Practicing Retirement Before Retirement.

[AshWilliams]

... Other times they themselves are expensive and more work ...

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Extremely affordable, but it is work to get all of your assets added to the trust. Just take it slow and steady.

For Oregon, if it goes to probate they will typically take 3 - 7% of the estate value.

 

[The Heretic]

Some things go in a trust, but others do not. IIRC, things that have named "beneficiaries", like a 401K/IRA, or a bank account, or a life insurance policy, you set them up with the beneficiary defined and they get transferred upon death (the beneficiary needs a death certificate) although it takes a few weeks.

Just recently I changed the beneficiaries on my IRAs; first my daughter, then a secondary beneficiary is her husband, then the tertiary is my nephew (in case my daughter & her husband are in a car accident together) - my brothers, both of whom have more assets and income than I do, don't need my assets.

I considered my ex-wife, but she would just blow it, and it would maybe (probably) do her more harm than good. Plus both my daughter & I think that if there was even a hint of her getting anything from my estate, my ex would hire a lawyer and try to get it all instead of my daughter. Highly unlikely she would have any success (we've been divorced for decades), but it would save a lot of hassle/grief/etc. to avoid it altogether.

 

[The Heretic]

Except they will still tax the recipient on the 401k/IRA distributions.

That is why I am moving as much as I can to my Roth now. In ten years my IRAs will double, and paying the tax on a large reg IRA would be a hassle - they have to get it pulled out of either IRA within ten years, but the $ in a Roth are tax free. Pulling that much out of a reg IRA in ten years, especially since the IRA would still be appreciating, would shoot their income up into the highest tax bracket. It is a bit painful now, but it is better to do it now at a lower tax bracket, than later.

They will still need to pull it from the Roth by the end of ten years, but it won't impact their taxes, and they can let it keep growing and then pull the remaining amount in the tenth year.

I've talked to my daughter about this, but I also said they should get a financial planner because the laws/regs can change year to year and who knows what they will be in 10-15 years from now?

 

[crstrode]

I had a monthly budget worked out years (more than a decade) in advance on a spreadsheet so I would know, that any given point, how long what I had saved for retirement, would last thru my retirement - or, if I was laid off and could not return to work, how long my savings would last. This included when SS benefits would kick in and so on.

Now, I have a month to month budget, that includes my current balances (except for my IRAs) income, bills and other expenditures. This includes a projection for expenditures for the near future (next month).

My budget is simple; If
I want something, I buy it. Due to diligent saving for 45 years, our investment income today far surpasses what we were both earning while working full-time.

 

[The Heretic]

My budget is simple; If
I want something, I buy it. Due to diligent saving for 45 years, our investment income today far surpasses what we were both earning while working full-time.

Even billionaires have a "budget" - at some amount will they want to know the cost of something they are buying and will take that into account. If you don't keep track of funds, you can wind up depleting them faster than you are aware. E.G., if I were a billionaire, I would like to buy large tracts of land - maybe an island in the S. Pacific - but I would take into consideration how much it would cost to do so.

I am no longer working. While my AGI last year exceeded my before retirement "earned" income, about 50% of that income will stay in my Roth IRA so that it will continue to appreciate. I take that into consideration when I want to buy something non-trivial.

In short, I have two income "buckets"; the fixed income that goes into my checking account (from my reg IRA and my SS benefits), and the income that is moved from my reg IRA to my Roth IRA. Each is taxable income, but I mostly leave my Roth IRA assets alone so that they will continue to appreciate. The income that goes into my checking account is what I spend - I don't let it hold much more than I need month to month as my checking account interest rate is very low.

Technically, my reg IRA appreciates and might be considered "income", but until I withdraw it, it isn't taxable and cannot be spent.

 

[Bobbygun]

For Oregon, if it goes to probate they will typically take 3 - 7% of the estate value.

LOL. I suppose it depends on who "they" is. A lot of that cost is due to the "personal representative/executor", not the courts or attorneys. In my mom's case - that was ME. In reality, I didn't charge my co-heirs (nephews) a dime, and wouldn't had we gone through probate either. We spent more on estate tax preparation ($3K) than on attorneys (<$1K).

My mom's estate was really pretty simple compared to what mine and my wife's estate entails. We are in the same conversations as @Hawaiian describes in post #180 - Disclaimer Trusts, Gifting, IRA to Roth Conversions, and even moving to another state. I got my hopes up that Oregon might actually raise the exemption limit, but that got dashed at least for now. It's funny. Until about five weeks ago, I'd never heard of the Disclaimer Trusts.

