Investing - The Tax Gauntlet of Roth Conversions

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This post has taken a long time to write (mostly rewrite) to try to make it coherent. I hope the rewrites were successful. Sorry for the acronyms, but you can't talk about taxes with using them.

MAGI for IRMAA and NIIT - This is your modified adjusted gross income. It is your total income, including investment distributions, IRA withdrawals, the taxable portion of Social Security benefits. It includes tax-exempt interest. Student loan interest and pretax IRA contributions are NOT deducted. Roth IRA withdrawals are not included. IRMAA and NIIT use this number and higher means more Medicare and tax. BEWARE - other taxes may calculate MAGI differently.

RMDs - Required Minimum Distributions - Starting around age 73 (depends on your birth year), you are required to withdraw a percentage of your IRA (or 401K, etc.) and pay taxes on it. It starts at about 4% and goes up every year. This money cannot be converted to a Roth IRA. You pay income tax on it at your marginal rate since it is in addition to your regular income. And sometimes it increases your marginal rate. If you don't need this money, you can invest it, and pay taxes on the distributions.

IRMAA - Income Related Monthly Adjustment Amount - Medicare penalizes you for making too much money. And the amount is a very nonlinear function of your MAGI. Below around $100k (unmarried), no penalty. Above about $183k, about $5000/year. Then this would be multiplied by how many years it takes to convert your IRA. It sounds good to do it all at once, pay a big penalty, and be done with it in one year. But ...

Tax Bracket - When you top around $200k (unmarried) your marginal tax rate pops up to 32%, a nice jump from 24%. So it would be good to keep your Roth conversions below $200k minus your income. But if your income is, for example, $50k, that leaves you converting just $150k per year.

NIIT - Net Investment Income Tax - This is an additional tax on your investment income (interest, dividends, capital gain) if your MAGI is above $200k (unmarried). The amount of the tax is 3.8% of the lesser of your investment income or your MAGI minus $200k (unmarried).

You want low RMDs (RMDs are a percentage of the total IRA). You want low MAGI for lower Medicare premiums. You want low income for lower taxes. And you want low MAGI to avoid an NIIT tax bump. But you want to convert a lot of assets from IRA to Roth IRA and this counts as income and MAGI.

(Unmarried) it looks to me like it is best to keep your MAGI under $197k to stay out of the 32% tax bracket. This "spreadsheet" assumes you have an income of $44k. It show four levels of MAGI, each obtained by adding a Roth conversion amount to your income. The Medicare penalty percentage is minimized by pushing the MAGI to the top of (but not past) each IRMAA bracket. (Such evaluations would be so much easier with a continuous curve instead of stepped brackets, but our representatives in Congress apparently do not understand mathematics.)

income – includes          conversion  MAGI     penalty    penalty
Social Security *.85,      amount               per month  per year
RMDs,                                                      as a % of
pretax IRA contributions,                                  conversion 
investment distributions

44,000                     62,000      106,000  0          0.0%
                           89,000      133,000  88         1.2%
                           123,000     167,000  220        2.1%
                           156,000     200,000  353        2.7%

This shows that faster conversion gives higher Medicare penalties And there is likely higher tax on the RMDs. But it reduces RMDs faster. RMDs can bump your MAGI into higher Medicare penalties. And an RMD can't go to your Roth unless you have equal earned income. That means that if you invest the RMDs you pay tax on the distributions. So - choose your poison.

Investing - Total Return for Dividend Stocks

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Dividend stocks and ETFs have an odd characteristic. Their stated goal is to produce income via dividends, but actually their total return (income plus growth) is just as important as the dividends. The issue is that the listed dividends are the current dividends. But you probably want those dividends to increase with inflation. If the payout ratio (profits paid as dividends / total profits) is 50%, half of profits go to dividends and the rest are used to, hopefully, increase profits and produce higher dividends in the future or buy back stock to increase the stock value. Businesses that have a high payout ratio pay high dividends, but don't grow as fast as businesses with low payout ratios. And if they pay out more than 100% of profits, the business is shrinking.

