RMD questions (not about taxes)

[Tiny]

I can't seem to find the answer to this.   

Let's say I've been taking distributions? from my  401K to fund my retirement lifestyle  every year before I have to take RMDs.  I will be taking a distribution until I die or until the account runs out of money.      

What happens when I get to the age of having to take an RMD? 

Let's say I'm taking $40K a year out of the 401K.   

I am totally making this up - let's say the RMD would be 35K     Does this mean I only need to take an additional 5K out to continue to fund my lifestyle?  

I'm assuming if the RMD amount is say $50K  then  I get to increase my lifestyle by 10K  (or move the overage to "investments/savings" so it can fund future retirement time).  

Is that how it works?    If I'm already strategically planning on how the 40K I'm pulling out of my 401K is playing with the rest of my retirement income etc...  as long as the RMD amount is less than my yearly draw - it doesn't change my plan.... and if it's  not a ginormous amount above my yearly draw it may not be a big deal ? 


(I found the IRS RMD worksheet... it's helpful   as I get older  the amount of RMD may increase if my 401K holds steady or increases in value.). 


 
 

[minnesotapaintlady]

Yes, if you're withdrawing the amount of the calculated RMD anyhow, it won't affect you at all.   

But, you don't HAVE to increase your lifestyle if RMDs go beyond what you would normally draw.  You can always just save the RMD money instead of spending it. 

[tallguy]

Yes, that is correct.  Remember what RMD stands for: Required Minimum Distribution.  Every year you find out what your minimum has to be, and as long as you do that much before anything else (like a Roth conversion), you are fine.  Remember also that the percentage of the account that you must take out as your RMD will increase every year.  That could soon put you into a position where you have to take out more than you would otherwise desire.  Withdrawing it is mandatory.  Spending it is optional.  

[nidena]

You can also have your RMD sent to a non-profit/charity of your choice.  You just need the real street address--no P.O. Boxes--to do so.

My boss had a client who wanted her RMD sent to four different charities.  The paperwork was a headache because she had only website addresses so I had to do some digging to find the actual street addresses.  And, in our company, our Compliance dept had to confirm with the client that they did, in fact, want these transactions to occur.  She allocated all of her RMD to these charities.

Another client did auto withdrawals throughout the year and then, at the end of the year, had the remainder sent to his account.

[Tiny]

Thanks!

There are just so many moving parts to this "retirement income" thing for me that it makes my head spin sometimes.

I'm ok paying income taxes on my 401K money (and other income streams) - I'm not aiming for 100% optimization for tax purposes - mostly I just want to avoid really costly mistakes.

I'm seeing how in pre-retirement/retirement - having a plan that looks out at least 5 years is a wise thing to do. Since it's looking more and more like "timing" is a very important part of retirement financial planning.

I can see how this can be a paradigm shift for many people - since they may only look/plan a year or two ahead during their working years. They aren't always making decisions today with an eye to how it plays out over a few years or it's future effects.

I've had lots of "paradigm shifts" over the last few years as I look ahead to what my retirement might look like and how my various streams of income might best be accessed.


This also gave some perspective to the high level advice to use my employer's 401K Roth option tossed out by my tax preparer/accountant when I mentioned the future and my very large 401K/IRA balances. I think that I will wait a bit - as my income may drop dramatically and may be better positioned to do Roth Conversions.... in the near future for a handful of years.


It's a work in progress... and I want to take advantage of the "time" part of all of this...    

[Tiny]

Apr 14, 2022 11:24:02 GMT -5 nidena said:

You can also have your RMD sent to a non-profit/charity of your choice.  You just need the real street address--no P.O. Boxes--to do so.

My boss had a client who wanted her RMD sent to four different charities.  The paperwork was a headache because she had only website addresses so I had to do some digging to find the actual street addresses.  And, in our company, our Compliance dept had to confirm with the client that they did, in fact, want these transactions to occur.  She allocated all of her RMD to these charities.

Another client did auto withdrawals throughout the year and then, at the end of the year, had the remainder sent to his account.

