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Take SS earlier if I'll have large RMDs?
Old 03-04-2024, 04:04 PM   #1
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Take SS earlier if I'll have large RMDs?

I have been aggressively converting tIRAs to Roth but I will still have large RMDs when the time comes. Does it make sense to take SS earlier even if I don't need the money to reduce the impact of the tax torpedo later on? Seems like maybe, but I'd sure like the opinion of some of the folks on here. Thanks.
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Old 03-04-2024, 04:21 PM   #2
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Some here suggested I look at QCD (qualified charitable distribution) when I turn 70-1/2 in preparation for large RMD tax consequences when I turn 73. We plan to give away a certain amount once RMD starts and QCD is a good way to get a head start for the organizations we wish to contribute to.

BTW, I thought RMD starts at 73, right?
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Old 03-04-2024, 04:52 PM   #3
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I was thinking just the opposite, OP. Delaying SS gives me more headroom for Roth conversions without going into a higher bracket. Alas, it’s hard to see how we could ever get to a lower bracket so it seems to be moot. I have given up on large conversions but still add a bit here and there just for tax diversification.
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Old 03-04-2024, 05:02 PM   #4
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Originally Posted by Stwicky View Post
I have been aggressively converting tIRAs to Roth but I will still have large RMDs when the time comes. Does it make sense to take SS earlier even if I don't need the money to reduce the impact of the tax torpedo later on? Seems like maybe, but I'd sure like the opinion of some of the folks on here. Thanks.
Absolutely not.
Delaying SS until age 70 gives you lots more headroom for eight years of larger Roth conversions.
That's what I did...
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Old 03-04-2024, 06:38 PM   #5
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Delaying SS to have more years of RMD conversions before adding SS to the mix is probably the better solution.
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Old 03-04-2024, 06:56 PM   #6
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Old 03-04-2024, 07:13 PM   #7
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Easy call. Since Roth Conversions are important to OP, then the fact that SS benefits go up in an actuarially fair way as you defer taking benefits, means you can get them out of your way for several more years by deferring and still not lose out on the value of the benefit on average. That leaves as much low tax bracket space for Roth Conversions as possible for as long as possible, while you tame the RMD beast.

The math is more complicated for MFJ folks, but it becomes an even more solid choice for the higher earner to defer and Roth Conversions directionally push the lower earner towards deferring some as well.
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Old 03-04-2024, 09:43 PM   #8
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And you will get a larger SS payment which is at least 15% nontaxable versus a larger RMD which is 100% taxable.
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Old 03-06-2024, 09:02 AM   #9
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What do posters consider a large RMD. Is it based on tax %s? If we have $2M in our tIRA and $60K SS, that puts us in the lower end of 22% (edit example RMD $91K), but according to https://www.irscalculators.com/tax-calculator
we're paying $4274 in IL taxes which is not true. We would pay "0" in IL taxes.
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Old 03-06-2024, 09:11 AM   #10
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Originally Posted by jazz4cash View Post
I was thinking just the opposite, OP. Delaying SS gives me more headroom for Roth conversions without going into a higher bracket. Alas, it’s hard to see how we could ever get to a lower bracket so it seems to be moot. I have given up on large conversions but still add a bit here and there just for tax diversification.
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Absolutely not.
Delaying SS until age 70 gives you lots more headroom for eight years of larger Roth conversions.
That's what I did...
+1. That was my conclusion as well. I've been converting all I can (under 22% bracket/IRMAA Tier 2) for years - before I turn 70 in a few months and claim SS. At the end of this year, I will have converted over 75% from my TIRA. Best decision for me given our family longevity.
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Old 03-06-2024, 09:35 AM   #11
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What do posters consider a large RMD. Is it based on tax %s? If we have $2M in our tIRA and $60K SS, that puts us in the lower end of 22% (edit example RMD $91K), but according to https://www.irscalculators.com/tax-calculator
we're paying $4274 in IL taxes which is not true. We would pay "0" in IL taxes.
That had me curious to look, as I hadn't paid much attention to the tax brackets in awhile. I'm single, so it looks like the 2024 brackets for me are:

10%: $0 to 11,600
12%: $11,601 to 47,150
22%: $47,151 to $100,525
24%: $100,526 to $191,950
32%: $191,951 to $243,725
35%: $243,726 to $609,350
37%: $609,351+

For me, the biggest jump would be going from the 12% to the 22% bracket, to where I can see the rationale for perhaps trying to keep my income below that.

