I have spent some quality time looking at Roth conversions. Wow, that
gets complicated in a hurry. Bottom line is it's not at all clear that
there are benefits for me. So much depends on assumptions and goals. You
would need to do a complex probabilistic Monte Carlo analysis including
tax policy changes, longevity, market returns, and more. Plus, your
goals key. For me it comes down to wanting to leave my estate to
charitable entities and some family members, doing so with as little tax
liability for them as possible. I am doing something different from
Roth, reinvesting RMD and other investment income into income-producing
assets. 60% was put back this year, not spent. Amazing how fast that
compounds into even more income.

On 12/8/24 9:37 AM, Tom Elam wrote:
> I have spent some quality time looking at Roth conversions. Wow, that
> gets complicated in a hurry.

It does, and in different ways/factors.

For example, the "how much can I convert this year" stuff isn't too hard
to figure out if you're under age 63, but at 63+ one has to add the
relevant IRMAA bracket to fit under.

Where it get complicated in a hurry with IRMAA is the risk of busting a
bracket .. converting as much as one dares without going over .. which
requires figuring out what one's total income is going to be with
sufficient precision. Its not hard for simple use cases, but when
there's a taxable brokerage account with Mutual Funds, the curveball is
that their decision on end-of-year payouts can be made with minimal
advanced notice: an investor needs to seek out their projected estimates
and then also the declared ones...the closer that one is to an IRMAA,
the more important this fine detail on income becomes.

For example, I've been tracking PJFAX's 'Special Dividend' and the
gotcha here has been that their final decision (this past weekend) was
for a payout of $7.3309/shar, which exceeded their previously published
preliminary MAX estimate from last month by +3%. Sure, its a nice
windfall, but if one has 10K shares in that fund, that 3% is an extra
$2000 of income that you weren't planning for. Thus, the Roth
Conversion question is "did you leave yourself enough safety margin for
this magnitude of a surprise?".

Likewise, some funds don't declare until very late ... I have one that's
12/23: what's the leadtime required for doing a Roth Conversion? That
deadline is set by whoever runs the 401k/IRA account.

> Bottom line is it's not at all clear that
> there are benefits for me.

True, at your age, the benefit potential is less "you" and more of your
heirs. It may be lower taxes for them to pay, or just "easier" by not
being a time-sensitive timeline: the answer depends on each heir's
individual financial situation & tax bracket.

> So much depends on assumptions and goals. You would need to
> do a complex probabilistic Monte Carlo analysis including
> tax policy changes, longevity, market returns, and more.

Adding additional variables only makes sense to do if they add more
insight than just noise. Some don't really matter because of A*B = B*A
symmetry: (Investment*(1-tax)*growth) = (Investment*growth*(1-tax)).

For tax policy change risks, 2024 taxes have a zero risk of change. For
2025 & beyond, the best case (lowest tax) scenario is probably just an
extension of the 2017 TCJA but how likely is that really, despite Trump
going back into office in the context of how the GOP's been beating the
drum on the debt? We're probably a lot better off moving to a much more
defensive investment posture than worrying about a few points of tax
rate changes.

> Plus, your goals key. For me it comes down to wanting to leave my estate
> to charitable entities and some family members, doing so with as little
> tax liability for them as possible.

For that type of scenario, the family member's likely tax rate for the
ten years starting at the time of your Estate distribution is what will
impact them, if they receive tax-advantaged accounts. If they receive
Roth or conventional brokerage, they'll end up with more and with more
flexibility on if/when taxes become due.

For charities, they're a lot more straightforward, since they don't have
to pay taxes...but there's also the option of a Donor Advised Charitable
Fund (DAF) while you're still living. There's a couple of scenarios
where this can make sense to do (eg, stacking to gain tax credit instead
of the STD Deduction), plus a motivation can be that one is still alive
to see the good work that comes from having made the donation.

> I am doing something different from
> Roth, reinvesting RMD and other investment income into income-producing
> assets. 60% was put back this year, not spent. Amazing how fast that
> compounds into even more income.

The compounding is even faster when pre-RMD age & recycling 100%. /s

-hh

On 12/8/2024 5:23 PM, -hh wrote:
> On 12/8/24 9:37 AM, Tom Elam wrote:
>> I have spent some quality time looking at Roth conversions. Wow, that
>> gets complicated in a hurry.
>
> It does, and in different ways/factors.
>
> For example, the "how much can I convert this year" stuff isn't too hard
> to figure out if you're under age 63, but at 63+ one has to add the
> relevant IRMAA bracket to fit under.
>
> Where it get complicated in a hurry with IRMAA is the risk of busting a
> bracket .. converting as much as one dares without going over .. which
> requires figuring out what one's total income is going to be with
> sufficient precision.  Its not hard for simple use cases, but when
> there's a taxable brokerage account with Mutual Funds, the curveball is
> that their decision on end-of-year payouts can be made with minimal
> advanced notice: an investor needs to seek out their projected estimates
> and then also the declared ones...the closer that one is to an IRMAA,
> the more important this fine detail on income becomes.
>
> For example, I've been tracking PJFAX's 'Special Dividend' and the
> gotcha here has been that their final decision (this past weekend) was
> for a payout of $7.3309/shar, which exceeded their previously published
> preliminary MAX estimate from last month by +3%.  Sure, its a nice
> windfall, but if one has 10K shares in that fund, that 3% is an extra
> $2000 of income that you weren't planning for.  Thus, the Roth
> Conversion question is "did you leave yourself enough safety margin for
> this magnitude of a surprise?".
>
> Likewise, some funds don't declare until very late ... I have one that's
> 12/23:  what's the leadtime required for doing a Roth Conversion?  That
> deadline is set by whoever runs the 401k/IRA account.
>
>> Bottom line is it's not at all clear that there are benefits for me.
>
> True, at your age, the benefit potential is less "you" and more of your
> heirs.  It may be lower taxes for them to pay, or just "easier" by not
> being a time-sensitive timeline: the answer depends on each heir's
> individual financial situation & tax bracket.
>
>> So much depends on assumptions and goals. You would need to do a
>> complex probabilistic Monte Carlo analysis including tax policy
>> changes, longevity, market returns, and more.
>
> Adding additional variables only makes sense to do if they add more
> insight than just noise.  Some don't really matter because of A*B = B*A
> symmetry:  (Investment*(1-tax)*growth) = (Investment*growth*(1-tax)).
>
> For tax policy change risks, 2024 taxes have a zero risk of change.  For
> 2025 & beyond, the best case (lowest tax) scenario is probably just an
> extension of the 2017 TCJA but how likely is that really, despite Trump
> going back into office in the context of how the GOP's been beating the
> drum on the debt?  We're probably a lot better off moving to a much more
> defensive investment posture than worrying about a few points of tax
> rate changes.
>
>> Plus, your goals key. For me it comes down to wanting to leave my
>> estate to charitable entities and some family members, doing so with
>> as little tax liability for them as possible.
>
> For that type of scenario, the family member's likely tax rate for the
> ten years starting at the time of your Estate distribution is what will
> impact them, if they receive tax-advantaged accounts.  If they receive
> Roth or conventional brokerage, they'll end up with more and with more
> flexibility on if/when taxes become due.
>
> For charities, they're a lot more straightforward, since they don't have
> to pay taxes...but there's also the option of a Donor Advised Charitable
> Fund (DAF) while you're still living.  There's a couple of scenarios
> where this can make sense to do (eg, stacking to gain tax credit instead
> of the STD Deduction), plus a motivation can be that one is still alive
> to see the good work that comes from having made the donation.
>
>> I am doing something different from Roth, reinvesting RMD and other
>> investment income into income-producing assets. 60% was put back this
>> year, not spent. Amazing how fast that compounds into even more income.
>
> The compounding is even faster when pre-RMD age & recycling 100%. /s
>
>
> -hh

You missed one very important point that I told you earlier. We are
giving a large portion of the estate to charities. They will have zero
taxes. The portion that goes to individuals is, for the most part, not
tax advantaged. As the RMD funds come in I'm investing some of that and
ordinary income into equity-based income funds. That's my "Roth" piece.
I get the income now, they get the appreciation later. Those funds are
taxed 100% ordinary income until you sell, then capital gains. But the
individuals get a one time step-up basis, so no gains if they sell right
away. So their income tax will also be zero, or close to it. And I'm
happy to pay the taxes on the income from the equity funds in the meantime.

That capital gains distribution thing from a fund I once owned kicked my
butt a few times. I sold that portfolio 4 years ago. It was low dividend
yields, high expense ratio, and the gains were automatically reinvested.
It was generating tax liabilities, brokerage house fees, and no income.
I was also under-performing the S&P. Negative cash flow is not my idea
of a good investment for a retiree. At least I am now getting income
that is way in excess of the tax liability and the much lower (0.35%
versus 1.6%) expense ratio.

