Should RMDs really scare you?

[skipro33]

Tax payments: Not quite. Unless you have a way to get the taxes paid via IRS withholding, you need to make even quarterly estimated payments, or pay as you go. The even quarterly payments can be based on this year's estimated taxes, or last year's actual payments. Look up "safe harbor" rules.

I'm not big on market timing, but if you can catch a downturn and do it then, that would be a good play. Really, whatever way you want to do it is fine. It sounds like you're only dealing with a small part of your investments.

Yes, I do have a way to pay the taxes via an IRS withholding. I could make monthly IRS Tax payments via my pension or I could make a fixed payment via my SS.

I have H&R Block tax program and can play 'what-if' with that on funding a ROTH and timing the tax payments. I have already started my taxes and I owe a small penalty, $3, because I underpaid by $1,000. But the program asked me if there were circumstances that might be weighed, such as; did you fund a ROTH? So I will test this with this year's tax program to learn about when to time the funding and the tax payments for my best options.
Thanks again for pointing all this out.

 

[Time2]

Michael Kitces says it better than I ever could:

https://www.kitces.com/blog/navigat...-0-capital-gains-vs-partial-roth-conversions/

He may have said it better than you, but I still found it very complicated.
I understand it's a tax arbitrage. We are in the low tax bracket now, we expect a higher tax bracket when we start collecting SS and RMDs, that will be phased in starting with my SS Mar 2025, then my RMDs 2027, then Wife's SS in 2029 and her RMDs in 2031.
I was fine until Kitces started the 0% cap gains vs Roth conversion decision. Then got further confused about wealth transfer at death to heirs.
Should I leave more money in taxable accounts, or do Roth conversions for IRAs and have the children as Roth beneficiaries, allowing the transfer tax free to the children at 0% tax with the 5 year rule.
I think I need to know:

Tax rates to non spouse heirs for taxable mutual fund accounts?
Tax rates to non spouse heirs for IRAs and SEPs?
Tax rates to non spouse heirs for Roth IRAs?
And any special rules, (like the Roth account named beneficiary 5 year rule)
My first year of retirement I used all LTCGs at 0% tax.
My second year I decided Roth conversions were better and did enough LTCGs to live on and Roth conversions to the top of the 12% bracket.
This seems to be a work in progress.

 

[pb4uski]

Generally speaking the income from inherited assets will be the same whether you own it, your spouse inherits it or non-spouses inherit it. Income from taxable mutual fund accounts will be preferenced income or ordinary income depending on the nature of the mutual fund's investments... equity based will generally be preferenced and fixed will be ordinary. Withdrawals from IRAs and SEPs will be ordinary income and Roth withdrawals will be tax-free.

The tax rates will depend on the inherited party's income before this additional income compared to your income before this additional income. For example, DD and DSIL both have good jobs as are solidly in the 15%/22% tax bracket for preferenced/ordinary income which is higher than us. OTOH, DS is in the same tax bracket as us so his tax rate would be the same as ours.

 

[MasterBlaster]

I cannot grasp the concept of a 10 or 12% bracket. The 22% bracket starts at $80K
for MFJ. I guess it is not because I was not an ER. If you are ER and do not have SS and/or a pension, and live off savings, it can be done.
I guess the Roth ship sailed for me many years ago.

It's not as low as it seems. For 2021 the "free" capital gains for those married filing jointly goes up to $81050. Then you add in the standard deduction of $24800 that then lets you be tax free for capital gains less than $105850 (sans other income)

So suppose you have a mutual fund/stock that has (on-average) doubled from what you paid for it. You could then take out 2 X $105850 ==> $211700 and spend it all on yourself and pay absolutely no federal income tax (again sans other income). Adjust the numbers for your stash capital gains and personal situation.

So someone that has taxable accounts can live very well. Some people believe that you may want to deplete taxable accounts first, then move on to your tax-deferred accounts, then save your Roth accounts for last. Some believe that you should defer Social Security just so that you can take advantage of those great rates.

Others believe you should do those Roth conversions instead. As I indicated in a previous post Roth conversions and "free" capital gains sort of exclude each other.