So last year we converted some Traditional IRAs to Roths. Not only did we take a huge tax hit (of course) but in January, I turn 65 and was looking forward to going on Medicare, as I currently pay close to $1100 per month in health insurance premiums.

I got a letter yesterday that my SS was going up 5.9% cost of living increase. Yay.

And my Medicare is going to be close to $550 because of the large "income" last year. So instead of a raise, my SS check will be $500 less than I am getting right now.

WMH, I know you're a smart cookie, so this is just for those who may not be all up on a few things...

1) The SS COLA adjustment is based on inflation from the past, so the 5.9% is basically trying to put folks back to "par" after all of 2020's rampant inflation. However, as inflation is still strong in many areas, SS recipients are already behind the curve ball and falling further behind as 2021 sees the dollar continue to decline in purchasing power. COLA only adjusts once per year, retroactive. Inflation marches on every week!

2) Medicare, like SS, is an under(un) funded mandate. We have been told to expect that, without changes, neither of these two systems will be able to pay out anywhere close to the promised benefits in the next 10-15 years. Thus, now is the time to find alternatives and/or supplements to deal with the fact that--unless Govt decides to nationalize healthcare (and I pray it does NOT!)--we are going to be fending for ourselves more and more...which, in my view, is as it should be. FDR, kindly liberal giver of other people's money as he was, didn't anticipate the rampant rise of the welfare state brought on by LBJ's Great Society. He thought he had a good idea to help those who truly couldn't help themselves at least have a base level of income and care. I don't think he ever anticipated the Govt bloat that has made these programs insolvent and all but impossible to modify to fit reality, since people don't care about facts as long as you "keep your hands off my Medicare/social security."

Bottom line: anyone paying for their own insurance now might invest those monthly premiums somewhere to beat inflation for a decade or so, because you will probably be paying at least part of your own way again in a decade or so.

It's interesting to see how time marches on and folks think it doesn't. Not directing this to you WMH, but everyone knows that SS and Medicare are in trouble. But no one wants to talk about it or do anything to fix it. We're too busy worrying about 64+ genders and whether or not a man can be a "birthing person."

One of these days, this ticking time bomb of underfunded programs is going to blow up, and the media and politicians will scream and point fingers. They'll blame Capitalism, corporate greed, and of course the Evil 1%. It will be quite the show, I'm sure. Many people will be in a daze and won't know what to do.

Meanwhile, those of us who have been paying attention and preparing will shrug and move on. We'll deal with whatever shenanigans the Govt tries to cram down on us, change our activities, and keep going about the business of life. And make no mistake, it's a tricky business. I'm not saying it's easy, but for the person who thrives on self-reliance, it will be easier than those who have made their life plan "turn 65 and rely on the Govt."

Sid,

I think our government should nationalize healthcare. The healthcare system in Canada is great example. The money to pay for this "Medicare for all' system could easily be obtained from cutting way back on U.S. Military spending. Our military spends mega billions each year in buying aircraft carriers, submarines (nuclear powered of course), stealth F-35 jets, B-2 bombers, which can all be loaded with the most advanced nuclear bombs/cruise missiles, to fight a future war that probably will never happen.

Ken,

Everyone wants to preach the evils of socialism in the U.S. but at the same time they also want their Social Security checks and free healthcare via Medicare. Social Security and Medicare are probably the largest Socialistic programs that our government has ever created and most Americans are addicted to them and can't seem to live without them. But at the same time, these same Americans getting SS checks and Medicare want to go around and preach the evils of socialism,...which is just so hypocritical!!!

Right now, with ACA included, our government already pays at least 70 percent of all healthcare cost (Medicare, Medicaid, military healthcare, ACA, etc.) in this country. Why not let the government pay it all at 100%?

...most Americans are addicted to them and can't seem to live without them....

WMH

So instead of transferring funds over to Roth and paying taxes on them, perhaps you can get creative with some of your other units.

So lets assume you have a place that is worth $200,000 and your neighboring real estate friend has a place worth $300,000. You both bought these places for $150,000 a few years ago.

What happens if you agree to devalue your $200,000 down to $120,000....marketing it down $70,000. Looks like if it sells at $120,000 you don't pay any capital gains taxes - it is counted against your gains.

What happens if your neighbor does the same thing.......they sell the $300,000 for $225,000. Both of you devalue the asset values equally so no one is ahead. So what happens if the asset that you sold was in your name or your LLCs name and the property that you bought was places into your Roth IRAs name. Did you effectively make a large conversion?

