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Are you taking out more IRA $'s at 2018 low rates?
Old 10-09-2018, 10:38 AM   #1
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Are you taking out more IRA $'s at 2018 low rates?

After taking out my RMD's for the year (1st year for me) and figuring in Social Security I find that there is still more I can take out at low rates for couples. See the rate chart below and link to a nice tax calculator for 2018. I find that we can take out a lot more at marginal Federal tax rates of roughly 14% (which is higher then 12% until SS is 85% taxed) until our total taxable income hits $77.4 K. That seems like perhaps a historical opportunity.

I wonder how many others are taking out more then their required IRA distributions because of the current low tax rates? It's not fun to pay more taxes but who knows if these low rates will continue for many years.

-----------------


Nice 2018 tax calculator I used: https://www.mortgagecalculator.org/c...calculator.php
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Old 10-09-2018, 10:41 AM   #2
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No RMDs here yet.

I think these rates are good through 2025, so 8 tax years including 2018.

2025 is the first RMD year for DH, and first SS year. We’re using the years before then to deal with the tax torpedo one way or another.
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Old 10-09-2018, 11:11 AM   #3
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I have been blessed that even after taking out my RMD, my IRA balance the next year has been higher every year since starting RMD's..


I am using QCD's to lessen the tax bite. This is money I would normally contribute, so it is a win win situation.
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Old 10-09-2018, 11:38 AM   #4
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If you don't need the money but find you have room to take out more than the RMD at an attractive tax rate, I'd convert the excess to a Roth rather than just withdraw it.
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Old 10-09-2018, 11:49 AM   #5
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The same reasoning holds for Roth conversions. If I were just retiring, I might say that I'd pay 22% to move money to a Roth, rather than do RMDs later at a potential 25%.
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Old 10-09-2018, 11:51 AM   #6
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Not at RMD yet but taking to the top of the 12% bracket as we will be in a higher tax bracket at RMD time. Alternately, if the tax rates get extended, we plan to purchase a new vehicle in 3 years and will use the money for that rather than take more out later.
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Old 10-09-2018, 11:59 AM   #7
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If you don't need the money but find you have room to take out more than the RMD at an attractive tax rate, I'd convert the excess to a Roth rather than just withdraw it.
I think one needs earned income to put it in a Roth. So not an option?

In our case we have plenty in Roth's already. So that is a consideration in whether to take out more from the IRA at favorable rates. For instance, do I take out $10k and pay $1400 in taxes or do I just take the $10k from the current Roth? If I take the $10k from the IRA I would spend it and that would leave the Roth dollars to accumulate longer tax free. But then what are Roth's for if not to blend the income streams to keep taxes down? I am not worried about building up a big estate as our heir will get plenty. Somewhat confusing decision I think.

Depends a lot on how the rate picture changes over the next decade. I kind of feel that we are enjoying undeserved tax breaks in this country and will have to pay up later. But that is an opinion I can not quantify or give a great argument for. No politics please.
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Old 10-09-2018, 12:01 PM   #8
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No RMDs here yet.

I think these rates are good through 2025, so 8 tax years including 2018.

2025 is the first RMD year for DH, and first SS year. We’re using the years before then to deal with the tax torpedo one way or another.
Why should the rates be good through 2025? I could guess at the answer.
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Old 10-09-2018, 12:16 PM   #9
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We will be taking advantage of the low rates to do more Roth conversions so that all our IRA money will be converted by FRA when we will start taking our US and UK social security.
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Old 10-09-2018, 12:26 PM   #10
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I think one needs earned income to put it in a Roth. So not an option?
You need earned income to contribute. You can convert without it.

Quote:

In our case we have plenty in Roth's already. So that is a consideration in whether to take out more from the IRA at favorable rates. For instance, do I take out $10k and pay $1400 in taxes or do I just take the $10k from the current Roth? If I take the $10k from the IRA I would spend it and that would leave the Roth dollars to accumulate longer tax free. But then what are Roth's for if not to blend the income streams to keep taxes down? I am not worried about building up a big estate as our heir will get plenty. Somewhat confusing decision I think.
Yes, it's a balance. If you think you're in a lower tax rate now than you will be in the future, whether than be due to RMDs, SS benefits, pension, loss of a spouse, increased future tax rates, or whatever other factor, it makes sense to take more out of the IRA. And in my mind there's no such thing as having too much in a Roth. As long as I can tap what I need (age and holding period rules) I'd like to have 100% of my wealth in a Roth, since it grows tax free. But not at the expense of paying a higher tax rate to get it into a Roth.

