Too much money in IRA

[Koolau]

I always felt that outside of the margins having too much is way way better than having not enough when it comes to $$$.

I agree, but if I had it to do all over again, I'd put more into taxable than I did. I ended up with "too much" in my 401(k) and have had to deal with those issues. Again, it's a 1st world problem for which I'm happy by comparison to being poor in retirement. YMMV

 

[bloom2708]

+1 just pay the tax when the time comes. Can't have too much.

You deferred taxes on every one of those dollars for all those years.

Deferred is fine. Having too much means you can easily afford to pay the tax. Pay it with glee.

 

[Wile E. Coyote]

Once she saw your IRA's she realized she needs to bill you more. Expect those attorney fees to go up. Otherwise I think her comments are tax related.

 

[2017ish]

We definitely had "too much" in TIRA accounts at retirement. But, unlike OP, we were 57/56, and have been able to aggressively convert to Roths for the past 6 years. Since all Roth monies were in stock investments, we now are basically 50/50 between Roth and traditional, and on our way to probably 3 or 4 to 1 ratio.

I don't know how much wiggle room OP has at their ages. Roth conversions, qualified charitable contributions, and having a big nut set aside in TIRA for deductible healthcare expenses later in life all can help... Need more details.

 

[Route246]

+1 just pay the tax when the time comes. Can't have too much.

You deferred taxes on every one of those dollars for all those years.

Deferred is fine. Having too much means you can easily afford to pay the tax. Pay it with glee.

Nobody outside of FI people are going to feel any sympathy towards any FI person who complains about paying too much tax. It is a problem they would gladly trade places with you for.

 

[Exchme]

Even in hindsight, it's hard to know for sure whether you put "too much" in tax deferred during your working years as there are so many moving parts.

Favoring tax deferred:
+Putting money in your 401k reduced tax drag all these years. Over long periods of time, this becomes important.
+You may have gotten a match on some of the contributions, that was free money.
+You may have (well at least I did) contributed more in high earnings years.
+Many tax brackets are lower now than they were years ago.

On the minus side-
-Growth may have raised your retirement tax bracket higher than you thought.
-You are paying regular income taxes on all those years of gains when they come out.
-After you pass, your heirs would have gotten a step up basis in taxable, not so in tax deferred.

OP can either do some modeling or hire a one-time-fee financial planner (NOT and AUM advisor) to look at the financials to see if there is anything like Roth Conversions that can be done. The window is closing on this and the tax cake will be fully baked in a few years when RMDs start.

 

[Midpack]

HA! That's the correct answer in my opinion.I've used that mentality for many years. My friend way back in the day was on Wall Street and told me stop worrying about the taxes- " I'd rather take the money and pay the taxes than worry about the taxes and not make the money". Anyways, too much is not concern. IMO

+1

Do Roth conversions if you can, or if you want to, but this is a first world issue. Is there a thread somewhere with someone complaining about IRA RMDs ruining their retirement?

+1 just pay the tax when the time comes. Can't have too much.

You deferred taxes on every one of those dollars for all those years.

Deferred is fine. Having too much means you can easily afford to pay the tax. Pay it with glee.

You’re welcome to miss the point. If I can reduce lifetime taxes by almost $400K with simple Roth conversions over a period of 6-7 years, I’d be a fool not to. The math is pretty straightforward…

 

[Koolau]

You’re welcome to miss the point. If I can reduce lifetime taxes by almost $400K with simple Roth conversions over a period of 6-7 years, I’d be a fool not to. The math is pretty straightforward…

What's $400K among us well-to-do Early Retirees? Pocket change.

 

[G-Man]

You can definitely save too much in a TIRA such that you can be forced to pay substantially more in taxes over your lifetime, by being forced into a higher tax bracket for 15-25 years because of RMDs you don't want or need. That's why anyone with a lot of money in a TIRA owes it to themselves to consider Roth conversions. Not beneficial for some, a wash for some, but highly beneficial for others. And relying on a free online calculator to decide on Roth conversions is likely a mistake...

The difference in lifetime taxes in the example below amounts to almost $400K more in Federal taxes without conversions...

What tool are you using to create the Roth conversion charts?

 

[Masquernom]

I would be very happy to have WAY too much in an IRA! I'd want to have the biggest tax bill for a RMD in history!

 

[CRLLS]

RMDs can not only affect your federal tax bracket, for some, state taxes too, but also IRMAA and federal benefits that may come along from time to time such as the Covid "Economic Impact Payments". One doesn't know what may be the final solution to the SS running out of money.

I wish I had done a better job of Roth contributions and Roth conversions earlier. Increasing my taxes just didn't feel right at the time. So be it for us.

 

[Koolau]

RMDs can not only affect your federal tax bracket, for some, state taxes too, but also IRMAA and federal benefits that may come along from time to time such as the Covid "Economic Impact Payments". One doesn't know what may be the final solution to the SS running out of money.

I wish I had done a better job of Roth contributions and Roth conversions earlier. Increasing my taxes just didn't feel right at the time. So be it for us.

Yeah, I'm in the same boat. I did do some Roth conversions (and got all the Roths I could when w*rking.) Still, I could have done it a lot better. Too late now, but I'll survive.

 

[GrayHare]

What hurts is all those cap gains (preferential tax rate) gathered within a tIRA and t401k will instead be taxed at higher ordinary income rates.

