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The Tax Man Wont Leave
Old 09-15-2021, 07:58 PM   #1
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The Tax Man Wont Leave

We are blessed to earn $300K annually on our investments. Retirement pension income is $180K. We are in our early 60s. Our allocation is split 50/50 between bonds & stocks. At the rate were going it looks like well be paying the higher tax rate on our IRA withdrawals at 70 after all. What am I missing?
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Old 09-15-2021, 08:01 PM   #2
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You obviously expected to be in a lower tax bracket when you were retired which is the only reason why someone would do tax-deferred savings. The problem that you have is that you have been much more financially successful than you anticipated when you did that tax deferred savings. Congratulations and enjoy!
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Old 09-15-2021, 09:02 PM   #3
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What am I missing?
What are you seeking?
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Old 09-15-2021, 09:08 PM   #4
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Making $480,000.00 annually was percentile 99.6% in 2016.
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Old 09-15-2021, 09:27 PM   #5
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I don't think you are missing much.
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Old 09-15-2021, 09:34 PM   #6
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Originally Posted by EdL3 View Post
We are blessed to earn $300K annually on our investments. Retirement pension income is $180K. We are in our early 60s. Our allocation is split 50/50 between bonds & stocks. At the rate were going it looks like well be paying the higher tax rate on our IRA withdrawals at 70 after all. What am I missing?
Well, you will have to wait a decade until you get to age for RMDs from your traditional IRA's. And you need to be charitably minded. But when you must take RMDs, you can make up to $100,000 annually of QCD's (qualified charitable distributions) to your favorite charities from your IRA's. Those QCD's will satisfy up to $100,000 of RMD's required, and the monies will go to the charities without you owing any income taxes on them. NOTE: QCD funds must be paid directly from IRA custodian to the charity. Those funds "cannot" come into your possession, and then you give funds yourself to the charity.

The beauty of QCD's is that Uncle Sam (and perhaps Aunt Governor) in effect underwrite a good part of your charitable donations! For those who have sufficient retirement income otherwise without IRA withdrawals, and who wish to give to charity, the IRA QCD route is a Godsend.
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Old 09-16-2021, 05:03 AM   #7
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:What am I missing?
A good tax accountant?
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Old 09-16-2021, 05:08 AM   #8
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Run the tax numbers after the first of you dies - ouch!
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Old 09-16-2021, 05:09 AM   #9
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Run the tax numbers after the first of you dies - ouch!
But it only gets worse for one.
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Old 09-16-2021, 05:19 AM   #10
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Run the tax numbers after the first of you dies - ouch!
Alternative? Have far less money? Give a bunch away?

Clearly it’s a problem of too much pension income! Oh, drat! If only we had less!
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Old 09-16-2021, 05:41 AM   #11
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good problem to have.
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Old 09-16-2021, 06:08 AM   #12
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You obviously expected to be in a lower tax bracket when you were retired which is the only reason why someone would do tax-deferred savings.
This. The conventional wisdom was that you'd be in a lower tax bracket in retirement. With "stealth taxes" such as IRMAA triggered by high AGI, and withdrawals from retirement accounts taxed as ordinary income even if they're dividends or long-term gains, that's not necessarily true anymore.

But who knew that when we were putting money away back then?
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Old 09-16-2021, 06:20 AM   #13
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My parents often complain about their taxes in retirement, because the premise of 401ks and tax-deferred accounts is you'll be making less in retirement, and in a lower tax bracket.

Well poor them to do better than expected. Between savings, some pensions, SS, and now RMD's. They remark with some exasperation about how it's not true! They are making more now! Oh no! I smile, and sip my coffee, and let them finish, and wait till they start the rant again the next month.
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Old 09-16-2021, 10:36 AM   #14
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Quoting my DF "If I am higher paying taxes, it means I am making money. It's a good thing".

OP--you have done very well, congratulations. You have options that many people don't.
Charitable donations, Roth conversions, helping family.
Taxes are a part of earnings.
Live life well, be happy.
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Old 09-16-2021, 10:49 AM   #15
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You could, I dunno, stop working. Unless you really like it, have a very expensive lifestyle, or for some reason haven't saved up enough from your income yet.

Then you could Roth convert for the next decade or two (or spend some on yourselves).
Both of these will reduce RMDs.

QCDs, already mentioned, could be done by both of you, so $100K each or $200K total, starting at age 70.5. This would also reduce RMDs.

Oh, and RMD start age is now the year you turn 72, not 70. And the factors have been changed so the amount you're required to take out is a bit less.
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Old 09-16-2021, 11:05 AM   #16
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You're missing my address I'll PM it to you and take that pesky money so you don't have to pay tax on it. I'll be happy to pay the taxes
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Old 09-16-2021, 11:44 AM   #17
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Originally Posted by EdL3 View Post
We are blessed to earn $300K annually on our investments. Retirement pension income is $180K. We are in our early 60s. Our allocation is split 50/50 between bonds & stocks. At the rate were going it looks like well be paying the higher tax rate on our IRA withdrawals at 70 after all. What am I missing?
You should have retired sooner?
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Old 09-16-2021, 11:50 AM   #18
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Originally Posted by EdL3 View Post
We are blessed to earn $300K annually on our investments. Retirement pension income is $180K. We are in our early 60s. Our allocation is split 50/50 between bonds & stocks. At the rate were going it looks like well be paying the higher tax rate on our IRA withdrawals at 70 after all. What am I missing?

Well, you could donate your entire RMD to tax-deductible charitable causes, that would keep your taxes somewhat lower .

Otherwise, as others have said, enjoy, and look on the bright side - your money will last longer than you will .
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Old 09-16-2021, 11:58 AM   #19
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You're missing my address I'll PM it to you and take that pesky money so you don't have to pay tax on it. I'll be happy to pay the taxes
I will split it with you. First world problem wrapped up in a humble brag.
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Old 09-16-2021, 12:24 PM   #20
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I have always considered myself to be extremely fortunate to have been in the top incremental tax bracket for many years.

Would you rather be at the no tax or the lowest tax rate....and what that implies about your income

Be thankful for what you have.
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