On 12/9/24 3:36 PM, Tom Elam wrote:
> On 12/8/2024 5:23 PM, -hh wrote:
>> On 12/8/24 9:37 AM, Tom Elam wrote:
>>> I have spent some quality time looking at Roth conversions. Wow, that
>>> gets complicated in a hurry.
>>
>> It does, and in different ways/factors.
>>
>> For example, the "how much can I convert this year" stuff isn't too
>> hard to figure out if you're under age 63, but at 63+ one has to add
>> the relevant IRMAA bracket to fit under.
>>
>> Where it get complicated in a hurry with IRMAA is the risk of busting
>> a bracket .. converting as much as one dares without going over ..
>> which requires figuring out what one's total income is going to be
>> with sufficient precision.  Its not hard for simple use cases, but
>> when there's a taxable brokerage account with Mutual Funds, the
>> curveball is that their decision on end-of-year payouts can be made
>> with minimal advanced notice: an investor needs to seek out their
>> projected estimates and then also the declared ones...the closer that
>> one is to an IRMAA, the more important this fine detail on income
>> becomes.
>>
>> For example, I've been tracking PJFAX's 'Special Dividend' and the
>> gotcha here has been that their final decision (this past weekend) was
>> for a payout of $7.3309/shar, which exceeded their previously
>> published preliminary MAX estimate from last month by +3%.  Sure, its
>> a nice windfall, but if one has 10K shares in that fund, that 3% is an
>> extra $2000 of income that you weren't planning for.  Thus, the Roth
>> Conversion question is "did you leave yourself enough safety margin
>> for this magnitude of a surprise?".
>>
>> Likewise, some funds don't declare until very late ... I have one
>> that's 12/23:  what's the leadtime required for doing a Roth
>> Conversion?  That deadline is set by whoever runs the 401k/IRA account.
>>
>>> Bottom line is it's not at all clear that there are benefits for me.
>>
>> True, at your age, the benefit potential is less "you" and more of
>> your heirs.  It may be lower taxes for them to pay, or just "easier"
>> by not being a time-sensitive timeline: the answer depends on each
>> heir's individual financial situation & tax bracket.
>>
>>> So much depends on assumptions and goals. You would need to do a
>>> complex probabilistic Monte Carlo analysis including tax policy
>>> changes, longevity, market returns, and more.
>>
>> Adding additional variables only makes sense to do if they add more
>> insight than just noise.  Some don't really matter because of A*B =
>> B*A symmetry:  (Investment*(1-tax)*growth) = (Investment*growth*(1-tax)).
>>
>> For tax policy change risks, 2024 taxes have a zero risk of change.
>> For 2025 & beyond, the best case (lowest tax) scenario is probably
>> just an extension of the 2017 TCJA but how likely is that really,
>> despite Trump going back into office in the context of how the GOP's
>> been beating the drum on the debt?  We're probably a lot better off
>> moving to a much more defensive investment posture than worrying about
>> a few points of tax rate changes.
>>
>>> Plus, your goals key. For me it comes down to wanting to leave my
>>> estate to charitable entities and some family members, doing so with
>>> as little tax liability for them as possible.
>>
>> For that type of scenario, the family member's likely tax rate for the
>> ten years starting at the time of your Estate distribution is what
>> will impact them, if they receive tax-advantaged accounts.  If they
>> receive Roth or conventional brokerage, they'll end up with more and
>> with more flexibility on if/when taxes become due.
>>
>> For charities, they're a lot more straightforward, since they don't
>> have to pay taxes...but there's also the option of a Donor Advised
>> Charitable Fund (DAF) while you're still living.  There's a couple of
>> scenarios where this can make sense to do (eg, stacking to gain tax
>> credit instead of the STD Deduction), plus a motivation can be that
>> one is still alive to see the good work that comes from having made
>> the donation.
>>
>>> I am doing something different from Roth, reinvesting RMD and other
>>> investment income into income-producing assets. 60% was put back this
>>> year, not spent. Amazing how fast that compounds into even more income.
>>
>> The compounding is even faster when pre-RMD age & recycling 100%. /s
>>
>>
>> -hh
>
> You missed one very important point that I told you earlier. We are
> giving a large portion of the estate to charities. They will have zero
> taxes.

See above: "For charities, they're a lot more straightforward, since
they don't have to pay taxes..."

It is intuitively obvious to then gift them from tax-advantaged accounts
(eg, 401k/IRA).

> The portion that goes to individuals is, for the most part, not
> tax advantaged.

As a basic strategy, sure, but when the assets are mixed (tax-advantaged
and non-advantaged) going to individuals, this is where the marginal
income tax rates of beneficiaries can also be a factor to include.

For a KISS example, consider having $400K that's $200K advantaged &
$200K non-advantaged split evenly between two heirs who are in different
marginal tax brackets (KISS: 10% and 30%): if one bequeaths equal
portions from each account .. $100K from advantaged + $100K non-, then:

Heir A net after taxes receives ($100K + (1-10%)*$100K) = $190K
Heir B net after taxes receives ($100K + (1-30%)*$100K) = $170K

That's longer equal after taxes, and sums to $360K Net.

A different distribution plan could be:

Heir A: ($50K + (1-10%)*$150K) = $185K
Heir B: ($150K + (1-30%)*$50K) = $185K

Not only does this net out to be more equal between the heirs, but note
that the total net sum after taxes is higher too: $370K. That's $10K
saved from taxes which goes to the heirs instead.

> As the RMD funds come in I'm investing some of that and ordinary
> income into equity-based income funds. That's my "Roth" piece.
> I get the income now, they get the appreciation later. Those funds are
> taxed 100% ordinary income until you sell, then capital gains. But the
> individuals get a one time step-up basis, so no gains if they sell right
> away. So their income tax will also be zero, or close to it. And I'm
> happy to pay the taxes on the income from the equity funds in the meantime.

Yup, which is what I was alluding to when I noted "...with more
flexibility on if/when taxes become due."

> That capital gains distribution thing from a fund I once owned kicked my
> butt a few times. I sold that portfolio 4 years ago. It was low dividend
> yields, high expense ratio, and the gains were automatically reinvested.
> It was generating tax liabilities, brokerage house fees, and no income.
> I was also under-performing the S&P. Negative cash flow is not my idea
> of a good investment for a retiree. At least I am now getting income
> that is way in excess of the tax liability and the much lower (0.35%
> versus 1.6%) expense ratio.

Expense ratios and Brokerage fees are a much greater portfolio resource
suck than many realize. I've calculated that I've paid out more than
$100K more than I really should have had to have paid. Its also useful
to have contextual insight on what the Expense ratio fee in the context
of what the market segment is. For example, International Funds have a
higher average Expense Ratio than US Large Cap. There's also some fund
providers who range higher than their competitors too, etc.

-hh

On 12/9/2024 8:16 PM, -hh wrote:
> On 12/9/24 3:36 PM, Tom Elam wrote:
>> On 12/8/2024 5:23 PM, -hh wrote:
>>> On 12/8/24 9:37 AM, Tom Elam wrote:
>>>> I have spent some quality time looking at Roth conversions. Wow,
>>>> that gets complicated in a hurry.
>>>
>>> It does, and in different ways/factors.
>>>
>>> For example, the "how much can I convert this year" stuff isn't too
>>> hard to figure out if you're under age 63, but at 63+ one has to add
>>> the relevant IRMAA bracket to fit under.
>>>
>>> Where it get complicated in a hurry with IRMAA is the risk of busting
>>> a bracket .. converting as much as one dares without going over ..
>>> which requires figuring out what one's total income is going to be
>>> with sufficient precision.  Its not hard for simple use cases, but
>>> when there's a taxable brokerage account with Mutual Funds, the
>>> curveball is that their decision on end-of-year payouts can be made
>>> with minimal advanced notice: an investor needs to seek out their
>>> projected estimates and then also the declared ones...the closer that
>>> one is to an IRMAA, the more important this fine detail on income
>>> becomes.
>>>
>>> For example, I've been tracking PJFAX's 'Special Dividend' and the
>>> gotcha here has been that their final decision (this past weekend)
>>> was for a payout of $7.3309/shar, which exceeded their previously
>>> published preliminary MAX estimate from last month by +3%.  Sure, its
>>> a nice windfall, but if one has 10K shares in that fund, that 3% is
>>> an extra $2000 of income that you weren't planning for.  Thus, the
>>> Roth Conversion question is "did you leave yourself enough safety
>>> margin for this magnitude of a surprise?".
>>>
>>> Likewise, some funds don't declare until very late ... I have one
>>> that's 12/23:  what's the leadtime required for doing a Roth
>>> Conversion?  That deadline is set by whoever runs the 401k/IRA account.
>>>
>>>> Bottom line is it's not at all clear that there are benefits for me.
>>>
>>> True, at your age, the benefit potential is less "you" and more of
>>> your heirs.  It may be lower taxes for them to pay, or just "easier"
>>> by not being a time-sensitive timeline: the answer depends on each
>>> heir's individual financial situation & tax bracket.
>>>
>>>> So much depends on assumptions and goals. You would need to do a
>>>> complex probabilistic Monte Carlo analysis including tax policy
>>>> changes, longevity, market returns, and more.
>>>
>>> Adding additional variables only makes sense to do if they add more
>>> insight than just noise.  Some don't really matter because of A*B =
>>> B*A symmetry:  (Investment*(1-tax)*growth) = (Investment*growth*(1-
>>> tax)).
>>>
>>> For tax policy change risks, 2024 taxes have a zero risk of change.
>>> For 2025 & beyond, the best case (lowest tax) scenario is probably
>>> just an extension of the 2017 TCJA but how likely is that really,
>>> despite Trump going back into office in the context of how the GOP's
>>> been beating the drum on the debt?  We're probably a lot better off
>>> moving to a much more defensive investment posture than worrying
>>> about a few points of tax rate changes.
>>>
>>>> Plus, your goals key. For me it comes down to wanting to leave my
>>>> estate to charitable entities and some family members, doing so with
>>>> as little tax liability for them as possible.
>>>
>>> For that type of scenario, the family member's likely tax rate for
>>> the ten years starting at the time of your Estate distribution is
>>> what will impact them, if they receive tax-advantaged accounts.  If
>>> they receive Roth or conventional brokerage, they'll end up with more
>>> and with more flexibility on if/when taxes become due.
>>>
>>> For charities, they're a lot more straightforward, since they don't
>>> have to pay taxes...but there's also the option of a Donor Advised
>>> Charitable Fund (DAF) while you're still living.  There's a couple of
>>> scenarios where this can make sense to do (eg, stacking to gain tax
>>> credit instead of the STD Deduction), plus a motivation can be that
>>> one is still alive to see the good work that comes from having made
>>> the donation.
>>>
>>>> I am doing something different from Roth, reinvesting RMD and other
>>>> investment income into income-producing assets. 60% was put back
>>>> this year, not spent. Amazing how fast that compounds into even more
>>>> income.
>>>
>>> The compounding is even faster when pre-RMD age & recycling 100%. /s
>>>
>>>
>>> -hh
>>
>> You missed one very important point that I told you earlier. We are
>> giving a large portion of the estate to charities. They will have zero
>> taxes.
>
>
> See above:  "For charities, they're a lot more straightforward, since
> they don't have to pay taxes..."
>
> It is intuitively obvious to then gift them from tax-advantaged accounts
> (eg, 401k/IRA).
>
>> The portion that goes to individuals is, for the most part, not tax
>> advantaged.
>
> As a basic strategy, sure, but when the assets are mixed (tax-advantaged
> and non-advantaged) going to individuals, this is where the marginal
> income tax rates of beneficiaries can also be a factor to include.
>
> For a KISS example, consider having $400K that's $200K advantaged &
> $200K non-advantaged split evenly between two heirs who are in different
> marginal tax brackets (KISS:  10% and 30%): if one bequeaths equal
> portions from each account .. $100K from advantaged + $100K non-, then:
>
> Heir A net after taxes receives ($100K + (1-10%)*$100K) = $190K
> Heir B net after taxes receives ($100K + (1-30%)*$100K) = $170K
>
> That's longer equal after taxes, and sums to $360K Net.
>
> A different distribution plan could be:
>
> Heir A: ($50K + (1-10%)*$150K) = $185K
> Heir B: ($150K + (1-30%)*$50K) = $185K
>
> Not only does this net out to be more equal between the heirs, but note
> that the total net sum after taxes is higher too:  $370K.  That's $10K
> saved from taxes which goes to the heirs instead.
>
>
>> As the RMD funds come in I'm investing some of that and ordinary
>> income into equity-based income funds. That's my "Roth" piece. I get
>> the income now, they get the appreciation later. Those funds are taxed
>> 100% ordinary income until you sell, then capital gains. But the
>> individuals get a one time step-up basis, so no gains if they sell
>> right away. So their income tax will also be zero, or close to it. And
>> I'm happy to pay the taxes on the income from the equity funds in the
>> meantime.
>
> Yup, which is what I was alluding to when I noted "...with more
> flexibility on if/when taxes become due."
>
>> That capital gains distribution thing from a fund I once owned kicked
>> my butt a few times. I sold that portfolio 4 years ago. It was low
>> dividend yields, high expense ratio, and the gains were automatically
>> reinvested. It was generating tax liabilities, brokerage house fees,
>> and no income. I was also under-performing the S&P. Negative cash flow
>> is not my idea of a good investment for a retiree. At least I am now
>> getting income that is way in excess of the tax liability and the much
>> lower (0.35% versus 1.6%) expense ratio.
>
> Expense ratios and Brokerage fees are a much greater portfolio resource
> suck than many realize.  I've calculated that I've paid out more than
> $100K more than I really should have had to have paid.  Its also useful
> to have contextual insight on what the Expense ratio fee in the context
> of what the market segment is.  For example, International Funds have a
> higher average Expense Ratio than US Large Cap.  There's also some fund
> providers who range higher than their competitors too, etc.
>
>
> -hh

