Life after RMDs + SS

[omni550]

Working on filing my income taxes got me thinking about what happens after age 70-1/2 when we must take RMDs from our IRAs. (I have also been planning on filing for SS at 70.)

Since I RE'd 6 years ago (at 56), I've been living on my [smallish] corporate pension supplemented by withdrawals from savings & investments.

Looking forward, I see the potential for a major increase in my income at age 70 and beyond due to RMDs + SS, as I have the bulk of my net worth in my traditional IRAs.

And, FWIW, I have been converting from tIRAs to Roths for several years, but the tIRAs are still substantially large.

Just wondering if this situation has been discussed and/or any strategies proposed on dealing with this?

omni

 

[gerrym51]

Working on filing my income taxes got me thinking about what happens after age 70-1/2 when we must take RMDs from our IRAs. (I have also been planning on filing for SS at 70.)

Since I RE'd 6 years ago (at 56), I've been living on my [smallish] corporate pension supplemented by withdrawals from savings & investments.

Looking forward, I see the potential for a major increase in my income at age 70 and beyond due to RMDs + SS, as I have the bulk of my net worth in my traditional IRAs.

And, FWIW, I have been converting from tIRAs to Roths for several years, but the tIRAs are still substantially large.

Just wondering if this situation has been discussed and/or any strategies proposed on dealing with this?

omni

if you are taking SS at 70 you don't really need a strategy. the strategy is usually involved whether to take SS at 62 or not.

at 70 and starting ss just take the minimum required out of your accounts.

 

[braumeister]

Also don't forget that just because you have to take RMDs, you don't necessarily have to spend them.

 

[samclem]

Just wondering if this situation has been discussed and/or any strategies proposed on dealing with this?

It's been touched on a bit here and there. I first realized the magnitude of the problem since I began helping my MIL with her taxes.

You are right to be thinking about it. I assume you are filing your taxes as a couple now--for a real scare, look at how the rates change at your income level if you or your spouse pass away and you/they start filing as a single taxpayer. The standard deduction is much lower and so are the brackets, and it's not hard for SS and RMDs to push a person into a lot of taxes.

What to do? Well, you've made a start by doing tIRA-to-Roth conversions to pare down those IRA balances. Other than that, you could start taking 72t withdrawals from your IRAs starting right now. Sure, it'll be taxed as income, but it might be taxed at lower rates than the RMDs would force you to be in later. This is especially attractive if you are in the 15% bracket now but aren't using all of the bracket headspace already to do 0% cap gains sales (basis resets) of equities. Give it a look: crunch some numbers a few years ahead making assumptions about growth rates and see if you wouldn't be better off to start witht he 72t withdrawals now. If you don't need the $$ from the 72t withdrawals for living expenses, just keeping them in a regular after-tax account could make a lot of sense esp. if you are in the 15% bracket and expect to stay there awhile: Those 0% CG and 0% dividends are a big plus.

In my own case, if we get pushed into high tax brackets because of RMDs and SS it will be because one of us has passed away or our investments have done really well. And it won't happen for many years. In the big picture I think I won't mind quite as much paying higher taxes in that "end game" as much as I would right now, with more decades and uncertainty left ahead to address.

 

[tightasadrum]

Working on filing my income taxes got me thinking about what happens after age 70-1/2 when we must take RMDs from our IRAs. (I have also been planning on filing for SS at 70.)

Since I RE'd 6 years ago (at 56), I've been living on my [smallish] corporate pension supplemented by withdrawals from savings & investments.

Looking forward, I see the potential for a major increase in my income at age 70 and beyond due to RMDs + SS, as I have the bulk of my net worth in my traditional IRAs.

And, FWIW, I have been converting from tIRAs to Roths for several years, but the tIRAs are still substantially large.

Just wondering if this situation has been discussed and/or any strategies proposed on dealing with this?

omni

This is almost the same situation I have. I've been moving money to Roth for the last several years. MRD's are a problem. But that's the plan for the tax people. I didn't think this through when I set up the T-IRA thing. But I keep moving money to the Roth. That's all I can do now.

 

[GrayHare]

Is it possible to annually gift tIRA/t401k RMDs to charity such that the dollars are not included in ordinary income?

 

[omni550]

You are right to be thinking about it. I assume you are filing your taxes as a couple now--for a real scare, look at how the rates change at your income level if you or your spouse pass away and you/they start filing as a single taxpayer. The standard deduction is much lower and so are the brackets, and it's not hard for SS and RMDs to push a person into a lot of taxes.

What to do? Well, you've made a start by doing tIRA-to-Roth conversions to pare down those IRA balances. Other than that, you could start taking 72t withdrawals from your IRAs starting right now. Sure, it'll be taxed as income, but it might be taxed at lower rates than the RMDs would force you to be in later. This is especially attractive if you are in the 15% bracket now but aren't using all of the bracket headspace already to do 0% cap gains sales (basis resets) of equities. Give it a look: crunch some numbers a few years ahead making assumptions about growth rates and see if you wouldn't be better off to start witht he 72t withdrawals now. If you don't need the $$ from the 72t withdrawals for living expenses, just keeping them in a regular after-tax account could make a lot of sense esp. if you are in the 15% bracket and expect to stay there awhile: Those 0% CG and 0% dividends are a big plus.

samclem,

I guess it wasn't clear in my post. I'm single and filing as such now.

You hit the nail on the head...when extrapolating to age 70+, the RMDs and SS are making my eyes water a bit. And even the bracket headspace to convert tIRAS-to-Roths now is much lower for singles.

I appreciate your suggestion and will have to explore the impact of starting 72t withdrawals now. I'm sure I'll have some questions as I proceed with my analysis.

omni

 

[omni550]

Is it possible to annually gift tIRA/t401k RMDs to charity such that the dollars are not included in ordinary income?

I was (and still am) planning on using these savings for my future living expenses, so I'm not looking to gift them to charity just yet.

omni

 

[kaneohe]

Is it possible to annually gift tIRA/t401k RMDs to charity such that the dollars are not included in ordinary income?

from this Charitable Donations from IRAs for 2012 and 2013
it sounds like the QCD was extended one yr thru 2013 and applies for TIRAs only. Not obvious what happens in the future.

 

[omni550]

samclem,

It appears as though 72t withdrawals are for those under 59.5 who want to tap their retirement accounts without a 10% penalty. I'm currently 62, so I don't think they apply to my situation.

omni

 

[meierlde]

samclem,

It appears as though 72t withdrawals are for those under 59.5 who want to tap their retirement accounts without a 10% penalty. I'm currently 62, so I don't think they apply to my situation.

omni

Correct between 59.5 and 70.5 you can withdraw any amount you wish without penalty, just the taxes due. At that point if you want something, you might as well withdraw it if you think you will have enough later, and enjoy life.

 

[Animorph]

You need to look at your tax situation now and after 70. You may want to do some more Roth converting now if your RMD's will have you in a higher tax bracket after 70. In my case I will be Roth converting up to the top of the 25% bracket for a few years and then dropping down to the 15% bracket for the rest of the conversions. That keeps us out of the 25% tax bracket for most of our planned retirement, though the RMD's eventually get too high. That plan optimizes our yearly income, given my planning assumptions.

It's not necessarily a bad thing to have RMD's bump up your taxes, but there is an optimum blend of Roth conversions that can minimize your total taxes over the years. And I think it will be very specific to your particular expense/tax level and taxable versus tIRA balance. I think the good thing is that if you are doing a healthy level of Roth conversions already, the differences between the optimum strategy and just blindly doing something seems to be less than about 10% of the optimum. That's been my experience working with my own calculations.