RMD?

[badatmath]

I realized my success rate is okay taking the amount I think I need, rather than the higher RMD I will eventually have to take. How do you all account of that?

 

[youbet]

Add the incremental fed and state taxes the annual RMD will generate to the spend number for each RMD year.

 

[Which Roger]

The RMD doesn't need to be spent, but you'll have to pay taxes on the distribution, so I would just adjust spending accordingly to include those taxes.

 

[donheff]

Just figure in enough increased spending to account for the tax increase/

 

[braumeister]

Very common misperception. Many people forget that just because you have to move the RMD amount out of your TIRA, you don't have to spend it -- just pay the taxes and put the remainder in your after-tax account.

 

[marko]

Very common misperception. Many people forget that just because you have to move the RMD amount out of your TIRA, you don't have to spend it -- just pay the taxes and put the remainder in your after-tax account.

I'm also curious as to how close people's RMD is to their current IRA withdrawals. I'm 5 years away from RMD but my current withdrawals are within $3-4K of what my RMD would be anyway. Pretty much no change for me. "Oh, I have to withdraw another $3k?...oh, ok"

 

[REWahoo]

I'm also curious as to how close people's RMD is to their current IRA withdrawals. I'm 5 years away from RMD but my current withdrawals are within $3-4K of what my RMD would be anyway. Pretty much no change for me. "Oh, I have to withdraw another $3k?...oh, ok"

I hit RMD's for the first time this year and this ^ accurately describes my situation. DW starts RMD's next year and at that point we will have to decide what to do with the excess amount over our needs. (No, I'm not going to send it to any of you, so don't bother asking! )

 

[W2R]

I'm also curious as to how close people's RMD is to their current IRA withdrawals. I'm 5 years away from RMD but my current withdrawals are within $3-4K of what my RMD would be anyway. Pretty much no change for me. "Oh, I have to withdraw another $3k?...oh, ok"

My RMD starts next year. I already figured out that my current equal monthly TSP withdrawals will be enough to meet RMD requirements until my TSP account runs out of money at approximately age 94. At that age, I will just live off a bit larger withdrawal from my taxable accounts, to make up for the lack of TSP payments, plus I will still have SS and mini-pension. No big deal.

Each year the TSP will provide a double check on my computations and send more money if necessary to meet RMD requirements, which is nice.

I have always planned to spend all of that account on my retirement rather than passing it on to my heirs, and as I understand it that is the point of RMD's.

FIRECalc just tells me how much I can spend (including taxes). It doesn't tell me how much I can or must withdraw from each of my various investment accounts. In my case I don't think RMDs will create an excess, but if so it can go in my taxable investment accounts which are also part of my portfolio.

 

[audreyh1]

Just figure in enough increased spending to account for the tax increase/

Exactly!

 

[badatmath]

I don't really have an equivalent place to put the money. Shoving it into a 1% account is not going to work since I will have to live on the profits. I guess I have time to work on it.

I thought this would only be complicated for rich folks but I am DEFINITELY not one of those.

 

[braumeister]

to take more out than I am spending seems really inconvenient and would affect my returns for the money. Shoving it into a 1% account is not going to work.

Was it inconvenient deferring the taxes all those years? You really didn't have to open the IRA, you know.

 

[badatmath]

Was it inconvenient deferring the taxes all those years? You really didn't have to open the IRA, you know.

Starting to look like I should not have done so as I would have paid less (total) tax I think.

 

[meierlde]

I don't really have an equivalent place to put the money. Shoving it into a 1% account is not going to work since I will have to live on the profits. I guess I have time to work on it.

I thought this would only be complicated for rich folks but I am DEFINITELY not one of those.

except for the tax deferral you can of course take the remainder of the RMD (after taxes) and invest it the same way you did in the tax deferred account or in a more tax efficient way. So no need to stuff it in a 1% account but buy stocks or mutual funds with it.

 

[braumeister]

Starting to look like I should not have done so as I would have paid less (total) tax I think.

I think you should relax about that -- it's a really tough calculation even for those who are good at math (that's not me, by the way).

Consider all the extra money you had in your IRA because it came from pretax earnings. That's a lot of loot that earned more of the same all those years. Looking at the big picture, you're probably going to wind up ahead of the game because of that.

Of course, that's only my gut feeling and may not be exactly correct, but I wouldn't worry about it. You kept the tax man away for a long time and now you'll have to settle up with him no matter what.