As I pointed out I have planned for non-tax advantaged funds to go
entirely to individuals. Those individuals are mostly grandchildren
likely to be in a low tax bracket when the windfall comes.

On 12/13/24 3:24 PM, Tom Elam wrote:
> On 12/9/2024 8:16 PM, -hh wrote:
>> On 12/9/24 3:36 PM, Tom Elam wrote:
>>> On 12/8/2024 5:23 PM, -hh wrote:
>>>> On 12/8/24 9:37 AM, Tom Elam wrote:
>>>>> I have spent some quality time looking at Roth conversions. Wow,
>>>>> that gets complicated in a hurry.
>>>>
>>>> It does, and in different ways/factors.
>>>>
>>>> For example, the "how much can I convert this year" stuff isn't too
>>>> hard to figure out if you're under age 63, but at 63+ one has to add
>>>> the relevant IRMAA bracket to fit under.
>>>>
>>>> Where it get complicated in a hurry with IRMAA is the risk of
>>>> busting a bracket .. converting as much as one dares without going
>>>> over .. which requires figuring out what one's total income is going
>>>> to be with sufficient precision.  Its not hard for simple use cases,
>>>> but when there's a taxable brokerage account with Mutual Funds, the
>>>> curveball is that their decision on end-of-year payouts can be made
>>>> with minimal advanced notice: an investor needs to seek out their
>>>> projected estimates and then also the declared ones...the closer
>>>> that one is to an IRMAA, the more important this fine detail on
>>>> income becomes.
>>>>
>>>> For example, I've been tracking PJFAX's 'Special Dividend' and the
>>>> gotcha here has been that their final decision (this past weekend)
>>>> was for a payout of $7.3309/shar, which exceeded their previously
>>>> published preliminary MAX estimate from last month by +3%.  Sure,
>>>> its a nice windfall, but if one has 10K shares in that fund, that 3%
>>>> is an extra $2000 of income that you weren't planning for.  Thus,
>>>> the Roth Conversion question is "did you leave yourself enough
>>>> safety margin for this magnitude of a surprise?".
>>>>
>>>> Likewise, some funds don't declare until very late ... I have one
>>>> that's 12/23:  what's the leadtime required for doing a Roth
>>>> Conversion?  That deadline is set by whoever runs the 401k/IRA account.
>>>>
>>>>> Bottom line is it's not at all clear that there are benefits for me.
>>>>
>>>> True, at your age, the benefit potential is less "you" and more of
>>>> your heirs.  It may be lower taxes for them to pay, or just "easier"
>>>> by not being a time-sensitive timeline: the answer depends on each
>>>> heir's individual financial situation & tax bracket.
>>>>
>>>>> So much depends on assumptions and goals. You would need to do a
>>>>> complex probabilistic Monte Carlo analysis including tax policy
>>>>> changes, longevity, market returns, and more.
>>>>
>>>> Adding additional variables only makes sense to do if they add more
>>>> insight than just noise.  Some don't really matter because of A*B =
>>>> B*A symmetry:  (Investment*(1-tax)*growth) = (Investment*growth*(1-
>>>> tax)).
>>>>
>>>> For tax policy change risks, 2024 taxes have a zero risk of change.
>>>> For 2025 & beyond, the best case (lowest tax) scenario is probably
>>>> just an extension of the 2017 TCJA but how likely is that really,
>>>> despite Trump going back into office in the context of how the GOP's
>>>> been beating the drum on the debt?  We're probably a lot better off
>>>> moving to a much more defensive investment posture than worrying
>>>> about a few points of tax rate changes.
>>>>
>>>>> Plus, your goals key. For me it comes down to wanting to leave my
>>>>> estate to charitable entities and some family members, doing so
>>>>> with as little tax liability for them as possible.
>>>>
>>>> For that type of scenario, the family member's likely tax rate for
>>>> the ten years starting at the time of your Estate distribution is
>>>> what will impact them, if they receive tax-advantaged accounts.  If
>>>> they receive Roth or conventional brokerage, they'll end up with
>>>> more and with more flexibility on if/when taxes become due.
>>>>
>>>> For charities, they're a lot more straightforward, since they don't
>>>> have to pay taxes...but there's also the option of a Donor Advised
>>>> Charitable Fund (DAF) while you're still living.  There's a couple
>>>> of scenarios where this can make sense to do (eg, stacking to gain
>>>> tax credit instead of the STD Deduction), plus a motivation can be
>>>> that one is still alive to see the good work that comes from having
>>>> made the donation.
>>>>
>>>>> I am doing something different from Roth, reinvesting RMD and other
>>>>> investment income into income-producing assets. 60% was put back
>>>>> this year, not spent. Amazing how fast that compounds into even
>>>>> more income.
>>>>
>>>> The compounding is even faster when pre-RMD age & recycling 100%. /s
>>>>
>>>>
>>>> -hh
>>>
>>> You missed one very important point that I told you earlier. We are
>>> giving a large portion of the estate to charities. They will have
>>> zero taxes.
>>
>>
>> See above:  "For charities, they're a lot more straightforward, since
>> they don't have to pay taxes..."
>>
>> It is intuitively obvious to then gift them from tax-advantaged
>> accounts (eg, 401k/IRA).
>>
>>> The portion that goes to individuals is, for the most part, not tax
>>> advantaged.
>>
>> As a basic strategy, sure, but when the assets are mixed (tax-
>> advantaged and non-advantaged) going to individuals, this is where the
>> marginal income tax rates of beneficiaries can also be a factor to
>> include.
>>
>> For a KISS example, consider having $400K that's $200K advantaged &
>> $200K non-advantaged split evenly between two heirs who are in
>> different marginal tax brackets (KISS:  10% and 30%): if one bequeaths
>> equal portions from each account .. $100K from advantaged + $100K
>> non-, then:
>>
>> Heir A net after taxes receives ($100K + (1-10%)*$100K) = $190K
>> Heir B net after taxes receives ($100K + (1-30%)*$100K) = $170K
>>
>> That's longer equal after taxes, and sums to $360K Net.
>>
>> A different distribution plan could be:
>>
>> Heir A: ($50K + (1-10%)*$150K) = $185K
>> Heir B: ($150K + (1-30%)*$50K) = $185K
>>
>> Not only does this net out to be more equal between the heirs, but
>> note that the total net sum after taxes is higher too:  $370K.  That's
>> $10K saved from taxes which goes to the heirs instead.
>>
>>
>>> As the RMD funds come in I'm investing some of that and ordinary
>>> income into equity-based income funds. That's my "Roth" piece. I get
>>> the income now, they get the appreciation later. Those funds are
>>> taxed 100% ordinary income until you sell, then capital gains. But
>>> the individuals get a one time step-up basis, so no gains if they
>>> sell right away. So their income tax will also be zero, or close to
>>> it. And I'm happy to pay the taxes on the income from the equity
>>> funds in the meantime.
>>
>> Yup, which is what I was alluding to when I noted "...with more
>> flexibility on if/when taxes become due."
>>
>>> That capital gains distribution thing from a fund I once owned kicked
>>> my butt a few times. I sold that portfolio 4 years ago. It was low
>>> dividend yields, high expense ratio, and the gains were automatically
>>> reinvested. It was generating tax liabilities, brokerage house fees,
>>> and no income. I was also under-performing the S&P. Negative cash
>>> flow is not my idea of a good investment for a retiree. At least I am
>>> now getting income that is way in excess of the tax liability and the
>>> much lower (0.35% versus 1.6%) expense ratio.
>>
>> Expense ratios and Brokerage fees are a much greater portfolio
>> resource suck than many realize.  I've calculated that I've paid out
>> more than $100K more than I really should have had to have paid.  Its
>> also useful to have contextual insight on what the Expense ratio fee
>> in the context of what the market segment is.  For example,
>> International Funds have a higher average Expense Ratio than US Large
>> Cap.  There's also some fund providers who range higher than their
>> competitors too, etc.
>>
>>
>> -hh
>
> As I pointed out I have planned for non-tax advantaged funds to go
> entirely to individuals. Those individuals are mostly grandchildren
> likely to be in a low tax bracket when the windfall comes.
>
> We have appointed a financial estate executor and given explicit
> instructions on what funds go where with the goal to minimize all
> beneficiaries' federal and state income taxes.

