Too much money in IRA

[EvanC]

Too much money in IRA?

I'm a novice here and more of a saver than a spender. I'm 68 and my wife is 70
Wife and I retired about 17 years ago and took SS at 62. For us, we live a very good life.
We just re-did our Wills. A traditional Will for general combined money and the stuff. Then upon death each IRA money goes into a Trust for the other's care.
As a passing statement the attorney said we had too much money in IRAs and should talk to our adviser.
She wasn't fishing for business and suggested a meeting with my accountant, lawyer and adviser. (which she added, that no one ever does)

How much should my wife and I have in our IRAs?
We do not have long term care insurance. I suspect that was her reason for the comment?

I'm asking this group for the questions I should ask my professionals?
As I never considered having too much money in tax deferred savings, only thinking about the 15% tax bracket.

I know the combined experience of this esteemed group will help me learn what I am missing.Thanks in advance for your help and advice. Let me know if you need more information.

 

[yakers]

At your ages maybe missed a few golden opportunities to convert traditional IRAs to Roth IRAs but still good to go through the calculations to see the tax impact of conversions. The goal is trying to avoid getting kicked into a higher tax bracket from RMDs and when only one remains. I have been drawing down my 401k since retiring 16 years ago and did some small Roth conversions but mostly rely on QCDs (qualified charitible distributions) from our traditional IRAs to manage tax brackets.

 

[Masquernom]

How can you have too much saved in an IRA? That comment doesn't make sense to me.

 

[Gumby]

How can you have too much saved in an IRA? That comment doesn't make sense to me.

I think that is as opposed to having it in a Roth or taxable account. Mainly because you will have to take RMDs from the tIRA and it will increase your taxes.

 

[Spock]

Simplistically, the only way to have too much in an IRA is if the RMDs push you into a higher income tax bracket than you where in when you contributed to the IRA.

ETA: Either way the point is moot... if there is too much in an IRA there isn't much you can do about it now except to increase Roth conversions before RMDs start.



I am far from an expert, but I'm not sure I understand the bit about putting the deceased's IRA into a trust for the survivor.... the survivor has to take RMDs out of the IRA regardless. Maybe having a trustee administering the funds on behalf of the survivor is desired, but that can be accomplished without a trust.

 

[GrayHare]

Note that designating a trust as beneficiary of an IRA will require its funds to be depleted in 10 years or less. If you instead make your spouse the beneficiary, they can spread the withdrawals over their life.

 

[Sunset]

OP - Have you been doing Roth conversions ?

You can for a rough approximation see what 3.5% (RMD amount) of your IRA totals are and add that to your current yearly income (easier if you do your own taxes via software). See what that number becomes.

If you truly have too much, you can do Roth conversions until RMD time or even just take out the money and spend it.

 

[Sunset]

Note that designating a trust as beneficiary of an IRA will require its funds to be depleted in 10 years or less. If you instead make your spouse the beneficiary, they can spread the withdrawals over their life.

+1

Also if OP made a non-revocable trust, then the funds are limited in what they can be used for so could screw over the survivor, it's happened before.

Lastly, If I had a "too big" IRA, I'd Will some of it to grandchildren / children, idea being divide up the pot a bit as the cash (not IRA) part of the estate is more useful to surviving spouse due to step up basis (means less tax).

 

[GrayHare]

"Too much" might refer to the "IRA tax trap" which means the withdrawals will be so large as to be subject to a high rate of taxation, especially after one of you passes and the survivor files taxes as a single person. Spreading out IRA withdrawals over a longer period can help reduce the tax rate that will apply to each withdrawal.

 

[Dtail]

I think that is as opposed to having it in a Roth or taxable account. Mainly because you will have to take RMDs from the tIRA and it will increase your taxes.

My guess too.

 

[Bruno]

Like me I have several investments i have bought in my IRA that i didnt work out and have SOLD them and put them in those funds in MM or buy Tbills. Just MAYBE the accountant was saying you might want to visited with an adviser and invest some of that cash to make more money.

 

[Souschef]

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.

 

[pb4uski]

...As a passing statement the attorney said we had too much money in IRAs and should talk to our adviser. ....

