Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Life after RMDs + SS
Old 04-07-2013, 05:46 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,988
Life after RMDs + SS

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
__________________

__________________
omni550 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-07-2013, 05:50 PM   #2
gone traveling
 
Join Date: Mar 2007
Posts: 559
Quote:
Originally Posted by omni550 View Post
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.
__________________

__________________
gerrym51 is offline   Reply With Quote
Old 04-07-2013, 06:22 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
braumeister's Avatar
 
Join Date: Feb 2010
Location: Northern Kentucky
Posts: 8,608
Also don't forget that just because you have to take RMDs, you don't necessarily have to spend them.
__________________
braumeister is online now   Reply With Quote
Old 04-07-2013, 08:18 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by omni550 View Post
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.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 04-07-2013, 09:31 PM   #5
Full time employment: Posting here.
tightasadrum's Avatar
 
Join Date: Aug 2006
Location: athens
Posts: 802
Quote:
Originally Posted by omni550 View Post
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.
__________________
Can't you see yourself in the nursing home saying, " Darn! Wish I'd spent more time at the office instead of wasting time with family and friends."
tightasadrum is offline   Reply With Quote
Old 04-07-2013, 10:37 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,364
Is it possible to annually gift tIRA/t401k RMDs to charity such that the dollars are not included in ordinary income?
__________________
GrayHare is online now   Reply With Quote
Old 04-08-2013, 12:15 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,988
Quote:
Originally Posted by samclem View Post

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 offline   Reply With Quote
Old 04-08-2013, 12:21 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,988
Quote:
Originally Posted by GrayHare View Post
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
__________________
omni550 is offline   Reply With Quote
Old 04-08-2013, 12:39 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,930
Quote:
Originally Posted by GrayHare View Post
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.
__________________
kaneohe is offline   Reply With Quote
Old 04-08-2013, 01:13 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,988
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
__________________
omni550 is offline   Reply With Quote
Old 04-08-2013, 01:57 AM   #11
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,718
Quote:
Originally Posted by omni550 View Post
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.
__________________
meierlde is online now   Reply With Quote
Old 04-08-2013, 12:35 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
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.
__________________

__________________
Animorph is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 02:11 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.