So my suggested strategy for selecting a dividend ETF or stock is decide how much I need from dividends and select an ETF that gives me that, and no more. The more is used by the business to improve future dividends, so it not disadvantageous to own this business.

There are a number of covered call dividend ETFs. These use stocks as collateral to gamble on the stock price. If they win, you get the result as an ETF dividend. Two problems - these are not qualified dividends, so taxed as income, not capital gains. And if they lose, they must sell the stock below market value. They can offer very nice dividends as long as they are winning. And they can continue the nice dividends while they are losing, but their value will go down.

When I chose to use SCHD and VYM a few years ago, SCHD had a dividend of about 3.5%. VYM about 3%. SCHD was significantly ahead in total return for the past ten years. This year SCHD is paying 3.8% and VYM is paying 2.5%. But total return, VYM value is up 12.8% and SCHD is up 1.6%. So VYM is set to give 12.8% higher dividends on the cost basis than the reported dividends because the principal has grown 12.8%. SCHD is set to give 1.6% higher dividends on the cost basis than the reported dividends.

Compare JEPI to VOO, VYM, SCHD - using totalrealreturns.com. Total return (dividends reinvested) per year for 5 years. JEPI 10.3%, VOO 17%, VYM 14.5%, SCHD 10.4%. JEPI is actively managed and uses covered call options to improve returns. It returns 8.4% dividend (currently). But that means that growth is just 1.9%, not keeping up with inflation. VYM returns 2.5% currently. But it's growing 12% per year. SCHD returns 3.8% currently and growing at 6.6%.

The net of all of this - the best dividend stocks or funds are the ones with the best total return while giving you the amount of income that you need, but no more. Beware if the dividends exceed about 4%. These are at significant risk to drop in value either because the businesses are likely paying more than half of their profits in dividends or the fund manager is gambling with the stocks to get higher dividends.

SCHD - I have a blog post about SCHD, which, in the past, looked like an outstanding dividend fund. Recent performance doesn't look so good - apparently it's in out of favor sectors. So, when I say "That's history, not prediction" take it to heart. VYM looks a lot better recently.

More Good and Bad

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In no particular order-

It took a while to find an Android app that would just tell me how far I have walked. I don't want to plan a route - my route this summer is wherever there is shade. I don't want steps, or calories burned, or how fast I'm going. I don't need a map of where I've been. Map My Walk is the best I have found and it has about 5x what I want, but pretty simple to just start a walk, and it notifies me every quarter mile (adjustable), which is handy. You can't buy it - subscription only. (Update - for what I use, it doesn't even need a subscription.)

KROGER has quit stocking whole wheat spaghetti. BAD. They still have, for now, whole wheat thin spaghetti. (Update - they fixed the issue - regular and thin whole wheat spaghetti on the shelf.)

Gestures - I have railed against gestures as an input method on phones before. But I was hit with it recently. I was testing one of my Android apps on a virtual phone with Android defaulted to gesture navigation. I needed the app list but could not find it. I gave up my search and asked Perplexity.ai. The answer - swipe up on the home screen. What? How was I supposed to know that? It seems to me that gestures are a lot like invisible icons. I hate icons, but with a (visible) icon, even if I can't decode the meaning, at least I know some function is a touch away. But a gesture?

Philips Norelco One Blade electric razor - excellent. It's like an electric hair clipper or hedge trimmer, except the head is only about 1+1/4 by a 1/2 inch. And it has a surface that lets you drag it across your skin smoothly. It doesn't shave as close as fancy razors. But it doesn't leave long hairs that don't get under the foil. And it doesn't pull hairs. No pain. Doesn't irritate skin.

I hate sock that squeeze my feet. Many years ago, I found Gildan size 12-15 gray crew socks. Much better than other socks although they still squeezed a bit. I don't know why, but the black ones were much tighter. I never tried white. But they quit making them. Inexplicably, the low cut versions of these socks were no looser that their regular socks. I tried other large size socks - they were longer but not any looser. Searching Amazon recently to see if Gildan had started making the 12-15 gray crew socks again, I found these - Extra Wide Comfort Fit Socks. There are other brands that appear similar, but the Extra Wide brand has a much higher cotton content. They are expensive, about $10/pair. The medium size socks are loose on my feet. Fantastic. As with all socks that I wear, I cut the calf part off to just above my ankle.

