Chat with a Legion guy

[friar1610]

I stopped by the local Legion Post today to do some Legion business and ended up chatting with the guys at the bar. "John" is one of my favorite guys. He was in the Navy for four years as an ordinance guy on the flight deck of an aircraft carrier. He came back to Vermont and went to work for a phone company. He spent a full career climbing telephone poles and doing the work that you see guys by the side of the road doing in all sorts of weather. But he also loved Vermont and hunted, fished, etc. during all those years with his buddies. But while his buddies were working, hunting, fishing and drinking beer at the Legion, John was doing something else - investing.

I've chatted with him before over a beer at the Legion and it's apparent that we share an interest in investing, although our styles are different. Today he was lamenting the fact that, approaching 70 1/2 years of life, he's being forced to take minimum withdrawals from his rollover IRA, basically the lump-sum he took from his 401K when he retired from the phone company. He's pissed that he has to take the money out and pay the taxes. He said when he was younger he never thought about reaching 70 1/2 and thought he would never touch that money. "John," I said, "what did you live on from the time you retired until now?" (I'm not sure at what age he retired but it was probably between 60 - 62.) He said he socked a lot of money away while he was working and put it all into dividend paying stocks. So, he was living off his SS and his dividends and would be happy to keep doing so if it weren't for the RMD thing.

One other thing he mentioned is that he is, and has been for some time, debt free. He said that it always blows the salesmen away when he goes to buy a new pickup truck and he writes a check instead of financing it. He told me that he always lived by the philosophy that if he couldn't afford to pay cash for it, he could wait until he had enough cash to buy it (whatever "it" was.)

The only chink I've seen in this guy's armor is that I believe his lump-sum is being "managed" by a financial advisor who must be charging him something for it and I would personally prefer to seem him doing the Vanguard thing. But, the man has been successful, is one of my financial heroes and is better off financially and with how he's spending his time (hunting, fishing, etc.) than many higher paid folks are.

 

[heyyou]

He can WD the RMD amount in cash or shares of stock or a mixture of both. Pay the tax due, then "spend" the remainder on dividend stocks in his taxable account. See how transferring shares from the IRA to the taxable account avoids the buying and selling commissions. I do that on my IRA to Roth conversion each year. He just owes tax on the RMD, he doesn't have to dispose of the money.

 

[Nords]

The only chink I've seen in this guy's armor is that I believe his lump-sum is being "managed" by a financial advisor who must be charging him something for it and I would personally prefer to seem him doing the Vanguard thing.

I wonder if the "adviser" has made John aware that he can donate his RMD to charity and thus avoid some taxes.

Otherwise he's lookin' at a lot of pickup trucks during the next few decades...

 

[growing_older]

Hmmm, wonder if the adviser was suggesting he do conversions to Roth in tax bracket sized chunks all these years before he turned 70 1/2.

 

[kyounge1956]

I wonder if the "adviser" has made John aware that he can donate his RMD to charity and thus avoid some taxes.(snip)

No, but if John is reading this thread, you just did.

I thought the ability to make Qualified Charitable Distributions (QCD's) expired at the end of 2010, but apparently not. If I understand this IRS page correctly, the RMD, or any amount up to $100K can be sent directly to a charity in 2011 also, and excluded from taxable income. I assume John has already taken his RMD for last year, but if he wants to, he can contribute an additional amount up to $100K, and exclude it from his 2010 income, if he does so before January 31st.