 

[jollystomper]

You’re welcome to miss the point. If I can reduce lifetime taxes by almost $400K with simple Roth conversions over a period of 6-7 years, I’d be a fool not to. The math is pretty straightforward…

No one is missing the point, some are just not as hung up on this as others are .

 

[USGrant1962]

What hurts is all those cap gains (preferential tax rate) gathered within a tIRA and t401k will instead be taxed at higher ordinary income rates.

+1

A rate of 22% or 24% ordinary instead of 15% LTCG is a 47% to 60% increase in taxes paid. A little bit of tax drag doesn't overcome that. Or alternately, it reduces your after-tax monies by 7-9% - up to a month of spending every year.

 

[TheWizard]

Too much in a tIRA means something more than $2M per person.
RMD on $2M is around $80K per year.
Add that to $50K per year of age 70 SS and you have a decent retirement income, per person as I said...

 

[TheWizard]

What hurts is all those cap gains (preferential tax rate) gathered within a tIRA and t401k will instead be taxed at higher ordinary income rates.

Ok, but those contributions to my 403(b) were mostly made from a 28% marginal tax rate back then.
Shouldn't be too hard to do some math to figure out if they made sense in the end...

 

[Midpack]

What tool are you using to create the Roth conversion charts?

Income Strategy, no longer available.

 

[Spock]

...
Regarding LTC, if you have large medical expenses for assisted living or memory care, you can make larger withdrawals and write a lot of the income off with your medical expense deductions. You wouldn't want to withdraw money now specifically for LTC since you wouldn't get the advantage of the tax deductions.

That's a twist I hadn't thought of in relation to self-insuring. thanks.

 

[rk911]

Too much money in IRA?

I'm a novice here and more of a saver than a spender. I'm 68 and my wife is 70
Wife and I retired about 17 years ago and took SS at 62. For us, we live a very good life.
We just re-did our Wills. A traditional Will for general combined money and the stuff. Then upon death each IRA money goes into a Trust for the other's care.
As a passing statement the attorney said we had too much money in IRAs and should talk to our adviser.
She wasn't fishing for business and suggested a meeting with my accountant, lawyer and adviser. (which she added, that no one ever does)

How much should my wife and I have in our IRAs?
We do not have long term care insurance. I suspect that was her reason for the comment?

I'm asking this group for the questions I should ask my professionals?
As I never considered having too much money in tax deferred savings, only thinking about the 15% tax bracket.

I know the combined experience of this esteemed group will help me learn what I am missing.Thanks in advance for your help and advice. Let me know if you need more information.

Too much $ in an IRA I can't imagine it being possible to have too much money period, much less in an IRA. Do you have favorite charities? If yes consider bequeathing the balances in your IRAs to charity via a QCD upon the second death of you or your wife. Or...given to your children or grandkids upon the second death.

 

[Sunset]

If a person absolutely really has too much in the IRA, they can Will some to children / grand kids upon the first death.
Does prevent a little bit the issue of remarriage to a nurse/caregiver diverting the family estate..

 

[USGrant1962]

If a person absolutely really has too much in the IRA, they can Will some to children / grand kids upon the first death.
Does prevent a little bit the issue of remarriage to a nurse/caregiver diverting the family estate..

Yes, we did that. Though it is not via the will, but rather through beneficiary designations.

 

[iloveyoga]

One and all, need to stop worrying about having too much, pay the taxes and enjoy your wealth! Thanks.

Agree!!

 

[kgtest]

I am 42, been saving since I was 26. Currently DW and I have 35% of our assets in the way of the tax torpedo. The idea is to sink the size of the IRA ship, by doing roth contributions and conversions on the sea's passage... but not too much that you overheat the main engine (pay too much tax).

People who SHOULD NOT do roth conversions are those that expect to be in a LOWER tax bracket as they begin to withdraw (distribution phase of retirement).

I will be in a higher tax bracket (paying more taxes) Later, when my RMD (Required Minimum Distribution) comes DUE on the IRA money that I had been saving tax free all these years!

Uncle Sam is gonna get his!

DF who is 72 has 58% of his assets in the way of the torpedo...a good half the ship! One sign that he did NOT do enough roth conversions, is that now, starting this year and beyond, due to RMD he will forever be in at LEAST a 22% bracket, if not more soon...

Because his IRA balance is so sizable, and his RMD is then so sizable, that huge distribution is taxed along with his pensions, social security, mom's pension and social security, and of course now his distribution.

I would rather have a tax problem than an income problem is what my dad used to say, but now he is realizing the benefits of having a creative accountant as well to reduce that taxable income.

My thing is I will likely inherit an IRA from my dad, RIGHT when I am trying to FIRE. So I will be taking my own taxed early distributions for about 4 to 5 years easily, while I will also be taking out a 100k a year Inherited RMD distribution.

So this tax torpedo, it can come generational and hit your kids, and likely even your grandkids. That's why it is REALLY appealing to convert as MUCH of your IRA to Roth early in your working years (and lower tax years) and pay the tax as soon as possible if you have been primarily saving into an IRA.

I think Roth conversions (and the Roth account type in general) are probably the single most important attribute to the US Investment opportunities that we as middle-class have access to.

IMAGINE taking that money tax free two generations later!

 

[Midpack]

^^^ Thanks for sharing. We would have been in the 25% bracket or worse (assuming TCJA expires on time) for the rest of our lives, won't be thanks to a little planning. Roth conversions not difficult and they're worth the effort for some with large tax deferred holdings. Why anyone would passively pay more than legally required is beyond me...