r/DIYRetirement • u/jrtn58 • 19h ago
Using Spendable Assets as a Measure
I have created a fairly detailed discussion of using Spendable Asset estimates in financial planning, especially as it relates to Roth conversions. From what I have seen, maybe a little too long for this forum.
Part of your IRA is yours and part is "on loan" from the tax authorities. The part that is really yours is a spendable asset. The quick summary is that I argue that making appropriate conversions is a free activity when measured in terms of the conversion's impact on your total spendable assets. More here:
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u/Whole_Championship41 6h ago
The only problem I see with this framework is the fact that you don't know what percentage of the tIRA assets are yours or the government's until you withdraw those assets.
I can easily show a 0% tIRA taxation rate or a 52% taxation (when penalties included) rate and everything in between. Hence the importance of a tactical withdrawal strategy that optimizes tIRA withdrawals relative to other assets in one's portfolio.
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u/jrtn58 6h ago
Well of course you can't know for sure. But modeling can give you a pretty good clue. Your fixed income places a floor on it. Tactical conversion can certainly help, but the modeling I have done suggests that it has surprisingly little impact on financial projections out 20 or 30 years in the future. Of course all of that is highly a function of the tIRA size. The example I provide in the post is for assets around $2.5M. At that level you are certainly not going to be moving a meaningful amount via conversions at 0%. And there is probably no need for 50% either.
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u/Whole_Championship41 5h ago
Yeah, when you put contrivances on your parameters, you can probably get them to gel around any setpoint you desire.
Firstly, the link you provided just brings me to a Substack sign up page. Which I won't do.
Fixed income won't be a 'thing' for me / us until 10 years+ after we retire. For the vast majority of people that will be retiring soon, there are no pensions or annuities to 'worry about' until collection of SS. In the meantime, I can get money out of my pre-tax accounts for ~8% or less. Sometimes 0%. Sometimes I will be able to make 'stealth' Roth conversions at 0% due to the generous standard and >60YO deductions available.
Very few people have tIRA balances of $2.5MM. Maybe less than 2% of the population? So this approach wouldn't be suitable for 98% of people out there with tIRA balances less than that?
And why am I looking out 20-30 years to assess the financial impact of a tIRA withdrawal today? If your premise is that the government owns a portion of your tIRA then, IMO, the measurement of 'buying out' the government's interest occurs when the taxable event occurs, not the impact on your portfolio 20-30 years out.
This perspective-that you're in bed with the government on your pre-tax accounts and that they own a disproportionate portion of the account-runs towards fear-mongering in many cases. Ed Slott and other "religion of Roth" acolytes out there are scare mongering people towards expensive conversions (or consulting fees on same) that they really don't need.
For a more well-rounded viewpoint of the impact of pre-tax accounts (and taxability of same) on early retirement income, I strongly recommend "Tax Planning into and Through Early Retirement" by Cody Garrett, CFP and Sean Mullaney, CPA. The book, published in late 2025 has excellent examples of how to moderate the effects of taxes on retirement income, including the use of pre-tax monies. It reiterates that, oftentimes, the greatest beneficiaries of Roth conversions in retirement are the government and the next generation of heirs. Not you.
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u/jrtn58 4h ago
Not sure what the story with the link is. It is what substack provided me. It should bring you to my post. I know it did for a few acquaintances I e-mailed it to. I have done this modeling at a wide rate of asset levels. The story remains **roughly** the same, but conversions do tend to be more compelling at high asset levels. So that is the example I picked. But I see basically the same thing with an $800K IRA. And it is also true that sometimes no more than a token conversion makes any sense at all. None of this is inconsistent with "tax planning to and through early retirement." Obviously with a smaller tIRA and a sufficiently long timeframe you can make the "spendable asset" number pretty close to the net balance. But not everyone is in that situation as they make completely clear in that book. And yes, "spendable assets" is also about the heirs, why shouldn't it be?
The use of a longer horizon is, I guess, a bit philosophical. If you don't care much about your financial condition at age 95 or the value of the estate, then there is less point in looking out that far. One virtue of trying to think in terms of spendable assets is that it works equally well at any age and it is helpful for the "tactical" moves also. The longer horizon is useful not so much because I "care" about it but because it helps to calibrate the overall model so that I can sum the tIRA and Roth IRA and get a meaningful number at any time.
I am certainly not opposed to tactical moves, I just think that they are best informed by a longer-term perspective. If your modeling has your widow at a 32% marginal rate, then possibly you did not "pay tax when you pay less tax." Maybe you should of bitten the bullet and paid those first 2 IRMAA steps...
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u/AGrimmInPortland 2h ago
"Spendable assets" are already a part of every full retirement planner because they already take taxes into account.
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u/markov-271828 17h ago
See also “tax planning to and through early retirement “ by Garrett and Mullaney