RMD Folks how are you using the money

[Sunset]

At 70.5 the RMD is 4% for singles couples of roughly equal ages, increasing to 5% at 78 6% at 83 7% at 86 8% at 89 10% at 93 etc. the table given here
IRA Required Minimum Distribution Worksheet


gives the number of years of life expectancy, and you divide you jan 1 amount by that number.

RMD starts at 3.649635036 not 4% , although rounding up to 3.7% might be easier for some folks.

 

[audreyh1]

I think you cross 4% at age 73 with the RMD tables.

 

[marko]

Just to illustrate the confusion out there:
Yesterday I was out with BIL. He's a major finance guy (director level) with one of the largest financial institutions in the country. Wall Street type.

We were casually talking about retirement (he's trying to figure out how I did it) but then he said: "Yeah, but at 70 [your RMD kicks in] if you don't spend it, it's gone".

He was absolutely stunned when I explained that it was essentially taking it from one pocket and putting it into the other minus taxes.

To be fair, he's a very smart, focused guy who's work only looks at a narrow piece of the finance world --RE is not in the cards for his lifestyle, so he isn't focused on it--but if he gets confused I'm sure there's a whole lot of others who are too.

 

[Dtail]

Just to illustrate the confusion out there:
Yesterday I was out with BIL. He's a major finance guy (director level) with one of the largest financial institutions in the country. Wall Street type.

We were casually talking about retirement (he's trying to figure out how I did it) but then he said: "Yeah, but at 70 [your RMD kicks in] if you don't spend it, it's gone".

He was absolutely stunned when I explained that it was essentially taking it from one pocket and putting it into the other minus taxes.

To be fair, he's a very smart, focused guy who's work only looks at a narrow piece of the finance world --RE is not in the cards for his lifestyle, so he isn't focused on it--but if he gets confused I'm sure there's a whole lot of others who are too.

Very good point.
Sounds close to me. Director level at Wall Street firm dealing with valuation no less, but didn't really pay attention to personal finance until last few years of work.

 

[RobbieB]

Yeah, that's pretty funny.

Sure, you have to take it but if you don't spend it all the rest of it just dissolves into the atmosphere?

Amazing.

 

[omni550]

Yeah, that's pretty funny.

Sure, you have to take it but if you don't spend it all the rest of it just dissolves into the atmosphere?

Amazing.

Well, in my case, a sizeable chunk of it will "evaporate" as taxes.....

omni

 

[RobbieB]

Yup, that's a fact, no bout a dout it. That's the deal we all knew up front when we enlisted. And it all "ordinary income" too, not favored like muni bond interest or cap gains or qualified dividends.

So what? You still have most of it eh?

 

[Hermit]

Yup, that's a fact, no bout a dout it. That's the deal we all knew up front when we enlisted. And it all "ordinary income" too, not favored like muni bond interest or cap gains or qualified dividends.

So what? You still have most of it eh?

That's true! When Uncle Sam and his buddies in State and Medicare are done, they will "only" take somewhere around 1/3.

 

[RobbieB]

Yup it costs dough to live well in America.

 

[audreyh1]

Just to illustrate the confusion out there:
Yesterday I was out with BIL. He's a major finance guy (director level) with one of the largest financial institutions in the country. Wall Street type.

We were casually talking about retirement (he's trying to figure out how I did it) but then he said: "Yeah, but at 70 [your RMD kicks in] if you don't spend it, it's gone".

He was absolutely stunned when I explained that it was essentially taking it from one pocket and putting it into the other minus taxes.

To be fair, he's a very smart, focused guy who's work only looks at a narrow piece of the finance world --RE is not in the cards for his lifestyle, so he isn't focused on it--but if he gets confused I'm sure there's a whole lot of others who are too.

Call me stunned. What could that possibly mean - “if you don’t spend it, it’s gone.”? Did he think unspent funds would somehow be confiscated?

 

[marko]

Call me stunned. What could that possibly mean - “if you don’t spend it, it’s gone.”? Did he think unspent funds would somehow be confiscated?

I'm not sure what he was thinking.

I was telling him how we live just on dividends. Somehow he seems to have thought that if I have to take my dividend payers out of my IRA, I can't reinvest them in the same vehicles outside of the IRA and get the same dividends. Maybe he hadn't thought of having dividend payers outside of an IRA and we'd just have to use the proceeds on expenses.