 

[WillElee69]

Hello Guys, I just retired this month. I sold a couple of condos in Walla Walla, and bought 20 acres 10 miles out of town. It's just me and my pup Sparky. I am having to do alot of construction. There is a big pole building about 80' wide and 30' deep with half of it framed in for apparently someone was planning on making a couple of Apts in half of it. Well, I have been a lender for over 40 years and dont know much about installing the flooring, Tile, kitchen cabinets, etc. It's pretty slow going having to watch YT videos to learn how to get er done. But I am enjoying myself, keeping busy with the improvements that need done, and when not doing that, I am building a pretty serious network with strong wifi signal balance between 4 Access Points around the property and have them working together managed by Omada. So, as we move around the property my cell phone transitions to the AP with the strongest signal, as the cellular coverage is nearly minimal. In addition to having a strong internet via Fiber, I am developing a security layer that is managed by Blue Iris. Early warning, then Identification and general overlapping coverage. Getting it pinned down so that there is no hanky panky, lol. Friend of mine Jarrod and I were talking tonight, he is a long time member in this group, he talked very highly of you all and the group as a whole. So, I told him that sounded like something I would be interested in visiting with you guys, so just wanted to say hello, its my first post. Guess we gotta start somewhere so I chose this particular chat. Cheers Brothers!!!!

 

[Ballardguy]

I will have to start that next year I think, but I am already pulling enough from the reg IRA to qualify.


But do they have tax deferred retirement accounts? Inheriting your house may be enough to help them.

B

They do, but if you didn't start the investments by paying tax on the monies you put in them, then transferring later will mean you pay taxes as you transfer to avoid paying when you take money out. IRS is going to get their piece one way or another. The thought is by waiting until your retirement income is smaller then you wont pay as much tax. But if you prepared well and your income isn't smaller then you'll still pay a chunk of it.

 

[The Heretic]

They do, but if you didn't start the investments by paying tax on the monies you put in them, then transferring later will mean you pay taxes as you transfer to avoid paying when you take money out. IRS is going to get their piece one way or another. The thought is by waiting until your retirement income is smaller then you wont pay as much tax. But if you prepared well and your income isn't smaller then you'll still pay a chunk of it.

Yes, and I took all of that into account. My base income (SS) will only increase (COLA) over time, but it is "fixed" and the increases are not enough to put me into a higher bracket, nor will my total income (SS + RMDs) increase right now, but the RMDs will increase significantly later on if you look at the table.

The thing is, that if your IRA/401K is large enough, and it earns enough (stock market average is 7-10% per year, on average) then RMDs won't take it down fast enough during your lifetime to prevent the RMDs themselves from growing so much (starting at tens of thousands and growing to over $100K) that they take you up into a higher tax bracket.

Example - start with a $600K balance that grows at 10%/yr (worst - or best case depending on your POV):

Year	Your Age	Distribution period	RMD	End of Year Balance
2026	75​	24.6​	$24,390.24​	$635,609.76​
2027	76​	23.7​	$26,818.98​	$672,351.75​
2028	77​	22.9​	$29,360.34​	$710,226.59​
2029	78​	22​	$32,283.03​	$748,966.22​
2030	79​	21.1​	$35,496.03​	$788,366.82​
2031	80​	20.2​	$39,028.06​	$828,175.44​
2032	81​	19.4​	$42,689.46​	$868,303.53​
2033	82​	18.5​	$46,935.33​	$908,198.55​
2034	83​	17.7​	$51,310.65​	$947,707.76​
2035	84​	16.8​	$56,411.18​	$986,067.36​
2036	85​	16​	$61,629.21​	$1,023,044.88​
2037	86​	15.2​	$67,305.58​	$1,058,043.78​
2038	87​	14.4​	$73,475.26​	$1,090,372.90​
2039	88​	13.7​	$79,589.26​	$1,119,820.93​
2040	89​	12.9​	$86,807.82​	$1,144,995.20​
2041	90​	12.2​	$93,852.07​	$1,165,642.65​
2042	91​	11.5​	$101,360.23​	$1,180,846.69​
2043	92​	10.8​	$109,337.66​	$1,189,593.70​
2044	93​	10.1​	$117,781.55​	$1,190,771.51​
2045	94​	9.5​	$125,344.37​	$1,184,504.30​
2046	95​	8.9​	$133,090.37​	$1,169,864.35​
2047	96​	8.4​	$139,269.57​	$1,147,581.22​
2048	97​	7.8​	$147,125.80​	$1,115,213.55​
2049	98​	7.3​	$152,768.98​	$1,073,965.92​
2050	99​	6.8​	$157,936.17​	$1,023,426.35​
2051	100​	6.4​	$159,910.37​	$965,858.62​
	​	​	​	​

Note that I would need to age to 90+ (avg US life expectancy for males is 75-76 - I don't expect to make it past 85) before my IRA balance goes down from RMD withdrawals and that it would take me up 3-4 tax brackets from where I was a couple years ago before I started taking IRA withdrawals (I had a couple years where I had zero tax owed because I only has SS as income).