I had read about that.   Unfortunately - I need to use my 401K/IRA money yearly in retirement - so not anticipating having much extra to donate/give.   (there is a line item for "giving" in the old retirement expense budget).  

I wonder if this is what got one of my siblings all gung ho about setting up his own personally run "non profit/charity" ...  I'm guessing he would then contribute his big  RMDs tax free to his personally run "charity" and beat The Man at his own game.  I think there was something about employing his kids in this entity further cheating The Man in some way...   I couldn't figure out what "loop holes" he was exploiting with this "thought experiment"      

He likes to come up with "get rich quick" schemes - or perhaps he is commenting on what the very wealthy do to keep as much of their money under their control...     

[tallguy]

Apr 14, 2022 11:37:59 GMT -5 Tiny said:

Thanks!

There are just so many moving parts to this "retirement income" thing for me that it makes my head spin sometimes.

I'm ok paying income taxes on my 401K money (and other income streams) - I'm not aiming for 100% optimization for tax purposes - mostly I just want to avoid really costly mistakes.

I'm seeing how in pre-retirement/retirement - having a plan that looks out at least 5 years is a wise thing to do. Since it's looking more and more like "timing" is a very important part of retirement financial planning.

I can see how this can be a paradigm shift for many people - since they may only look/plan a year or two ahead during their working years. They aren't always making decisions today with an eye to how it plays out over a few years or it's future effects.

I've had lots of "paradigm shifts" over the last few years as I look ahead to what my retirement might look like and how my various streams of income might best be accessed.


This also gave some perspective to the high level advice to use my employer's 401K Roth option tossed out by my tax preparer/accountant when I mentioned the future and my very large 401K/IRA balances. I think that I will wait a bit - as my income may drop dramatically and may be better positioned to do Roth Conversions.... in the near future for a handful of years.


It's a work in progress... and I want to take advantage of the "time" part of all of this...    

Absolutely true.  When to retire, when to claim Social Security, if and when to do Roth conversions, whether you can qualify for any tax breaks....  It is difficult to even know all of the factors that intermix here, but if you keep asking questions there are enough knowledgeable people that can give you answers, or at least things to think about. 

[tskeeter]

Apr 14, 2022 11:37:59 GMT -5 Tiny said:

Thanks!

There are just so many moving parts to this "retirement income" thing for me that it makes my head spin sometimes.

I'm ok paying income taxes on my 401K money (and other income streams) - I'm not aiming for 100% optimization for tax purposes - mostly I just want to avoid really costly mistakes.

I'm seeing how in pre-retirement/retirement - having a plan that looks out at least 5 years is a wise thing to do. Since it's looking more and more like "timing" is a very important part of retirement financial planning.

I can see how this can be a paradigm shift for many people - since they may only look/plan a year or two ahead during their working years. They aren't always making decisions today with an eye to how it plays out over a few years or it's future effects.

I've had lots of "paradigm shifts" over the last few years as I look ahead to what my retirement might look like and how my various streams of income might best be accessed.


This also gave some perspective to the high level advice to use my employer's 401K Roth option tossed out by my tax preparer/accountant when I mentioned the future and my very large 401K/IRA balances. I think that I will wait a bit - as my income may drop dramatically and may be better positioned to do Roth Conversions.... in the near future for a handful of years.


It's a work in progress... and I want to take advantage of the "time" part of all of this...    

I encourage you to reconsider your position on timing of Roth contributions.  Income tax rates have been reduced administration after administration for many years.  So tax rates are well below historical averages.  I don’t think that the current tax structure is sustainable.  Especially considering the spending plans and policies of the current administration.  I also believe future administrations will need to increase tax rates. 

You’ve indicated you have substantial 401K/tIRA balances.  That could force you into a very high tax bracket once you start taking RMD’s.  Last year Biden proposed that the maximum tax rate should kick in at $400K of income.  That proposal died as legislation progressed, but Biden has raised the same proposal in 2022.  I think that eventually, some variation of the Biden proposal will be passed.  Currently, the maximum tax rate, including surcharges, is 39.5%.  As rates are increased and tax brackets compressed, you could find yourself giving something close to 45% of your gross income to the federal government.

