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

--- SoupGate-Win32 v1.05
* Origin: fsxNet Usenet Gateway (21:1/5)

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

--- SoupGate-Win32 v1.05
* Origin: fsxNet Usenet Gateway (21:1/5)

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

--- SoupGate-Win32 v1.05
* Origin: fsxNet Usenet Gateway (21:1/5)

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

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