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retirement planning for tough client

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    #1

    retirement planning for tough client

    I went over the taxes of this 65 year old woman who's in a very low tax bracket. She says she wants to convert 20,000 from traditional IRA to a Roth. Which would cause her to Federal liability to go up from 500 dollars to several thousand (many even up to 5,500, if I remember).

    So I said to her, "Mom! I'm not convinced that that would be beneficial!"

    Granted, my mom has eaten bran and other rabbit food all here life and she'll probably outlive me. She read some book where doing a similar plan helped someone (someone younger with minimal tax income). My first guess is 'no way Jose!' But maybe converting 3,000 instead of 20,000 might actually work?

    Does anyone know where I might get some 'rule of thumbs guides' that could help me address this issue? Or do I have to project her income out over probable life expectancy and then compare that to the current value of the caused tax increase?

    thanks for reading
    Tags: None
    #2
    Is this your mom or your client? If it is your mom, why did you let her eat rabbit food all her life? And if you did let her eat rabbit food, why should we help you help her plan for retirement?

    Excuse me for the sarcasm, but we get a lot of bogus planted questions on this message board from people who get a kick out of playing games with us.

    Assuming you are asking a legitimate question, you need to do the math. There is no rule of thumb, other than everyone’s tax situation is unique. Here are a couple of issues you may want to consider:

    1) If she has a current federal tax liability of around $500, that means she is still in the 10% tax bracket, with about $5,000 of taxable income. A single individual can earn another $2,500 or so of income before the excess is taxed at 15%. So there is one issue to consider. By keeping IRA distributions low enough each year to stay in the 10% bracket, you can save 5% in taxes.
    2) If the 5% doesn’t bother you, then you need to look at taxable Social Security Benefits. For example, with $5,000 of taxable income, that means if she is single and takes the standard deduction, her total earnings for the year is about $15,000 (See TTB, page 1-2). That means if she keeps her IRA distribution below $10,000 each year, she does not cause her Social Security Benefits to be taxed.

    Just considering these two issues, you can convert the $20,000 of IRA to after tax money with very little taxes over just a few short years, rather than one lump sum conversion to a Roth IRA that will put her in a higher tax bracket and cause her Social Security Benefits to be taxed.

    Comment

      #3
      Thank you very much!
      A little sarcasm is a very small price to pay for expert advice! I understand your concern about joksters and 'internet trolls.' I'd gladly put my name to this if it didn't mean advertising my Mom's income. (I was hoping our conversation might give you a laugh)

      Comment

        #4
        Why don't you register, but not use your real name. Do you think my mom really named me Bees?

        Comment

          #5
          Originally posted by Bees Knees
          Why don't you register, but not use your real name. Do you think my mom really named me Bees?
          My mom DID name me Joe.

          Comment

            #6
            Originally posted by Bees Knees
            Why don't you register, but not use your real name. Do you think my mom really named me Bees?
            Well... Bees, considering your attitude on this post I can think of a lot of names your mother should have called you. This post had no indication of being a bogus post and deserved a little more consideration without your personality flowing with such fervor. However, your answer to the question was very good once you addressed the purpose of the post. Tis another example of why registration should be required in order to post.

            Comment

              #7
              the asset-rich guy

              >>no indication of being a bogus post<<

              This one's legit. The bogus one is the "can my girlfriend deduct my non-deductible interest" by the asset-rich guy.

              Comment

                #8
                Originally posted by OldJack
                Well... Bees, considering your attitude on this post I can think of a lot of names your mother should have called you. This post had no indication of being a bogus post and deserved a little more consideration without your personality flowing with such fervor.
                I guess we should nominate you as the bogus post police.

                Tell us, OldJack...how do we know when a post is bogus??? Do you have access to some information the rest of us do not have???

                Comment

                  #9
                  Originally posted by Bees Knees
                  Tell us, OldJack...how do we know when a post is bogus???
                  Easy... It appears that I use the opposite determining factors then you do.

                  There was no good reason for you to be so rude to this poster when all the post said was to ask a valid tax question (with a little humor). If you didn't like the way the question was asked, or thought it was bogus, why did you bother with an answer?

                  Comment

                    #10
                    Originally posted by OldJack
                    There was no good reason for you to be so rude to this poster when all the post said was to ask a valid tax question (with a little humor).
                    How is scolding a guy for letting his mom eat rabbit food being rude? You think it is OK for a guy to let his mom eat rabbit food?

                    Comment

                      #11
                      It is okay

                      >>You think it is OK for a guy to let his mom eat rabbit food?<<

                      It is okay to LET her eat rabbit food, but not to MAKE her eat it.

                      The original post was not bogus, but that could be changing.

                      Comment

                        #12
                        Originally posted by Bees Knees
                        How is scolding a guy for letting his mom eat rabbit food being rude? You think it is OK for a guy to let his mom eat rabbit food?
                        The term "rabbit food" is a common term associated with vegetables such as lettuce and carrots. What business is it of anyone if he lets his mom eat health food? That is certainly not something one should be scolded about even if you had a right to scold, which you don't. No, you were down right rude.

                        Comment

                          #13
                          You guys are making me hungry, I think I'll have some rabbit food and drink some Barley green,

                          Comment

                            #14
                            Originally posted by OldJack
                            The term "rabbit food" is a common term associated with vegetables such as lettuce and carrots. What business is it of anyone if he lets his mom eat health food? That is certainly not something one should be scolded about even if you had a right to scold, which you don't. No, you were down right rude.
                            Rabbit food can also refer to pellets and table scraps. As in a poor little old widow too poor to buy people food.

                            You are not only the bogus police, but also the rude police, the common term police, and the don't have a right to be sarcastic police. You got any other talents we don’t know about? Like maybe the thought police? Maybe the original poster thought the sarcasm was funny. Apparently you don't. Apparently you are also the judge of humor as well.

                            Shall I run all future sarcastic posts that may have been humorous by you before posting any more messages?
                            Last edited by Bees Knees; 12-05-2006, 03:17 PM.

                            Comment

                              #15
                              Originally posted by Bees Knees
                              Shall I run all future sarcastic posts that may have been humorous by you before posting any more messages?
                              You are clearly out of control and in drastic need of a mental adjustment.

                              Comment

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                              This message board allows participants to freely exchange ideas and opinions on areas concerning taxes. The comments posted are the opinions of participants and not that of Tax Materials, Inc. We make no claim as to the accuracy of the information and will not be held liable for any damages caused by using such information. Tax Materials, Inc. reserves the right to delete or modify inappropriate postings.

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