ILikeStarTrek
Recycles dryer sheets
- Joined
- Nov 4, 2017
- Messages
- 107
I'm new to looking at IRA RMD numbers. I see lots of web pages that suggest doing Roth conversions on one's IRA assets to avoid RMDs. I'm only age 55 so I have quite a few years between now and RMDs, but it seems like one cannot start planning too soon since it could take a number of years to implement a gradual conversion strategy to avoid RMDs.
The Roth conversion strategy sounds nice, but when I start thinking about the details, it seems very complicated to decide how much to convert each year. If I do a Roth conversion, that increases my taxes now; but if I don't, that increases my taxes at age 70.5. It's similar (but not identical) to the question of contributing to a Roth vs a traditional IRA to begin with.
Am I missing some way of looking at this which makes it a lot simpler than I am making it out to be?
Complications:
- I'm not sure what my goal should be. Should I try to Roth-convert 100% of my IRA assets by age 70.5 so that my RMDs will be 0 at that point? It seems like a more balanced approach may be in order. I.e., converting only part of my assets by 70.5, which will lower my current taxes each year (compared to what they would be if I were aiming at 100% conversion by 70.5), thus aiming at having some RMDs but hopefully a low amount, at least lower than if I didn't convert anything. But I don't know what final percentage I should aim for to be converted.
- I don't know how much my IRA assets will be worth at (& above) age 70.5. The focus on the 3 vs 3.5 vs 4 % withdrawal rate debates is how to avoid running out of money in the worst case of the stock market. But the focus on RMDs is that if it is *not* the worst case for the market, in some markets, my money could double or triple or quadruple in the next 10-20 years. Depending on how that works out, I don't know whether I will have (for example) $2 million or $8 million at age 70.5.
- RMDs vary by age. RMD at 70.5 is only 3.65%, and if I only live to be 82, my max RMD is 5.5%. But by age 86, it's up to 7.09% and if I live into my 90s, it gets to 9, 10, 11%, and higher. Depending on the size of my investments, withdrawing 3 to 5% will likely leave me in a different tax bracket than withdrawing 7 to 10%. If I do live to be 95, perhaps by then I will be so senile that I don't know or care what an RMD is. (Just kidding - if anyone reading this board is in their 90s, I don't mean to offend you!) But ideally I would like for my heirs to retain as much of my estate as possible, which means paying as little taxes as possible in general from now until I die - I just don't know how long that will be.
- Even in retirement, I will have other income - may range from interest/dividents to rental houses to Social Security. That could vary from year to year. That affects Roth conversions which would be added to my current income in each given year to determine my final tax amount.
So I'm aiming for this target which is moving in 4 different directions at the same time.
Someone should come up with a calculator where you can plug in various current ages & investment values, % growth of assets, and Roth conversion amounts until age 70.5, to compute estimated taxes both before and after age 70.5. I have seen simple RMD calculators, but I haven't seen anything that includes all these other factors into the calculations. Does anyone know of a calculator like that?
Or like I asked above, am I making all this way too complicated?
If it is as complicated as it seems, what are other people doing about this who are closer than I am to age 70.5?
The Roth conversion strategy sounds nice, but when I start thinking about the details, it seems very complicated to decide how much to convert each year. If I do a Roth conversion, that increases my taxes now; but if I don't, that increases my taxes at age 70.5. It's similar (but not identical) to the question of contributing to a Roth vs a traditional IRA to begin with.
Am I missing some way of looking at this which makes it a lot simpler than I am making it out to be?
Complications:
- I'm not sure what my goal should be. Should I try to Roth-convert 100% of my IRA assets by age 70.5 so that my RMDs will be 0 at that point? It seems like a more balanced approach may be in order. I.e., converting only part of my assets by 70.5, which will lower my current taxes each year (compared to what they would be if I were aiming at 100% conversion by 70.5), thus aiming at having some RMDs but hopefully a low amount, at least lower than if I didn't convert anything. But I don't know what final percentage I should aim for to be converted.
- I don't know how much my IRA assets will be worth at (& above) age 70.5. The focus on the 3 vs 3.5 vs 4 % withdrawal rate debates is how to avoid running out of money in the worst case of the stock market. But the focus on RMDs is that if it is *not* the worst case for the market, in some markets, my money could double or triple or quadruple in the next 10-20 years. Depending on how that works out, I don't know whether I will have (for example) $2 million or $8 million at age 70.5.
- RMDs vary by age. RMD at 70.5 is only 3.65%, and if I only live to be 82, my max RMD is 5.5%. But by age 86, it's up to 7.09% and if I live into my 90s, it gets to 9, 10, 11%, and higher. Depending on the size of my investments, withdrawing 3 to 5% will likely leave me in a different tax bracket than withdrawing 7 to 10%. If I do live to be 95, perhaps by then I will be so senile that I don't know or care what an RMD is. (Just kidding - if anyone reading this board is in their 90s, I don't mean to offend you!) But ideally I would like for my heirs to retain as much of my estate as possible, which means paying as little taxes as possible in general from now until I die - I just don't know how long that will be.
- Even in retirement, I will have other income - may range from interest/dividents to rental houses to Social Security. That could vary from year to year. That affects Roth conversions which would be added to my current income in each given year to determine my final tax amount.
So I'm aiming for this target which is moving in 4 different directions at the same time.
Someone should come up with a calculator where you can plug in various current ages & investment values, % growth of assets, and Roth conversion amounts until age 70.5, to compute estimated taxes both before and after age 70.5. I have seen simple RMD calculators, but I haven't seen anything that includes all these other factors into the calculations. Does anyone know of a calculator like that?
Or like I asked above, am I making all this way too complicated?
If it is as complicated as it seems, what are other people doing about this who are closer than I am to age 70.5?