 

[meierlde]

Starting to look like I should not have done so as I would have paid less (total) tax I think.

If you took the money you put into the IRA/401k and assumed constant tax rates and system you would pay less. The whole assumption on the original 401k is that income would be lower in retirement than before thus lower taxes. The various tax reductions in the 80s 90s and 00s mean that you have to compare by year saved not with todays rates.
Of course if you rollover to an IRA you can directly contribute to charity and not have it show up as taxable nor affect the part B premium.

 

[albireo13]

I plan to start Roth conversions as soon as I retire, to lower my future RMD and give me more flexibility in future withdrawals and spending. Not to mention that all the gains in the Roths will be tax free.

 

[CDRE]

Is there a forward looking software program/application can be used to estimate taxes, RMD's, 401K, Roth, tIRA, regular investment accounts, and the like? I know that i-ORP does some forward looking on account management/distributions.

 

[MichaelB]

This thread is not about FIRECalc and is general interest, so I moved it into the FIRE and Money forum and edited the title.

 

[gerntz]

I realized my success rate is okay taking the amount I think I need, rather than the higher RMD I will eventually have to take. How do you all account of that?

Just give the extra to charities straight from the IRA account. It doesn't count as income, so your life doesn't change in any way except for gaining the satisfaction of helping others.

 

[mickeyd]

RMD is a requirement to pay taxes, not a requirement to spend.

 

[friar1610]

Just give the extra to charities straight from the IRA account. It doesn't count as income, so your life doesn't change in any way except for gaining the satisfaction of helping others.

Just to point out...one needs to follow the rules carefully to make sure it will count as a QCD (qualified charitable distribution) vs a normal distribution. The first will, as you say, not increase one's AGI. The second will, although a tax deduction is allowed.

Just did one for the first time.

 

[pb4uski]

I don't really have an equivalent place to put the money. Shoving it into a 1% account is not going to work since I will have to live on the profits. I guess I have time to work on it.

I thought this would only be complicated for rich folks but I am DEFINITELY not one of those.

You're being silly now.... why not just invest it in the same thing that it came out of... for example, if it was in equities in your tax-deferred account then move it to a taxable account invested in equities.... you might be able to buy the same ticker... in which case you are simply transferring money from your left pocket to your right pocket.

Starting to look like I should not have done so as I would have paid less (total) tax I think.

Perhaps you really are bad at math.... the way to tell is to figure what your marginal tax rate was when you deferred that income and what it is now that you are withdrawing... for some people the taxes that they saved when they deferred the income will be higher than the taxes that they pay on withdrawals.... for many it might be the same and for some it might be higher.

 

[gayl]

I'm also curious as to how close people's RMD is to their current IRA withdrawals.

I wasn't taking anything but another poster reminded me that eventually I'll have to take it and the tax it will be tremendous. Yeah I'll still be net ahead but I will pay a higher percentage tax. So I have decided to stop reinvesting all dividends in the IRA, roll those into my taxable account, and pay the taxes now. Another person suggested that I roll out a significant portion of it into my Roth. Decided against that

 

[kaneohe]

............................... Another person suggested that I roll out a significant portion of it into my Roth. Decided against that

Why? If you withdraw and put in taxable, you will pay taxes. Same if you withdraw and put in Roth. However taxable account will have taxes on future distributions and sales but Roth withdrawals will be tax free assuming you meet the 5 yr and 59.5 yrs old conditions.

This is assuming you withdraw the same amounts in both cases.....for taxable and for Roth. If you are comparing taking a larger amount for Roth than for taxable, then you could push into a higher tax bracket or you could consider distributing the Roth conversion over a number of yrs so that doesn't happen.

 

[RunningBum]

Why? If you withdraw and put in taxable, you will pay taxes. Same if you withdraw and put in Roth. However taxable account will have taxes on future distributions and sales but Roth withdrawals will be tax free assuming you meet the 5 yr and 59.5 yrs old conditions.

This is assuming you withdraw the same amounts in both cases.....for taxable and for Roth. If you are comparing taking a larger amount for Roth than for taxable, then you could push into a higher tax bracket or you could consider distributing the Roth conversion over a number of yrs so that doesn't happen.

+1. This seems like a tailor made situation for partial Roth conversions, unless there's some immediate need to spend that money.