More importantly, my daughter/SIL don't really have much in a 401K, and won't get the SS benefit amount that I get because their income is much smaller. They also have higher bills than I do.

So, I don't want to leave them this income tax nightmare. I want to move enough from my reg IRA to my Roth, such that the majority (if not all) of my balance is in my Roth, and do it while my reg IRA balance is low enough that the rollover to the Roth doesn't take me too high, but enough that I can stay ahead of the growth of the reg IRA.

Last year I rolled over 10% of the reg IRA balance to the Roth (enough to cover the 2024-2025 growth), and withdrew 3.4% more (spaced over 12 months - but they didn't include tax I would owe). I also had to cover some unexpected bills, so towards the end of the year I withdrew another 4% which covered the bills and a portion of what I would owe in taxes (I will have to withdraw more this year to pay my 2025 tax amount that remains).

All that bumped me up 2 tax brackets, but if I waited ten years to do the rollover, the reg IRA balance would be double what it is now (or more) and the tax bracket would be 3 higher on a balance that would be 2X, and RMDs would 2X what they will be when I turn 73.

I've run the numbers in a spreadsheet and my plan is to eventually leave no more in the reg IRA (if any) for the RMDs to be low enough that I won't bump up into a higher tax bracket (or that will bump up my kid's tax bracket). If I am able, I want to pay zero taxes by keeping my AGI low enough that my SS benefits won't be taxed and my std deduction will cover the RMD or more (if any remains).

In short, pay tax now to pay less later. Plus, who knows what tax brackets/etc. will be in ten years? Or the std deduction? Or whether the "senior deduction" will still be around. Plus, my kids will hopefully be able to more easily deal with the RMDs (they will have only ten years to deplete both IRAs - the reg IRA will be taxable but the Roth will be tax free).

 

[crstrode]

They do, but if you didn't start the investments by paying tax on the monies you put in them, then transferring later will mean you pay taxes as you transfer to avoid paying when you take money out. IRS is going to get their piece one way or another. The thought is by waiting until your retirement income is smaller then you wont pay as much tax. But if you prepared well and your income isn't smaller then you'll still pay a chunk of it.

That is the position I'm in now. My wife, a retired accountant, agrees that no matter which course you take - IRA vs Roth, the taxman will get his share - no matter what.

On the other hand, my dear old Dad often explained that paying a big pile of income tax means you have a big pile of income.

 

[The Heretic]

That is the position I'm in now. My wife, a retired accountant, agrees that no matter which course you take - IRA vs Roth, the taxman will get his share - no matter what.

On the other hand, my dear old Dad often explained that paying a big pile of income tax means you have a big pile of income.

View attachment 2262451

The gov gets A share, but sometimes you can make it a smaller share. Depends on your situation and the timing, your income and the tax brackets. Also, my complication is that my daughter will inherit the bulk of my IRAs and have a shorter time period (10 years) to deplete my reg IRA, whereas I started a few years ago, and have until I die (maybe 10 years, maybe tomorrow, maybe 20 years).

A person needs to do the numbers. I have done them (at least a decent estimate - tax rules/laws/deductions/brackets can and do change) and while the tax paid by me is not that hugely lower with Roth rollovers, the tax my daughter would pay if she inherited my reg IRA (if I left it untouched) would be significantly more, and would be stressful for her (not good for her health). It will be much easier for her if I pay the taxes now and she gets the bulk of the funds from the Roth instead of the reg IRA.

 

[crstrode]

The gov gets A share, but sometimes you can make it a smaller share. Depends on your situation and the timing, your income and the tax brackets. Also, my complication is that my daughter will inherit the bulk of my IRAs and have a shorter time period (10 years) to deplete my reg IRA, whereas I started a few years ago, and have until I die (maybe 10 years, maybe tomorrow, maybe 20 years).

