It's not that hard if you live fairly simply (I'm not talking austerity here) and have a paid off home and no other debt. If you have the 800-pound health insurance gorilla off your back it's even easier.
For another thing, I think taking taxable income now is underrated in some situations. We've been conditioned to defer taxes, mostly for good reason. But if -- *if* -- we see both (a) higher taxes in the future and (b) more means-tested benefits based on taxable income, then maybe paying taxes today to accumulate already-taxed wealth (not income when drawn down) would provide enough of a revenue stream without spiking your AGI.
In other words, if I had $500K in a traditional IRA or 401K and took out $15K a year, that's $15K of AGI to apply to any means testing. But if I had $500K (or even $350K after tax) in a taxable account I'd still have over $10K a year coming in from it... already taxed so it doesn't get included in income calculations.
Now if too many people did this we'd see more asset-based means testing instead of income-based means testing. But right now the focus tends to be on income (except for a few exceptions like Medicaid) and too many people are living hand to mouth to "engineer" this financial position, so I don't know that they'd make it an assets test.
It's like any other decision between taxable or tax-deferred decisions -- do I expect my taxes higher now or higher later? And I consider the prospect of means testing to be similar to "higher taxes later."
Zig.....
You only have two ideas here and one, "living fairly simply" isn't all that appealing if you mean living below typical middle class standards.
The other, "pay taxes now" might make sense. Someone could withdraw from deferred accounts or convert to Roth status now and avoid withdrawals from deferred accounts as ordinary income later. If..... and it's a big if, they believe that future higher taxes and income based means testing are on the horizon to a degree that makes paying the current taxes now worthwhile.
But other than "living fairly simply" and withdrawing from deferred accounts to avoid RMD's later, what ideas do you have?
Here's an example that might represent anyone on this board. How could a couple having these hypothetical income sources more favorably position themselves to not have income that could result in higher costs because of income based means testing?
SS - $30k
Pensions - $30k
Interest, divs, realized CG's from 1M portfolio - $40k
Total taxable income - $100k
If having a $100k income is resulting in significantly higher costs due to income based means testing by our oh-so-fine gov't, how might this couple arrange things to not show that income?
Note I show no IRA withdrawal as income assuming they already converted everything to Roth or just withdrew it to be part of their $1M portfolio as you suggested.
I don't think the opportunities for being "income poor and asset rich" are as readily available as you think. And I think there are costs involved. For example, hiding the $1M portfolio in a jar buried in the back yard would result in no income but would likely be foolish. Turning down your SS or pension would eliminate the income, but gosh, how silly would that be?