Another timing consideration is that one of the 2021 tax proposals was to eliminate, or severely restrict, Roth conversions.  If you delay getting funds into a Roth account, you could find that a Roth conversion is no longer an option.

Who knows what combination of tax proposals will ever become reality.  But, I think that funneling a small portion of your retirement saving into a Roth now is a low risk, potentially high reward proposition.

[tallguy]

Apr 15, 2022 19:05:04 GMT -5 tskeeter said:

Apr 14, 2022 11:37:59 GMT -5 Tiny said:

Thanks!

There are just so many moving parts to this "retirement income" thing for me that it makes my head spin sometimes.

I'm ok paying income taxes on my 401K money (and other income streams) - I'm not aiming for 100% optimization for tax purposes - mostly I just want to avoid really costly mistakes.

I'm seeing how in pre-retirement/retirement - having a plan that looks out at least 5 years is a wise thing to do. Since it's looking more and more like "timing" is a very important part of retirement financial planning.

I can see how this can be a paradigm shift for many people - since they may only look/plan a year or two ahead during their working years. They aren't always making decisions today with an eye to how it plays out over a few years or it's future effects.

I've had lots of "paradigm shifts" over the last few years as I look ahead to what my retirement might look like and how my various streams of income might best be accessed.


This also gave some perspective to the high level advice to use my employer's 401K Roth option tossed out by my tax preparer/accountant when I mentioned the future and my very large 401K/IRA balances. I think that I will wait a bit - as my income may drop dramatically and may be better positioned to do Roth Conversions.... in the near future for a handful of years.


It's a work in progress... and I want to take advantage of the "time" part of all of this...    

I encourage you to reconsider your position on timing of Roth contributions.  Income tax rates have been reduced administration after administration for many years.  So tax rates are well below historical averages.  I don’t think that the current tax structure is sustainable.  Especially considering the spending plans and policies of the current administration.  I also believe future administrations will need to increase tax rates. 

You’ve indicated you have substantial 401K/tIRA balances.  That could force you into a very high tax bracket once you start taking RMD’s.  Last year Biden proposed that the maximum tax rate should kick in at $400K of income.  That proposal died as legislation progressed, but Biden has raised the same proposal in 2022.  I think that eventually, some variation of the Biden proposal will be passed.  Currently, the maximum tax rate, including surcharges, is 39.5%.  As rates are increased and tax brackets compressed, you could find yourself giving something close to 45% of your gross income to the federal government.

Another timing consideration is that one of the 2021 tax proposals was to eliminate, or severely restrict, Roth conversions.  If you delay getting funds into a Roth account, you could find that a Roth conversion is no longer an option.

Who knows what combination of tax proposals will ever become reality.  But, I think that funneling a small portion of your retirement saving into a Roth now is a low risk, potentially high reward proposition.

To be fair, the proposals were to eliminate backdoor Roth conversions entirely and to prohibit conversions for those with incomes over $400,000.  Nobody was seriously suggesting that all Roth conversions for all taxpayers should be eliminated.

[jerseygirl]

What’s the difference between a ‘back door’ conversion and a ‘regular’ conversion. Think in both its funding a Roth from a tRIA.

[tallguy]

Apr 15, 2022 21:33:49 GMT -5 jerseygirl said:

What’s the difference between a ‘back door’ conversion and a ‘regular’ conversion. Think in both its funding a Roth from a tRIA.

A back-door Roth conversion is a strategy used by higher-income taxpayers.  They contribute to a non-deductible IRA and then immediately convert it to Roth.  It is a way to get around the income limit for Roth eligibility.  Roth IRAs were developed to give lower- or middle-income taxpayers an opportunity to save in better ways for retirement without giving higher-income taxpayers the opportunity to take undue advantage of the tax benefits.  Allowing back-door conversions bypasses that goal, and in my opinion should never have been allowed in the first place.  

[Tiny]

Just to clarify - I have substantial 401K/IRA balances for ME andI'm working with what I will need in retirement.  