Hard to imaginge what the attorney meant without additional color.

 

[EvanC]

Putting the spouses money in a trust was tax bracket related.

I suspect the stray comment about having too much in an IRA might’ve had something to do with Medicaid and not having nursing home insurance.

 

[retiredtillwepart]

One and all, need to stop worrying about having too much, pay the taxes and enjoy your wealth! Thanks.

 

[Midpack]

How can you have too much saved in an IRA? That comment doesn't make sense to me.

You can definitely save too much in a TIRA such that you can be forced to pay substantially more in taxes over your lifetime, by being forced into a higher tax bracket for 15-25 years because of RMDs you don't want or need. That's why anyone with a lot of money in a TIRA owes it to themselves to consider Roth conversions. Not beneficial for some, a wash for some, but highly beneficial for others. And relying on a free online calculator to decide on Roth conversions is likely a mistake...

The difference in lifetime taxes in the example below amounts to almost $400K more in Federal taxes without conversions...

 

[pb4uski]

Putting the spouses money in a trust was tax bracket related....

Can you elaborate in this? It doesn't make any sense?

 

[RunningBum]

Unless the attorney has looked at your past tax returns, they can't tell. Perhaps you've missed some opportunity to do Roth conversions, or perhaps not.

Going forward, since you are already taking SS, I doubt Roth conversions will do much for you.

Regarding LTC, if you have large medical expenses for assisted living or memory care, you can make larger withdrawals and write a lot of the income off with your medical expense deductions. You wouldn't want to withdraw money now specifically for LTC since you wouldn't get the advantage of the tax deductions.

 

[EvanC]

Can you elaborate in this? It doesn't make any sense?

Getting a spouse's 401k puts one of us into another tax bracket. Truthfully we needed to redo the Will. This one got far more complicated than I wanted it to be. This is a new lawyer for us, our old family lawyer, retired. I'll revisit it in 5 years and see if I can make it simpler for the kids to deal with. But it's done and updated.


All I want to do is retire and have a good life, but I still have to pay attention to details. So much I don't know ;-)

 

[CaliKid]

One and all, need to stop worrying about having too much, pay the taxes and enjoy your wealth! Thanks.

+1

 

[Koolau]

Getting a spouse's 401k puts one of us into another tax bracket. Truthfully we needed to redo the Will. This one got far more complicated than I wanted it to be. This is a new lawyer for us, our old family lawyer, retired. I'll revisit it in 5 years and see if I can make it simpler for the kids to deal with. But it's done and updated.


All I want to do is retire and have a good life, but I still have to pay attention to details. So much I don't know ;-)

Yes, start with your spending and budgeting and then worry about the details of Roth conversions or other tax things to make it all w*rk for you. IF (and only if) you wish to present your "numbers" here (perhaps as % of required spending) there are plenty on the forum who can critique your plan. If you are satisfied with your plan (you KNOW you have ENOUGH to do what you want in retirement) then I wouldn't worry too much about what the attorney said. It would possibly be worth paying a fee-for-service-only financial advisor to take a look at your plan and assets. Perhaps you can get a suggestion to deal with the tax issues.

If the worst that happens is you pay "too much" tax, then you're probably golden!

 

[Flyfish1]

One and all, need to stop worrying about having too much, pay the taxes and enjoy your wealth! Thanks.

HA! That's the correct answer in my opinion.I've used that mentality for many years. My friend way back in the day was on Wall Street and told me stop worrying about the taxes- " I'd rather take the money and pay the taxes than worry about the taxes and not make the money". Anyways, too much is not concern. IMO

 

[jollystomper]

One and all, need to stop worrying about having too much, pay the taxes and enjoy your wealth! Thanks.

+1

Do Roth conversions if you can, or if you want to, but this is a first world issue. Is there a thread somewhere with someone complaining about IRA RMDs ruining their retirement?

 

[Koolau]

+1
Is there a thread somewhere with someone complaining about IRA RMDs ruining their retirement?

Heh, heh, I think NOT.


YMMV

 

[Route246]

I always felt that outside of the margins having too much is way way better than having not enough when it comes to $$$.

How can you have too much saved in an IRA? That comment doesn't make sense to me.