But, if I'm already well into the 22% bracket, I don't think having some income push into the 24% bracket is going to bother me. Now going from 24% to 32%, that's another pretty big jump. I don't think I'll ever get to that threshold, though, unless I took an awfully big RMD one year for whatever reason. Now in raw dollars, I'll probably reach that point. But by the time I do, with inflation adjustments, the brackets will (hopefully) move higher, as well.

Actually, if I waited until the age of 73 (or did they move it to 75 yet?), I could see the RMD's getting pretty big, if things go well. A lot can happen in 19-21 years.
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Old 03-06-2024, 10:03 AM   #12
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That's on taxable income. Don't forget about the $14,600 standard deduction (+$1,950 if >= 65) for single filers.
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Old 03-06-2024, 10:14 AM   #13
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Originally Posted by Rianne View Post
What do posters consider a large RMD. Is it based on tax %s? If we have $2M in our tIRA and $60K SS, that puts us in the lower end of 22% (edit example RMD $91K), but according to https://www.irscalculators.com/tax-calculator
we're paying $4274 in IL taxes which is not true. We would pay "0" in IL taxes.
Your RMD should be compared to your other retirement income streams to decide if "large" or not.
My SS, claimed at age 70, is a bit over $50k per year and my #2 income stream. My #1 stream is my pension/annuity income.
And my RMD is #3 in size, less than my SS, so I consider that moderate, not large...
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Old 03-06-2024, 10:32 AM   #14
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RMDs start at 73 for people born in about 1959 or earlier. For about 1959 or later, RMDs start at 75. Unless, of course, the law is changed again.

(I say "about 1959" because there's a glitch in the law right now, and I'm not going to bother looking up the precise details. And we have nine years before we have to worry about it.)
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Old 03-06-2024, 11:06 AM   #15
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Those born in 1959 will start RMDs at 73, not 75. The Secure Act provision relative to when the RMD age goes to 75 was ambiguous, but Congress issued the following letter agreeing to make technical corrections to Secure 2.0 Act. The result of these corrections will clarify that for those born in 1959 the RMD age is 73. For those born in 1960 and beyond it moves to 75.
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Old 03-06-2024, 01:53 PM   #16
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Remember the higher tax rates if a spouse passes away and the surviving spouse has to file as an individual. That’s why we’re doing larger Roth conversions to the top of the 24% bracket.
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Old 03-06-2024, 02:11 PM   #17
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Remember the higher tax rates if a spouse passes away and the surviving spouse has to file as an individual. That’s why we’re doing larger Roth conversions to the top of the 24% bracket.
If you are well funded consider including other heirs on the IRA beneficiary to reduce the amount going to spouse at death.
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Old 03-06-2024, 03:03 PM   #18
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If you are well funded consider including other heirs on the IRA beneficiary to reduce the amount going to spouse at death.
I understand the approach, but that limits the funds going to the wife if I pass first. As heirs, the kids would get tax free from the Roth vs taxable from IRAs. You never know how big the bills will be late in life for Long term care

So far I have 56% of our funds in the Roth and 36% left in the tIRA. The rest is in I bonds and other accounts. I will start working the I Bonds down after Roth Conversions and/or roll them to Grandkids 529 accounts tax free.

I was rather lucky as some of my stocks had lost significantly in my tIRA and I held on to them. I transferred 90% of those assets and have since made significant $$ on them in the Roth as they recovered. As an example, I transferred 4500 shares of Disney around $80-$85 over two years and it is now worth $110 a share. Lucky like someone looking out for me The majority of my tIRA is now in laddered 5% CDs.

I expect to have fully converted to Roth by the time I take SS at 67/68. I am 62 now.

Everyone's situation is different and giving some to others as a beneficiary is certainly an approach.

Finances being married will be much simpler with no tIRA and real easy for a surviving spouse with very little tax. That big tax bite and potential increase to Medicare makes it worth it to me to go the Roth conversion route. And if I pass first, the tax preparation for my wife will be easy.

Colorado is a flat tax, so it doesn't matter rolling it now or withdrawing later. Just Federal Tax on SS which Colorado doesn't tax.

This isn't the solution for everyone
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Old 03-06-2024, 03:18 PM   #19
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So far I have 56% of our funds in the Roth and 36% left in the tIRA.
...
I expect to have fully converted to Roth by the time I take SS at 67/68. I am 62 now.
That sounds great to me.
I aggressively converted, to the point that I now have 68% in Roth and 9% in Trad. That's perfect for me, since I am comfortably making QCDs well in excess of any RMDs.

For the OP, I have to echo the others who said that in your situation I would definitely delay SS for this reason alone.
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Old 03-06-2024, 04:12 PM   #20
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DH and I are delaying SS to leave extra room in our tax bracket for Roth conversions now (as well as for longevity insurance).
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