Beating 2026 tax increase

[30yeardraw]

Hi,

Looks like I may have too much money in my IRA's.

It occurred to me that I need to take out up to the 24 percent tax bracket, for the next several years. Taxes are going to have to be paid, don't see any other choice.

Should have retired earlier and spent more.

Anyone else making the same move?

 

[SevenUp]

If you will be age 63+, also consider Roth Conversion with Social Security and Medicare IRMAA.

 

[Marc]

Hi,

Looks like I may have too much money in my IRA's.

It occurred to me that I need to take out up to the 24 percent tax bracket, for the next several years. Taxes are going to have to be paid, don't see any other choice.

Should have retired earlier and spent more.

Anyone else making the same move?

Doing same thing. Was maxing to 22% bracket but decided on 24% bracket for next two years. Not touching Roth IRAs or ETF in brokerage account. Not touching wife's IRAs until she turns 73. Not collecting my SS until 70. Still, I have been retired 5.5 years and my rollover IRA about as high as when I retired.

I am sure hoping they get rid of the sunsetting of current tax rates prior to 2026; maybe in exchange for debt ceiling at some point.

Marc

 

[daver]

Same here too much in IRA and will be in MFJ 24 percent bracket going forward. DW and I are both 66. It's all about minimizing the taxes so thinking about converting up to T3 IRMAA/24 percent bracket for the next 3 years then reevaluate at age 69.

 

[30yeardraw]

If you will be age 63+, also consider Roth Conversion with Social Security and Medicare IRMAA.

60.5 ;; On a leave of absents from work. Will stay on cobra as long as possible.

 

[MichaelB]

If you will be age 63+, also consider Roth Conversion with Social Security and Medicare IRMAA.

It would be nice if you would add a summary of what’s on the other end of this link.

 

[Koolau]

Hi,

Looks like I may have too much money in my IRA's.

It occurred to me that I need to take out up to the 24 percent tax bracket, for the next several years. Taxes are going to have to be paid, don't see any other choice.

Should have retired earlier and spent more.

Anyone else making the same move?

"Too much" meaning that your RMDs will be excessive (and all taxable?)

Welcome to my world though my issue is my 401(k) as I was able to convert my tIRAs to Roths before RMDs.

Good luck.

 

[30yeardraw]

"Too much" meaning that your RMDs will be excessive (and all taxable?)

Welcome to my world though my issue is my 401(k) as I was able to convert my tIRAs to Roths before RMDs.

Good luck.

Yes I believe that will be the case. I can run the rmd calculator to see how bad.

 

[RunningBum]

Yes, I've been doing aggressive Roth conversions since I retired 12 years ago. A lot of it was with the old higher brackets, up to 25%, and now with ACA subsidies I've had to scale conversions back quite a bit. Still on track to get it all or mostly converted by RMD time. Might leave some for QCDs.

I don't know how close my situation is to yours, so run your own numbers to see if and how much to convert, but you asked if others were making this move, and I am.

Some advise to also leave enough for assisted living or memory care costs, which can be well over $100K/year. The idea is that your deduct the medical expenses and take the extra income to deduct against. I'm not doing that because I may or may not ever need that care, and I may have to take 10 years or more RMDs before I do. I'll sell highly appreciated ETF shares if I do. Not quite as tax efficient as tIRA withdrawals but if I don't need to, my heirs will get stepped up basis so I feel like it's the right move for me.

 

[Koolau]

Yes I believe that will be the case. I can run the rmd calculator to see how bad.

Unfortunately, the first few years look fairly benign on the calculator, but later years get "out of control" pretty quickly. For this reason, I've been taking as much as I can from the 401(k) without breaking through the IRMAA limit. BUT, the darned old 401(k) just keeps growing! I have Megacorp stock in the 401(k) - it was our matching dollars back in the day. That stock has been on a tear for the past few years. I can't spend it as fast as Megacorp keeps filling the 401(k). I've given up on the taxes part. Their gonna get me, no matter what I do, so I don't worry too much about the taxes. A good problem to have I suppose. A First World problem to be sure.


Good luck with your tax-control measures. Just a possibility that the 2026 rules will be turned back (but don't bet the farm.)

 

[SevenUp]

If you will be age 63+, also consider Roth Conversion with Social Security and Medicare IRMAA.

It would be nice if you would add a summary of what’s on the other end of this link.

The article discusses the marginal rate effects of Social Security and IRMAA when doing Roth conversions. Is that what you had in mind?

 

[braumeister]

Yes, I've been doing aggressive Roth conversions since I retired 12 years ago.

Same here. Retired over 20 years ago and it's been quite a ride. This year I reached the point where I'll never have to do another conversion, since the RMDs from the remaining TIRA will be about the same as my normal charitable donations, so I'll just take them as QCDs. It's a very good feeling!

 

[CardsFan]

Unfortunately, the first few years look fairly benign on the calculator, but later years get "out of control" pretty quickly. For this reason, I've been taking as much as I can from the 401(k) without breaking through the IRMAA limit. BUT, the darned old 401(k) just keeps growing! I have Megacorp stock in the 401(k) - it was our matching dollars back in the day. That stock has been on a tear for the past few years. I can't spend it as fast as Megacorp keeps filling the 401(k). I've given up on the taxes part. Their gonna get me, no matter what I do, so I don't worry too much about the taxes. A good problem to have I suppose. A First World problem to be sure.


