The Tax Man Won’t Leave

[EdL3]

We are blessed to earn $300K annually on our investments. Retirement pension income is $180K. We are in our early 60’s. Our allocation is split 50/50 between bonds & stocks. At the rate we’re going it looks like we’ll be paying the higher tax rate on our IRA withdrawals at 70 after all. What am I missing?

 

[pb4uski]

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!

 

[SevenUp]

What am I missing?

What are you seeking?

 

[JT90505]

Making $480,000.00 annually was percentile 99.6% in 2016.

 

[RobbieB]

I don't think you are missing much.

 

[RetireeRobert]

We are blessed to earn $300K annually on our investments. Retirement pension income is $180K. We are in our early 60’s. Our allocation is split 50/50 between bonds & stocks. At the rate we’re going it looks like we’ll 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.

 

[marko]

:What am I missing?

A good tax accountant?

 

[donheff]

Run the tax numbers after the first of you dies - ouch!

 

[target2019]

Run the tax numbers after the first of you dies - ouch!

But it only gets worse for one.

 

[audreyh1]

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!

 

[frank]

good problem to have.

 

[athena53]

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?

 

[Aerides]

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.

 

[pacergal]

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.

 

[SecondCor521]

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.

 

[ivinsfan]

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

 

[jj]

We are blessed to earn $300K annually on our investments. Retirement pension income is $180K. We are in our early 60’s. Our allocation is split 50/50 between bonds & stocks. At the rate we’re going it looks like we’ll be paying the higher tax rate on our IRA withdrawals at 70 after all. What am I missing?

You should have retired sooner?

 

[jollystomper]

We are blessed to earn $300K annually on our investments. Retirement pension income is $180K. We are in our early 60’s. Our allocation is split 50/50 between bonds & stocks. At the rate we’re going it looks like we’ll 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 .

 

[Dtail]

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.

 

[brett]

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.

 

[Sunset]

We are blessed to earn $300K annually on our investments. Retirement pension income is $180K. We are in our early 60’s. Our allocation is split 50/50 between bonds & stocks. At the rate we’re going it looks like we’ll be paying the higher tax rate on our IRA withdrawals at 70 after all. What am I missing?

You are missing the BTD thread !

Of course your accountant has already told you to do Roth conversions or at least IRA withdrawals to spend over a longer time rather than waiting until age 72.

You are also probably missing travel.

Oh, yeah, and you missed us on your Christmas gift list

 

[ivinsfan]

I will split it with you. First world problem wrapped up in a humble brag.

I was first so no splitting ..early bird and all that.

 

[EdL3]

We are very thankful for the blessings. Just hate paying so much in taxes. We do fund our own charitable foundation through a brokerage firm.

 

[statsman]

What am I missing?

I don't know. What are *you* missing? I can only dream about having this type of first world problem.

But I will say this. Far too many people have sucked the life out of their retirements by spending a great deal of time worrying about and constantly trying to avoid taxes.

 

[all4j]

A couple of observations. You didn't mention the size of the tax deferred pools or your current spend rate. Depending on the nature of your investments, you could consider placement of your stocks/bonds -- factoring in after tax returns. Remember that RMDs will not get qualified dividend treatment.

This can also serve as a teaching point for younger investors. I'm sure you realize you have larger than average pension (perhaps from government?). Older folks may have had defined benefit plans, but younger will be more defined contribution. So, most "expert" advice you may have been exposed to didn't fit your case. Few people have "average" situations, but most advice is for the average person!

Sounds also as if you are maybe benefiting from a sequence of return that is favorable -- reverse of what many have contingency plans for. Doesn't hurt to consider what one will do in "best case" scenarios (both financially & "emotionally")