On 12/13/2024 4:41 PM, -hh wrote:
> On 12/13/24 3:24 PM, Tom Elam wrote:
>> On 12/9/2024 8:16 PM, -hh wrote:
>>> On 12/9/24 3:36 PM, Tom Elam wrote:
>>>> On 12/8/2024 5:23 PM, -hh wrote:
>>>>> On 12/8/24 9:37 AM, Tom Elam wrote:
>>>>>> I have spent some quality time looking at Roth conversions. Wow,
>>>>>> that gets complicated in a hurry.
>>>>>
>>>>> It does, and in different ways/factors.
>>>>>
>>>>> For example, the "how much can I convert this year" stuff isn't too
>>>>> hard to figure out if you're under age 63, but at 63+ one has to
>>>>> add the relevant IRMAA bracket to fit under.
>>>>>
>>>>> Where it get complicated in a hurry with IRMAA is the risk of
>>>>> busting a bracket .. converting as much as one dares without going
>>>>> over .. which requires figuring out what one's total income is
>>>>> going to be with sufficient precision.  Its not hard for simple use
>>>>> cases, but when there's a taxable brokerage account with Mutual
>>>>> Funds, the curveball is that their decision on end-of-year payouts
>>>>> can be made with minimal advanced notice: an investor needs to seek
>>>>> out their projected estimates and then also the declared ones...the
>>>>> closer that one is to an IRMAA, the more important this fine detail
>>>>> on income becomes.
>>>>>
>>>>> For example, I've been tracking PJFAX's 'Special Dividend' and the
>>>>> gotcha here has been that their final decision (this past weekend)
>>>>> was for a payout of $7.3309/shar, which exceeded their previously
>>>>> published preliminary MAX estimate from last month by +3%.  Sure,
>>>>> its a nice windfall, but if one has 10K shares in that fund, that
>>>>> 3% is an extra $2000 of income that you weren't planning for.
>>>>> Thus, the Roth Conversion question is "did you leave yourself
>>>>> enough safety margin for this magnitude of a surprise?".
>>>>>
>>>>> Likewise, some funds don't declare until very late ... I have one
>>>>> that's 12/23:  what's the leadtime required for doing a Roth
>>>>> Conversion?  That deadline is set by whoever runs the 401k/IRA
>>>>> account.
>>>>>
>>>>>> Bottom line is it's not at all clear that there are benefits for me.
>>>>>
>>>>> True, at your age, the benefit potential is less "you" and more of
>>>>> your heirs.  It may be lower taxes for them to pay, or just
>>>>> "easier" by not being a time-sensitive timeline: the answer depends
>>>>> on each heir's individual financial situation & tax bracket.
>>>>>
>>>>>> So much depends on assumptions and goals. You would need to do a
>>>>>> complex probabilistic Monte Carlo analysis including tax policy
>>>>>> changes, longevity, market returns, and more.
>>>>>
>>>>> Adding additional variables only makes sense to do if they add more
>>>>> insight than just noise.  Some don't really matter because of A*B =
>>>>> B*A symmetry:  (Investment*(1-tax)*growth) = (Investment*growth*(1-
>>>>> tax)).
>>>>>
>>>>> For tax policy change risks, 2024 taxes have a zero risk of change.
>>>>> For 2025 & beyond, the best case (lowest tax) scenario is probably
>>>>> just an extension of the 2017 TCJA but how likely is that really,
>>>>> despite Trump going back into office in the context of how the
>>>>> GOP's been beating the drum on the debt?  We're probably a lot
>>>>> better off moving to a much more defensive investment posture than
>>>>> worrying about a few points of tax rate changes.
>>>>>
>>>>>> Plus, your goals key. For me it comes down to wanting to leave my
>>>>>> estate to charitable entities and some family members, doing so
>>>>>> with as little tax liability for them as possible.
>>>>>
>>>>> For that type of scenario, the family member's likely tax rate for
>>>>> the ten years starting at the time of your Estate distribution is
>>>>> what will impact them, if they receive tax-advantaged accounts.  If
>>>>> they receive Roth or conventional brokerage, they'll end up with
>>>>> more and with more flexibility on if/when taxes become due.
>>>>>
>>>>> For charities, they're a lot more straightforward, since they don't
>>>>> have to pay taxes...but there's also the option of a Donor Advised
>>>>> Charitable Fund (DAF) while you're still living.  There's a couple
>>>>> of scenarios where this can make sense to do (eg, stacking to gain
>>>>> tax credit instead of the STD Deduction), plus a motivation can be
>>>>> that one is still alive to see the good work that comes from having
>>>>> made the donation.
>>>>>
>>>>>> I am doing something different from Roth, reinvesting RMD and
>>>>>> other investment income into income-producing assets. 60% was put
>>>>>> back this year, not spent. Amazing how fast that compounds into
>>>>>> even more income.
>>>>>
>>>>> The compounding is even faster when pre-RMD age & recycling 100%. /s
>>>>>
>>>>>
>>>>> -hh
>>>>
>>>> You missed one very important point that I told you earlier. We are
>>>> giving a large portion of the estate to charities. They will have
>>>> zero taxes.
>>>
>>>
>>> See above:  "For charities, they're a lot more straightforward, since
>>> they don't have to pay taxes..."
>>>
>>> It is intuitively obvious to then gift them from tax-advantaged
>>> accounts (eg, 401k/IRA).
>>>
>>>> The portion that goes to individuals is, for the most part, not tax
>>>> advantaged.
>>>
>>> As a basic strategy, sure, but when the assets are mixed (tax-
>>> advantaged and non-advantaged) going to individuals, this is where
>>> the marginal income tax rates of beneficiaries can also be a factor
>>> to include.
>>>
>>> For a KISS example, consider having $400K that's $200K advantaged &
>>> $200K non-advantaged split evenly between two heirs who are in
>>> different marginal tax brackets (KISS:  10% and 30%): if one
>>> bequeaths equal portions from each account .. $100K from advantaged +
>>> $100K non-, then:
>>>
>>> Heir A net after taxes receives ($100K + (1-10%)*$100K) = $190K
>>> Heir B net after taxes receives ($100K + (1-30%)*$100K) = $170K
>>>
>>> That's longer equal after taxes, and sums to $360K Net.
>>>
>>> A different distribution plan could be:
>>>
>>> Heir A: ($50K + (1-10%)*$150K) = $185K
>>> Heir B: ($150K + (1-30%)*$50K) = $185K
>>>
>>> Not only does this net out to be more equal between the heirs, but
>>> note that the total net sum after taxes is higher too:  $370K.
>>> That's $10K saved from taxes which goes to the heirs instead.
>>>
>>>
>>>> As the RMD funds come in I'm investing some of that and ordinary
>>>> income into equity-based income funds. That's my "Roth" piece. I get
>>>> the income now, they get the appreciation later. Those funds are
>>>> taxed 100% ordinary income until you sell, then capital gains. But
>>>> the individuals get a one time step-up basis, so no gains if they
>>>> sell right away. So their income tax will also be zero, or close to
>>>> it. And I'm happy to pay the taxes on the income from the equity
>>>> funds in the meantime.
>>>
>>> Yup, which is what I was alluding to when I noted "...with more
>>> flexibility on if/when taxes become due."
>>>
>>>> That capital gains distribution thing from a fund I once owned
>>>> kicked my butt a few times. I sold that portfolio 4 years ago. It
>>>> was low dividend yields, high expense ratio, and the gains were
>>>> automatically reinvested. It was generating tax liabilities,
>>>> brokerage house fees, and no income. I was also under-performing the
>>>> S&P. Negative cash flow is not my idea of a good investment for a
>>>> retiree. At least I am now getting income that is way in excess of
>>>> the tax liability and the much lower (0.35% versus 1.6%) expense ratio.
>>>
>>> Expense ratios and Brokerage fees are a much greater portfolio
>>> resource suck than many realize.  I've calculated that I've paid out
>>> more than $100K more than I really should have had to have paid.  Its
>>> also useful to have contextual insight on what the Expense ratio fee
>>> in the context of what the market segment is.  For example,
>>> International Funds have a higher average Expense Ratio than US Large
>>> Cap.  There's also some fund providers who range higher than their
>>> competitors too, etc.
>>>
>>>
>>> -hh
>>
>> As I pointed out I have planned for non-tax advantaged funds to go
>> entirely to individuals. Those individuals are mostly grandchildren
>> likely to be in a low tax bracket when the windfall comes.
>>
>> We have appointed a financial estate executor and given explicit
>> instructions on what funds go where with the goal to minimize all
>> beneficiaries' federal and state income taxes.
>
> Well planned; a challenge here is to configure things suitably with the
> accounts which offer TODs to bypass probate (& end of life medical
> claims).  One strategy is to pipe 'everything' into a Trust, which then
> determines the distributions, but I'm not necessarily convinced, as the
> Trust represents a single point of failure risk.
>
>
>> In the meantime, as RMD funds come in a portion is invested in non-
>> advantaged assets that will go to individuals. Not quite there yet,
>> but the ratio is getting closer to what it will take to prevent them
>> from having to take any IRA assets.
>
> RMDs can be tricky because the base amount and withdrawn amounts are
> constantly changing year-to-year.  One strategy can be to make a large
> "deathbed" withdrawal so that the deceased pays the taxes instead of the
> (not-nonprofit) beneficiaries, but that's fraught with challenges.
> There's also complications when none (or not all) of the annually
> required RMD was dutifully withdrawn prior to death too.  Been
> contemplating a "RMD on 1/1" type of strategy.  In any event, even a
> modest tax-advantaged bequeathment isn't necessarily a bad thing for
> some beneficiaries, when their financial situation is such that they're
> not maxxing out their annual 401k/IRA contributions due to lack the
> funding:  the taxable bequeathment can be offset by it being used to
> make equal deposits into their own 401k/IRA (if they have suitable
> discipline & foresight/wisdom).
>
>
>> Your comments on expense ratio do not account for performance
>> differentials. If returns justify the higher ratio I have no issue
>> paying for that.
>
> It did, because that was already covered with my context note:
>
> This isn't about if Market Segment A performs better than B (eg, Large
> Cap vs Small Cap), but it is noting that when two funds are tracking the
> same index, because their performance is supposed to mirror that of the
> index, the fund with the lower Expense Ratio is structurally advantaged
> outperform the higher ER fund.
>
> This structural difference is more of a statistical one and incremental
> in magnitude, but multiply that factor by N years of investing and it
> grows in significance.
>
> This is more nuanced because it is contextual to the sector/index:  the
> example I noted was that International index is uniformly higher average
> ER than Domestic.  Likewise Small Cap ER's > Large Cap ERs.  It isn't
> used to pick Small Cap vs Large Cap, but the competing Index fund
> products offered _within_ Small Cap, and offered _within Large Cap, etc.
>
> FWIW, another layer to this is to understand how well a fund tracks the
> index it claims to be following, and where exceptions lie.  Likewise,
> there's also aspects of this to which equities a fund company picks to
> represent that Index, as this varies between fund companies:  this is
> why its generally a good idea to *not* mix between fund companies unless
> you know the in-the-weeds details as to how they define their fund
> cutoffs, so as to minimize risks of unknowingly having a gap and of
> unknowingly having an overlap.
>
>
> -hh

