ira distribution strategies

[almost there]

Just curious what other folks are doing.
Have 4 years to come up with a plan.

[pb4uski]

Do low tax-cost Roth conversions from now until SS starts to reduce tIRA balances and increase tax-free Roth balances. Then, once SS starts, withdraw as needed for spending and let taxable accounts grow.

[almost there]

You meant let non taxable accounts grow, right?

Was just playing around this morning and was curious what other folks had in mind........was goofing around here with a few basic numbers Retirement Spending Calculator


Retirement Spending Calculator


Am thinking if I take smaller distributions over a long period I can stay in the 15% tax bracket without doing a Roth conversion.

[pb4uski]

No, I meant taxable accounts will grow (and tax-free accounts too), while taking what we need to live on in excess of pension and SS from tax-deferred accounts.

[almost there]

Hmmm... I was planning to save to Roth's till last / if ever.
Let them grow tax free. For myself or my heirs.... Over the longest period of time.
And take smaller tIRA distribution's at 59.5, over a long period to stay in the 15% bracket. $75,300 for 2017.


Edit: Got it....... had to re-read it.........

[almost there]

"low tax-cost Roth conversions"? As in paying on a smaller amount now
anticipating growth? Or is there a secret "low tax-cost Roth conversion"

[RetireAge50]

Retiring at 50 and plan to do 72t withdrawals on the 401k/a, withdraw over 10 years all of our Roth contributions, convert to Roth the same amount from regular IRA.

End result at age 60 will be regular IRA's depleted. Roth IRA's will be intact. 401k's 72t will continue for life. Pensions and SS will come into play.

Goal is to have approximately the same taxable income ages 50 to death and use the Roth IRA's for major purchases.

[nun]

Quote:

Originally Posted by almost there Just curious what other folks are doing. Have 4 years to come up with a plan.

To fully optimize the tax efficiency of a withdrawal plan turns out to be a difficult problem because there are so many moving parts. But the general principle is to do IRA to ROTH rollovers while your income is low and you are living off taxable accounts. Generally speaking you want to keep the tax deferred growth of your IRA, but you need to balance that against doing small IRA withdrawals over the years to minimize tax.

I've decided to just do IRA to ROTH rollovers up to the 15% tax threshold when I can and take RMDs when I reach 70.5.........I don't plan on ever making any larger IRA withdrawals.

[almost there]

Agree, and the 15% tax bracket of $73k today will continue to go up over time.
10 yrs ago it was 63K. So you also have that going for you.

[pb4uski]

Quote:

Originally Posted by almost there "low tax-cost Roth conversions"? As in paying on a smaller amount now anticipating growth? Or is there a secret "low tax-cost Roth conversion"

Roth conversions while your tax rate is low.... between retiring and starting pensions and SS... little income and living off savings and investment income.

For example, in our case some of our Roth conversion is tax free because our other sources of ordinary income are less than our itemized deductions and exemptions. If I didn't do Roth conversions then these excess itemized deductions and exemptions would go unused and be wasted. The rest of our Roth conversion is taxed at 10% because qualified income (qualified dividends and long-term capital gains from taxable accounts) fills up the 15% bracket. So last year I converted about $25k and paid $500 in tax... this year I hope to convert about $60k and pay about $6k in tax. Over the last 4 years, we have converted over $225k and paid about $17k ...7.2% in taxes.

Much less than the 28% or more that I avoided when I deferred that income and also lower that the 25% that I will pay once SS starts.

[almost there]

Agree, I do not miss the 28% bracket at all............

[GrayHare]

Take your tIRA distribution early in the year so as to avoid that year's growth and dividends being taxed as ordinary income.

[Bir48die]

I hear this a lot. "Convert your IRA's to Roth IRA's while your taxes are low". Well I don't know if there are any like me but We have nearly $70k with pension and deferred comp alone. Then you add in DW SS (personal choice) and now we're at $87k. I have an inherited IRA where I have to take RMS's of approx $11k so now were at $99k. The rest is supplemented with taxable accounts. Then we get capital gains on our taxable accounts.

These are all good problems to have but don't allow us to convert to Roths along the way.

[GrayHare]

Quote:

Originally Posted by Bir48die These are all good problems to have but don't allow us to convert to Roths along the way.

Low taxes is a relative term. Later when you are forced to take tIRA RMDs you might be pushed into an even higher bracket than if you had converted at least some tIRA dollars to Roth now.

[Sunset]

We live in a State that does not tax retirement income, so IRA withdrawals or conversion to Roth only face Fed taxes.

Our plan is to take out from IRA or do "in kind" conversions from IRA to ROTH (avoids trading fees and are happy with current choices).

When a person looks at their income at age 70.5, its pretty easy to see how many get pushed into higher tax brackets due to RMD's + SS + normal interest + dividends.

last year we did $42K in conversions, and I thought that was too much as we had many moving parts to our taxes where I didn't know the final numbers (selling rental, closing 2 mutual fund accounts, etc). Turns out we missed out on doing some.

This year I will try harder to predict the numbers and be more aggressive, knowing I can re-characterize as needed.

[pb4uski]

Quote:

Originally Posted by almost there Just curious what other folks are doing. Have 4 years to come up with a plan.

Noticed this morning... relevant to the topic:

https://vanguardblog.com/2016/11/29/...-for-retirees/

[Sunset]

Quote:

Originally Posted by almost there Hmmm... I was planning to save to Roth's till last / if ever. Let them grow tax free. For myself or my heirs.... Over the longest period of time. And take smaller tIRA distribution's at 59.5, over a long period to stay in the 15% bracket. $75,300 for 2017. .....................

You do know that inherited ROTH's are subject to RMD's by the recipient.

[almost there]

You spend the 1st half of your life making as much money as possible. And the 2nd 1/2 as little as possible.

[Gotadimple]

I agree with most everything everyone has said.
- Convert up to the 15% limit (if you are currently at 15%)
- When you are retired but not yet taking Social Security, withdraw from IRA first with the idea to deplete it as much as possible before RMD's.
- 2 years before being eligible for Medicare, limit withdrawals so that the total income is less than $85,000 (single individual), $170,00 (married) to avoid means adjustments on the Medicare Part B & D premiums. These numbers are for 2017, see Medicare.gov for current info - but the 2 year limitation is one to watch out for.

[pb4uski]

If you convert up to the top of the 15% bracket then you will automatically be under the Medicare premium adjustment amounts.

On the second item... it is superfluous if you are converting to the top of the 15% tax bracket since conversions and withdrawals are treated the same for tax purposes... I think conversions are preferable since any future income is tax-free.