RMD Folks how are you using the money

[OAG]

In OH you can get a tax credit when taking RMD's. I have been receiving RMD's for a little over 7 years (starting from age 70). It is not a large amount and it just gets lumped in with all other income (Mil Ret/SS & Interest) - and probably saved in after tax accounts unless I buy another new Mercedes.

 

[street]

Thanks and some interesting angles what to do with the money.

 

[Moemg]

We are into our second year of RMDs and the amounts are roughly equal to what we were already withdrawing. So to answer your question, we are spending it.

We do exactly the same .

 

[SheitlQueen]

Not taking RMDs for another 6 years, but when my time comes I will not need much of it to live on. Will plan to take two really nice trips a year and reinvest the rest.

 

[38Chevy454]

I have a small inherited 403b that is required to take RMD, it just becomes part of my spending money. It's only a few thousand/year. As stated, money is fungible in my world.



However, since bulk of my savings is in pre-tax IRA, I will take distributions prior to mandatory RMD in order to minimize the tax bite at 70 plus.

 

[street]

I have asked a few questions about RMD here on ER before. I will have a 6 digit RMD in 9 years. It is a good problem to have is what some have told me but still a concern for me with that kind of money at that age. I have options now to take money from those accounts but then that causes other problems for me. There will be no way I will be in a low tax bracket at that time. When running the numbers taking now or waiting till 701/2 really is a no win for me as far as taxes go.

Also a lot can happen in 9 years so when the times gets closer I will be asking for more help.

Thanks for you replies.

 

[gerntz]

First year. Should just about cover QCD's & taxes.

 

[hesperus]

I take an RMD from a Beneficiary IRA. Usually I wait till the end of the year to pay estimated taxes, so many times I'll withhold around 70% to pay those taxes. Whatever comes back, if anything, usually goes right back into taxable portfolio.

 

[Hermit]

I have asked a few questions about RMD here on ER before. I will have a 6 digit RMD in 9 years. It is a good problem to have is what some have told me but still a concern for me with that kind of money at that age. I have options now to take money from those accounts but then that causes other problems for me. There will be no way I will be in a low tax bracket at that time. When running the numbers taking now or waiting till 701/2 really is a no win for me as far as taxes go.

Also a lot can happen in 9 years so when the times gets closer I will be asking for more help.

Thanks for you replies.

In addition to the tax hit, make sure you understand the Medicare premiums. After you start Medicare, those premiums act just like another graduated tax based on income.

 

[Bamaman]

My wife turned 70 last week, so RMDs are in our future. I am 2 years behind her.

We really have another 10 years before any Rollover IRA monies will be needed for living expenses--19 years after our ER.

Of our 3 children, only one is fiscally responsible. My wife refuses to gift one and not the other two. And she has decided we are going to spend the $ and quit being so frugal. The kids have had every opportunity to save for their retirement, and we are not going to fund their retirement if they don't invest in their future.

 

[Sue J]

In OH you can get a tax credit when taking RMD's. I have been receiving RMD's for a little over 7 years (starting from age 70). It is not a large amount and it just gets lumped in with all other income (Mil Ret/SS & Interest) - and probably saved in after tax accounts unless I buy another new Mercedes.

Yes, the Ohio Retirement Income Credit. It's up to $200 per return if you have retirement income of $8,000 or more. Smaller credit for retirement income less than that.

I always forget about that one until I'm filing and then it's a nice little surprise.

 

[Helena]

.

I am three years away from RMD. Although I have been taking small distributions for the past several years, my RMD will still be rather large causing my SS to also be taxed. So it appears that quite a bit of my RMD will be used to pay those extra SS taxes. Bummer

 

[Helena]

.

If only taxes on SS income were eliminated... or at least the income thresholds for the tax greatly increased [income thresholds that trigger the tax on SS have never been indexed for inflation and have never increased since the law was enacted back in 1983.]

See links

https://www.ssa.gov/oact/progdata/taxbenefits.html

https://www.congress.gov/bill/115th-congress/house-bill/2552

https://www.washingtonexaminer.com/massie-wants-to-eliminate-taxes-on-social-security-income

.

 

[Golden sunsets]

RMD Folk's how are you using the money

2017 was the first year of RMD's for DH. We changed our withholdings from other sources like pensions and SS to zero at the beginning of 2017, increasing our cash flow, which conveniently covered 100% of our expenses with a little left over. We took the RMD in mid December and had the administrator withhold our entire estimated federal and state tax liability from the RMD. The balance was reinvested in our taxable. In 2019 my RMD's start and the tax torpedo increases as I have waited to claim SS on my own record until I turn 70 this December. We will continue with this same plan, paying all of our federal and state taxes in December and investing the rest.

In 2019 our income will exceed the IRMAA threshold so we will get hit with higher Medicare premiums starting on 1-1-2021. We were not able to take RMD's early to avoid this cliff, as we were in too high a tax bracket.


Sent from my iPad using Early Retirement Forum

 

[marko]

Four years away, my projected RMD is about what we withdraw from my IRA every year for expenses. I see virtually no change.

Always intrigued though by the discussions here in the past. If you don't need the money immediately, it's not like it suddenly becomes "blow that dough" money because of the RMD. All you've done is move it from one side of the tax fence to the other.

It's still part of your portfolio and should figure into your SWR calculations.

I've seen discussions where folks either 1) think the money must be spent or 2) think the money disappears somehow.

IMHO, if you don't need the money at all, it should be put back into your portfolio and continue on it's journey toward your FI as an after tax holding.