On 12/13/2024 4:41 PM, -hh wrote:
> On 12/13/24 3:24 PM, Tom Elam wrote:
>> On 12/9/2024 8:16 PM, -hh wrote:
>>> On 12/9/24 3:36 PM, Tom Elam wrote:
>>>> On 12/8/2024 5:23 PM, -hh wrote:
>>>>> On 12/8/24 9:37 AM, Tom Elam wrote:
>>>>>> I have spent some quality time looking at Roth conversions. Wow,
>>>>>> that gets complicated in a hurry.
>>>>>
>>>>> It does, and in different ways/factors.
>>>>>
>>>>> For example, the "how much can I convert this year" stuff isn't too
>>>>> hard to figure out if you're under age 63, but at 63+ one has to
>>>>> add the relevant IRMAA bracket to fit under.
>>>>>
>>>>> Where it get complicated in a hurry with IRMAA is the risk of
>>>>> busting a bracket .. converting as much as one dares without going
>>>>> over .. which requires figuring out what one's total income is
>>>>> going to be with sufficient precision.  Its not hard for simple use
>>>>> cases, but when there's a taxable brokerage account with Mutual
>>>>> Funds, the curveball is that their decision on end-of-year payouts
>>>>> can be made with minimal advanced notice: an investor needs to seek
>>>>> out their projected estimates and then also the declared ones...the
>>>>> closer that one is to an IRMAA, the more important this fine detail
>>>>> on income becomes.
>>>>>
>>>>> For example, I've been tracking PJFAX's 'Special Dividend' and the
>>>>> gotcha here has been that their final decision (this past weekend)
>>>>> was for a payout of $7.3309/shar, which exceeded their previously
>>>>> published preliminary MAX estimate from last month by +3%.  Sure,
>>>>> its a nice windfall, but if one has 10K shares in that fund, that
>>>>> 3% is an extra $2000 of income that you weren't planning for.
>>>>> Thus, the Roth Conversion question is "did you leave yourself
>>>>> enough safety margin for this magnitude of a surprise?".
>>>>>
>>>>> Likewise, some funds don't declare until very late ... I have one
>>>>> that's 12/23:  what's the leadtime required for doing a Roth
>>>>> Conversion?  That deadline is set by whoever runs the 401k/IRA
>>>>> account.
>>>>>
>>>>>> Bottom line is it's not at all clear that there are benefits for me.
>>>>>
>>>>> True, at your age, the benefit potential is less "you" and more of
>>>>> your heirs.  It may be lower taxes for them to pay, or just
>>>>> "easier" by not being a time-sensitive timeline: the answer depends
>>>>> on each heir's individual financial situation & tax bracket.
>>>>>
>>>>>> So much depends on assumptions and goals. You would need to do a
>>>>>> complex probabilistic Monte Carlo analysis including tax policy
>>>>>> changes, longevity, market returns, and more.
>>>>>
>>>>> Adding additional variables only makes sense to do if they add more
>>>>> insight than just noise.  Some don't really matter because of A*B =
>>>>> B*A symmetry:  (Investment*(1-tax)*growth) = (Investment*growth*(1-
>>>>> tax)).
>>>>>
>>>>> For tax policy change risks, 2024 taxes have a zero risk of change.
>>>>> For 2025 & beyond, the best case (lowest tax) scenario is probably
>>>>> just an extension of the 2017 TCJA but how likely is that really,
>>>>> despite Trump going back into office in the context of how the
>>>>> GOP's been beating the drum on the debt?  We're probably a lot
>>>>> better off moving to a much more defensive investment posture than
>>>>> worrying about a few points of tax rate changes.
>>>>>
>>>>>> Plus, your goals key. For me it comes down to wanting to leave my
>>>>>> estate to charitable entities and some family members, doing so
>>>>>> with as little tax liability for them as possible.
>>>>>
>>>>> For that type of scenario, the family member's likely tax rate for
>>>>> the ten years starting at the time of your Estate distribution is
>>>>> what will impact them, if they receive tax-advantaged accounts.  If
>>>>> they receive Roth or conventional brokerage, they'll end up with
>>>>> more and with more flexibility on if/when taxes become due.
>>>>>
>>>>> For charities, they're a lot more straightforward, since they don't
>>>>> have to pay taxes...but there's also the option of a Donor Advised
>>>>> Charitable Fund (DAF) while you're still living.  There's a couple
>>>>> of scenarios where this can make sense to do (eg, stacking to gain
>>>>> tax credit instead of the STD Deduction), plus a motivation can be
>>>>> that one is still alive to see the good work that comes from having
>>>>> made the donation.
>>>>>
>>>>>> I am doing something different from Roth, reinvesting RMD and
>>>>>> other investment income into income-producing assets. 60% was put
>>>>>> back this year, not spent. Amazing how fast that compounds into
>>>>>> even more income.
>>>>>
>>>>> The compounding is even faster when pre-RMD age & recycling 100%. /s
>>>>>
>>>>>
>>>>> -hh
>>>>
>>>> You missed one very important point that I told you earlier. We are
>>>> giving a large portion of the estate to charities. They will have
>>>> zero taxes.
>>>
>>>
>>> See above:  "For charities, they're a lot more straightforward, since
>>> they don't have to pay taxes..."
>>>
>>> It is intuitively obvious to then gift them from tax-advantaged
>>> accounts (eg, 401k/IRA).
>>>
>>>> The portion that goes to individuals is, for the most part, not tax
>>>> advantaged.
>>>
>>> As a basic strategy, sure, but when the assets are mixed (tax-
>>> advantaged and non-advantaged) going to individuals, this is where
>>> the marginal income tax rates of beneficiaries can also be a factor
>>> to include.
>>>
>>> For a KISS example, consider having $400K that's $200K advantaged &
>>> $200K non-advantaged split evenly between two heirs who are in
>>> different marginal tax brackets (KISS:  10% and 30%): if one
>>> bequeaths equal portions from each account .. $100K from advantaged +
>>> $100K non-, then:
>>>
>>> Heir A net after taxes receives ($100K + (1-10%)*$100K) = $190K
>>> Heir B net after taxes receives ($100K + (1-30%)*$100K) = $170K
>>>
>>> That's longer equal after taxes, and sums to $360K Net.
>>>
>>> A different distribution plan could be:
>>>
>>> Heir A: ($50K + (1-10%)*$150K) = $185K
>>> Heir B: ($150K + (1-30%)*$50K) = $185K
>>>
>>> Not only does this net out to be more equal between the heirs, but
>>> note that the total net sum after taxes is higher too:  $370K.
>>> That's $10K saved from taxes which goes to the heirs instead.
>>>
>>>
>>>> As the RMD funds come in I'm investing some of that and ordinary
>>>> income into equity-based income funds. That's my "Roth" piece. I get
>>>> the income now, they get the appreciation later. Those funds are
>>>> taxed 100% ordinary income until you sell, then capital gains. But
>>>> the individuals get a one time step-up basis, so no gains if they
>>>> sell right away. So their income tax will also be zero, or close to
>>>> it. And I'm happy to pay the taxes on the income from the equity
>>>> funds in the meantime.
>>>
>>> Yup, which is what I was alluding to when I noted "...with more
>>> flexibility on if/when taxes become due."
>>>
>>>> That capital gains distribution thing from a fund I once owned
>>>> kicked my butt a few times. I sold that portfolio 4 years ago. It
>>>> was low dividend yields, high expense ratio, and the gains were
>>>> automatically reinvested. It was generating tax liabilities,
>>>> brokerage house fees, and no income. I was also under-performing the
>>>> S&P. Negative cash flow is not my idea of a good investment for a
>>>> retiree. At least I am now getting income that is way in excess of
>>>> the tax liability and the much lower (0.35% versus 1.6%) expense ratio.
>>>
>>> Expense ratios and Brokerage fees are a much greater portfolio
>>> resource suck than many realize.  I've calculated that I've paid out
>>> more than $100K more than I really should have had to have paid.  Its
>>> also useful to have contextual insight on what the Expense ratio fee
>>> in the context of what the market segment is.  For example,
>>> International Funds have a higher average Expense Ratio than US Large
>>> Cap.  There's also some fund providers who range higher than their
>>> competitors too, etc.
>>>
>>>
>>> -hh
>>
>> As I pointed out I have planned for non-tax advantaged funds to go
>> entirely to individuals. Those individuals are mostly grandchildren
>> likely to be in a low tax bracket when the windfall comes.
>>
>> We have appointed a financial estate executor and given explicit
>> instructions on what funds go where with the goal to minimize all
>> beneficiaries' federal and state income taxes.
>
> Well planned; a challenge here is to configure things suitably with the
> accounts which offer TODs to bypass probate (& end of life medical
> claims).  One strategy is to pipe 'everything' into a Trust, which then
> determines the distributions, but I'm not necessarily convinced, as the
> Trust represents a single point of failure risk.
>
>
>> In the meantime, as RMD funds come in a portion is invested in non-
>> advantaged assets that will go to individuals. Not quite there yet,
>> but the ratio is getting closer to what it will take to prevent them
>> from having to take any IRA assets.
>
> RMDs can be tricky because the base amount and withdrawn amounts are
> constantly changing year-to-year.  One strategy can be to make a large
> "deathbed" withdrawal so that the deceased pays the taxes instead of the
> (not-nonprofit) beneficiaries, but that's fraught with challenges.
> There's also complications when none (or not all) of the annually
> required RMD was dutifully withdrawn prior to death too.  Been
> contemplating a "RMD on 1/1" type of strategy.  In any event, even a
> modest tax-advantaged bequeathment isn't necessarily a bad thing for
> some beneficiaries, when their financial situation is such that they're
> not maxxing out their annual 401k/IRA contributions due to lack the
> funding:  the taxable bequeathment can be offset by it being used to
> make equal deposits into their own 401k/IRA (if they have suitable
> discipline & foresight/wisdom).
>
>
>> Your comments on expense ratio do not account for performance
>> differentials. If returns justify the higher ratio I have no issue
>> paying for that.
>
> It did, because that was already covered with my context note:
>
> This isn't about if Market Segment A performs better than B (eg, Large
> Cap vs Small Cap), but it is noting that when two funds are tracking the
> same index, because their performance is supposed to mirror that of the
> index, the fund with the lower Expense Ratio is structurally advantaged
> outperform the higher ER fund.
>
> This structural difference is more of a statistical one and incremental
> in magnitude, but multiply that factor by N years of investing and it
> grows in significance.
>
> This is more nuanced because it is contextual to the sector/index:  the
> example I noted was that International index is uniformly higher average
> ER than Domestic.  Likewise Small Cap ER's > Large Cap ERs.  It isn't
> used to pick Small Cap vs Large Cap, but the competing Index fund
> products offered _within_ Small Cap, and offered _within Large Cap, etc.
>
> FWIW, another layer to this is to understand how well a fund tracks the
> index it claims to be following, and where exceptions lie.  Likewise,
> there's also aspects of this to which equities a fund company picks to
> represent that Index, as this varies between fund companies:  this is
> why its generally a good idea to *not* mix between fund companies unless
> you know the in-the-weeds details as to how they define their fund
> cutoffs, so as to minimize risks of unknowingly having a gap and of
> unknowingly having an overlap.
>
>
> -hh

