RMDs are they really something to worry about?

[pb4uski]

...My 87 year old widower father does not like RMD. I remind him that as long as the RMD is more than he needs, he's fine.

Taxes are an expense. My best guess is I came out ahead by having them deferred. But who knows?

+1 as much as everyone likes to wring their hands on RMDs in most cases the tax they pay on RMDs will be less than the tax that they avoided when they deferred that income. I know that it will be for me.

For those that end up paying more tax on RMDs than they avoided when they deferred that income, then they have been much more successfully financially than they presumably thought that they would be when they deferred that income expecting to have a lower tax rate in retirement.

My pet peeve are the people who rail against RMDs as being unfair. The deal was tax DEFERRAL, not totally avoiding taxes and RMDs have been a feature of the program to ensure that income ultimately was taxed since the beginning, so there is no reason to complain unless you just like to complain.

 

[pb4uski]

...I think this was a clever way for the Government to invest in stocks, without doing it directly. Think about it, if our investments do well, then the Government gets to share in our good fortune. ...

While that would seem to be the indirect result, I highly doubt that was the plan. Congress just isn't that smart.

 

[Koolau]

+1 as much as everyone likes to wring their hands on RMDs in most cases the tax they pay on RMDs will be less than the tax that they avoided when they deferred that income. I know that it will be for me.

For those that end up paying more tax on RMDs than they avoided when they deferred that income, then they have been much more successfully financially than they presumably thought that they would be when they deferred that income expecting to have a lower tax rate in retirement.

My pet peeve are the people who rail against RMDs as being unfair. The deal was tax DEFERRAL, not totally avoiding taxes and RMDs have been a feature of the program to ensure that income ultimately was taxed since the beginning, so there is no reason to complain unless you just like to complain.

Well, at least so far, I haven't heard a complaint about RMDs being unfair. Difficult to manage, maybe, but not unfair. We all knew what we were getting into when we signed on. It's just that the tax codes have changed in the mean time (sometimes more favorable and sometimes less.) That and other circumstances of life make managing RMDs more difficult. The Thread Title suggests worrying about RMDs. Some of us do and some don't, but I don't think fairness enters into it. YMMV

 

[Rianne]

We can manage our income in several different ways and stay in the 12% tax bracket. Even with RMDs which won't come around for 8 years. Yes, there's a concern taxes will go up but Congress could decide to tax Roths as well.

 

[TheWizard]

To answer the original question:
"RMDs are they really something to worry about?"

My answer is NO...

Looks like we agree.

I think the "problem" in some instances is how people perceive their tax-deferred accumulation.
Some look at it as Personal Wealth, where I look at it as DEFERRED COMPENSATION. As such, it's good to start withdrawing funds from tax-deferred at the very start of retirement.

Those withdrawals will typically be for some combination of living expenses and Roth conversions, especially in the years prior to RMD age, when you have complete flexibility with those withdrawals.

In my case, I began withdrawing funds from tax-deferred when I retired at age 63.
When I started SS at age 70, I DECREASED my withdrawals/conversions down to approximately what my first RMD would be two years later.

As a side note: after ten years of retirement (thus far), I have around $500k more in after-tax accounts, including Roth, than I did at the start. And I had very little in those accounts to start with, so the bulk of that increase is due to new money coming in, not growth of the original amounts...

 

[dknighd]

Congress could decide to tax Roths as well.

That would make me very unhappy!

 

[dknighd]

While that would seem to be the indirect result, I highly doubt that was the plan. Congress just isn't that smart.

Sometimes I wonder . . .

 

[dknighd]

And I had very little in those accounts to start with, so the bulk of that increase is due to new money coming in, not growth of the original amounts...

Sounds like magic to me.

 

[Texas Proud]

+1 as much as everyone likes to wring their hands on RMDs in most cases the tax they pay on RMDs will be less than the tax that they avoided when they deferred that income. I know that it will be for me.

