Your journey to 100% non-taxable?

[SecondCor521]

How does one disinherit lump sum from an IRA ??

I am curious to know

If you are the primary beneficiary, you can disinherit any portion of the money and the rest will flow to the contingent beneficiaries. By disinheriting, you cannot specify who gets the money. The contingent beneficiaries will split the amount according to their percentages as specified. You only need to write to the brokerage firm that holds the money.

The legal term is "disclaim" (or possibly "renounce").

There are a number of requirements:

1. The disclaimer must be unqualified and irrevocable.
2. The disclaimer must be in writing.
3. The disclaimer must be executed within 9 months of death.
4. You can't have already accepted the asset.
5. Perhaps this is a requirement of my state law, but the applicable probate court must be notified as well.
6. There may be others.

You can read about federal disclaimer law at 26 USC 2518: 26 U.S. Code § 2518 - Disclaimers

The disclaimed asset then passes as though you had predeceased the original owner - either via beneficiary designations, the will, or state intestacy law.

 

[SecondCor521]

As for the OP, it's possible to convert too aggressively. As others have pointed out, leaving enough in the tax-deferred accounts to fill the standard deduction or itemized (medical) deduction would effectively be taxed at 0%, and tax-deferred money left to charity would also be taxed at 0%.

If RMDs start at about 4%, then for a single person over 65 the standard deduction of about $15K would mean having an IRA balance of $375K. For MFJ, it would be approximately twice that, or $750K.

If someone has other income streams such as a pension, then maybe the analysis is different. And I'm not thinking about how SS and SS taxability plays into all of this but it would likely be a consideration.

 

[NgineER]

If there's any chance you get lucky enough to retire earlier than 59.5 (or 55, IF your company allows that rule, many don't)...I have seen far too many folks come here with sizeable eggs ready to support a healthy retirement, asking "Um I'm 52 I have $4m, how can I get my money without heavy taxes and penalties and retire today?" (spoiler, they can't).

They can and it is likely better from a taxation perspective with a long time horizon to start drawing down these accounts at 52 vs. at 59.5.

The pre-55/pre-59.5 can be handled with a 72t. Or principal withdrawals from the Roth. There’s always a way to get to that money.

Agreed, but it requires planning, which I'd say people on this board know how to do.

But I am also a proponent of balancing your assets better to not be completely in one bucket as it likely is not the best approach, although using business losses to convert from traditional to Roth IRA tax free is a great option if you have it.

For our situation Mrs. NgineER had contributed to a 401k before we met and while in grad school converted this to a Roth IRA at very low taxes. The last year of my wife's job before staying home with the kids we contributed the max to a Roth 401k instead of the traditional. After her "ER" to be a SAHM (which is far from ER) we did some Roth IRA conversions to the tune of $50k in total over five years. I have for about a decade been contributing the maximum to the after-tax 401k portion at my work (9% of salary) which is rolled over to a Roth IRA every month. Finally, we've been mainly contributing to Roth IRAs rather than traditional IRAs.

This has led us to have over $1M in Roths, about $100k less in the traditional accounts and finally a measly $300k in ESPP and brokerage accounts. This is something we do want to boost, but buying cabins or rental properties keep setting us back. The power of compounding means that we will never be able to catch up in the traditional account before ER in a little over five years.

 

[kgtest]

What you plan seems unnecessary to me. The tax code allows for several ways to pay ZERO tax on otherwise taxable assets.
First you’ve got the standard deduction to exceed.
Then qualified dividends and LTCG pay 0 tax up to their level.
I’ve been retired for 6yrs, starting at age 52. Having a significant amount in taxable accounts allows for the early retirement without stealing from your deferred and tax free buckets early. You really want to hold that Roth as long as possible or practical.
I can understand limiting 401k contributions, but don’t shun taxable assets. They give you the most options.

I can withdraw my contributions tax free. I've contributed 100s of thousands to my Roth IRA at this point. DW has as well. We did this through mega back door conversions and some contributions up to this point during some years with significant business losses passing through.

We will need at least 8 years or so of cash to live on. Our plan was to take some from our Broker, and the rest from Roth.