Brooks Adrenaline 24 (running) shoe tongue loops - finally a shoe company has addressed the problem of shoe tongues falling to the side. A small string loop on each side of the tongue. The shoe string goes through the loop and holds the tongue up and reasonably centered. A significant advancement in shoe technology!

Amazon Kindle - it appears that they have fixed the page number line display (see Software Bugs post). It took about nine months.

Lubuntu 24.04 and Android 15

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Ubuntu (Linux) 24.04 - I was informed that 20.04 long term support was ending shortly. Time to update - skip 22.04, go to 24.04.

You can't skip 22.04 - update to 22.04 then then update to 24.04. The update to 22.04 went well.

The update to 24.04 failed miserably. Linux installs work great - until they don't work - then you are screwed. I resorted to installing from a 24.04 ISO disk image install. At this point I decided to switch to Lubuntu. This is just Ubuntu with the LXQt GUI. Then I went through a day of torture trying to figure out why I could install, but not boot to my disk.

I finally realized that my disk was partitioned as MBR (Master Boot Record) for booting directly and the install wanted GPT (GUID Partition Table) for booting to UEFI which, I think, lets you boot to a USB drive without choosing it in the computer BIOS. But changing the partition type wipes the disk, which I was avoiding. But I need to have a working computer so I did it. I still couldn't get this working. So back to MBR and I figured out how to make it bootable. Too late to save my disk. With my disk wiped, I had to install a bunch of software and of course restore my personal files. That went reasonably well, except that when I backed up the disk before the update, I didn't think to backup hidden directories. My SSH certificate that let me log on to my web page was gone. Fortunately I had put that directory on my laptop.

So, finally up and running. But some of the software that I need wasn't working. These are the down level programs that I had to get to make v24.04 work as well as 20.04

Okular has replaced Evince (also know as Document Viewer). Okular produces absolute garbage prints of PDFs to my PostScript printer. Evince still works well.

A new EasyABC (music editing app) runs on Python 3 (Yay!). But it has again been disabled by Python changes. I had to get down level Python 3.9.

Newer versions of abcm2ps (this formats ABC format tunes into sheet music) do not produce correctly scaled sheet music. There is a replacement program written in JavaScript using abcm2ps as a starting point. But if the latest amcm2ps doesn't work right, why would I spend the time to switch. I got down level abcm2ps 8.14.6. Back in business.

Ghostview, a GUI interface to GhostScript (PostScript emulator) is obsolete. But it still works. But you need down level GhostScript 9.52. I'm not sure why they needed to update Ghostscript - Postscript hasn't changed in many years (to my knowledge).

I could rag on Linux for depending on libraries downloaded independently from applications. But even worse is new programs that don't work as well as the old programs that they are replacing. Okular PDF prints to my Postscript printer are just plain wrong. Abcm2ps was updated and lost scaling functions that I was using. Ghostview (GUI for Ghostscript) supports has been dropped and it does not work with new versions of Ghostscript.

Of course this is common on Windows and Android. I have no experience with Apple.

I wrote a Windows/Wine version of my text editor in 2007. I have fixed a few bugs and added a bit of function over the years but no other changes. I still use it for almost all of my text editing, under Wine in Linux, 18 years later.

Android 15

While Linux makes it hard to keep using old software, Android makes it impossible to use anything more than a few years old. How? By changing the API (application programming interface), redacting old API function, and constantly changing the requirements to be listed in the app store.

Android 15 on a Samsung S23 - Good Lock / Lockstar ruined - app widgets are no longer allowed on the AOD (always on display). I recently modified my clock app to display (optionally) only time zone and next alarm. I used this with Lockstar to display it on the AOD. This fixed one of my major issues with Samsung's Android. No more. Back up to Android 14? Only by resetting the phone and losing the entire setup and data on it.

