eligible.

www.fidelity.com

Conversions and contributions are NOT the same. Conversions are not limited/restricted by income, only by how much you wish to add as taxable income.

 

[CTRosarian]

Thanks! It looks like I can theoretically maximize my retirement portfolio by doing an in-kind Roth conversion during a market dip (lots of those right now) and paying taxes at the time of conversion from my bank account. Lots of stuff to keep the mind sharp by factoring in the Affordable Care Act/Medicare as well as the expected taxes now and in my likely retirement state five years from now. Luckily I'm in good health and have very low expenses at the moment, but I'm fully aware of how quickly that can change.