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Wait Til RMD? Or not?
Old 06-02-2011, 11:58 AM   #1
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Wait Til RMD? Or not?

Hi everyone. A good deal is discussed about the plus and minuses of taking SS early, or waiting til FRA. What is the general feeling on this board about delaying IRA withdrawals until age 701/2, or taking them each year in an amount that would keep you within the lowest tax bracket?

I would still be able to delay SS for as long as I want, as I have a DB pension and enough tax free bond income to cover my projected expenses.

I am now 64, and may not take SS until age 70.

Thanks to all for your thoughts on this.

talltrees.
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Old 06-02-2011, 12:26 PM   #2
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Just my opinion, of course: Same logic as converting Traditional IRA money to Roth money - which you might consider instead of just taking the TIRA money out if you don't need the money now.

The logic would be as follows: When you begin RMDs, you have lost a measure of control over how much you take out and when. By then, with any luck your TIRA stash will be substantial and your RMDs will thus be substantial. Whatever the tax laws are at THAT time will determine how much tax you pay. IMHO, taxes will only go up (I could be wrong, I was once.) So, I am trying to get as much of my TIRA money out before I turn 70 1/2 - either converting to ROTH IRA or just using the money because I need it to hold off collecting Soc. Sec. As you know, collecting SS will raise your AGI and potentially make your RMDs more "taxable". In my case, since I plan to wait until age 70 for SS (and thus receive bigger SS payments) my AGI will be even more inflated by the SS payments. So, now that I would otherwise be in a relatively low bracket, it seems like a good time to empty the TIRA accounts as much as possible.

Never seen a convincing argument to keep the money in the TIRA account unless your income will suddenly go down at the time RMDs hit you. In your case, since you indicate you don't need the money, ROTH conversions seems like a good idea. Naturally, the MAN can change the rules later on any/all of this, so it's a crap shoot. In may case, I'll end up with some ROTH and some TIRA money. Sort of a "hedge" against the MAN's whims.

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Old 06-02-2011, 01:19 PM   #3
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The logic would be as follows: When you begin RMDs, you have lost a measure of control over how much you take out and when. By then, with any luck your TIRA stash will be substantial and your RMDs will thus be substantial. Whatever the tax laws are at THAT time will determine how much tax you pay. IMHO, taxes will only go up (I could be wrong, I was once.) So, I am trying to get as much of my TIRA money out before I turn 70 1/2 - either converting to ROTH IRA or just using the money because I need it to hold off collecting Soc. Sec. As you know, collecting SS will raise your AGI and potentially make your RMDs more "taxable". In my case, since I plan to wait until age 70 for SS (and thus receive bigger SS payments) my AGI will be even more inflated by the SS payments. So, now that I would otherwise be in a relatively low bracket, it seems like a good time to empty the TIRA accounts as much as possible.
Ditto!

That's my plan as well. I'm delaying Social Security til 70, as a form of longetivity insurance, while depleting the IRA between 59 1/2 and age 70. As I expect to get a fairly good SS payout, I'd like to get the IRA account depleted so as to reduce the required minimum distributions (RMDs) before I start Social Security. The IRA withdrawals will supplement dividend and interest from taxable accounts. It will take a modest amount of fiddling to stay in the targeted tax bracket.

I don't mind... Easier than w*rking for a living...
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Old 06-02-2011, 02:04 PM   #4
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Ditto!

That's my plan as well. I'm delaying Social Security til 70, as a form of longetivity insurance, while depleting the IRA between 59 1/2 and age 70. As I expect to get a fairly good SS payout, I'd like to get the IRA account depleted so as to reduce the required minimum distributions (RMDs) before I start Social Security. The IRA withdrawals will supplement dividend and interest from taxable accounts. It will take a modest amount of fiddling to stay in the targeted tax bracket.

I don't mind... Easier than w*rking for a living...
+1

That's my plan too. I will be 63 on Wednesday. Right now I have not yet claimed SS. To make up for that (taxwise), I am presently compensating for the lack of SS by withdrawing an unsustainable amount from my TSP each month.

