Too much money in IRA

[copyright1997reloaded]

If you don't NEED the $ to fill budget holes consider donating some, or all, of the RMD to a QCD. The amount designated to the QCD never hits the income side of the 1040.

Thanks. Yes, I am aware of this and may do some of this. I already have a DAF set up that I did prior to the tax law changes (before the standard deduction was raised). Still working at using that money, which also grown (partially offsetting donations) as the market went up.

I might also change the beneficiaries on part of this tax-deferred bucket from my child (who might have a big tax issue given it has to be taken out over 10 years) to a set of descendant's (nephews/nieces and children) and charities, thereby lowering the overall tax burden. (I would leave the entire Roth and regular accounts getting step up in basis to my child.)

 

[perinova]

If you don't NEED the $ to fill budget holes consider donating some, or all, of the RMD to a QCD. The amount designated to the QCD never hits the income side of the 1040.

I don't understand this: Does donating X$ to a QCD would reduce my tax bill by Y$ and Y>X?
Can anyone link to a calculation that would show it?

 

[braumeister]

I don't understand this: Does donating X$ to a QCD would reduce my tax bill by Y$ and Y>X?
Can anyone link to a calculation that would show it?

If you're subject to RMDs, every dollar of QCD takes the place of a dollar of RMD, so it never hits your AGI or your taxable income line.

The only caveat is that you have to take the QCD first, before taking any more out as RMD.

 

[TheWizard]

We bit the bullet and did a large Roth conversion this week. We’ll pay the taxes out of our cash bucket. We were hoping to slowdown the conversions, but the account kept growing. Good problem to have. We just want this done before the TCJA sunsets in 2026. We’ll still have seven figures in the tIRA, but it will go mainly for QCDs.

Ok, but it's not generally the best idea to do your *entire* Roth conversion for the year early on.
Once December gets here, you'll have a good idea what your total income for the year will be and then you can do a year-end Roth conversion to get your AGI up close to the next IRMAA bracket...

 

[TheWizard]

One way to minimize RMDs and, taxes, is to take the money as early as possible. So at age 60,start withdrawing using actuarial tables. Past calculations I have made showed you always minimize taxes, even if you reinvest the money in your taxable account. Plus: you get to enjoy your money .
By vertue of the tax brackets, taking SS early probably also minimize overall taxes, since you get less money for longer period of time.

I am not there yet, but I am tempted to have a single lifestyle change at age 62, taking SS and withdrawing from IRAs.

I partly agree.
I call it leveling your AGI and it's what I basically did for first decade of retirement.

But minimizing your RMD would mean depleting your tax-deferred accounts to zero by age 73, including Roth conversions. It's not generally optimal to go to that extreme.

And, of course, I started SS at 70, so more headroom over those years in my 60s for bigger conversions...

 

[TheWizard]

If you're subject to RMDs, every dollar of QCD takes the place of a dollar of RMD, so it never hits your AGI or your taxable income line.

The only caveat is that you have to take the QCD first, before taking any more out as RMD.

I'm not sure that's right.
Let's say your RMD from your tIRA for the year is $40k.
And let's say by September, you've taken $30k out so far as quarterly/monthly transfers to your checking account.
So now you have $10k remaining that you can take as either QCDs (direct transfers to charity) or normal RMD withdrawals.

I'll be doing this first time this year, using my new Vanguard checkbook linked to my tIRA...

 

[Reach]

One way to minimize RMDs and, taxes, is to take the money as early as possible. So at age 60,start withdrawing using actuarial tables. Past calculations I have made showed you always minimize taxes, even if you reinvest the money in your taxable account. Plus: you get to enjoy your money .
By vertue of the tax brackets, taking SS early probably also minimize overall taxes, since you get less money for longer period of time.

I am not there yet, but I am tempted to have a single lifestyle change at age 62, taking SS and withdrawing from IRAs.

Agree, we are withdrawing against tIRA/401k as DH turned 60 last year and I'll do the same in 5 years.
Have been FIREd for 15 yrs and living off of taxable investments.
We're still managing income against ACA, but the thought is to minimize future RMDs and tax brackets/cliffs once our SS and Pensions kick in.
Considering early SS as well.

 

[ShokWaveRider]

I am curious how much is too much? I would think it very much depends on the individual or couple.

 

[braumeister]

If you're subject to RMDs, every dollar of QCD takes the place of a dollar of RMD, so it never hits your AGI or your taxable income line.

The only caveat is that you have to take the QCD first, before taking any more out as RMD.

I'm not sure that's right.
Let's say your RMD from your tIRA for the year is $40k.
And let's say by September, you've taken $30k out so far as quarterly/monthly transfers to your checking account.
So now you have $10k remaining that you can take as either QCDs (direct transfers to charity) or normal RMD withdrawals.

I'll be doing this first time this year, using my new Vanguard checkbook linked to my tIRA...

I assure you it's right, but I see what you mean.
The IRS says whatever you take out counts as RMD until you hit your required amount. After that, it's simply a normal distribution.
But if you take out QCDs first, they count against RMDs up to that amount.
So as long as you take out your full RMD amount as a QCD before taking out anything else from your TIRA, you have no RMD to worry about and you don't get taxed on any of it.

 

[rk911]

Thanks. Yes, I am aware of this and may do some of this. I already have a DAF set up that I did prior to the tax law changes (before the standard deduction was raised). Still working at using that money, which also grown (partially offsetting donations) as the market went up.

I might also change the beneficiaries on part of this tax-deferred bucket from my child (who might have a big tax issue given it has to be taken out over 10 years) to a set of descendant's (nephews/nieces and children) and charities, thereby lowering the overall tax burden. (I would leave the entire Roth and regular accounts getting step up in basis to my child.)