I guess I'm trying to figure out the best course of action for my "middle of the road" retirement income... I won't be in the 60K an under range and I won't be in the over 150K range. I'm going to be close to that 100K range for the bulk of my retirement years.  And I'm SINGLE. Most retirement advice is for married couples.   For some reason I have trouble "converting" the advice for marrieds into the advice for singles.    I think I need to find sources of retirement info for singles... 

 I'm trying to figure out the puzzle peices so that some of my retirement income comes from tax free accounts so I can better manipulate my taxable income.  That seems to be the thing to do.   Right now I am looking at having more taxable retirement income than non-taxable income.    I may actually have some income in retirement that's taxed higher than when I was working - because I was able to contribute to tax differed accounts during my working years - and that usually mitigated how much of my income crossed over into the 22% and 24% brackets.  

At 65 I will take a 50K no cola pension and then eventually SS. I'm single. I'm having a hard time envisioning how 85K plus income from the pension and SS gets me into the 12% bracket even if that is enough to cover my expenses.

I'm guessing anything I take from the 401K will push some of my income into that 22% and up bracket.

I'm ok with paying taxes on the 401K money... I would say the bulk of my contributions to the 401K would have been taxed a tier up from the lowest 2 tax brackets if I hadn't contributed - I'm single no kids and always have been.

My goal is to figure out the best way spread out my tax burden over time. And to take advantage of conversions or whatever when I have more control over where my taxable income is coming from - before I have to take my pension.

I can see that by the time I'm 70 my pension and SS will be a large part of my taxable retirement income. Even needing to take a medium amount yearly (4% of 850K to 1m) for expenses from my 401K may push me into the tax brackets my working year's income was in.

This is why I think I need to pay attention to what I can do during the 6 or 7 years before I'm 65 and NOT having a big corporate job income and potentially not having a lot of taxable income.  

[Rukh O'Rorke]

Apr 15, 2022 21:46:39 GMT -5 tallguy said:

Apr 15, 2022 21:33:49 GMT -5 jerseygirl said:

What’s the difference between a ‘back door’ conversion and a ‘regular’ conversion. Think in both its funding a Roth from a tRIA.

A back-door Roth conversion is a strategy used by higher-income taxpayers.  They contribute to a non-deductible IRA and then immediately convert it to Roth.  It is a way to get around the income limit for Roth eligibility.  Roth IRAs were developed to give lower- or middle-income taxpayers an opportunity to save in better ways for retirement without giving higher-income taxpayers the opportunity to take undue advantage of the tax benefits.  Allowing back-door conversions bypasses that goal, and in my opinion should never have been allowed in the first place.  

so you can just put post tax money in a non-deductible ira and just push a button to make it "Roth"?

[Tiny]

Apr 19, 2022 13:54:16 GMT -5 Rukh O'Rorke said:

Apr 15, 2022 21:46:39 GMT -5 tallguy said:

A back-door Roth conversion is a strategy used by higher-income taxpayers.  They contribute to a non-deductible IRA and then immediately convert it to Roth.  It is a way to get around the income limit for Roth eligibility.  Roth IRAs were developed to give lower- or middle-income taxpayers an opportunity to save in better ways for retirement without giving higher-income taxpayers the opportunity to take undue advantage of the tax benefits.  Allowing back-door conversions bypasses that goal, and in my opinion should never have been allowed in the first place.  

so you can just put post tax money in a non-deductible ira and just push a button to make it "Roth"?

yes, i hear Fidelity, Vangaurd, and Schwab have streamlined the process.   And most people seem to have accounts with these companies.   I'm guessing it's a little harder if you have your Roth and/or IRA at a local bank. 

I thought the "back door" Roth process had some assumptions:
Contributing to an IRA with a 0 balance and then converting that total contribution to a Roth.

So, basically a way to contribute 6K more to a Roth IRA every year. since the IRA was new/0 and you converted all of the $$ (which you already paid income tax on) hopefully within 60 or 90 days? there's no income tax on the transaction.

If you have an IRA with say 50K in it - you could convert some or all of that any time you want - but there's the tax issue because the $$ in it hasn't been taxed.

You can't quite use the IRA with 50K in it to do the Back Door Roth -- even if you contribute 6K and then immediately convert the 6K.... There's some calculation for the taxes you will owe.