So go ahead and tell me that you don't have $225,000 in your Roth account. I would ask you if you both had $1,000 so you could both buy an option on each others property.

Ray-N-Pa,

Can you please explain further? I don't understand what you just said and we will be doing some transferring in the future.

Thank you for your time!

Renne

That's creative all right, Ray, but I'm concerned it would be an audit flag. Devaluing property right now....that's a stretch considering the real estate market is on fire most places.

Taking the huge tax hit from a conversion is a stinker, but -- assuming the Govt doesn't change the rules -- paying taxes up front will save you considerable money since the vast majority of a properly funded and invested Roth IRA are from earnings, not contributions.

We have American Socialism today. We socialize corporate costs, privatize profits, allow millionaires and billionaires to pay less taxes then everyone else and subsidize their private planes, boats and cars and then bootstraps for the rest.

The most tax efficient thing to do (the best wealth building option and the best option for building a legacy) is to aggressively do the Roth conversion and take the hit on taxes and medicare.

IRAs are a great wealth building tool. The problem is figuring out how to have the IRA complement the RE investing.

We are in our 60's with IRAs, SSI, medicare, rental income, a desire to have a comfortable life, and wanting to leave a legacy for our kids.

Over the past few years, I have been slowly converting my IRAs over to Roth. In December of each year I estimate my income from RE, SSI, pension, and wife’s job. I will then roll over enough of the IRA to maximize a certain tax bracket. After many years, I have fully converted my IRAs to Roth (except for an IRA that will be used for charitable giving).

So far, I have been able to avoid the medicare surcharge.

Converting my wife’s IRAs will be more complex due to the growth of her IRAs over the past few years, medicare surcharges, taxation of SSI, proposed tax increases from Congress, and tax changes for inherited IRAs from the Secure Act.

Our goal is to maximize our annual income, maximize our net worth, minimize taxes, as well as legacy planning. I have run many spreadsheet scenarios to see how to best meet these objectives.

As it turns out, our best plan is to aggressively convert my wife’s IRAs over to Roth which will cause us to pay massive tax bills, pay high medicare surcharges, and pay the extra tax on the SSI.

It was interesting to see that if we were too aggressive with the IRA conversions, the taxes went up. If we were not aggressive enough on the IRA conversions, taxes went up.

Once the wife’s IRA conversions are done and taxes paid, we fall back into a lower tax bracket, medicare surcharge goes away, no more extra taxation on SSI, and the Roth IRAs grow tax free for the rest of our life and then up to an additional 10 years after we die. The kids have to cash in the Roth IRA within 10 years of inheriting it.

All this planning will change as the tax laws change. But at this point, I think we have found the best plan for us.

If you want to discuss this in more detail, let me know.

Good luck!

Now that hubby's been retired for several months now, We're evaluating our roth conversion, SS, expenses and eventual exit plan, SS to see how well we planned and what we may need to adjust. My goal is to have all Trad IRA converted on or before 72.

Like your wife's IRA conversions, MMIT, my husband's will be more complicated, but being younger than me we will be able to spread conversions out over 5 years.

There are plenty of reason why a property can't sell at heavily inflated prices. This site gives many reasons why people fail to manage a property and the property value tumbles. So what happens if two folks in the same boat deal with one another? Especially if the two people are both investors that both have similar interest in using real estate to retire with. This isn't too crazy of a concept.

So how does say the IRS keep an eye out for mismanagement? I am not all that sure that they can. So what happens if two people work collectively to assist each others Roth IRAs or other SD tool (401K) pick up real estate at a discount?

I hate paying taxes. We take EVERY legal deduction possible.

Paying more taxes and such means I made A TON more money. It shows that my business has grown more profitable. business.

I now pay more in taxes than I used to GROSS on my J O B. I probably pay as much as 10 “normal” people.

So I don’t fret over the govt’s increases.

Doesn’t do any good anyway.

Here’s to making so much money the media includes us in a story about how millionaires should pay more.

The NHS was formed when aspirin was a miracle drug, penicillin not yet on the horizon and today's miracle procedures unthinkable...

My Canadian friends always talk about how they love their health care system but they are all relatively young. I don't know how they will feel when it comes time for hip replacements and other "age-related" procedures that apparently have long wait lists and where you live makes a huge difference too.