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RMD Question
Old 12-12-2016, 09:09 PM   #1
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RMD Question

I know at sometime I will need to get a plan on taking money from deferred accounts. The question I have is what % do I have to take when I'm 70.5 old. At the present time let say there is 2.3M in untaxed investment in the form of stocks and bonds. I don't believe I will avoid 25% or more tax bracket. The one thing I don't believe I would ever have to touch this money but I can't do that.
Thanks
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Old 12-12-2016, 09:13 PM   #2
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A quick Google search will bring up a table of the year by year percentages you must withdraw.
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Old 12-12-2016, 09:23 PM   #3
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Originally Posted by street View Post
I know at sometime I will need to get a plan on taking money from deferred accounts. The question I have is what % do I have to take when I'm 70.5 old. At the present time let say there is 2.3M in untaxed investment in the form of stocks and bonds. I don't believe I will avoid 25% or more tax bracket. The one thing I don't believe I would ever have to touch this money but I can't do that.
Thanks
Your RMD will be about 84K Here is the divisor per age:
AGE Divisor
70 27.4
71 26.5
72 25.6
73 24.7
74 23.8
75 22.9
76 22.0
77 21.1
78 20.3
79 19.5
80 18.7
81 17.9
82 17.1
83 16.3
84 15.5
85 14.8
86 14.1
87 13.4
88 12.7
89 12.0
90 11.4
I have it set up in a spreadsheet to do the calculations.
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Old 12-12-2016, 09:26 PM   #4
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Approximately:

70 3.65%
71 3.77%
72 3.91%
73 4.05%
74 4.20%
75 4.37%
76 4.55%
77 4.72%
78 4.93%
79 5.13%
80 5.35%
Check an actual RMD table for the exact amount.
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Old 12-12-2016, 09:27 PM   #5
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https://www.irs.gov/retirement-plans...ributions-rmds
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Old 12-12-2016, 10:01 PM   #6
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Not only will you pay taxes, but you may have to pay more for Medicare Part B and Part D depending on your income. It is a first world problem. I could think of worse situations.
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Old 12-12-2016, 10:05 PM   #7
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Thank you and I will save this information.

So I just turned 60 and my plan is to leave as much of my portfolio to one heir and a few charities. The best way to achieve the most growth over time would be to leave all money in these accounts till I have to RMD. Would that be your thought?

The other thing if took SS early and took enough withdrawals from these accounts I could take advantage of the 15% tax bracket. What is the amount of income I have to stat below to be in the 15% tax bracket? I really need to make a plan or I regret it but I really don't know where to start.
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Old 12-12-2016, 10:24 PM   #8
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Thank you and I will save this information.

So I just turned 60 and my plan is to leave as much of my portfolio to one heir and a few charities. The best way to achieve the most growth over time would be to leave all money in these accounts till I have to RMD. Would that be your thought?

The other thing if took SS early and took enough withdrawals from these accounts I could take advantage of the 15% tax bracket. What is the amount of income I have to stat below to be in the 15% tax bracket? I really need to make a plan or I regret it but I really don't know where to start.
Lots of threads on converting tax deferred to Roth. I never could get below the 25% bracket to make it work reasonably for me. You can put your numbers in IORP and get a feeling for what you could do with Roth conversions.
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Old 12-12-2016, 10:25 PM   #9
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I'm not sure what your tax situation is currently - but it might make sense to roth convert some of it prior to 70.5.... You don't have to do RMDs on Roths - and your heirs inherit it as tax-free.
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Old 12-13-2016, 12:01 AM   #10
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Quote:
Originally Posted by street View Post
Thank you and I will save this information.

So I just turned 60 and my plan is to leave as much of my portfolio to one heir and a few charities. The best way to achieve the most growth over time would be to leave all money in these accounts till I have to RMD. Would that be your thought?

