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Old 05-08-2017, 12:29 PM   #21
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I guess my only consolation is to think about it like gambling: you are paying back with the house's money. Since the increases in value are not your direct money, that might help make the pain a little less. I do understand that it is your direct money that has been working for you, but at least it is the increase causing the higher RMD amounts.

I have a small inherited IRA that requires RMD, and it sucks I have to pay the max tax rate on that money every year; since I am working, it adds to total income on the top. That inherited IRA has also gone up in value, even with the RMD. Uncle Sam works very hard to ensure he will get his share.
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Old 05-08-2017, 01:05 PM   #22
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You could be really lucky and have 80K RMD, 40K SS, 100K dividends/interest.
As my now deceased CPA told me, if you don't want to pay a lot of taxes, find a job that pays a lower salary/benefits.
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Old 05-08-2017, 01:16 PM   #23
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Originally Posted by sanfanciscotreat View Post
...As my now deceased CPA told me, if you don't want to pay a lot of taxes, find a job that pays a lower salary/benefits.
LOL - that's great! Made my day.
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Old 05-14-2017, 08:08 AM   #24
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I've figured the following. Let me know if I am wrong:

If you don't care about leaving money for heirs when you die, RMDs are not important.

IOW, if I don't take out the required minimum each year, I'll be in danger of not spending all my money before I die.

True or false?

Thanks.
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Old 05-14-2017, 09:54 AM   #25
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False. If you don't take the RMD, the penalty is 50%. However, you don't have to spend your RMD.
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Old 05-14-2017, 10:01 AM   #26
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Originally Posted by mickeyd View Post
I am reminded of the old saying "RMD is an obligation to pay taxes, not an obligation to spend it all."


If anyone comes up with a viable solution to the RMD puzzle, please announce it here.
Don't put money in a tIRA.
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Old 05-14-2017, 12:10 PM   #27
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Don't put money in a tIRA.
Easy to say now, but back in "the day", we all thought it was a good plan. Most did not think about the tax situation later in life.
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Old 05-14-2017, 12:26 PM   #28
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I do use QCD's (Qualified Charitable Deductions) to ease the burden a bit. I would love to find a way to pay for my Angel Flights that way.
I think you have your answer right here. Why not start a charity that you can contribute to that pays for the flight costs? That charity would not enrich you in any way and would benefit the community greatly. Does Angle Flight not have a charitable component? Could you talk to an accountant about how best to work this? Maybe you could be the one to set this up for all Angle Flight pilots that would allow them to bank contributions for Angel Flight expenses.
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Old 05-14-2017, 01:03 PM   #29
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Easy to say now, but back in "the day", we all thought it was a good plan. Most did not think about the tax situation later in life.
How do you know it wasn't a good plan?

Do you know what your after tax assets & income would be today & going forward had you stayed out of tIRA's? All your RMD's today are telling you is that you'll owe more taxes today than you'd like to owe.

FWIW, mine start in 2018 & I'll be paying more taxes than I'd like to be. I have no data that tells me that's not the best I could have done. Perhaps had I started SS at 62 & did Roth conversions starting then I would be better off, but even so, I judge it would only be at the margins. So I'll just pay & grumble. Or maybe grumble, pay, and grumble some more.
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Old 05-14-2017, 01:04 PM   #30
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Looks like I'll pay 25% bracket for the remainder of my life - could even get to 28% IF I live so long (because RMD's % goes up each year AND the investment results might also do very well.) i've been trying to figure how to deal with RMDs but I've always let a tax "guy" figure my taxes. What are the pitfalls to either taking extra money and investing it or (more likely) converting the amount above RMDs to Roth IRAs?

1. I think I have to look out for increased Medicare premiums - and that's if I go $1 over the limit, right?

2. I need to watch that some "extra" or unexpected source of income doesn't put me into the 28% bracket though that's only on the amount over the range.

3. Other??

All of this in aid of reducing just the 85% taxable (a bit) on SS at some point in the future? Is that correct? It might not be worth the pitfalls for that.

MY thinking was that I could insure never getting to the 28% bracket by taking extra beyond RMDs so that my 401(k) balance will go down - even if results are good. That way, when the RMD % gets higher, I'll still be in the 25% bracket. Sound reasonable?? Thanks for any assistance.
That is my plan, if I'm going to be in the 25% then I might as well take out extra to ensure I don't migrate to the 28%, I'll put the extra in a Roth via conversion so that it no longer generates taxable income.