A person needs to do the numbers. I have done them (at least a decent estimate - tax rules/laws/deductions/brackets can and do change) and while the tax paid by me is not that hugely lower with Roth rollovers, the tax my daughter would pay if she inherited my reg IRA (if I left it untouched) would be significantly more, and would be stressful for her (not good for her health). It will be much easier for her if I pay the taxes now and she gets the bulk of the funds from the Roth instead of the reg IRA.

Like I said; my wife is a retired accountant. Our finances are perfectly adjusted - I don't fool around with the knobs.

She is converting the maximum out of the IRAs and into the Roths that will keep us out of the higher tax brackets . . . even so, the darned IRAs are out-pacing the conversions.

 

[The Heretic]

Like I said; my wife is a retired accountant. Our finances are perfectly adjusted - I don't fool around with the knobs.

She is converting the maximum out of the IRAs and into the Roths that will keep us out of the higher tax brackets . . . even so, the darned IRAs are out-pacing the conversions.

My Roth is doing about as well as the reg IRA - but with a much smaller balance. Actually it is more stable - less volatility, another reason I want to move $ to the Roth.

 

[arakboss]

Time for another couple of days of practicing retirement. Friday & Saturday will be the retirement days. My budget will be $20 for both days. Franz outlet store's dollar day will likely eat up half of that.

I plan on clearing a spot on the workbench so I can get a little reloading done.

I also want to get the dog out for some socialization.

A large part of my discretionary retirement income will come from selling off my firearm related collection, so I will dig through my stuff and find some more stuff to sell.

A nap each day will be on the menu.

Some budget meal prep will be on tap for very early Saturday morning.

The rest of the day's hours will be filled with normal chores, errands and a classified meet up or two (selling).

Partial success with Friday and Saturday's practice retirement.

The good, I did not get bored and I could have used many more hours in the day.

The bad, I went over my $20 budget by almost $16 (went nuts at Franz outlet store) and I did not get a nap on Saturday.

I am going to try again next Friday and Saturday with a special focus on staying with in my $10 a day budget.

 

[Ballardguy]

One thing that had a great affect on our taxes was when we paid off our home! It was neat to not have the payment, but since the interest was written off on the loan we lost that deduction on our tax return. Still glad to not have the payment, but it does have negative affect on returns.

 

[nwslopoke]

One thing that had a great affect on our taxes was when we paid off our home! It was neat to not have the payment, but since the interest was written off on the loan we lost that deduction on our tax return. Still glad to not have the payment, but it does have negative affect on returns.

That's kept me on the fence of not paying off the house. With a very low interest rate paying off the lump some would cut deep into my savings. Still paying property tax and losing the tax benefits, my savings might be hundreds instead of a real noticeable difference.

There's no wrong answer unless you have a high interest rate if you have the ability to pay it off. Keeping and growing that extra $200k is better than saving 2% you pay monthly, IMO. That $200k is making 7% (for the sake of argument) plus you get a small tax break.

 

[The Heretic]

One thing that had a great affect on our taxes was when we paid off our home! It was neat to not have the payment, but since the interest was written off on the loan we lost that deduction on our tax return. Still glad to not have the payment, but it does have negative affect on returns.

After the std deduction changes, I no longer itemized. Even with $8k of interest per year, the std deduction was larger. That might change in the future after the 2028 elections.

 

[Ballardguy]

After the std deduction changes, I no longer itemized. Even with $8k of interest per year, the std deduction was larger. That might change in the future after the 2028 elections.

That only changed for Federal! My accountant still does itemized for the state, and it gets me a good return before we paid the house off.

 

[Ballardguy]

That's kept me on the fence of not paying off the house. With a very low interest rate paying off the lump some would cut deep into my savings. Still paying property tax and losing the tax benefits, my savings might be hundreds instead of a real noticeable difference.

There's no wrong answer unless you have a high interest rate if you have the ability to pay it off. Keeping and growing that extra $200k is better than saving 2% you pay monthly, IMO. That $200k is making 7% (for the sake of argument) plus you get a small tax break.

Property taxes are still a huge write off for us on the state form. Our house was $38k when we bought it 50 years ago, but the taxes now cost us more than our house payment used to be! We actually got down to maybe $8k left and our interest rate on the home was only 3.25%, so we took the money out of investments that weren't doing that great and just paid it off.

 

[The Heretic]

That only changed for Federal! My accountant still does itemized for the state, and it gets me a good return before we paid the house off.

Good point.

Also, IIRC Oregon does not tax SS benefits.

I need to get off my posterior and file my 2025 tax forms.