For Android Firefox and I Heart Radio I have block notifications set. But they both manage to display annoying notifications.

If I turn the phone off, the display blanks and then displays the AOD. What's that for? Apparently, I often turned off the phone and then checked the time. Now I turn off the phone and have to wait for it to display the time.

New battery recharge modes: charges to 100% then stop until it's down to 95%; stops charging at 80% while you are asleep and switches to 100%/95% mode while you are awake; stops charging at 80% (or 85%, 90%, 95%). Why not charge to 80% then stop until it's down to 75% and similarly for 85%, 90%, 95%? This is important because I will often take my charged phone off the wireless charging stand, use it for a short time and put it back on the stand. Wouldn't it be better to not charge until it has dropped significantly? I don't know.

So what's new and improved in Android 15? The status line battery display is easier read. I use Nova Launcher, not One UI, so nothing there. I can't find anything else.

Why Didn't I Do This Long Ago?

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Many times in my life, after doing some really useful task or acquiring a very useful device, I have realized how useful it is and think - why didn't I do/get this long ago?

Scripts to do repetitive tasks. After typing command lines over and over and using clumsy GUIs for my current 3D print project, I finally spent a half hour writing a script (OpenSCAD and Prusa Slicer both have command line interfaces). Having completed it, render and generate printer control code is one short command line. Faster, easier, less frustrating.

While I was thinking about the above script, I asked Perplexity.ai if I could set up a key to type in today's date. Yes - it took 5 minutes to do. Now when I want a date stamp on a file name I just use F10 instead of typing the date.

I recently did a house cleaning, and I wanted to get the limescale off of my faucets. I used a chemical calcium/lime/rust remover on my kitchen faucet, then realized - I just bathed my drinking water faucet in toxic chemicals. I've done this before and spent a lot of time running water before drinking. But this time I checked on Amazon and found new complete faucet aerators (including shell) for about $2 each. These installed easily, dramatically improved the flow due to the unclogged aerators, and of course look great.

My bread maker is another example. Just measure out the ingredients, let the bread maker turn it all into bread, and slice it. What's so great here is that I control the ingredients - for me whole wheat flour, olive oil, salt, yeast, gluten. And if you try this, you will soon learn the root of the idiom "the greatest thing since sliced bread".

Battery vacuum cleaner, string trimmer, leaf blower, drill, Dremel tool. It is so much easier to pick up a tool and use it instead of choosing a suitable electical outlet and perhaps extension cord, and working around the cord while doing the job.

Exchange Traded Funds started to compete with mutual funds around 2000, long after I had been investing via mutual funds. They have huge advantages over mutual funds - delayed capital gains taxes, mid day trading and tracking, low expense ratios. Why did I wait until retiring, 2016, to investigate and start using ETFs?

Gewa Strato violin case - light and space efficient. Mine is wearing out after many years. But it's been discontinued. I can't find anything similar on the market. Why didn't a get a spare?

After reading about how tea bags release microplastics into tea, I found everything that I needed to make tea from loose leaves. Specifically an infuser (stainless steel) and some loose leaf tea. I tastes about the same as using tea bags, but no plastics. This time I'm ahead of the curve!

Sundries

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Ally bank alerts - Ally Bank quit sending deposit and withdrawal alerts to me. After two weeks, I switched to US Bank. I received an email recently that claims that this is fixed. Three months. I'm not going to test this.

Restaurant background music - do Italians really like jarring horn blasts in their music? Who decided that droning/unchanging drum tracks enhance music (at a Thai restaurant, but clearly American music). Why must it all be so loud? And why do restaurants need any background music?