On 12/19/24 10:28 AM, Tom Elam wrote:
> On 12/13/2024 4:41 PM, -hh wrote:
>> On 12/13/24 3:24 PM, Tom Elam wrote:
>>> On 12/9/2024 8:16 PM, -hh wrote:
>>>> On 12/9/24 3:36 PM, Tom Elam wrote:
>>>>> On 12/8/2024 5:23 PM, -hh wrote:
>>>>>> On 12/8/24 9:37 AM, Tom Elam wrote:
>>>>>>> I have spent some quality time looking at Roth conversions. Wow,
>>>>>>> that gets complicated in a hurry.
>>>>>>
>>>>>> It does, and in different ways/factors.
>>>>>>
>>>>>> For example, the "how much can I convert this year" stuff isn't
>>>>>> too hard to figure out if you're under age 63, but at 63+ one has
>>>>>> to add the relevant IRMAA bracket to fit under.
>>>>>>
>>>>>> Where it get complicated in a hurry with IRMAA is the risk of
>>>>>> busting a bracket .. converting as much as one dares without going
>>>>>> over .. which requires figuring out what one's total income is
>>>>>> going to be with sufficient precision.  Its not hard for simple
>>>>>> use cases, but when there's a taxable brokerage account with
>>>>>> Mutual Funds, the curveball is that their decision on end-of-year
>>>>>> payouts can be made with minimal advanced notice: an investor
>>>>>> needs to seek out their projected estimates and then also the
>>>>>> declared ones...the closer that one is to an IRMAA, the more
>>>>>> important this fine detail on income becomes.
>>>>>>
>>>>>> For example, I've been tracking PJFAX's 'Special Dividend' and the
>>>>>> gotcha here has been that their final decision (this past weekend)
>>>>>> was for a payout of $7.3309/shar, which exceeded their previously
>>>>>> published preliminary MAX estimate from last month by +3%.  Sure,
>>>>>> its a nice windfall, but if one has 10K shares in that fund, that
>>>>>> 3% is an extra $2000 of income that you weren't planning for.
>>>>>> Thus, the Roth Conversion question is "did you leave yourself
>>>>>> enough safety margin for this magnitude of a surprise?".
>>>>>>
>>>>>> Likewise, some funds don't declare until very late ... I have one
>>>>>> that's 12/23:  what's the leadtime required for doing a Roth
>>>>>> Conversion?  That deadline is set by whoever runs the 401k/IRA
>>>>>> account.
>>>>>>
>>>>>>> Bottom line is it's not at all clear that there are benefits for me.
>>>>>>
>>>>>> True, at your age, the benefit potential is less "you" and more of
>>>>>> your heirs.  It may be lower taxes for them to pay, or just
>>>>>> "easier" by not being a time-sensitive timeline: the answer
>>>>>> depends on each heir's individual financial situation & tax bracket.
>>>>>>
>>>>>>> So much depends on assumptions and goals. You would need to do a
>>>>>>> complex probabilistic Monte Carlo analysis including tax policy
>>>>>>> changes, longevity, market returns, and more.
>>>>>>
>>>>>> Adding additional variables only makes sense to do if they add
>>>>>> more insight than just noise.  Some don't really matter because of
>>>>>> A*B = B*A symmetry:  (Investment*(1-tax)*growth) =
>>>>>> (Investment*growth*(1- tax)).
>>>>>>
>>>>>> For tax policy change risks, 2024 taxes have a zero risk of
>>>>>> change. For 2025 & beyond, the best case (lowest tax) scenario is
>>>>>> probably just an extension of the 2017 TCJA but how likely is that
>>>>>> really, despite Trump going back into office in the context of how
>>>>>> the GOP's been beating the drum on the debt?  We're probably a lot
>>>>>> better off moving to a much more defensive investment posture than
>>>>>> worrying about a few points of tax rate changes.
>>>>>>
>>>>>>> Plus, your goals key. For me it comes down to wanting to leave my
>>>>>>> estate to charitable entities and some family members, doing so
>>>>>>> with as little tax liability for them as possible.
>>>>>>
>>>>>> For that type of scenario, the family member's likely tax rate for
>>>>>> the ten years starting at the time of your Estate distribution is
>>>>>> what will impact them, if they receive tax-advantaged accounts.
>>>>>> If they receive Roth or conventional brokerage, they'll end up
>>>>>> with more and with more flexibility on if/when taxes become due.
>>>>>>
>>>>>> For charities, they're a lot more straightforward, since they
>>>>>> don't have to pay taxes...but there's also the option of a Donor
>>>>>> Advised Charitable Fund (DAF) while you're still living.  There's
>>>>>> a couple of scenarios where this can make sense to do (eg,
>>>>>> stacking to gain tax credit instead of the STD Deduction), plus a
>>>>>> motivation can be that one is still alive to see the good work
>>>>>> that comes from having made the donation.
>>>>>>
>>>>>>> I am doing something different from Roth, reinvesting RMD and
>>>>>>> other investment income into income-producing assets. 60% was put
>>>>>>> back this year, not spent. Amazing how fast that compounds into
>>>>>>> even more income.
>>>>>>
>>>>>> The compounding is even faster when pre-RMD age & recycling 100%. /s
>>>>>>
>>>>>>
>>>>>> -hh
>>>>>
>>>>> You missed one very important point that I told you earlier. We are
>>>>> giving a large portion of the estate to charities. They will have
>>>>> zero taxes.
>>>>
>>>>
>>>> See above:  "For charities, they're a lot more straightforward,
>>>> since they don't have to pay taxes..."
>>>>
>>>> It is intuitively obvious to then gift them from tax-advantaged
>>>> accounts (eg, 401k/IRA).
>>>>
>>>>> The portion that goes to individuals is, for the most part, not tax
>>>>> advantaged.
>>>>
>>>> As a basic strategy, sure, but when the assets are mixed (tax-
>>>> advantaged and non-advantaged) going to individuals, this is where
>>>> the marginal income tax rates of beneficiaries can also be a factor
>>>> to include.
>>>>
>>>> For a KISS example, consider having $400K that's $200K advantaged &
>>>> $200K non-advantaged split evenly between two heirs who are in
>>>> different marginal tax brackets (KISS:  10% and 30%): if one
>>>> bequeaths equal portions from each account .. $100K from advantaged
>>>> + $100K non-, then:
>>>>
>>>> Heir A net after taxes receives ($100K + (1-10%)*$100K) = $190K
>>>> Heir B net after taxes receives ($100K + (1-30%)*$100K) = $170K
>>>>
>>>> That's longer equal after taxes, and sums to $360K Net.
>>>>
>>>> A different distribution plan could be:
>>>>
>>>> Heir A: ($50K + (1-10%)*$150K) = $185K
>>>> Heir B: ($150K + (1-30%)*$50K) = $185K
>>>>
>>>> Not only does this net out to be more equal between the heirs, but
>>>> note that the total net sum after taxes is higher too:  $370K.
>>>> That's $10K saved from taxes which goes to the heirs instead.
>>>>
>>>>
>>>>> As the RMD funds come in I'm investing some of that and ordinary
>>>>> income into equity-based income funds. That's my "Roth" piece. I
>>>>> get the income now, they get the appreciation later. Those funds
>>>>> are taxed 100% ordinary income until you sell, then capital gains.
>>>>> But the individuals get a one time step-up basis, so no gains if
>>>>> they sell right away. So their income tax will also be zero, or
>>>>> close to it. And I'm happy to pay the taxes on the income from the
>>>>> equity funds in the meantime.
>>>>
>>>> Yup, which is what I was alluding to when I noted "...with more
>>>> flexibility on if/when taxes become due."
>>>>
>>>>> That capital gains distribution thing from a fund I once owned
>>>>> kicked my butt a few times. I sold that portfolio 4 years ago. It
>>>>> was low dividend yields, high expense ratio, and the gains were
>>>>> automatically reinvested. It was generating tax liabilities,
>>>>> brokerage house fees, and no income. I was also under-performing
>>>>> the S&P. Negative cash flow is not my idea of a good investment for
>>>>> a retiree. At least I am now getting income that is way in excess
>>>>> of the tax liability and the much lower (0.35% versus 1.6%) expense
>>>>> ratio.
>>>>
>>>> Expense ratios and Brokerage fees are a much greater portfolio
>>>> resource suck than many realize.  I've calculated that I've paid out
>>>> more than $100K more than I really should have had to have paid.
>>>> Its also useful to have contextual insight on what the Expense ratio
>>>> fee in the context of what the market segment is.  For example,
>>>> International Funds have a higher average Expense Ratio than US
>>>> Large Cap.  There's also some fund providers who range higher than
>>>> their competitors too, etc.
>>>>
>>>>
>>>> -hh
>>>
>>> As I pointed out I have planned for non-tax advantaged funds to go
>>> entirely to individuals. Those individuals are mostly grandchildren
>>> likely to be in a low tax bracket when the windfall comes.
>>>
>>> We have appointed a financial estate executor and given explicit
>>> instructions on what funds go where with the goal to minimize all
>>> beneficiaries' federal and state income taxes.
>>
>> Well planned; a challenge here is to configure things suitably with
>> the accounts which offer TODs to bypass probate (& end of life medical
>> claims).  One strategy is to pipe 'everything' into a Trust, which
>> then determines the distributions, but I'm not necessarily convinced,
>> as the Trust represents a single point of failure risk.
>>
>>
>>> In the meantime, as RMD funds come in a portion is invested in non-
>>> advantaged assets that will go to individuals. Not quite there yet,
>>> but the ratio is getting closer to what it will take to prevent them
>>> from having to take any IRA assets.
>>
>> RMDs can be tricky because the base amount and withdrawn amounts are
>> constantly changing year-to-year.  One strategy can be to make a large
>> "deathbed" withdrawal so that the deceased pays the taxes instead of
>> the (not-nonprofit) beneficiaries, but that's fraught with challenges.
>> There's also complications when none (or not all) of the annually
>> required RMD was dutifully withdrawn prior to death too.  Been
>> contemplating a "RMD on 1/1" type of strategy.  In any event, even a
>> modest tax-advantaged bequeathment isn't necessarily a bad thing for
>> some beneficiaries, when their financial situation is such that
>> they're not maxxing out their annual 401k/IRA contributions due to
>> lack the funding:  the taxable bequeathment can be offset by it being
>> used to make equal deposits into their own 401k/IRA (if they have
>> suitable discipline & foresight/wisdom).
>>
>>
>>> Your comments on expense ratio do not account for performance
>>> differentials. If returns justify the higher ratio I have no issue
>>> paying for that.
>>
>> It did, because that was already covered with my context note:
>>
>> This isn't about if Market Segment A performs better than B (eg, Large
>> Cap vs Small Cap), but it is noting that when two funds are tracking
>> the same index, because their performance is supposed to mirror that
>> of the index, the fund with the lower Expense Ratio is structurally
>> advantaged outperform the higher ER fund.
>>
>> This structural difference is more of a statistical one and
>> incremental in magnitude, but multiply that factor by N years of
>> investing and it grows in significance.
>>
>> This is more nuanced because it is contextual to the sector/index:
>> the example I noted was that International index is uniformly higher
>> average ER than Domestic.  Likewise Small Cap ER's > Large Cap ERs.
>> It isn't used to pick Small Cap vs Large Cap, but the competing Index
>> fund products offered _within_ Small Cap, and offered _within Large
>> Cap, etc.
>>
>> FWIW, another layer to this is to understand how well a fund tracks
>> the index it claims to be following, and where exceptions lie.
>> Likewise, there's also aspects of this to which equities a fund
>> company picks to represent that Index, as this varies between fund
>> companies:  this is why its generally a good idea to *not* mix between
>> fund companies unless you know the in-the-weeds details as to how they
>> define their fund cutoffs, so as to minimize risks of unknowingly
>> having a gap and of unknowingly having an overlap.
>>
>>
>> -hh
>
> I tried fine-tuning my investments and found it very time-consuming and
> the results were not great. So, I farmed out investment strategy 15
> years ago and have been happy I did...