When I claim SS I will adjust my TSP withdrawals to a level that is sustainable until about 93-95 years old. That should satisfy the RMD requirements that will be in force for me after about 7.5 years from today.
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Old 06-02-2011, 02:16 PM   #5
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... I'm delaying Social Security til 70, as a form of longetivity insurance, while depleting the IRA between 59 1/2 and age 70. ...
Hmmm, just off the top of my head - it would seem that taking a 72-t withdrawal might work as part of this. Wouldn't that be essentially the same as a conversion to Roth? You wouldn't have to wait until age 59 1/2. It might be a bit easier tax-wise ( I don't know, conversions are a bit of a pain, but I never did a 72-t)

I guess the downside compared to Roth conversion would be to commit to X amount for five years - less flexible.

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Old 06-02-2011, 02:17 PM   #6
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I plan to draw down our 401k and IRA as soon as is reasonably possible while staying in a lower tax bracket not only to avoid RMDs, but possible means testing (assuming it would be based on AGI).

I guess the previous rule of thumb for drawing down retirement funds (taxable accounts first, tax deferred second) has/is reversing due to inevitable increases in income taxes.
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Old 06-02-2011, 02:38 PM   #7
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I'm following the same logic (e.g. delay SS and use TIRA funds).

However, I don't look at the problem as just RMD's. Heck, most of the folks that are retired and on this board had little access to Roth instruments (both IRA and 401(k)'s), since they are fairly recent additions to the retirement savings/investment game.

The problem is excess RMD's - that is withdrawls required by tax laws that require you to take out more money than you need, to live the life you wish in retirement.

That being the case, are excess RMD's really that much of a problem? Just asking - I have an opinion, but not an answer.

The worse case is that if you have large excessive annual RMD withdrawls, you pay the (current) tax and reinvest the remainder in whatever taxable way you want, if that is your desire.

And if it bumps you up into another tax bracket? You pay the tax. Remember, that higher tax is not on all your retirement income, but just the slight amount you need to take out due to government laws. Heck, if you were not so well off, you would not have a problem (in other words, it's a nice problem to have).

You also have other options. Reduce your portfolio by purchase of an SPIA, which removes the preimum amount from RMD consideration (however, remember that you will pay current tax rates on your SPIA income) and you could leave your estate to your named non-profit charities, which would bypass all taxes. BTW, we're doing both - that's why I'm mentioning the options.
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Old 06-02-2011, 03:48 PM   #8
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Thanks, everyone. I knew I could count on you all for sensible, logic based replies.
I feel the prevailing sentiment; i.e. take the IRA now, delay SS, is the one that makes the most sense for me.
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Old 06-02-2011, 05:28 PM   #9
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...
The problem is excess RMD's - that is withdrawls required by tax laws that require you to take out more money than you need, to live the life you wish in retirement.

That being the case, are excess RMD's really that much of a problem? Just asking - I have an opinion, but not an answer.
...
large excess RMDs can also affect how much of your SS is taxed.
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Old 06-02-2011, 08:11 PM   #10
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+1

That's my plan too. I will be 63 on Wednesday. Right now I have not yet claimed SS. To make up for that (taxwise), I am presently compensating for the lack of SS by withdrawing an unsustainable amount from my TSP each month.

When I claim SS I will adjust my TSP withdrawals to a level that is sustainable until about 93-95 years old. That should satisfy the RMD requirements that will be in force for me after about 7.5 years from today.
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Old 06-03-2011, 07:23 AM   #11
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large excess RMDs can also affect how much of your SS is taxed.
True, but we're already forecast to hit the 85% taxable and we've allowed for 100% (which we feel will be taxable once we start SS) in our planning since our retirement income needs are quite high - at least in comparison for a lot of folks on this board who have posted their current/future retirement budgets.

Not much difference in tax planning for that extra 15% (speaking about our situation, only)...

For others who have lower current/future income requirements? It may be a consideration and they should certainly be aware of it for their own planning...
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Old 06-03-2011, 07:45 AM   #12
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Great minds think alike - so they say. +3
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