This made my brain hurt when I looked into how it works.  Using an IRA with ONLY the amount you contributed and want to convert was a cleaner way to do this. 

I have a Roll Over IRA with several hundred thousand in it... Converting some of it to a Roth while I was collecting my Corporate paycheck did NOT seem like a good idea.

[Tiny]

Apr 15, 2022 21:46:39 GMT -5 tallguy said:

Apr 15, 2022 21:33:49 GMT -5 jerseygirl said:

What’s the difference between a ‘back door’ conversion and a ‘regular’ conversion. Think in both its funding a Roth from a tRIA.

A back-door Roth conversion is a strategy used by higher-income taxpayers.  They contribute to a non-deductible IRA and then immediately convert it to Roth.  It is a way to get around the income limit for Roth eligibility.  Roth IRAs were developed to give lower- or middle-income taxpayers an opportunity to save in better ways for retirement without giving higher-income taxpayers the opportunity to take undue advantage of the tax benefits.  Allowing back-door conversions bypasses that goal, and in my opinion should never have been allowed in the first place.  

I agree with this.   I'm guessing there are lots of savvy high income late 20/early 30 somethings - building Roths that will have 20 or 30 years to grow tax free.   I'm guessing it's worth any income taxes paid on the $$ going into the Roth via the back door (or other kind of conversion). 

[tallguy]

Apr 19, 2022 13:47:41 GMT -5 Tiny said:

Just to clarify - I have substantial 401K/IRA balances for ME andI'm working with what I will need in retirement.  

I guess I'm trying to figure out the best course of action for my "middle of the road" retirement income... I won't be in the 60K an under range and I won't be in the over 150K range. I'm going to be close to that 100K range for the bulk of my retirement years.  And I'm SINGLE. Most retirement advice is for married couples.   For some reason I have trouble "converting" the advice for marrieds into the advice for singles.    I think I need to find sources of retirement info for singles... 

 I'm trying to figure out the puzzle peices so that some of my retirement income comes from tax free accounts so I can better manipulate my taxable income.  That seems to be the thing to do.   Right now I am looking at having more taxable retirement income than non-taxable income.    I may actually have some income in retirement that's taxed higher than when I was working - because I was able to contribute to tax differed accounts during my working years - and that usually mitigated how much of my income crossed over into the 22% and 24% brackets.  

At 65 I will take a 50K no cola pension and then eventually SS. I'm single. I'm having a hard time envisioning how 85K plus income from the pension and SS gets me into the 12% bracket even if that is enough to cover my expenses.

I'm guessing anything I take from the 401K will push some of my income into that 22% and up bracket.

I'm ok with paying taxes on the 401K money... I would say the bulk of my contributions to the 401K would have been taxed a tier up from the lowest 2 tax brackets if I hadn't contributed - I'm single no kids and always have been.

My goal is to figure out the best way spread out my tax burden over time. And to take advantage of conversions or whatever when I have more control over where my taxable income is coming from - before I have to take my pension.

I can see that by the time I'm 70 my pension and SS will be a large part of my taxable retirement income. Even needing to take a medium amount yearly (4% of 850K to 1m) for expenses from my 401K may push me into the tax brackets my working year's income was in.

This is why I think I need to pay attention to what I can do during the 6 or 7 years before I'm 65 and NOT having a big corporate job income.  

It will be slightly different advice for everybody because their situation is different.  In general, though, doing conversions in the years before you start receiving a pension or SS payments is preferable, particularly if you are able to retire early.  Not only do you have a lower income so can do greater conversions at a lower rate, but you may be able to avoid having your SS become 85% taxable when it otherwise would be.  In addition, depending on your income you would want to do greater conversions before hitting 63 because of IRMAA rules.  That has been discussed, but it is a Medicare surcharge if one's income is above the threshold and is based on the income two years prior to the Medicare year.  

If you end up with too much money after all of that, well, we'll try to feel sorry for you.   