We've seen the same perception here on this forum a few times if I recall.

Once I told him that I could just reinvest, he got it. He's a high strung guy and often doesn't listen very closely because he's always trying to fit things into his own world view even when it doesn't fit. He won't focus in on retirement income until about a week before he retires.

In his defense, he makes just under $2M a year so I'd expect that he leaves such details to his accountants.

 

[Dog]

About 10 years before DH and I need to deal with RMDs. But, it distributions will be used for expenses and probably reinvested. But close to 70% of portfolio is in IRA and 401ks, so I need to start convert/move some to our (very small) Roth accounts as I don’t think our tax rate will ever be this low again.

 

[Hermit]

About 10 years before DH and I need to deal with RMDs. But, it distributions will be used for expenses and probably reinvested. But close to 70% of portfolio is in IRA and 401ks, so I need to start convert/move some to our (very small) Roth accounts as I don’t think our tax rate will ever be this low again.

My advice is to get started right away. It is especially good before you start Medicare. You might even consider transferring up to the top of the 24% bracket. You need to look at the overall impact the RMDs will have once you reach that point, both to taxes and Medicare Premiums.

I am two years from RMDs and about 100% of my stash is in IRAs. Not much I can do because my income from pension and SS puts me in a high enough bracket that moving funds to Roth won't help.

 

[street]

My advice is to get started right away. It is especially good before you start Medicare. You might even consider transferring up to the top of the 24% bracket. You need to look at the overall impact the RMDs will have once you reach that point, both to taxes and Medicare Premiums.

I am two years from RMDs and about 100% of my stash is in IRAs. Not much I can do because my income from pension and SS puts me in a high enough bracket that moving funds to Roth won't help.

I’m in the same boat not sure I gain anything taking some now. It is a bummer but it is what it is.

 

[meierlde]

My advice is to get started right away. It is especially good before you start Medicare. You might even consider transferring up to the top of the 24% bracket. You need to look at the overall impact the RMDs will have once you reach that point, both to taxes and Medicare Premiums.

I am two years from RMDs and about 100% of my stash is in IRAs. Not much I can do because my income from pension and SS puts me in a high enough bracket that moving funds to Roth won't help.

Using todays tax rates (2018) and your ira balance figureout what tax bracket the RMD will put you in. Then look at how much you could withdraw this year to stay in the next lower bracket and at least withdraw that much.


Remember to do this using the procedure for qualified dividends. i.e. the qualified dividends in general don't affect the ordinary income tax bracket.

 

[Hermit]

Using todays tax rates (2018) and your ira balance figureout what tax bracket the RMD will put you in. Then look at how much you could withdraw this year to stay in the next lower bracket and at least withdraw that much.


Remember to do this using the procedure for qualified dividends. i.e. the qualified dividends in general don't affect the ordinary income tax bracket.

There are no qualified dividends in an IRA. It is all just income when distributed. I am bumping up against the tax bracket now and Medicare Premiums start at about the same point and increase fairly quickly with the amount distributed.

For my own dilemma, I am going to donate the RMDs to charity in the form of QCDs. That is part of my estate planning and will put off actual RMDs for a few years and maybe even lower the overall stash and hence the RMD amounts.

 

[meierlde]

There are no qualified dividends in an IRA. It is all just income when distributed. I am bumping up against the tax bracket now and Medicare Premiums start at about the same point and increase fairly quickly with the amount distributed.

For my own dilemma, I am going to donate the RMDs to charity in the form of QCDs. That is part of my estate planning and will put off actual RMDs for a few years and maybe even lower the overall stash and hence the RMD amounts.

I was speaking of qualified dividends in a taxable account. Any taxable qualified dividends don't affect the tax bracket for other income. (see the capital gains and qualified dividends work sheet part of the instructions for schedule D.

 

[Dtail]

Using todays tax rates (2018) and your ira balance figureout what tax bracket the RMD will put you in. Then look at how much you could withdraw this year to stay in the next lower bracket and at least withdraw that much.


Remember to do this using the procedure for qualified dividends. i.e. the qualified dividends in general don't affect the ordinary income tax bracket.

I have started to look at future RMD's/ Roth conversions etc. I don't keep a sophisticated spreadsheet as to future returns, etc, although do keep track of every expense.
Thus was wondering if one wishes to lower their RMD's to end up fitting at least their current withdrawals (plus expected SS which I can figure out), does one look at the RMD tables through their predicted ending mortality, or just some year before the end?