So true, one has to watch the medicare traps of greater income (even 2 years before claiming Medicare, since they use that tax number for your premium level.

In part this is why we are doing Roth Conversions before we have to take out RMD's and before SS.

Of course IF tax rates go down then, I'll be sure to take out more RMD in case they go back up.

The bright side of a market downturn will be the opportunity to Roth Convert many extra shares of stock while the value is low.
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Old 05-14-2017, 06:39 PM   #31
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I figure it this way... I was in the 28% bracket or higher when I deferred the income in anticipation of being in a lower tax bracket in retirement.... if my effective tax on withdrawals is 28% or less then I came out ahead... if it is higher then it is because I ended up being much more successful that I expected that I would be when I deferred the income... either way... life is good.
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Old 05-14-2017, 06:53 PM   #32
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I figure it this way... I was in the 28% bracket or higher when I deferred the income in anticipation of being in a lower tax bracket in retirement.... if my effective tax on withdrawals is 28% or less then I came out ahead... if it is higher then it is because I ended up being much more successful that I expected that I would be when I deferred the income... either way... life is good.
You are absolutely right! In 2006 my effective tax rate was 16.63%. My 2016 effective tax rate is 12.41%. PLUS my IRA's grew tax free for those 10 years.
Also to respond to the person who asked about setting up a charity for Angel Flight, I looked into that and it does not work.
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Old 05-14-2017, 08:37 PM   #33
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I ran the numbers, and agree with what you came up with. The main concept of deferring taxes with an IRA was that you would be in a lower bracket when you retired.
That is certainly true in my case
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Old 05-14-2017, 08:54 PM   #34
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I ran the numbers, and agree with what you came up with. The main concept of deferring taxes with an IRA was that you would be in a lower bracket when you retired.
That is certainly true in my case
I wasn't planning on being single at this point in my life when I was putting all my savings in tax deferred accounts while working. The taxes will be what they will be.
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Old 05-14-2017, 10:52 PM   #35
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We put mostly fixed income investments in tax-deferred accounts and mostly equities in Roths and taxable account.

This keeps tax-deferred accounts from tripling and causing higher future RMDs while the other accounts can triple or more and not affect RMDs.
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Old 05-15-2017, 01:58 AM   #36
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Could this be avoided by converting IRA to ROTH earlier?
I am in a situation where my taxable income is zero for the next few years and have been harvesting stock gains to avoid paying taxes later.
Is there a hidden cost to the IRA level that might push me to start an IRA to ROTH ladder conversion now rather than harvest taxable gains?
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Old 05-15-2017, 05:49 AM   #37
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I decided to prioritize Roth conversions over gains trading. I figure gains trading will always be available in one form or another but in our case there was a small window for Roth conversions. Also, my future ordinary tax rate of 25% is much higher than the 15% capital gains rate (or 15% vs 0% if you expect to be in a lower tax bracket).

IOW, I would rather avoid paying 25% later than avoid paying 15% later.
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Old 05-16-2017, 03:16 PM   #38
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>>If you don't care about leaving money for heirs when you die, RMDs are not important.

False. If you don't take the RMD, the penalty is 50%. However, you don't have to spend your RMD.
Oops, I wasn't clear.

I didn't mean "should I not take out the RMDs," I meant "why worry about extra taxes on RMDs because you probably have more money than you can reasonably spend before you die, even paying the taxes?"

I agree that if you want to leave money behind when you die, the taxes are a concern. But if you don't ... ?
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Old 05-16-2017, 06:27 PM   #39
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....
I agree that if you want to leave money behind when you die, the taxes are a concern. But if you don't ... ?
If you leave the money to a charity, I do not believe there is any tax. You can use QCDs until you do die and none will go to taxes. But Uncle Sam needs some money to keep the government wheels spinning!
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Old 05-16-2017, 08:01 PM   #40
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Oops, I wasn't clear.

I didn't mean "should I not take out the RMDs," I meant "why worry about extra taxes on RMDs because you probably have more money than you can reasonably spend before you die, even paying the taxes?"

I agree that if you want to leave money behind when you die, the taxes are a concern. But if you don't ... ?
Of course to be clear if you leave a 401k or IRA to a beneficiary, they will have to pay the taxes anyway (income in respect of Decedent) and with the exception of a spouse the RMDs are a higher percentage compared to the account owners RMDs (see the IRS pub and tables). Of course the way to beat this is to leave your 401k/IRA to a charity, who would pay no taxes.
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