For those that end up paying more tax on RMDs than they avoided when they deferred that income, then they have been much more successfully financially than they presumably thought that they would be when they deferred that income expecting to have a lower tax rate in retirement.

My pet peeve are the people who rail against RMDs as being unfair. The deal was tax DEFERRAL, not totally avoiding taxes and RMDs have been a feature of the program to ensure that income ultimately was taxed since the beginning, so there is no reason to complain unless you just like to complain.

The problem is that when we were young most did not think about the tax bracket you were in nor where you would be when you retire...



AND, we did not have the ROTH option...


The good news is that when I was contributing I was getting matching which more than offset any tax bracket change that might occur...


I told my DS and DD to not contribute to a regular IRA until they get into a higher tax bracket... do the ROTH... and if no IRA ROTH option (do not know why there would not be) then only contribute to get match... do ROTH on your own..

 

[TheWizard]

...I told my DS and DD to not contribute to a regular IRA until they get into a higher tax bracket... do the ROTH... and if no IRA ROTH option (do not know why there would not be) then only contribute to get match... do ROTH on your own..

IRA annual contribution limit is very modest.
I think you mean 401(k) and 403(b) plans, which have annual contribution limits up around $55-60k nowadays, including employer contributions along with both mandatory and elective employee contributions...

 

[COcheesehead]

+1 as much as everyone likes to wring their hands on RMDs in most cases the tax they pay on RMDs will be less than the tax that they avoided when they deferred that income.

+1
I avoided top or next to top tax brackets with my contributions. Anything less is a win.

 

[pacergal]

+1 as much as everyone likes to wring their hands on RMDs in most cases the tax they pay on RMDs will be less than the tax that they avoided when they deferred that income. I know that it will be for me.

For those that end up paying more tax on RMDs than they avoided when they deferred that income, then they have been much more successfully financially than they presumably thought that they would be when they deferred that income expecting to have a lower tax rate in retirement.

My pet peeve are the people who rail against RMDs as being unfair. The deal was tax DEFERRAL, not totally avoiding taxes and RMDs have been a feature of the program to ensure that income ultimately was taxed since the beginning, so there is no reason to complain unless you just like to complain.

Agree

No reason to worry about RMD, the Tax Man cometh no matter what. Pay now or pay later.
Just like age of death, you can only guesstimate what future tax rates may be.

Do what works for you.


My skeptical little brain thinks Roths have a possibility of being taxed in the future, based on income. Blasphemy, I know.

 

[dknighd]

My skeptical little brain thinks Roths have a possibility of being taxed in the future, based on income. Blasphemy, I know.

I doubt they will ever tax Roth accounts directly. They might tax spending.

 

[Bryan Barnfellow]

+ I was getting "more than" 100% tax deferred matching while I was socking it away in my 401k all those years. If I contributed 5%, my company would contribute/match 6%. From my POV it was taxed deferred free money. I remember some of the younger folks working for me would ask when they became eligible to participate in the plan, if I thought the companies 401k was a good deal.

When I was w*rking, a longtime colleague had her 55th birthday and casually said to me, "I guess its time to go down to HR/Benefits now and sign up for the 401(k)"--actually a 403(b) in the nonprofit world. I was almost shocked into incoherence when I heard that! If I remember correctly, our major research university provided an 11% match at the time for our 6%.

The kicker in all of this is that she was engaged to a fairly wealthy man, who died unexpectedly 3 months before the wedding. His grown children told her, "That's a shame. See ya."

-BB

 

[Car-Guy]

I'm not worried, I'm pretty sure that money will be taxed one day. But I do think about RMD. I wish they did not exist, but I understand the reason. The government was "kind" enough to defer taxes for many years. They need the taxes that were deferred. Hence the need for RMD. I do not think that increasing the age of RMD and decreasing the time to withdraw from inherited tax deferred accounts was an accident. They can't defer taxes for ever!