[tallguy]

Apr 19, 2022 13:54:16 GMT -5 Rukh O'Rorke said:

Apr 15, 2022 21:46:39 GMT -5 tallguy said:

A back-door Roth conversion is a strategy used by higher-income taxpayers.  They contribute to a non-deductible IRA and then immediately convert it to Roth.  It is a way to get around the income limit for Roth eligibility.  Roth IRAs were developed to give lower- or middle-income taxpayers an opportunity to save in better ways for retirement without giving higher-income taxpayers the opportunity to take undue advantage of the tax benefits.  Allowing back-door conversions bypasses that goal, and in my opinion should never have been allowed in the first place.  

so you can just put post tax money in a non-deductible ira and just push a button to make it "Roth"?

Well, it is a bit more complicated than that.  If you have any IRAs that you have previously contributed pre-tax money to, then the pro-rata rule comes into play.  That will make things much more difficult and not allow you to benefit to the extent that you wish.  The IRS considers all IRAs to be one for this purpose, so you cannot choose to convert just the non-deductible part.  The conversion must be done proportionally over your IRA balances.  If your previous IRA balances total $94,000, for example, and you want to do another $6000 non-deductible, then only 6% of the conversion is non-taxed, even if you open a new IRA to do it.  94% of the conversion is considered taxable because 94% of the IRA balances were pre-tax.  Yes, it is complicated.  And yes, it becomes ugly quickly. 


ETA:  One workaround is to see if your workplace 401k accepts transfers in of IRA money.  That can get the pre-tax money out of your IRA and allow the backdoor Roth without the pro-rata rule, but again, it is not something that I think should be allowed.  The proposal last year was to get rid of backdoor Roth contributions entirely, and that is exactly what should happen.    

[minnesotapaintlady]

Apr 15, 2022 19:05:04 GMT -5 tskeeter said:

Apr 14, 2022 11:37:59 GMT -5 Tiny said:

Thanks!

There are just so many moving parts to this "retirement income" thing for me that it makes my head spin sometimes.

I'm ok paying income taxes on my 401K money (and other income streams) - I'm not aiming for 100% optimization for tax purposes - mostly I just want to avoid really costly mistakes.

I'm seeing how in pre-retirement/retirement - having a plan that looks out at least 5 years is a wise thing to do. Since it's looking more and more like "timing" is a very important part of retirement financial planning.

I can see how this can be a paradigm shift for many people - since they may only look/plan a year or two ahead during their working years. They aren't always making decisions today with an eye to how it plays out over a few years or it's future effects.

I've had lots of "paradigm shifts" over the last few years as I look ahead to what my retirement might look like and how my various streams of income might best be accessed.


This also gave some perspective to the high level advice to use my employer's 401K Roth option tossed out by my tax preparer/accountant when I mentioned the future and my very large 401K/IRA balances. I think that I will wait a bit - as my income may drop dramatically and may be better positioned to do Roth Conversions.... in the near future for a handful of years.


It's a work in progress... and I want to take advantage of the "time" part of all of this...    

I encourage you to reconsider your position on timing of Roth contributions.  Income tax rates have been reduced administration after administration for many years.  So tax rates are well below historical averages.  I don’t think that the current tax structure is sustainable.  Especially considering the spending plans and policies of the current administration.  I also believe future administrations will need to increase tax rates. 

You’ve indicated you have substantial 401K/tIRA balances.  That could force you into a very high tax bracket once you start taking RMD’s.  Last year Biden proposed that the maximum tax rate should kick in at $400K of income.  That proposal died as legislation progressed, but Biden has raised the same proposal in 2022.  I think that eventually, some variation of the Biden proposal will be passed.  Currently, the maximum tax rate, including surcharges, is 39.5%.  As rates are increased and tax brackets compressed, you could find yourself giving something close to 45% of your gross income to the federal government.

Another timing consideration is that one of the 2021 tax proposals was to eliminate, or severely restrict, Roth conversions.  If you delay getting funds into a Roth account, you could find that a Roth conversion is no longer an option.

Who knows what combination of tax proposals will ever become reality.  But, I think that funneling a small portion of your retirement saving into a Roth now is a low risk, potentially high reward proposition.

Man, how much would one have to have in pre-tax to be looking at 400K/year in RMDs? 