 

[Bart523]

MRD

My wife works part time and I’ve been retired for five years. We contribute the full amount of her earnings to our Roth IRA’s using RMD. The rest goes into a money market account for unexpected expenses, home improvements, and travel.

 

[omni550]

My wife works part time and I’ve been retired for five years. We contribute the full amount of her earnings to our Roth IRA’s using RMD. The rest goes into a money market account for unexpected expenses, home improvements, and travel.

Just wondering, is that allowed? Perhaps you're moving money around per the rules, it just sounded a bit odd.

Roth IRA: Can I Put My Required Distribution in a Roth? | Money says:

IRS rules prohibit putting your RMD into another tax-advantaged retirement account. But you can convert the remaining portion of your traditional IRA assets to a Roth IRA, though it will mean paying more taxes. “You just have to satisfy the RMD requirement before you do a Roth conversion,” says Mingone. (If you aren’t working and receiving earned income, you can’t make a contribution to a Roth but once the money is in a traditional IRA, you don’t need to have additional earned income to move the money to a Roth IRA.)

omni

 

[morriss003]

We have a decent income, so we use it to pay our income tax.

 

[ERD50]

Originally Posted by Bart523
My wife works part time and I’ve been retired for five years. We contribute the full amount of her earnings to our Roth IRA’s using RMD. The rest goes into a money market account for unexpected expenses, home improvements, and travel.

Just wondering, is that allowed? Perhaps you're moving money around per the rules, it just sounded a bit odd.

Roth IRA: Can I Put My Required Distribution in a Roth? | Money says:

IRS rules prohibit putting your RMD into another tax-advantaged retirement account. But you can convert the remaining portion of your traditional IRA assets to a Roth IRA, though it will mean paying more taxes. “You just have to satisfy the RMD requirement before you do a Roth conversion,” says Mingone. (If you aren’t working and receiving earned income, you can’t make a contribution to a Roth but once the money is in a traditional IRA, you don’t need to have additional earned income to move the money to a Roth IRA.)

omni

It looks to me that this is just another mash-up of compartmentalizing funds, rather than recognizing that money is money (fungible).

AFAIK, it is legitimate to make a ROTH contribution up to your earnings (considering any other limits), and if one spouse has, say $10,000 earnings, each spouse can make a $5,000 Roth contribution in that year.

I don't think RMDs affect that - and your article quote only seems to address the case on no earned income. The quoted poster has earned income.

So what would have been far clearer to say, IMO, is that they made Roth contributions up to their earned income and/or any other Roth limit, and they took their RMD. You can't really trace which dollar went where, and I don't think Uncle Sam tries to either, as long as the amounts match regs.

-ERD50

 

[Jeb-NY]

Boy tough problem we have, money coming we don't need. I fell into that category this month when my first SS money was deposited in my checking account at 70 years old. Started RMD in January spread out over the whole year since I would turn 70.5 in December and would have to take the full years worth anyway. Vanguard advisor asked what I wanted do with the RMD, all set to give me a spiel on investing, and I said send it. Turned out to be very close to what I was already pulling out of a different after tax VG account for living expenses. Turned one off after the other turned on.

Now with SS kicking in we are splurging on some items we were planning to buy anyway but don't have to use our reserve fund. At some point we may even start paying down the mortgage with the extra but I hate to pay down a 3.5% mortgage.

I guess I'm in the minority here in that I knew my taxes would go up and don't mind, may take me a year to figure out the right amount to withhold on RMD to make the taxes come close to even. I did move some IRA money to ROTH over the last few years and paying the taxes then to get the RMD down and make some big emergency funds if we ever need assisted living. I do plan to look into QCDs next year to reduce total taxes since I don't think I will manage itemizing under the new tax laws. As I understand it you can't start doing QCDs till after 70.5.

 

[audreyh1]

Right, no QCDs until 70.5 years and required to take RMD.

 

[Bart523]

Roth IRA's in retirement

The money we put in our Roth IRA's is earned income which is the only way we can contribute to a Roth as far as I know.

Perhaps I should have said we put all of our earned income into our Roth's up to the allowed maximum of 6500 each. The money from our RMD's is taxed and replaces the earned income we put in our Roth's.