Assuming that you are receiving 41k at 65 why not use it to pay your living expenses while you are in a low tax bracket so that you can transfer TIRA and 401k funds to a roth account which will reduce RMDs at 70 1/2. You can delay SS to 70 to reduce taxable income.Gattamelata wrote:I'll use my own numbers.manwithnoname wrote: Just how much would the Inherited IRA increase your income? If you are 55 when you inherit the IRA the initial payment is only about 1/30 of the account balance which would be a minimum payment of about $3333 on an account value of 100,000.
For my father's IRA: the account value at the end of last year was a bit under 400k, but let's just use 400k for simplicity. I'm 39 now. My dad was born in 1940 and died in 2005. Using Schwab's calculator and assuming a 6% rate of return, my RMD will be $41,560 the year I'm 65. Not exactly insignificant for income tax purposes.
For my uncle's IRA, which my father inherited and then passed on to me: last year's year end value was 270k. Since it was inherited from my father who inherited it from my uncle, my RMDs are over my father's life span. I use the same calculator, but the in this case the orimary beneficiary's date of birth is 1940, and original account holder's date of death is 2001. My RMD for this year will be $25,234, increasing over the next ten years. It won't impact my retirement tax rate, since I won't retire in that time, but if I had inherited it shortly before I retired it would have.
You're right, that is a way of dealing with this situation. In my case I'm the sole heir, so I never considered it an option.manwithnoname wrote: If you don't want the taxable income you can disclaim.
Since tax brackets are adjusted for inflation, at 2.5% inflation for 25 years the 15% bracket for a married couple when you are 65 will be about 137k (68.5k single) which will leave at least 27k in taxable space each year to transfer TIRAs at 15% bracket. If you don't need all of the income from the inherited IRA before retirement you could increase your fixed income AA in the inherited IRA to reduce the amount of the RMD and increase the equity allocation in the taxable investments which will lower your taxes if the taxable funds are invested in stocks that pay qualified dividends and capital gains. You could invest the RMDs of the inherited IRAs in muni bonds to reduce taxable income.