Bingo

I think this was a clever way for the Government to invest in stocks, without doing it directly. Think about it, if our investments do well, then the Government gets to share in our good fortune.

OTOH, there are those who have lost a lot of money gambling in the market with their taxed deferred accounts. That lost money will not be taxed.

Taxes are an expense. My best guess is I came out ahead by having them deferred. But who knows?

Particularly if there was a 50 or 100% matching fund when you put your money in. Plus most likely you were in a higher tax bracket when you put the money in than you will be when you take it out. (Some will be exceptions of course.)

 

[Chuckanut]

I don’t mind the income tax on RMDs, but i think the way they handle IRRMA is down right unfair. One dollar over the limit results in a huge Medicare tax increase. We have computers that can calculate a more fair way of doing that. Just my 2¢.

Overall, I regard any income tax on RMDs to be a success tax.

 

[Car-Guy]

I don’t mind the income tax on RMDs, but i think the way they handle IRRMA is down right unfair. One dollar over the limit results in a huge Medicare tax increase. We have computers that can calculate a more fair way of doing that. Just my 2¢.

Overall, I regard any income tax on RMDs to be a success tax.

Shouldn't be any IRRMA at all, IMO. I already paid more than most (well many) for medicare when I worked.

 

[dknighd]

Shouldn't be any IRRMA at all, IMO. I already paid more than most (well many) for medicare when I worked.

Consider yourself a lucky person.

 

[RetMD21]

Shouldn't be any IRRMA at all, IMO. I already paid more than most (well many) for medicare when I worked.

Once i found out that Medicare part B premiums are heavily subsidized by general tax revenues I stopped being angry about paying IRMAA.

 

[TheWizard]

Once i found out that Medicare part B premiums are heavily subsidized by general tax revenues I stopped being angry about paying IRMAA.

Would be nice if we got a charitable tax deduction for the amounts we pay in IRMAA...

 

[audreyh1]

While that would seem to be the indirect result, I highly doubt that was the plan. Congress just isn't that smart.

Oh, I think it very much was the plan, albeit indirectly. Wall Street lobbied hard for the program which meant way more individuals investing in stocks and bonds and needing brokerage accounts through their employers and paying the associated fees. It was quite a windfall for Wall Street.

 

[audreyh1]

Once i found out that Medicare part B premiums are heavily subsidized by general tax revenues I stopped being angry about paying IRMAA.

Same here.

 

[EarlyandLate]

I really want to thank you all for this thread. It has given me food for thought. I'm lazy and tend to be a "set it and forget it" person when it comes to retirement planning and investing. I have not done Roth conversions during retirement so far because of the ACA thresholds and sheer laziness. I always planned to just let the RMDs and the resulting tax be whatever it would be. As it turns out, I'll likely be in a lower tax bracket for the RMDs. I checked and it looks like for more than half the years from 2001 to 2010 I was in the 33% tax bracket and one year even hit the dreaded AMT. For the last few years of that I did the catch-up contributions to my 401k, so, yeah, I way over-contributed to my 401k. I'm thinking now that I may start taking distributions from my 401k up to the top of the 22% bracket, even though I don't have an immediate need for the $. Still working on that idea. Stay tuned, I may be asking some questions around that.

 

[Car-Guy]

Once i found out that Medicare part B premiums are heavily subsidized by general tax revenues I stopped being angry about paying IRMAA.

You mean, the same "higher" tax revenues/brackets that I pay and then pay IRMAA on top of it... Somehow that doesn't make me feel any better.

 

[dmpi]

You mean, the same "higher" tax revenues/brackets that I pay and then pay IRMAA on top of it... Somehow that doesn't make me feel any better.

Paying for medicare with higher premiums along with higher taxes combined with the thread on medicare won't pay for your annual checkup is like getting stabbed with a three prong pitchfork. I can see why some people rave about medicare while others do not.