Don't put money in a tIRA.
Need Alternate RMD strategy
- Thread starter Souschef
- Start date
aja8888
Moderator Emeritus
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.
Hermit
Thinks s/he gets paid by the post
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.
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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Sunset
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
OP
OP
Souschef
Thinks s/he gets paid by the post
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.
OP
OP
Souschef
Thinks s/he gets paid by the post
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
That is certainly true in my case
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Hermit
Thinks s/he gets paid by the post
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.
LOL!
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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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.
This keeps tax-deferred accounts from tripling and causing higher future RMDs while the other accounts can triple or more and not affect RMDs.
JG in Hangzhou
Dryer sheet wannabe
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?
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?
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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.
IOW, I would rather avoid paying 25% later than avoid paying 15% later.
TromboneAl
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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 ... ?
Hermit
Thinks s/he gets paid by the post
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!
meierlde
Thinks s/he gets paid by the post
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.
Ted_Shepherd
Recycles dryer sheets
Marry someone much younger than you are
I recently married someone a generation younger than myself. Since my spouse is now the sole heir of my IRA (i.e. the designated beneficiary) and is more than ten years younger than me, IRS lets me compute RMD based on the joint life expectancy of me and my spouse. This reduced the RMD more than 25% and postponed considerable income taxes as a result. This is not a complete solution to the RMD puzzle, but marriage has helped me deal with it. YMMV, especially if you are already married.
The bolded phrase seems a bit misleading to me. Though it is true that age for age, the beneficiary table has a smaller number leading to a higher RMD, a more typical comparison is apples to oranges since the beneficiary is typically much younger than the owner and then the RMD would typically be smaller
(tho tax rate could be another consideration).