[saveinla]

around 10-12 million should yield around 400K I think  .

[tallguy]

Apr 19, 2022 14:52:40 GMT -5 saveinla said:

around 10-12 million should yield around 400K I think  .

Yes, for the first year.  Remember though that not only does the percentage increase each year but the balance would likely go up if you are only doing the minimum amount.  Returns are generally higher than the 3.77% or whatever the actual number is for the first-year RMD.  After a number of years you could hit $400,000 even if your starting balance was lower.

[minnesotapaintlady]

Found a calculator and looks like 2 million can get me up to 160K in my 90's if my returns are 5%/year.  I doubt I'll start with anywhere near 2 million and by the time I'm in my 90's 160K will probably be the same as 40K now.  LOL

[Tiny]

Apr 19, 2022 14:24:26 GMT -5 tallguy said:

Apr 19, 2022 13:47:41 GMT -5 Tiny said:

 

It will be slightly different advice for everybody because their situation is different.  In general, though, doing conversions in the years before you start receiving a pension or SS payments is preferable, particularly if you are able to retire early.  Not only do you have a lower income so can do greater conversions at a lower rate, but you may be able to avoid having your SS become 85% taxable when it otherwise would be.  In addition, depending on your income you would want to do greater conversions before hitting 63 because of IRMAA rules.  That has been discussed, but it is a Medicare surcharge if one's income is above the threshold and is based on the income two years prior to the Medicare year.  

If you end up with too much money after all of that, well, we'll try to feel sorry for you.   

Aahh the sound of Faux Sympathy (or perhaps the world's smallest violin).     I don't think I will end up with too much money - I'm hoping I have Just enough money...  

And thank you! I forgot about the 2 year thing on IRMAA -OK, I didn't think the clock started until I was 65. I need to add 62 as another "milestone/cutoff" on the timeline.

FWIW:  I understand why new retirees in my life complain about property taxes/housing costs.  My biggest expenses will be my house, income taxes and I'm estimating healthcare.     

[Rukh O'Rorke]

Apr 19, 2022 15:25:50 GMT -5 minnesotapaintlady said:

Found a calculator and looks like 2 million can get me up to 160K in my 90's if my returns are 5%/year.  I doubt I'll start with anywhere near 2 million and by the time I'm in my 90's 160K will probably be the same as 40K now.  LOL

engaging-data.com/will-money-last-retire-early/

I like this one for easy input, clear outcomes.

[tallguy]

Apr 19, 2022 18:06:31 GMT -5 Tiny said:

Apr 19, 2022 14:24:26 GMT -5 tallguy said:

It will be slightly different advice for everybody because their situation is different.  In general, though, doing conversions in the years before you start receiving a pension or SS payments is preferable, particularly if you are able to retire early.  Not only do you have a lower income so can do greater conversions at a lower rate, but you may be able to avoid having your SS become 85% taxable when it otherwise would be.  In addition, depending on your income you would want to do greater conversions before hitting 63 because of IRMAA rules.  That has been discussed, but it is a Medicare surcharge if one's income is above the threshold and is based on the income two years prior to the Medicare year.  

If you end up with too much money after all of that, well, we'll try to feel sorry for you.   

Aahh the sound of Faux Sympathy (or perhaps the world's smallest violin).     I don't think I will end up with too much money - I'm hoping I have Just enough money...  

And thank you! I forgot about the 2 year thing on IRMAA -OK, I didn't think the clock started until I was 65. I need to add 62 as another "milestone/cutoff" on the timeline.

FWIW:  I understand why new retirees in my life complain about property taxes/housing costs.  My biggest expenses will be my house, income taxes and I'm estimating healthcare.     

That is exactly why I am choosing to limit my income.  I expect to save roughly $9000 per year to start (going back to last year being refunded) on my property taxes, my valuation will be frozen, plus I will be income-tax free for maybe fifteen years going forward.  I can do that because my necessary expenses are really low, having paid off my house ten years ago.  I already did substantial Roth conversions, so can spend pretty much whatever I want without worry.  All I have to do is figure out if there is anything I want.    