Samsung S25 features - I bought a Samsung S23 (smartphone) in June 2023. Upgraded from an S22 solely because reviews said that the S23 fingerprint reader is much better. True - it was worth the $800 (?) price. I later found that Samsung Goodlock/Lockstar (free software) allowed me to put the time zone and next alarm on the always on display. I finally had a decent phone, but too big, nasty screen reflections, and heavy. The S24 did not address any of these issues. Pass. The S25 Ultra has this new feature - Gorilla Armor 2 - "the Industry’s First Anti-Reflective Glass Ceramic For Mobile Devices". Enhanced durability - fine, but I do not have a single scratch on my S23 with no screen cover. Anti-reflective surface - this is, apparently, a wave cancellation layer (or multiple layers) made with a very hard (ceramic?) material. 75% reflective light cancellation. This is worth $800. But it is NOT on the S25, only the S25 Ultra, which is BIG. New AI function, new colors, more speed? Pass.

Folded lists - folded lists are a handy way to put a long list in a short place. On Google's blog top page, by default, the list is folded by year and month. You can't see titles until you click on a year and a month. Sigh. A scrolling list is far superior. You can switch to a long list, but it only shows dates, not titles. The date of publication is more important than the title of the post? After living with this for years, I made a web page of all the titles as a list, and repeated the investing blogs (the most popular posts) at the top. www.blog.ravitz.us . This is so much easier for finding specific posts.

Calendars - after maybe 45 years of wall calendars with a nice picture for each month, I can't find anything interesting and new. For 2025 - Peanuts, the comic strip from long ago. I like Snoopy.

My phone calendar (Google calendar via Calengoo app) has a significant defect. It has all the national holidays, but no religious holidays. Mardi Gras - I need to know when restaurants have a Cajun special. Saint Patrick's Day - restaurant specials again. Easter, Halloween - look at all the associated candy. Whether you believe in the roots of these holidays or not, they are important in our culture and I want them on my phone calendar.

(2025-02-02) I found everything that I wanted under "Holidays in United States" "Other observances", except Mardi Gras. And I found Mardi Gras under "Global religious holidays" "Christian holidays", but that is along with many other holidays that I can't unselect.

Software Bugs

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For about six months and through several updates, Android Kindle does not correctly display the bottom status line on my phone. It is displayed so that only the top 1/4 of the line is visible. This line gives the page number - important information. Amazon does not care.

Time to see how the other ebook readers are doing. Google - there is no page number line and it won't display the current time. Google seems to think that app screen area is all important. Not for me. I want the phone status line with the time and the navigation bar (the buttons) - ALWAYS.

Nook (Barnes and Noble's ebook reader) - WOW. I can see the Android status line and navigation bar (optional), and the Nook status line. And I can set the paper color - not just choose from a few bad choices. With the navigation bar always displayed, exiting to the home screen is just a button push away. Startup, even if nothing is changed is delayed by about four seconds, with a big refresh symbol in the middle of the screen. You can read the rest of the screen but you can't do anything else. Annoying. Not nearly as annoying as Kindle's issues. I have switched.

Ally Bank, email and text alerts for deposits and withdrawals don't work. It's been almost a month since I opened a support ticket. They won't give me any status on a fix - just "we are working on it". It worked a month ago - compare the two code levels and fix it. I gave up. Now trying US Bank. Things seem to be good but switching twelve automatic deposits and withdrawals is not fun. Most banks with branches offer very low interest rates on savings accounts. US Bank is 4%, same as Ally. And there is a branch near me so that I can get $50 bills instead of the $20 bill that ATMs hand out.

For about six months and through several updates, Google Maps will not adjust the volume after the trip is started. I suspect that you can adjust it while Maps is telling you something, but by the time I've found the volume button on my phone, the message has finished. I just found this workaround. Press the "you" icon (your little photo or initial), then "Settings", then "Navigation settings", then "Play test sound". While the test sound is playing, use the volume buttons to set the default volume. It works! I still can't adjust while driving, but I can get a reasonable volume each time without having to remember to adjust before starting the route. How about naming this option "Set default volume" so people know what it does?

Next day - Maps reset its default volume. I can't hear it. I can't adjust it while driving.

What is wrong with our corporate cultures that this is acceptable? Why do the users accept it? They have been convinced that software bugs are inevitable. But how have they been convinced that the bugs don't need to be fixed.