On 12/19/2024 12:39 PM, -hh wrote:
> On 12/19/24 10:28 AM, Tom Elam wrote:
>> On 12/13/2024 4:41 PM, -hh wrote:
>>> On 12/13/24 3:24 PM, Tom Elam wrote:
>>>> On 12/9/2024 8:16 PM, -hh wrote:
>>>>> On 12/9/24 3:36 PM, Tom Elam wrote:
>>>>>> On 12/8/2024 5:23 PM, -hh wrote:
>>>>>>> On 12/8/24 9:37 AM, Tom Elam wrote:
>>>>>>>> I have spent some quality time looking at Roth conversions. Wow,
>>>>>>>> that gets complicated in a hurry.
>>>>>>>
>>>>>>> It does, and in different ways/factors.
>>>>>>>
>>>>>>> For example, the "how much can I convert this year" stuff isn't
>>>>>>> too hard to figure out if you're under age 63, but at 63+ one has
>>>>>>> to add the relevant IRMAA bracket to fit under.
>>>>>>>
>>>>>>> Where it get complicated in a hurry with IRMAA is the risk of
>>>>>>> busting a bracket .. converting as much as one dares without
>>>>>>> going over .. which requires figuring out what one's total income
>>>>>>> is going to be with sufficient precision.  Its not hard for
>>>>>>> simple use cases, but when there's a taxable brokerage account
>>>>>>> with Mutual Funds, the curveball is that their decision on end-
>>>>>>> of-year payouts can be made with minimal advanced notice: an
>>>>>>> investor needs to seek out their projected estimates and then
>>>>>>> also the declared ones...the closer that one is to an IRMAA, the
>>>>>>> more important this fine detail on income becomes.
>>>>>>>
>>>>>>> For example, I've been tracking PJFAX's 'Special Dividend' and
>>>>>>> the gotcha here has been that their final decision (this past
>>>>>>> weekend) was for a payout of $7.3309/shar, which exceeded their
>>>>>>> previously published preliminary MAX estimate from last month by
>>>>>>> +3%.  Sure, its a nice windfall, but if one has 10K shares in
>>>>>>> that fund, that 3% is an extra $2000 of income that you weren't
>>>>>>> planning for. Thus, the Roth Conversion question is "did you
>>>>>>> leave yourself enough safety margin for this magnitude of a
>>>>>>> surprise?".
>>>>>>>
>>>>>>> Likewise, some funds don't declare until very late ... I have one
>>>>>>> that's 12/23:  what's the leadtime required for doing a Roth
>>>>>>> Conversion?  That deadline is set by whoever runs the 401k/IRA
>>>>>>> account.
>>>>>>>
>>>>>>>> Bottom line is it's not at all clear that there are benefits for
>>>>>>>> me.
>>>>>>>
>>>>>>> True, at your age, the benefit potential is less "you" and more
>>>>>>> of your heirs.  It may be lower taxes for them to pay, or just
>>>>>>> "easier" by not being a time-sensitive timeline: the answer
>>>>>>> depends on each heir's individual financial situation & tax bracket.
>>>>>>>
>>>>>>>> So much depends on assumptions and goals. You would need to do a
>>>>>>>> complex probabilistic Monte Carlo analysis including tax policy
>>>>>>>> changes, longevity, market returns, and more.
>>>>>>>
>>>>>>> Adding additional variables only makes sense to do if they add
>>>>>>> more insight than just noise.  Some don't really matter because
>>>>>>> of A*B = B*A symmetry:  (Investment*(1-tax)*growth) =
>>>>>>> (Investment*growth*(1- tax)).
>>>>>>>
>>>>>>> For tax policy change risks, 2024 taxes have a zero risk of
>>>>>>> change. For 2025 & beyond, the best case (lowest tax) scenario is
>>>>>>> probably just an extension of the 2017 TCJA but how likely is
>>>>>>> that really, despite Trump going back into office in the context
>>>>>>> of how the GOP's been beating the drum on the debt?  We're
>>>>>>> probably a lot better off moving to a much more defensive
>>>>>>> investment posture than worrying about a few points of tax rate
>>>>>>> changes.
>>>>>>>
>>>>>>>> Plus, your goals key. For me it comes down to wanting to leave
>>>>>>>> my estate to charitable entities and some family members, doing
>>>>>>>> so with as little tax liability for them as possible.
>>>>>>>
>>>>>>> For that type of scenario, the family member's likely tax rate
>>>>>>> for the ten years starting at the time of your Estate
>>>>>>> distribution is what will impact them, if they receive tax-
>>>>>>> advantaged accounts. If they receive Roth or conventional
>>>>>>> brokerage, they'll end up with more and with more flexibility on
>>>>>>> if/when taxes become due.
>>>>>>>
>>>>>>> For charities, they're a lot more straightforward, since they
>>>>>>> don't have to pay taxes...but there's also the option of a Donor
>>>>>>> Advised Charitable Fund (DAF) while you're still living.  There's
>>>>>>> a couple of scenarios where this can make sense to do (eg,
>>>>>>> stacking to gain tax credit instead of the STD Deduction), plus a
>>>>>>> motivation can be that one is still alive to see the good work
>>>>>>> that comes from having made the donation.
>>>>>>>
>>>>>>>> I am doing something different from Roth, reinvesting RMD and
>>>>>>>> other investment income into income-producing assets. 60% was
>>>>>>>> put back this year, not spent. Amazing how fast that compounds
>>>>>>>> into even more income.
>>>>>>>
>>>>>>> The compounding is even faster when pre-RMD age & recycling 100%. /s
>>>>>>>
>>>>>>>
>>>>>>> -hh
>>>>>>
>>>>>> You missed one very important point that I told you earlier. We
>>>>>> are giving a large portion of the estate to charities. They will
>>>>>> have zero taxes.
>>>>>
>>>>>
>>>>> See above:  "For charities, they're a lot more straightforward,
>>>>> since they don't have to pay taxes..."
>>>>>
>>>>> It is intuitively obvious to then gift them from tax-advantaged
>>>>> accounts (eg, 401k/IRA).
>>>>>
>>>>>> The portion that goes to individuals is, for the most part, not
>>>>>> tax advantaged.
>>>>>
>>>>> As a basic strategy, sure, but when the assets are mixed (tax-
>>>>> advantaged and non-advantaged) going to individuals, this is where
>>>>> the marginal income tax rates of beneficiaries can also be a factor
>>>>> to include.
>>>>>
>>>>> For a KISS example, consider having $400K that's $200K advantaged &
>>>>> $200K non-advantaged split evenly between two heirs who are in
>>>>> different marginal tax brackets (KISS:  10% and 30%): if one
>>>>> bequeaths equal portions from each account .. $100K from advantaged
>>>>> + $100K non-, then:
>>>>>
>>>>> Heir A net after taxes receives ($100K + (1-10%)*$100K) = $190K
>>>>> Heir B net after taxes receives ($100K + (1-30%)*$100K) = $170K
>>>>>
>>>>> That's longer equal after taxes, and sums to $360K Net.
>>>>>
>>>>> A different distribution plan could be:
>>>>>
>>>>> Heir A: ($50K + (1-10%)*$150K) = $185K
>>>>> Heir B: ($150K + (1-30%)*$50K) = $185K
>>>>>
>>>>> Not only does this net out to be more equal between the heirs, but
>>>>> note that the total net sum after taxes is higher too:  $370K.
>>>>> That's $10K saved from taxes which goes to the heirs instead.
>>>>>
>>>>>
>>>>>> As the RMD funds come in I'm investing some of that and ordinary
>>>>>> income into equity-based income funds. That's my "Roth" piece. I
>>>>>> get the income now, they get the appreciation later. Those funds
>>>>>> are taxed 100% ordinary income until you sell, then capital gains.
>>>>>> But the individuals get a one time step-up basis, so no gains if
>>>>>> they sell right away. So their income tax will also be zero, or
