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IRA MRD -good? problem needing strategy
Old 02-19-2012, 06:34 PM   #1
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IRA MRD -good? problem needing strategy

A good problem to have- I am 65, single, living with a great gal. I am have accumulated approx 2.1m in my rollover IRA. I am in the 15% tax bracket having a ladder of tax free muni's that bring in about 60k/year in tax free interest and maturing bonds thru 2020. Spend less than income.
I have been making Roth conversions to bring me up to top of bracket.
Short of spending the IRA down and/or making more Roth conversions that will push me into a higher tax bracket are there any strategies to consider that will keep me from a high tax burden at 701/2? Thanks
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Old 02-19-2012, 06:44 PM   #2
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As you say, it is a nice problem to have, and I'll be interested in the suggestions as I think/hope I'll be in a similar situation to yourself in due course.

Have you tried putting your figures into i-orp to see what it suggests? You may find it suggests increasing your conversion rate, taking you well into the 25% band, but it makes no guesses at future tax policy, assumes that the current tax law will continue, which means a reversion to higher rates as the current law sunsets. (25% band goes back to 28%, etc)
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Old 02-19-2012, 06:54 PM   #3
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Give away lots of money to charity. That will help reduce the future RMDs and the tax burden.
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Old 02-19-2012, 07:25 PM   #4
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Originally Posted by at_last View Post
A good problem to have- I am 65, single, living with a great gal. I am have accumulated approx 2.1m in my rollover IRA. I am in the 15% tax bracket having a ladder of tax free muni's that bring in about 60k/year in tax free interest and maturing bonds thru 2020. Spend less than income.
I have been making Roth conversions to bring me up to top of bracket.
Short of spending the IRA down and/or making more Roth conversions that will push me into a higher tax bracket are there any strategies to consider that will keep me from a high tax burden at 701/2? Thanks
Your first RMD from your IRA will be roughly $76,000, which will put you solidly into the 25% bracket - and that doesn't even add in any SS that you might be receiving. You might as well start taking a little bit more out now and bump yourself up well into the 25% bracket than just maxing out the 15% bracket, as there's a good chance that tax rates in the future will only be higher.
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Old 02-20-2012, 02:39 AM   #5
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Suggest you consider the effects of your SS. I'm not certain what those effects might be, but clearly, waiting until age 70 to take it will make the payments larger, possibly increasing the tax bite at THAT time. Taking it now might reduce your ability to make conversions within the 15% bracket - so it could be a wash. But, since it could be a significant amount, I'm simply suggesting you determine it's effect in all your planning (My guess is - you have already done this).

One more thing: Think about marrying that great gal! You might investigate the tax consequences and see if it's a good move.
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Old 02-20-2012, 06:02 AM   #6
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Sounds like you're doing everything you can with the Roth conversions. Making charitable contributions from your IRA counts toward your RMD, so that's something you may be able to work with later... unless tax law changes.
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Old 02-20-2012, 06:32 AM   #7
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This charity donation thing is subtle:

A. If you donate to charity from the IRA and this is also your RMD, then I believe your AGI does not include that RMD and you do not need to itemize.

B. If you withdraw the RMD, then take the money and donate to charity, then I believe your AGI does include that RMD and you need to itemize.

I am not sure about in (A) whether your AGI shows the RMD or not. There are some benefits to "above the line" deductions versus "below the line" deductions due to phase-outs and credits based on AGI or MAGI.
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Old 02-20-2012, 07:47 AM   #8
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Sounds like you might want to consider alternatives for some of the ~$1.5 million you have invested in tax exempts.
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Old 02-20-2012, 08:34 AM   #9
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This charity donation thing is subtle:

A. If you donate to charity from the IRA and this is also your RMD, then I believe your AGI does not include that RMD and you do not need to itemize.

B. If you withdraw the RMD, then take the money and donate to charity, then I believe your AGI does include that RMD and you need to itemize.

I am not sure about in (A) whether your AGI shows the RMD or not. There are some benefits to "above the line" deductions versus "below the line" deductions due to phase-outs and credits based on AGI or MAGI.
not included in AGI if done according to rules....direct donation, age met,etc
Employee Plans News and Retirement News for Employers - January 12, 2011 - Qualified Charitable Distributions for 2010 and 2011
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Old 02-20-2012, 04:37 PM   #10
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I've concluded that unless you want maximize money left for others after you die, then you do not have to worry about RMDs.
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Old 02-20-2012, 06:27 PM   #11
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My problem is that I'm such a cheap LBYM B'rd that I'm counting on those RMD's to force me into spending some of that money we saved and invested. I'm finding that we can live perfectly well from dividend and CG withdrawals from our mutual funds in the taxable side only (about 50% of total). I'm told you can't take it with you so I'm actually looking forward to those age 70 1/2 RMD's so I can give myself permission to actually start spending the tax deferred funds. That's why I haven't done any Roth conversions. Knowing me, I would never touch them.
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Old 02-20-2012, 06:57 PM   #12
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It's easy to forget that you may have to withdraw the money, but there's nothing to say that you need to spend it. This is a good thing if you're worried about running out of money, and a bad thing if you're too thrifty.
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