RMD Tax Withdrawal Strategy - Moving From Joint to Single Tax Liability

[savory]

Hi,

While considering Roth conversions of my IRA, I have not seen a mention of the impact of the passing of a spouse and consequently the increased tax (single tax payer) on the same income. Our income is not expected to change much with the passing of one of us. From my understanding, unless one of us gets remarried, the surviving spouse will be a single tax payer in the year following the passing of the spouse. Given a substantial RMD, the tax % will increase substantially vs joint filing.

I understand this is a guess at life expectancy. But I have not seen a calculator that includes this analysis.

How have you considered this issue in your planning? And, if I am not understanding this well, please let me know.

As always thanks for your advice and time.

[RunningBum]

I've seen this mentioned a number of times. Maybe not as often as it should be talked about, because some people seem to ignore this. I'm not married so I haven't looked for this in a calculator.

[pb4uski]

Yes, this is an often mentioned additional reason for aggressively doing Roth conversions during any period that your marginal tax bracket is lower than your marginal tax bracket once SS and any pensions and RMDs have started and you are in a higher tax bracket... especially if the spouse with large tax-deferred balances has health issues or family history.

[Out-to-Lunch]

Yes, I mention this factor every time I get a chance.

I also need to remind myself about it from time to time when I wonder how aggressive I should be with Roth conversions, and how much to leave in tax-deferred. Then the MFJ vs. single factor reinforces my desire to spend/convert all but about $500k by SS (age 70). (I want to leave the ~$500k for possible medical expenses and charitable donations.)

[SecondCor521]

And I'll add my additional factor: If the surviving spouse has the same income and files single, then their IRMAA surcharge goes up as well.

Since it's a guess, as you say, I think people just consider it sort of qualitatively or as a tiebreaking factor. I suppose you could try to do a sensitivity analysis of each spouse dying at different ages, but that seems like a lot of w*rk.

I am single so it doesn't affect me.

[audreyh1]

It made us each look at passing at least a good chunk of our IRAs along to non-spouse heirs as they are a smallish part of our investments, and heirs are in lower tax brackets.

[volfan]

I am looking at these numbers now. With our pensions going to the surviving spouse and the higher of the SS amounts remaining, it will move the surviving spouse to a higher bracket automatically before even adding RMDs.

There is a huge difference in the upper limit of the Single 12% & 22% tax brackets compared to MFJ. And of course they may increase further if the tax cuts expire, and that’s without additional tax increases that could be on the horizon.

May consider Roth conversions before SS or certainly using some of the tax deferred funds for the bridge before SS when we need additional funds and have a lower tax rate.

[donheff]

Yeah, that will hit DW or I like a ton of bricks. Best thing would be for us to ride over the cliff together like Thelma and Louise.

[jollystomper]

We have looked at it as it will impact us, even with Roth conversions and spending down our tax deferred accounts within our current income tax bracket. However, the impact will not affect the surviving spouse's desired lifestyle.

[savory]

Quote:

Originally Posted by jollystomper We have looked at it as it will impact us, even with Roth conversions and spending down our tax deferred accounts within our current income tax bracket. However, the impact will not affect the surviving spouse's desired lifestyle.

This is where I am at right now. Unless of course, the surviving spouse decides to upgrade

[savory]

Thanks everyone for your feedback!

[pjm-7]

Another possibility is when required minimum distributions (RMD) kick in (now age 72) to use the qualified charitable distributions so that the RMD's are not added to your income.

[SecondCor521]

Quote:

Originally Posted by pjm-7 Another possibility is when required minimum distributions (RMD) kick in (now age 72) to use the qualified charitable distributions so that the RMD's are not added to your income.

Note that QCDs are (currently) limited to a maximum of $100K per person per year.