Good luck with your tax-control measures. Just a possibility that the 2026 rules will be turned back (but don't bet the farm.)

Isn't it great to be in the position to B*tch about how our investments have grown and about the taxes we have to pay

I say that in all seriousness.

Retired 7 years ago. Spent 20 % of the original assets. Now have more than 140% of the original assets. And have a less than 2% WR now that we are taking SS.

A MAJOR First World Problem.

I control my taxes where I can, but, ultimately, Uncle Sam will get something. Taxes were deferred, not forgiven.

 

[Act2]

I have the same issue. First world problem. Grateful for it…

 

[Midpack]

I’ve been doing aggressive Roth conversions since 2019, wish I’d started sooner, but I will have lots of conversions done before I reach Soc Sec and RMDs. Projected I’ll save about $400K in lifetime Federal taxes thanks to total conversions. Could be even more if tax rates net more confiscatory in the decades ahead as I expect.

 

[Koolau]

I’ve been doing aggressive Roth conversions since 2019, wish I’d started sooner, but I will have lots of conversions done before I reach Soc Sec and RMDs. Projected I’ll save about $400K in lifetime Federal taxes thanks to total conversions. Could be even more if tax rates net more confiscatory in the decades ahead as I expect.

Heh, heh, I guess your 1st World problems are bigger than mine. Maybe if I live to be 100 I will have paid $400K to the Feds. I expect to die well before that and leave the money (and the taxes) to someone else.

I too did several conversions to Roth and will save a bunch of taxes - for the next generation, no doubt.

 

[SecondCor521]

Making a similar move, although my specific breakpoints are different and also change over the years depending on things like whether my kids are in college, IRMAA, and other stuff.

My strategy in a nutshell is to figure out what my highest marginal federal tax will be between now and my 50% survival age, Roth convert each year up to that level, and iterate each year.

Basically, I avoid paying taxes above X% federal, and voluntarily pay taxes at X% federal and below. My X% is a function of my lifetime wealth; it may be higher or lower than others but the principle is the same regardless of what X% might be.

 

[pb4uski]

Unfortunately, the first few years look fairly benign on the calculator, but later years get "out of control" pretty quickly. For this reason, I've been taking as much as I can from the 401(k) without breaking through the IRMAA limit. BUT, the darned old 401(k) just keeps growing! I have Megacorp stock in the 401(k) - it was our matching dollars back in the day. That stock has been on a tear for the past few years. I can't spend it as fast as Megacorp keeps filling the 401(k). I've given up on the taxes part. Their gonna get me, no matter what I do, so I don't worry too much about the taxes. A good problem to have I suppose. A First World problem to be sure.





Good luck with your tax-control measures. Just a possibility that the 2026 rules will be turned back (but don't bet the farm.)

+1. I've done big Roth conversions over the last decade and my tax-deferred balance is about the same as when I retired. So my projections suggest that despite Roth conversions that will exceed my retirement date tax-deferred balance that RMDs will still push us from near the top of the 12/15% tax bracket into the 22%/25% tax bracket... but I just think about how bad it would be if I hadn't done those big Roth conversions!

 

[Alex The Great]

I wonder how much money in traditional IRA is too much?
It looks like I will never reach $400K tax even if I convert the entire $500K balance in one year. Should I worry about Roth conversions at all?

 

[SevenUp]

I wonder how much money in traditional IRA is too much?

One situation: when RMDs from the expected growth of the existing balance would put you at a marginal tax rate higher than you could save by making more traditional contributions now.

 

[Slim11]

If i get this right, and corect me if I am wrong. The idea is to take some distrabutions from the 401k and open up a roth before you get to far along and the minimum distributions put you in a higher tax bracket?

If this is correct, this is something I may do also, as my 457 has a long way to go untill I need it. And doing a lump sum rollover isnt worth it. But maybe taking 20k or so a year out( or whatever I can without go8ng up a tax bracket) then putting that into a roth and letting that grow tax free may have advantages, since i am only 50 now. Is this the right track of thinking?

 

[SevenUp]

If i get this right, and corect me if I am wrong. The idea is to take some distrabutions from the 401k and open up a roth before you get to far along and the minimum distributions put you in a higher tax bracket?

If this is correct, this is something I may do also, as my 457 has a long way to go untill I need it. And doing a lump sum rollover isnt worth it. But maybe taking 20k or so a year out( or whatever I can without go8ng up a tax bracket) then putting that into a roth and letting that grow tax free may have advantages, since i am only 50 now. Is this the right track of thinking?

Yes. The Roth IRA conversion wiki article goes into more detail.

If you are still working for the company that sponsors the 401k, you will not be able to convert that 401k money to a Roth IRA.

 

[Slim11]

I will be done working in a few months, next year will be the time to do it when my salary is lower, right now I make too much for a roth, by like a few hundred bucks. But, that will change.

 

[SevenUp]

...right now I make too much for a roth, by like a few hundred bucks.

There is the Backdoor Roth process to overcome that, if you don't have a significant pre-tax balance in any traditional IRA.

 

[Slim11]

Ty. Buts its all pre tax. Thats why I think it may be best to convert a little at a time. I figure if I take a little each year, I can put it in that way. Just thinking about it now.