Good, but any RMD sent toma DAF will still be recorded as taxable income.

 

[Sunset]

I am curious how much is too much? I would think it very much depends on the individual or couple.

That's what I was wondering... I wish I had more too much..

 

[CRLLS]

I thought that "too much in a tIRA" was not an absolute number, but a relative number. Too much compared to other options such as Roth IRA, Roth 401K, or after-tax investments. There is a lot to be said about not having everything (or too much %) allocated to a tIRA, something that I did not understand during my earning years that I now regret. Of course, if we only look at the various other options beyond tIRAs when we are retired, it is much like Monday morning quarterbacking. Hindsight is 20/20.

 

[Dash man]

Good, but any RMD sent toma DAF will still be recorded as taxable income.

Never send an RMD to your Donor Advised Fund! You lose the tax deduction benefit. A DAF is intended for contributions from taxable account contributions of highly appreciated stocks and funds.
Use QCDs for charitable donations from your IRA.

 

[copyright1997reloaded]

Good, but any RMD sent toma DAF will still be recorded as taxable income.

It wasn't a RMD. This was before the removal of SALT as deductible, I set up a DAF using appreciated securities before the tax law changes. That is, I bunched some expected charitable gifting via contribution to a DAF. I put most of that DAF in equity funds (Schwab), and the appreciation has somewhat made up for distributions. No RMD's at the time, and I won't be subject to RMD for 5+ years.

 

[copyright1997reloaded]

I am curious how much is too much? I would think it very much depends on the individual or couple.

In my case, Schwab's estimator (with a reasonable growth projection) tells me I will have a 115K RMD when I first draw at 73.

While I welcome the idea of getting 115K I don't welcome the idea of what that will do to me tax wise (federal, state, IRMAA) on single filer on top of a pension plus social security. Yes, I know, a good problem to have.

Yes, it very much depends on the individual or couple. If I had no pension or less expected social security or was MFJ, it would be less of an issue.

 

[GrayHare]

OP has not replied with details, which means "too much money" might have simply meant too high a cash allocation in the IRA and that diversification was warranted.

 

[statsman]

I broke my own rule and came to this thread. After reading that last RMD (1st) amount, I gotta start adhering to my rule. Too much money? Yeah, that sounds depressing!

 

[Sunset]

For too much, I like to peg an absolute number.
It's when that number plus SS pushes a person into higher tax bracket then when they were working.

Probably for most folks that is the 24% , I don't think I ever got that high in income.

That would mean an IRA of: $2,550,000 per person or higher is too much. Assuming they get SS worth around 12K.

For a couple the number is twice that , so no worries unless IRA is over $5M

 

[copyright1997reloaded]

I broke my own rule and came to this thread. After reading that last RMD (1st) amount, I gotta start adhering to my rule. Too much money? Yeah, that sounds depressing!

Why the snide emoji?

I never said it was depressing, only an issue. I really don't want 32% plus state of my very, very hard earned money going to taxes when it didn't have that high of a tax rate when deferred.

Many of the people here on ER.org retired early (and thus the forum name). If I had stayed retired (early), I would have been able to Roth convert and/or use much of the tIRA. Instead, I ended up getting divorced (with Single #'s the tax brackets are lower) and going back to work - ya know, supporting the economy (actually teaching and giving back to students).

So here I am NOT FIRED (just FI RL - Financially Independent, Retired Late) with an imbalance in % in the tIRA.

 

[USGrant1962]

Some people are totally missing the point. The thread title is not about "too much money". It is about "in an IRA", as opposed to other types of accounts. The issues are items like:

• 15% LTCG rates whenever you need to withdraw vs. 22%-24% (marginal) on forced withdrawals based on your age (and of course no tax on principal)
• No tax loss harvesting or foreign tax credits
• Roth conversions eating up ACA and other tax breaks
• No step-up basis

 

[Gumby]

Some of us got the point the first time. Others just like to argue.

 

[teejayevans]

When I retired in 2009, the critical tax brackets for MFJ were:
28% over 137K
35% over 209K
The 2024 critical brackets are:
22% over 94K
24% over 203K


I would have gotten hit if I did Roth Conversions in 2009. I am happy paying tax on my RMD today. especially when I can use QCD's to reduce my taxes.

The current tax brackets end in 2025, and will go up in 2026 assuming congress doesn’t do something about it.

 

[TheWizard]

For too much, I like to peg an absolute number.
It's when that number plus SS pushes a person into higher tax bracket then when they were working.

Probably for most folks that is the 24% , I don't think I ever got that high in income.

That would mean an IRA of: $2,550,000 per person or higher is too much. Assuming they get SS worth around 12K.

For a couple the number is twice that , so no worries unless IRA is over $5M

$12k from SS?
My gross SS income was something over $50k last year, filing Single.

Of my three retirement income streams, my combined RMD is the smallest. And I'm moving more from my 403(b) to my tIRA to allow me to do larger QCDs in coming years...

 

[TheWizard]

The current tax brackets end in 2025, and will go up in 2026 assuming congress doesn’t do something about it.

Yes, but the SALT limit goes away and personal exemptions come back.
So the dollar amount some of us pay for Federal income tax won't change much.
But yes, the marginal rate for Roth conversions will be higher...

 

[perinova]

Thanks to this thread I drew up a scenario to even out income and avoid the large portfolio draw around age 95. Of course, who knows if I would be around to see this.

Anyway, if you look at my chart, with inflation compensated, the additional draw in the early years would be put into Roth conversion.

My worry is this: The total amount of accumulated income generated using this method is 86pct of what it is with RMDs only. Is this a potential flaw?, this needs to be compensated by the tax savings.