Need Alternate RMD strategy

Souschef

Souschef

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I will not complain, as my IRA's have done very well. I will be 79 this month, and will have to take an RMD of 20K to 25K this year. This pushes me into the 25% bracket, along with making 85% of my SS taxable.
I am looking for any alternate methods to try to minimize the bite.
I looked at Roth conversions, but they can only be done after you take the RMD, so that is not an option.
Seriously I am very impressed with the depth of knowledge in this forum, and am looking forward to your words of wisdom.
Thank you
 
If you donate money to charity, can use RMD funds to donate. Qualified Minimum Distributions (QMD) are not taxable.
 
Souschef said:
I will not complain, as my IRA's have done very well. I will be 79 this month, and will have to take an RMD of 20K to 25K this year. This pushes me into the 25% bracket, along with making 85% of my SS taxable.
I am looking for any alternate methods to try to minimize the bite.
I looked at Roth conversions, but they can only be done after you take the RMD, so that is not an option.
Seriously I am very impressed with the depth of knowledge in this forum, and am looking forward to your words of wisdom.
Thank you
Click to expand...

I'm in the exact same boat that you are with RMD pulls causing SS being taxed at 85% and ending up in the 25% bracket. ROTH conversions do me no good either.

This year we will have a ton of medical deductions to soften the blow (expensive dental, DW's prescription costs, insurance, medical equipment not covered by Medicare).
 
QMDs and deductions are about the only way. If you believe deductions are going away with tax reform, you might advance any optional medical costs into the current year.
 
GrayHare said:
QMDs and deductions are about the only way. If you believe deductions are going away with tax reform, you might advance any optional medical costs into the current year.
Click to expand...
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.
 
How much over the 25% threshold will you be? If $3,000 or less, could you do some tax loss harvesting to generate a $3,000 loss? Given the regularity of RMD's though this is a problem you are likely to have every year going forward. You must have been gradually creeping closer to this threshold in current and past years.


Sent from my iPad using Early Retirement Forum
 
Golden sunsets said:
How much over the 25% threshold will you be? If $3,000 or less, could you do some tax loss harvesting to generate a $3,000 loss? Given the regularity of RMD's though this is a problem you are likely to have every year going forward. You must have been gradually creeping closer to this threshold in current and past years.

Sent from my iPad using Early Retirement Forum
Click to expand...
Thank you for the suggestion. However, the MFJ 25% rate is for incomes $75,301 - $151,900, and I am about in the middle of that range.
 
I think you're just going to have to suck it up. Thanks to a good pension, RMDs will eventually push us into the 28% bracket. Nothing for it apart from QCDs but to pay up and remind ourselves it's a good problem to have.
 
I'm surprised that you don't have to take RMD until 79. I thought it's 70.5 for everybody. Is that a typo?
 
braumeister said:
think you're just going to have to suck it up.I Thanks to a good pension, RMDs will eventually push us into the 28% bracket. Nothing for it apart from QCDs but to pay up and remind ourselves it's a good problem to have.
Click to expand...

Agreed.

This is our first year of RMD's and, indeed, the pleasure of delaying taxes through qualified plan contributions over many years is now being replaced by the agony of higher taxes in retirement. Saving in IRA's, 401k and 403b was our choice so the situation is of our own making. We didn't really plan on being in the 28% bracket while retired, but as you say, there are worse problems.

Souschef - step up to the bar and offer to buy a round. The time for you to pay has arrived!
 
Last edited:
Fedup said:
I'm surprised that you don't have to take RMD until 79. I thought it's 70.5 for everybody. Is that a typo?
Click to expand...
He didn't say it was his first RMD... Just that it was expected to be a big one and he was getting hit with higher taxes because of the size. :)
 
Souschef said:
Thank you for the suggestion. However, the MFJ 25% rate is for incomes $75,301 - $151,900, and I am about in the middle of that range.
Click to expand...

I have not figured out the numbers to this idea, but compared to 25% tax marginal tax rate and 85% SS, maybe it works depending upon your IRA values:

Go the opposite way, take out extra when at the RMD time, a lot extra to put you to the top of the 25% bracket.

You can throw the extra into a ROTH (conversion) so it does not cause further problems.

This might help, if it reduces your IRA's to a level after doing it a few years, where the RMD does not trigger your SS to be 85% taxable.
 
Souschef said:
I will not complain, as my IRA's have done very well. I will be 79 this month, and will have to take an RMD of 20K to 25K this year. This pushes me into the 25% bracket, along with making 85% of my SS taxable.
I am looking for any alternate methods to try to minimize the bite.
I looked at Roth conversions, but they can only be done after you take the RMD, so that is not an option.
Seriously I am very impressed with the depth of knowledge in this forum, and am looking forward to your words of wisdom.
Thank you
Click to expand...
Isn't your RMD this year based on the FMV of the IRA at Dec 31, 2016? How can it be a range ($20-25)? Wouldn't it be a single number?
 
Sunset said:
I have not figured out the numbers to this idea, but compared to 25% tax marginal tax rate and 85% SS, maybe it works depending upon your IRA values:

Go the opposite way, take out extra when at the RMD time, a lot extra to put you to the top of the 25% bracket.

You can throw the extra into a ROTH (conversion) so it does not cause further problems.

This might help, if it reduces your IRA's to a level after doing it a few years, where the RMD does not trigger your SS to be 85% taxable.
Click to expand...

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.:flowers:
 
jebmke said:
Isn't your RMD this year based on the FMV of the IRA at Dec 31, 2016? How can it be a range ($20-25)? Wouldn't it be a single number?
Click to expand...
I think we should stop nit picking. It means he does know the exact number.
 
One other thing to keep in mind. Look at what happens to the tax situation when one of you dies. MFJ goes to Single and the tax bracket can sky rocket. This may be a good reason to do Roth conversions up to the top of your current bracket.
 
Fedup said:
I'm surprised that you don't have to take RMD until 79. I thought it's 70.5 for everybody. Is that a typo?
Click to expand...
I did take it at 70.5, but it was not that much of an issue then. What has happened in the ensuing years with the bull market, my IRA has tripled in value. Even after I take my RMD, the value has been increasing.
As said, I am not complaining, just looking for other strategies.
Io the poster who pointed out what happens if one of us dies, It will probably be a wash because one SS and one pension would go away, so the AGI would decrease considerably.
 
Souschef said:
I did take it at 70.5, but it was not that much of an issue then. What has happened in the ensuing years with the bull market, my IRA has tripled in value. Even after I take my RMD, the value has been increasing.
As said, I am not complaining, just looking for other strategies.
Io the poster who pointed out what happens if one of us dies, It will probably be a wash because one SS and one pension would go away, so the AGI would decrease considerably.
Click to expand...
Nice problem to have. This is one reason I'm not taking SS until 70. I've been trying to convert my husband's IRA to Roth IRA before he has to take RMD.
 
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.
 
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.
 
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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