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Old 08-20-2012, 01:34 PM   #21
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If possible to engineer a soft glide into RMDs that keep taxes down, that would be great. But if I miscalculate and end up with more income than I want, I'll be glad my account did so well and find a way to console myself at having too much money. There are worse problems to have.
I agree.

And the problem is not necessarily RMD's, but "excess RMD's"- that is the extra amount you have to withdraw based upon the age calculation, rather than the mimimum what you need to live on and supplement your other income sources.

There are ways around this if you want to consider them.

- Purchase an SPIA with TIRA funds. That will reduce your excess RMD's, since SPIA's are considered payable over your lifetime.

- Delay SS and use your TIRA's for income during the delay period. That will also reduce your portfolio quicker.

And if you have extra? Sure, you have taxes to pay (whatever they are, since you didn't pay them up till that point), but you also have the chance to re-invest and take advantage of (possible) taxable account capital gains/loss rules - something you don't have with an TIRA.

I don't see it as a problem IMHO and as you said, if you have more income than you planned for it's a good "problem" to have...
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Old 08-20-2012, 02:23 PM   #22
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Yes, it's a "good problem" to have if it's because your 401K did better than expected. But someone might do better by investing in a taxable account, taking dividends and LTCGs at 15% and having no tax burden on the lump sum except for any unrealized cap gains. If you defer income at 15% only to later pay 25% or more on some of it in retirement, you'll have to save more to account for it. Still a good problem? Not the way I see it. And if you didn't account for it, your plan may break having to pay higher taxes that expected in retirement.

An SPIA is a good idea but aren't the expenses fairly high for those?

With a taxable account, you will probably have lower expenses, certainly more choices than in a 401K, and more flexibility with the money--no RMDs, use it at any time (which can be good or bad).

And this is why people ask what your tax bracket is now, and what you expect it to be in retirement. The only no-brainer in favor of the 401K is to get the company match. After that it's worth doing some math.
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Old 08-20-2012, 02:31 PM   #23
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That happened to us in 2009. I didn't change a thing so add me to that list.
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Old 08-20-2012, 03:14 PM   #24
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An SPIA is a good idea but aren't the expenses fairly high for those?
Don't confuse it with a VA (variable annuity) product. Two different products, two different fee structures.

In fact, with a SPIA there are no ongoing fees involved; however since this thread is not about SPIA's, I stop here...
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Old 08-20-2012, 10:03 PM   #25
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Yes, it's complicated to figure out how much 401k I can accumulate without having RMD requirements push me into a higher tax bracket. If I had $100 million in my 401k/IRA my RMD would be terrible almost no matter what I did. If I had $100,000 in there my RMD are probably not a problem no matter how I deal with it. But somewhere in the middle I risk being pushed into a higher bracket I could have avoided if I saved money as taxable and gave up on some of the deferral. Oh well. It's impossible to calculate without knowing future investment gains and future tax rates, so I just approximate and take a good guess.

My safety valve is ER, because if I have enough retired years before I need to take RMDs, I can siphon some of that tIRA into a Roth while I'm not working (and have a lower tax rate) and by the time I need to RMD my account will be smaller. At least that's my current plan.
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Old 08-21-2012, 11:13 AM   #26
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Yes, it's complicated to figure out how much 401k I can accumulate without having RMD requirements push me into a higher tax bracket. If I had $100 million in my 401k/IRA my RMD would be terrible almost no matter what I did. If I had $100,000 in there my RMD are probably not a problem no matter how I deal with it. But somewhere in the middle I risk being pushed into a higher bracket I could have avoided if I saved money as taxable and gave up on some of the deferral. Oh well. It's impossible to calculate without knowing future investment gains and future tax rates, so I just approximate and take a good guess.

My safety valve is ER, because if I have enough retired years before I need to take RMDs, I can siphon some of that tIRA into a Roth while I'm not working (and have a lower tax rate) and by the time I need to RMD my account will be smaller. At least that's my current plan.
That's my plan too. I have a spreadsheet that I use to calculate my account balances given a spending amount and withdrawals from various accounts. My goal is to keep my taxable income after deductions and allowances at the 15% tax bracket limit. I'll probably do TIRA to ROTH rollovers to fill up that bracket and live on after tax money until I have to actually spend some money from the retirement accounts. I figure paying around 14% total income tax is a good deal.

My general goal is to keep RMDs themselves to about half the 15% tax bracket and assume SS and other income will fill up the rest bracket. So given that I'm male I'll live to age 78 that means (using today's numbers) keeping the balance of my retirement accounts at $400k. Obviously this number will increase with the years and with increasing tax brackets etc, but this is my rule of thumb.
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Old 08-21-2012, 01:24 PM   #27
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In my retirement calculations I still end up with some excess RMD's in my fully optimized (for max spending) plan, even after Roth conversions and top-of-the-lower-tax-bracket withdrawals. It's still more tax efficient for me than doing extra Roth conversions or earlier IRA withdrawals. Run the numbers. Sometimes you just have to take the RMD pill.
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