[scgal]

I'm not at FRA yet, but i am trying to figure out taxes with SS. If you are at FRA how much money can you take from a 401k without SS being taxed. From what i've read it's something like 18k. Am i understanding this correctly

[minnesotapaintlady]

Apr 21, 2022 7:02:39 GMT -5 scgal said:

I'm not at FRA yet, but i am trying to figure out taxes with SS. If you are at FRA how much money can you take from a 401k without SS being taxed. From what i've read it's something like 18k. Am i understanding this correctly

Currently the rule is, if 1/2 your SS + all other income is less than 25K then SS is not taxable.

[CCL]

Apr 21, 2022 7:02:39 GMT -5 scgal said:

I'm not at FRA yet, but i am trying to figure out taxes with SS. If you are at FRA how much money can you take from a 401k without SS being taxed. From what i've read it's something like 18k. Am i understanding this correctly

For many people it's less than $18k in other income. Like MPL said it starts at $25k. For married couples it's $32k.

IRS link:

www.irs.gov/newsroom/dont-forget-social-security-benefits-may-be-taxable#:~:text=Taxpayers%20receiving%20Social%20Security%20benefits,%2C%20which%20aren't%20taxable.

[scgal]

Apr 21, 2022 12:12:56 GMT -5 CCL said:

Apr 21, 2022 7:02:39 GMT -5 scgal said:

I'm not at FRA yet, but i am trying to figure out taxes with SS. If you are at FRA how much money can you take from a 401k without SS being taxed. From what i've read it's something like 18k. Am i understanding this correctly

For many people it's less than $18k in other income. Like MPL said it starts at $25k. For married couples it's $32k.

IRS link:

www.irs.gov/newsroom/dont-forget-social-security-benefits-may-be-taxable#:~:text=Taxpayers%20receiving%20Social%20Security%20benefits,%2C%20which%20aren't%20taxable.

Thanks I was hoping I was wrong

[countrygirl2]

Just pay taxes as you go along, do the match of the employer and won't face all that. I tried to tell hubs but I missed stuff too. Unless you are below $25k of other income, figure your SS is 85% taxable.

This year with no capital gains and less rental income we got below the 85% taxable and only paid on $16k, what a difference, so we paid on $25k less of SS benefits, ours are $51k a year. There are so many parts to all of this stuff, good luck on projections. If your income is pretty steady from the same sources, will be easier to figure out.

I need to get a tax package and do "what ifs", because I need to know how much tax on capital gains if we start selling. Hubs, now is thinking of backing out on selling.

We don't want to end up with little income.

[bookkeeper]

DH and I are trying to keep our income low to keep our health insurance subsidy high.  We were able to accomplish this by having a large cash stash to live off of during these two years.  The pandemic also curtailed our spending.  No more international travel or other events.

Trying to navigate the retirement puzzle is what brought me to this message board years ago.  I learn something here weekly. Now I want to keep our income low going into DH's medicare age to avoid IRMAA.  But that's my problem.

I find it helpful to look at retirement money like 2 buckets.  The first bucket is what you need to live on the first 10 years.  The second bucket is what you need to live on year 11 and onward.  Things will evolve and change for you the first 5 years of retirement.  Federal income tax will surely evolve and change going forward. Social Security has been a nice addition to our monthly income.  We have been paying ourselves twice a year from our retirement accounts previously.

Another helpful illustration is the time value of money.  When we retired, $100,000 was what we wanted annually from our accounts.  As we go forward, I predict the RMD will be in the same $100,000/yr range.  Doesn't seem unworkable, DH and I like to donate and will do it straight from the IRA to lessen federal tax liability.  We also max our HSA accounts each year to reduce our AGI.

My Mom is now single after Dad died.  You are right, it is a whole other game managing assets with half the bandwith that married couples get.  DH and I have been considering some IRA to Roth conversions while there are still two of us.

The fact of the matter is the taxman will always need to be paid.  We all strive to maximize the tax law and do the best we can for ourselves.  Once you realize no one has a crystal ball, the best you can do is diversify and keep up on the rules.

Cash gives you options.  Money market or bond funds are good to hold the money you need in the immediate next year.