Quote:
Depends a lot on how the rate picture changes over the next decade. I kind of feel that we are enjoying undeserved tax breaks in this country and will have to pay up later. But that is an opinion I can not quantify or give a great argument for. No politics please.
When I retired 7 years ago I would have bet against tax rates going lower, but I was wrong. I'd double down on that bet now--still might be wrong though.
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Old 10-09-2018, 12:50 PM   #11
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I’m converting to 22%, but I pay attention to my state tax too. That’s where I draw the line.
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Old 10-09-2018, 01:59 PM   #12
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Why should the rates be good through 2025? I could guess at the answer.
That's when the current tax law expires. Then they revert to the 2017 rates.
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Old 10-09-2018, 03:23 PM   #13
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Yes, it's a balance. If you think you're in a lower tax rate now than you will be in the future, whether than be due to RMDs, SS benefits, pension, loss of a spouse, increased future tax rates, or whatever other factor, it makes sense to take more out of the IRA. And in my mind there's no such thing as having too much in a Roth. As long as I can tap what I need (age and holding period rules) I'd like to have 100% of my wealth in a Roth, since it grows tax free. But not at the expense of paying a higher tax rate to get it into a Roth.
The last few years I've done roth conversions up to the top of the 15% bracket and the IRAs keep growing more than I convert. I look at the situation DMIL is with DFIL passing nearly a decade ago. They had no roths. DMIL files single and is zapped by taxes. I'm not old enough to withdraw from TIRAs without penalties (other than conversions or 72T). After seeing DMIL with the taxes it really looks like roth conversions up to the top or nearly so of the 24% bracket is where I should take it.
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Old 10-09-2018, 03:26 PM   #14
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I threatened my husband I would prob him up with lots of ginseng, turmeric, etc until I’m done with Roth conversion.
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Old 10-09-2018, 04:53 PM   #15
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You need earned income to contribute. You can convert without it.
....
Perhaps this would be good for someone else here to convert from TIRA to Roth. In our case money is coming from only TIRA or Roth's or SS. That was not quite planned but the taxable account got gobbled up in the 2008 downturn. So moving TIRA money to a Roth and then taking needed spending from the Roth makes no sense, unfortunately.
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Old 10-09-2018, 05:05 PM   #16
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Perhaps this would be good for someone else here to convert from TIRA to Roth. In our case money is coming from only TIRA or Roth's or SS. That was not quite planned but the taxable account got gobbled up in the 2008 downturn. So moving TIRA money to a Roth and then taking needed spending from the Roth makes no sense, unfortunately.
So if you are taking more from the IRA due to lower tax rates, you are taking less from the Roth?

That is almost equivalent to a conversion. Take as much as you can stand tax-wise from the IRA, and then little to none from the Roth.

If you end up taking MORE from the IRA than you need, you can do a Roth conversion on the excess, as long as it's above your RMD.
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Old 10-09-2018, 05:07 PM   #17
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If you don't need the money but find you have room to take out more than the RMD at an attractive tax rate, I'd convert the excess to a Roth rather than just withdraw it.
+1 That way, the proceeds can grow tax-free for the rest of time.
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Old 10-09-2018, 05:09 PM   #18
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I think one needs earned income to put it in a Roth. So not an option?....
You need earned income to contribute to a Roth.

But you do NOT need earned income to do a Roth conversion.
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Old 10-09-2018, 05:14 PM   #19
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Why should the rates be good through 2025? I could guess at the answer.
Under the tax act passed last December the new, lower tax rates for individual revert to 2017 rates in 2025. That was done to get the act under thresholds so it could be passed with just simple majority... legslators indicated at the time that they hope to make the new, lower individual tax rates permanent before they expire.
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Old 10-09-2018, 05:21 PM   #20
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Under the tax act passed last December the new, lower tax rates for individual revert to 2017 rates in 2025. That was done to get the act under thresholds so it could be passed with just simple majority... legslators indicated at the time that they hope to make the new, lower individual tax rates permanent before they expire.
I'm pretty sure the tax rates are through Dec 31, 2025, so tax rates revert in 2026.
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