>>>>>> close to it. And I'm happy to pay the taxes on the income from the
>>>>>> equity funds in the meantime.
>>>>>
>>>>> Yup, which is what I was alluding to when I noted "...with more
>>>>> flexibility on if/when taxes become due."
>>>>>
>>>>>> That capital gains distribution thing from a fund I once owned
>>>>>> kicked my butt a few times. I sold that portfolio 4 years ago. It
>>>>>> was low dividend yields, high expense ratio, and the gains were
>>>>>> automatically reinvested. It was generating tax liabilities,
>>>>>> brokerage house fees, and no income. I was also under-performing
>>>>>> the S&P. Negative cash flow is not my idea of a good investment
>>>>>> for a retiree. At least I am now getting income that is way in
>>>>>> excess of the tax liability and the much lower (0.35% versus 1.6%)
>>>>>> expense ratio.
>>>>>
>>>>> Expense ratios and Brokerage fees are a much greater portfolio
>>>>> resource suck than many realize.  I've calculated that I've paid
>>>>> out more than $100K more than I really should have had to have
>>>>> paid. Its also useful to have contextual insight on what the
>>>>> Expense ratio fee in the context of what the market segment is.
>>>>> For example, International Funds have a higher average Expense
>>>>> Ratio than US Large Cap.  There's also some fund providers who
>>>>> range higher than their competitors too, etc.
>>>>>
>>>>>
>>>>> -hh
>>>>
>>>> As I pointed out I have planned for non-tax advantaged funds to go
>>>> entirely to individuals. Those individuals are mostly grandchildren
>>>> likely to be in a low tax bracket when the windfall comes.
>>>>
>>>> We have appointed a financial estate executor and given explicit
>>>> instructions on what funds go where with the goal to minimize all
>>>> beneficiaries' federal and state income taxes.
>>>
>>> Well planned; a challenge here is to configure things suitably with
>>> the accounts which offer TODs to bypass probate (& end of life
>>> medical claims).  One strategy is to pipe 'everything' into a Trust,
>>> which then determines the distributions, but I'm not necessarily
>>> convinced, as the Trust represents a single point of failure risk.
>>>
>>>
>>>> In the meantime, as RMD funds come in a portion is invested in non-
>>>> advantaged assets that will go to individuals. Not quite there yet,
>>>> but the ratio is getting closer to what it will take to prevent them
>>>> from having to take any IRA assets.
>>>
>>> RMDs can be tricky because the base amount and withdrawn amounts are
>>> constantly changing year-to-year.  One strategy can be to make a
>>> large "deathbed" withdrawal so that the deceased pays the taxes
>>> instead of the (not-nonprofit) beneficiaries, but that's fraught with
>>> challenges. There's also complications when none (or not all) of the
>>> annually required RMD was dutifully withdrawn prior to death too.
>>> Been contemplating a "RMD on 1/1" type of strategy.  In any event,
>>> even a modest tax-advantaged bequeathment isn't necessarily a bad
>>> thing for some beneficiaries, when their financial situation is such
>>> that they're not maxxing out their annual 401k/IRA contributions due
>>> to lack the funding:  the taxable bequeathment can be offset by it
>>> being used to make equal deposits into their own 401k/IRA (if they
>>> have suitable discipline & foresight/wisdom).
>>>
>>>
>>>> Your comments on expense ratio do not account for performance
>>>> differentials. If returns justify the higher ratio I have no issue
>>>> paying for that.
>>>
>>> It did, because that was already covered with my context note:
>>>
>>> This isn't about if Market Segment A performs better than B (eg,
>>> Large Cap vs Small Cap), but it is noting that when two funds are
>>> tracking the same index, because their performance is supposed to
>>> mirror that of the index, the fund with the lower Expense Ratio is
>>> structurally advantaged outperform the higher ER fund.
>>>
>>> This structural difference is more of a statistical one and
>>> incremental in magnitude, but multiply that factor by N years of
>>> investing and it grows in significance.
>>>
>>> This is more nuanced because it is contextual to the sector/index:
>>> the example I noted was that International index is uniformly higher
>>> average ER than Domestic.  Likewise Small Cap ER's > Large Cap ERs.
>>> It isn't used to pick Small Cap vs Large Cap, but the competing Index
>>> fund products offered _within_ Small Cap, and offered _within Large
>>> Cap, etc.
>>>
>>> FWIW, another layer to this is to understand how well a fund tracks
>>> the index it claims to be following, and where exceptions lie.
>>> Likewise, there's also aspects of this to which equities a fund
>>> company picks to represent that Index, as this varies between fund
>>> companies:  this is why its generally a good idea to *not* mix
>>> between fund companies unless you know the in-the-weeds details as to
>>> how they define their fund cutoffs, so as to minimize risks of
>>> unknowingly having a gap and of unknowingly having an overlap.
>>>
>>>
>>> -hh
>>
>> I tried fine-tuning my investments and found it very time-consuming
>> and the results were not great. So, I farmed out investment strategy
>> 15 years ago and have been happy I did...
>
> Except that what I was referring to isn't time-consuming:  it is when
> choosing what funds to use in a portfolio, to include the Expense Ratio
> as another factor when choosing Index A vs B vs C for market segment N.
> For example, for N = Small Cap Growth, one can choose between funds ABCD
> as offered by Calamos, Blackgrock, Vanguard, Fidelity...etc.  This is
> because not all funds are identical in what Equities they hold even
> within the same market segment ... for example, Vanguard's Small Cap
> indexes are particularly divergent because of their large size.
>
>
>> "RMDs can be tricky because the base amount and withdrawn amounts are
>> constantly changing year-to-year." ?????? Tricky? Maybe for someone
>> who is math-challenged or thinks a little income volatility is "tricky".
>>
>> RMD withdrawals are dead-simple. The RMD formula is simple arithmetic
>> and all 5 of ours are determined for us by the account custodians. All
>> but one are on the monthly plan and the funds on auto-EFT into
>> checking accounts. The 5th is on-demand and the custodian tells me the
>> upper limit for the minimum. A phone call and the funds show up 2
>> business days later in my checking account. How hard can that be once
>> you set it up?
>
> Not what I was referring to:  I was referring to RMD's post-death, where
> one is choosing to do other than a straight percentage for each TOD
> recipient, such as due to marginal income tax rate differences of heirs.
>
>> Our family all have very capable investment advisors of their own.
>> They can figure out the nuances when the time comes.
>
> Doesn't matter that they're well prepared, because this element is
> managed by the Executor/Trustee, prior to distribution to heirs.
>
>
> -hh
>
And I was referring to the nuances of what they are to do if they do
receive any tax advantaged funds. Not the plan, but it could happen.