What's the big deal about IRA MRD?

[MrBig1]

Yes, the RMD thing is hopefully something that you can minimize.

It's always best to do the least of whatever it is someone else is requiring you to do.

LOL, That's a rebel attitude if I ever heard one.

 

[ejman]

Funny, no one seemed to complain (or think about RMD's) too much when they were tax sheltering this money while they were working. The way I look at it, this is one of the better tax breaks for the little guys. Earn it at a 39.6% tax rate but end up paying a lot lower rate with RMD's, for most folks anyway.

True enough and when I earned it I was living in California so damn near 50% combined Fed + State tax rate. So now a 25% RMD tax rate? happy to pay it and grateful that I can contribute to our great country.

 

[43210]

OP, people have been patiently trying to explain it to you, and you are just viciously insulting them in return. The things you are saying are very mean and nasty, and totally untrue. I strongly suspect you are trolling, as I just don't see how it is possible anyone could be so totally wrong about people.

Please read the explanations and try to understand.

 

[MrBig1]

I don't know if it is the wrong attitude ( I doubt it) but I have a slightly different take on this RMD business. I ER'd 15 years ago at 52 and have been living off my taxable investments. Started SS at 62 and have a tiny corporate pension ( $4k a year) but it turns out that my LBYM was so strongly ingrained that I'm perfectly happy with the dividend and CG income from my taxable nut.

The Tax deferred nut has of course continued to grow and now it represents about 60% of my NW. I am fully cognizant of the tax arguments for Roth conversions all along but realized that if I converted that money to a Roth I will never touch it in my lifetime. (MY LBYM curse)

Four "potential" benefits from RMD's:
1) It's "income" coming into my taxable accounts so I'm more likely to spend it rather than just let it sit in a Roth (Anti LBYM assistance!)
2) I intend to purchase additional stock fund shares with my unused RMDs. Two fold benefit - I get extra dividends in my lifetime which I'm OK spending and my heirs get a stepped up value of the fund shares when I croak.
3) If I'm ever actually bothered by the taxes paid I can always gift from the tax deferred amount to lower taxes paid
4) If I'm ever in a situation where the medical bills are very large and medical expenses are still tax deductible I can use medical expenses as a deduction against RMD income.

Kinda the same situation I'm in. LBYM, what a great way to get by. I have never thought of situation #4, thanks. I will keep that one in my bag of tricks.

 

[evilanne]

I converted a small IRA to Roth IRA this year and transferred $250K from my retirement account to a traditional IRA, which I plan to convert to Roth IRA over time. The amount will also reduce my 72(t) payments that I will begin in 2018 and future RMDs depending on my RoR over the next 15-20 years. This transferred amount will be used to self insure myself for Long Term Care. 401K's & tIRAs are designed to be spent during your lifetime or by age 110 (max on IRS tables) based on the RMDs. Roth IRAs, however, do not require any RMDs and pass on to your heirs tax free.

Have you looked at the cost for LTC insurance? The price goes up annually and it is limited based on the policy. If you die suddenly or never need it, you still pay the premium annually and if you need more than what you estimated 10, 20 or 30 years ago it stops when you reach your policy limit. The Roth IRA will grow tax free and if invested well should provide more coverage if needed in the future. I would rather manage the conversion to pay less federal income taxes-the government gets their fair share sooner and it grows tax free. The Roth account should continue to increase in value while my retirement account will be drawing down due to RMDs in 30-50 years, when I may actually need long term care. If never needed, it goes to my heirs rather than the insurance company.

 

[RunningBum]

A long time ago I asked myself the question, "Just how much does a man need in life". My final answer is, "Not nearly as much as I thought". My position is probably much more simplistic then most. I'm drawing fixed incomes that more than cover my living expenses, I have no debt and I have a Rollover IRA invested 90/10 domestic/foreign equities that I never need to touch. I'm not rich but I'm not hurting. I thank the good Lord every day for what he has provided.
I appreciate the opportunities presented in this forum to learn and engage in conversations with you guys. I have much to learn.

Another option would've been to retire a littler earlier knowing you could manage taxes better. It's all about having the knowledge to make sound choices.

 

[Texas Proud]

LOL, No insinuation at all. No desire to insult or call names. I never said or tried to imply there was a problem with optimizing taxes. I did say that I don't mind paying taxes that I owe. RMD's seem pretty straightforward to me. At 70 1/2 yrs old they make you take a percentage of your investment out and pay taxes on it. I now understand that some folks didn't for see the impact on taxes RMD's could have. Others enjoy the challenge of minimizing taxes paid. I got it! No insults were intended, I was only trying to understand why they were such a hot topic. That's why I asked what's the big deal?
Look guys, I'm new at this retirement thing. I'm probably gonna ask a silly question from time to time. I appreciate you all taking time to answer. I will never take a critical or condescending position in this forum. I think a why question is not out of line now and then.

I do not mind paying taxes that I owe also.... and I might make people upset with this, but I think it is stupid to not do something that is easy to do and owe more taxes.... sure, it is what you owe but really?

As an example, the house that I sold was to a young single woman... recently I looked it up and she never filed to claim it is her homestead... so she is paying what she owes, but also paying a good chunk of money that she would not owe if she just filed a piece of paper...


BTW, this does not apply to many who have a lot of income, but if you are able to lower your income then you also owe less taxes on SS income... so it is not just reducing taxes on the RMD part, but also SS...

OH, also if you make too much your Medicare premium increases... so again, not just taxes on RMD and SS, but how much is taken out of SS to pay for insurance!!!


https://www.ssa.gov/pubs/EN-05-10536.pdf

 

[MrBig1]

People with thin skins tend not to last long, but that probably doesn't mean you.

You're right, I've been married 3X. No feelings left to hurt. That doesn't mean that I want to offend anyone. I try my best to respect everybody's point of view and I expect to be treated in kind. If not, well, I just say my piece and move on. I certainly don't let comments in a forum make me upset. It's always harder to communicate with words only, they can be taken different ways.

 

[MrBig1]

OP, people have been patiently trying to explain it to you, and you are just viciously insulting them in return. The things you are saying are very mean and nasty, and totally untrue. I strongly suspect you are trolling, as I just don't see how it is possible anyone could be so totally wrong about people.

Please read the explanations and try to understand.

Thanks for the belly laugh. That was great.

 

[MrBig1]

Another option would've been to retire a littler earlier knowing you could manage taxes better. It's all about having the knowledge to make sound choices.

Yeah, I could've retired earlier but I didn't realize it. I was focused on FRA. Thought I had to get there. Injury changed my point of view.

 

[Alan]

We decided that this discussion is not exactly in the Holiday spirit.