 

[Dtail]

Four years away, my projected RMD is about what we withdraw from my IRA every year for expenses. I see virtually no change.

Always intrigued though by the discussions here in the past. If you don't need the money immediately, it's not like it suddenly becomes "blow that dough" money because of the RMD. All you've done is move it from one side of the tax fence to the other.

It's still part of your portfolio and should figure into your SWR calculations.

I've seen discussions where folks either 1) think the money must be spent or 2) think the money disappears somehow.

IMHO, if you don't need the money at all, it should be put back into your portfolio and continue on it's journey toward your FI as an after tax holding.

Yes, always find it amusing when folks feel a need to spend it vs. a want to spend it. Of course the taxes paid from moving it over will also count against one's SWR.

 

[street]

In addition to the tax hit, make sure you understand the Medicare premiums. After you start Medicare, those premiums act just like another graduated tax based on income.

Thanks Hermit >>> so I need to do some research to get an idea what I will be paying for Medicare at 70 plus.

 

[audreyh1]

IMHO, if you don't need the money at all, it should be put back into your portfolio and continue on it's journey toward your FI as an after tax holding.

We assume that someone retired is already FI. So what can’t they spend the money “if it’s not needed at all”? Assuming they are still within whatever they determined to be their safe withdrawal rate. 70+, getting older, good time to take another look at withdrawal rates and whether they are age appropriate given the shorter expected retirement period, plus review other potential expenses such as long term care.

But yes, in general, one assumes that IRA withdrawals fall into the planned pre-tax withdrawal rate and that any portion of an RMD that exceeds that would need to be reinvested in after tax accounts.

 

[ERD50]

I don't understand the reason for posting a question like this, or the purpose behind the answers.

Money is fungible, the RMD is just your money, do the same thing you were doing with it before you took it.

The only thing unique about the RMD is it is money that the govt says you must (to avoid penalties) move from one account to another, and pay taxes on it.

What can possibly be learned by what someone else does with an amount of money equal to their RMD? I just don't get it.

Or is this just a random question for fun, like, do you prefer chocolate or steak?

-ERD50

 

[marko]

We assume that someone retired is already FI. So what can’t they spend the money “if it’s not needed at all”? Assuming they are still within whatever they determined to be their safe withdrawal rate. 70+, getting older, good time to take another look at withdrawal rates and whether they are age appropriate given the shorter expected retirement period, plus review other potential expenses such as long term care.

But yes, in general, one assumes that IRA withdrawals fall into the planned pre-tax withdrawal rate and that any portion of an RMD that exceeds that would need to be reinvested in after tax accounts.

I should have said "not needed at the time being" and "toward one's continuing FI". But I think you know what I meant.

I just worry about a mindset that thinks that RMD money is suddenly outside of one's calculations and future needs as in: "I got extra money now! How can I spend it?" Over the years, we've all seen some scary assumptions here about SWRs, RMDs, SS and such.

I had a friend who thought he could buy a house with no money down and "just take out a reverse mortgage to pay for it"

 

[W2R]

We are into our second year of RMDs and the amounts are roughly equal to what we were already withdrawing. So to answer your question, we are spending it.

+1
Same here. This is my first year of RMDs, I suppose. The amount that I normally withdraw from the TSP and spend, exceeds the RMD requirements.

I don't withdraw as big a percent from my taxable accounts as I do from the TSP. Of course the taxable accounts are not subject to RMD.

 

[Souschef]

IMO, RMD's force you to look at different strategies. If you are a buy and hold investor, the RMD makes you look at how much is going to be taxed and what actions to take

There are a number of things you can do:
1: Spend it
2. Move the correct amount of assets to a taxable account
3. Make QCD's to relieve some of the tax burden.
4. Make a mix of all 3.
In my case, I have a spreadsheet (of course) to calculate and track my RMD's. I use a mix of all 3.

 

[audreyh1]

I should have said "not needed at the time being" and "toward one's continuing FI". But I think you know what I meant.

I just worry about a mindset that thinks that RMD money is suddenly outside of one's calculations and future needs as in: "I got extra money now! How can I spend it?" Over the years, we've all seen some scary assumptions here about SWRs, RMDs, SS and such.

I had a friend who thought he could buy a house with no money down and "just take out a reverse mortgage to pay for it"

This would make sense if people hadn’t been including their RMD in their retirement income or SWR calcs. For some people with SS and pensions more than covering their needs, this might be true - I don’t think it’s that unusual.

 

[Helena]

I don't understand the reason for posting a question like this, or the purpose behind the answers.

Money is fungible, the RMD is just your money, do the same thing you were doing with it before you took it.

The only thing unique about the RMD is it is money that the govt says you must (to avoid penalties) move from one account to another, and pay taxes on it.

That is the RMD problem for many. They are forced to take out money they might not need, pay taxes they may otherwise not pay, including taxes on their Social Security they may have never had to pay before. And on top of that, because of draconian RMD IRS rules, many seniors may need to employ tax professionals for the first time. And as others here have posted, RMD might also cause their Medicare B premiums to increase.

It might be life as usual for you... but for others it could be quite a culture shock.

.

 

[hesperus]

That is the RMD problem for many. They are forced to take out money they might not need, pay taxes they may otherwise not pay,

You nailed it.
We don't need the distribution, as we have all of our needs met and then some by divs and bond ladder interest. Further the RMD does move us into a higher tax bracket. If I could convert my beneficiary IRA to a Roth and defer till later years I'd do it in an instant. But alas, it can't be done without cashing out the entire 7 figure IRA and taking a huge tax hit at one time. Not a bad problem to have however...