Lots of great discussion. I've read or watched seemingly countless discussions in search of the perfect answer as have many others. I've concluded its a frustrating "it depends". Most of the paper's conclusions seem obvious without need of calculation. Analyzing conversions as a capital expenditure calculating payback to me is flawed. There also are no considerations of the heirs current ability to inherit a Roth and compound 10 years before distribution. That's a Golden parachute if the law holds. As others have noted, everyone's circumstances are unique and must be analyzed as such. This can only be done by analyzing a terminal portfolio value rather than a payback approach.
In regard to tax and uncertainty in the distant future, I agree that's a big lever. So many things impact taxes and the laws are never going to stop changing. Eliminating the heir's ability to stretch TIRA's was a game changer. Who knows what's coming in the next 30-40 years. I use Pralana (surely other methods) to calculate future portfolio projections in real dollars. It's easy(test differing inputs) to see what taxes are likely along the way under varying life circumstances. Of course some of this is subjective. How far out the tax risk is and the incremental marginal tax cost to improve results certainly plays into decisions. Of course you'll need to consider all the common pitfalls such as ACA credits, Social Security claiming strategy, FAFSA, AOC, LLC, 2,1,0 tax planning, LTC, IRMA, survivor taxes, heirs tax rates, etc. Unfortunately these can be in conflict of each other. The goal is to enhance value and mitigate a large future tax risk that will eat away at your portfolios value. Most likely, you're not going to pay a significant marginal tax bracket premium if you use a measured approach when converting. If you own basic stuff like most of us, doing your own taxes is helpful so you know your incremental tax drivers and how to impact them. Be sure to keep slow growing assets in the TIRA to slow growth but be true to your overall AA.
In regard to tax and uncertainty in the distant future, I agree that's a big lever. So many things impact taxes and the laws are never going to stop changing. Eliminating the heir's ability to stretch TIRA's was a game changer. Who knows what's coming in the next 30-40 years. I use Pralana (surely other methods) to calculate future portfolio projections in real dollars. It's easy(test differing inputs) to see what taxes are likely along the way under varying life circumstances. Of course some of this is subjective. How far out the tax risk is and the incremental marginal tax cost to improve results certainly plays into decisions. Of course you'll need to consider all the common pitfalls such as ACA credits, Social Security claiming strategy, FAFSA, AOC, LLC, 2,1,0 tax planning, LTC, IRMA, survivor taxes, heirs tax rates, etc. Unfortunately these can be in conflict of each other. The goal is to enhance value and mitigate a large future tax risk that will eat away at your portfolios value. Most likely, you're not going to pay a significant marginal tax bracket premium if you use a measured approach when converting. If you own basic stuff like most of us, doing your own taxes is helpful so you know your incremental tax drivers and how to impact them. Be sure to keep slow growing assets in the TIRA to slow growth but be true to your overall AA.
Statistics: Posted by Believeland — Mon Sep 09, 2024 12:56 am — Replies 64 — Views 6975