The other thing if took SS early and took enough withdrawals from these accounts I could take advantage of the 15% tax bracket. What is the amount of income I have to stat below to be in the 15% tax bracket? I really need to make a plan or I regret it but I really don't know where to start.
You will be able to donate your RMD directly to a qualified charity. And this would be one way to handle your RMD all or in part. So donate to the charities while you are alive?

15% tax bracket 2016 http://taxfoundation.org/article/2016-tax-brackets. Generally you subtract personal exemption and standard deduction before computing tax, so the actual incomes to stay within 15% are higher.

Like others mention - look into conversions to a Roth that can pass to your heir without requiring an RMD. Best to do that before reaching RMD age.
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Old 12-13-2016, 06:43 PM   #11
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Again thank you for your help. I did look through some of the old RMD threads but I wanted to reassure myself with a few questions.

Now after reading the laws I still have a question if an heir or beneficiary get the remainder of my investments do they have to have it all taken out in 5 years?? this would other then my spouse. Can some explain that more clearly? Thank you.
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Old 12-13-2016, 07:13 PM   #12
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Quote:
Originally Posted by street View Post
Again thank you for your help. I did look through some of the old RMD threads but I wanted to reassure myself with a few questions.

Now after reading the laws I still have a question if an heir or beneficiary get the remainder of my investments do they have to have it all taken out in 5 years?? this would other then my spouse. Can some explain that more clearly? Thank you.
You can take it out in 5 years (bad choice), or use the life expectancy method that I got from Fidelity:
Account type
You transfer the assets into an Inherited IRA held in your name. Money is available

You must begin taking an annual RMD over your life expectancy beginning no later than 12/31 of the year following the original account holder's death.

Note: If the original account holder did not take an RMD in the year of death, an RMD must be taken from the account by 12/31 of the year the original account holder died. Other considerations
  • Your annual distributions are spread over your single life expectancy (determined by your age in the calendar year following the year of death and reevaluated each year) or the deceased account holder's remaining life expectancy, whichever is longer.
  • If there are multiple beneficiaries, separate accounts must be established by 12/31 of the year following the year of death; otherwise, distributions will be based on the oldest beneficiary.
  • Required Minimum Distributions (RMDs) are mandatory and you are taxed on each distribution.
  • You will not incur the 10% early withdrawal penalty.
  • Undistributed assets can continue growing tax-deferred.
  • You may designate your own IRA beneficiary.
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Old 12-13-2016, 07:17 PM   #13
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Quote:
Originally Posted by street View Post
Again thank you for your help. I did look through some of the old RMD threads but I wanted to reassure myself with a few questions.

Now after reading the laws I still have a question if an heir or beneficiary get the remainder of my investments do they have to have it all taken out in 5 years?? this would other then my spouse. Can some explain that more clearly? Thank you.

Check out this table and the linked table. No need for 5 yrs unless that's
a benefit to the heir.

edit: sorry bout that here it is : https://www.irs.gov/retirement-plans...-beneficiaries
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Old 12-13-2016, 07:23 PM   #14
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Originally Posted by street View Post
.................

So I just turned 60 and my plan is to leave as much of my portfolio to one heir and a few charities. The best way to achieve the most growth over time would be to leave all money in these accounts till I have to RMD. Would that be your thought?

.......................................
Your heir will have to take RMDs from the inherited IRA. Whether you convert or not might depend on their tax bracket vs yours. Charities don't have to pay taxes so not converting might be better for them.
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Old 12-13-2016, 07:24 PM   #15
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Originally Posted by kaneohe View Post
Check out this table and the linked table. No need for 5 yrs unless that's a benefit to the heir.
Google IRS pub 590. The table in appendix B is the one to use as a survivor.
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Old 12-13-2016, 07:34 PM   #16
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[*]Your annual distributions are spread over your single life expectancy (determined by your age in the calendar year following the year of death and reevaluated each year) or the deceased account holder's remaining life expectancy, whichever is longer.

This is a very fine point that many people (including myself) didn't realize regarding inherited IRAs:
If a non-spouse inherits an IRA, the heir takes their age the year after your death. THAT age is the 'starting point'. The first year that the heir takes their annual withdrawal (the year following your year of death) is a 'normal' withdrawal using the divisor that year.

HOWEVER - each year after that, they do NOT use the IRS tables. Instead, your heir takes that first year divisor and subtracts one from it for each successive year, and uses that number.

Example:

Let's say you pass on in the year 2040. IN the year 2041 (year following your death), your heir is age 50. Using the IRS tables, their divisor would be 34.2.

However, for subsequent years, your heir's divisor for the RMD is as follows:

Year Divisor
2041 34.2
2042 33.2
2043 32.2
2044 31.2
2045 30.2
2046 29.2
2047 28.2
and so on.

For the first few years, it is very close to the IRS tables. However, you can see that as time goes on, the divisor starts to shrink to be (relatively) smaller than the IRS table. At some point, if the heir lives long enough, the divisor essentially becomes very close to 1 (even less than 1 at some point), and will essentially require all of the remaining assets in the IRA to be withdrawn at that year.

That is because the IRS doesn't want inherited IRAs to become some mega source of wealth that is never taxed through multiple generations, and wants to 'force' people to take out the wealth and subject it to income taxes.
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Old 12-13-2016, 09:27 PM   #17
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Thank you very much for the help.
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Old 12-13-2016, 09:41 PM   #18
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The RMD process is a bit complex. Double check what a brokerage computes as your RMD. More than once I have seen incorrect RMD calculations from major brokers.
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Old 12-14-2016, 10:37 AM   #19
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Quote:
Originally Posted by street View Post
I know at sometime I will need to get a plan on taking money from deferred accounts. The question I have is what % do I have to take when I'm 70.5 old. At the present time let say there is 2.3M in untaxed investment in the form of stocks and bonds. I don't believe I will avoid 25% or more tax bracket. The one thing I don't believe I would ever have to touch this money but I can't do that.
Thanks
You are a prime candidate for deferring SS and other sources of ordinary income and doing low-cost Roth conversions. Assuming that you are single and have a standard deduction and have no other income, you could convert up to $101,500 a year (2016 number) to the top of the 25% tax bracket and would pay about 18% on the conversion... I'm guessing that 18% is a lot less than the taxes you avoided paying when you deferred that income... probably 25%, 28% or 33% or more.

If you have other income sources, that $101,500 would be reduced.

Once the money is in your Roth it grows tax-free.

Normally I would suggest converting to the top of the 15% tax bracket but you have such a big nut that you may be better off converting to the top of the 25% tax bracket but you'll need to look at that.

 2016   
TI at top of 25% tax bracket  91,150   
Standard deduction  6,300   
Exemption  4,050   
Roth conversion  101,500   
     
     
Deductions and exemptions0% 10,350 -  
$0-$9,27510% 9,275 928  
$9,276-$37,65015% 28,375 4,256  
Top of 15% bracket  48,000 5,184 10.8%
$37,651-$91,15025% 53,500 13,375  
Top of 25% bracket  101,500 18,559 18.3%
     
Total income  101,500   
Deductions  (6,300)  
Exemptions  (4,050)  
Taxable income  91,150   
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Old 12-14-2016, 11:08 AM   #20
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I have been taking equal monthly withdrawals from my TSP for the past 7 years of retirement. I'll be required to start taking RMD's in 2018, but the amount I am already withdrawing is more than RMD's will ever be.

I am computing RMD's using Table 3 in this IRS document:
https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
But also, the TSP will compute it for me and will make sure that I withdraw enough to meet my RMDs.

I project that continuing with the present withdrawal level forever, my TSP will last me until I am around 90-95. I have SS, pension, and taxable investments that can support me after that if I am still alive.

Also, should I survive until my mid 80's I will probably buy a small SPIA at that time in order to help bridge those final years before death.
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