RMD at 70.5 - what am I missing?

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jhawktx
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RMD at 70.5 - what am I missing?

Post by jhawktx »

I can't understand all the angst about the coming "boogieman" that goes by the scary name of RMD. Yikes!

Why the angst? We are retired and have about 90% of nest egg in tax deferred IRA and 10% in Roth IRA. 0% taxable. We are not planning to leave a ton of money for heirs. Will eventually get around $50k per year in SS benefits. No pension. So at 70.5 we will be "forced" to withdraw the balance in our tax deferred IRA divided by 27.4. Big deal! Even if RMD didn't exist, we would probably withdraw more than the required RMD amount. What am I missing? Should I be shaking in my boots? Am I just blissfully ignorant?

Unless someone wants to leave a huge inheritance or thinks they will live until 110, why is there so much concern about RMD? I just don't get it.
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TomatoTomahto
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Re: RMD at 70.5 - what am I missing?

Post by TomatoTomahto »

I wouldn’t say that I’m full of angst, but to the extent possible, I’d like to be in charge of my distributions. For the most part, we expect our funds to pass to heirs (people and charity).

Of course, heirs can also receive money that has flowed down to taxable.
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Re: RMD at 70.5 - what am I missing?

Post by GAAP »

Depending on what your retirement income is, those RMDs can kick you into higher tax brackets. Depending on the brackets involved, that difference can be small or large.

I have more angst about a Washington estate tax that would tax monies owed to the IRS than I do about the RMDs per-se. I also prefer to manage the amount I pay income taxes on, rather than have it dictated to me. The combination leads me to Roth conversions -- but if you're happy with the RMD answer, than by all means, use it.
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TomatoTomahto
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Re: RMD at 70.5 - what am I missing?

Post by TomatoTomahto »

GAAP wrote: Thu Jan 31, 2019 12:28 pm Depending on what your retirement income is, those RMDs can kick you into higher tax brackets. Depending on the brackets involved, that difference can be small or large.
This. Between SS, non-elective deferred comp, RMDs, the dividends that are thrown off by our taxable accounts, etc., we expect to be in high tax brackets. I don’t expect to need any of the RMDs to pay our expenses in retirement, so meh.
I get the FI part but not the RE part of FIRE.
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Re: RMD at 70.5 - what am I missing?

Post by neilpilot »

TomatoTomahto wrote: Thu Jan 31, 2019 12:34 pm
GAAP wrote: Thu Jan 31, 2019 12:28 pm Depending on what your retirement income is, those RMDs can kick you into higher tax brackets. Depending on the brackets involved, that difference can be small or large.
This. Between SS, non-elective deferred comp, RMDs, the dividends that are thrown off by our taxable accounts, etc., we expect to be in high tax brackets. I don’t expect to need any of the RMDs to pay our expenses in retirement, so meh.
Not only that, but those RMDs may also mean that starting 2 years later you have the opportunity to pay IRMAA as well.
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Re: RMD at 70.5 - what am I missing?

Post by Dottie57 »

neilpilot wrote: Thu Jan 31, 2019 12:37 pm
TomatoTomahto wrote: Thu Jan 31, 2019 12:34 pm
GAAP wrote: Thu Jan 31, 2019 12:28 pm Depending on what your retirement income is, those RMDs can kick you into higher tax brackets. Depending on the brackets involved, that difference can be small or large.
This. Between SS, non-elective deferred comp, RMDs, the dividends that are thrown off by our taxable accounts, etc., we expect to be in high tax brackets. I don’t expect to need any of the RMDs to pay our expenses in retirement, so meh.
Not only that, but those RMDs may also mean that starting 2 years later you have the opportunity to pay IRMAA as well.
Everyone should have understood the rules regarding RMD when deferring taxes. The possibility of higher taxes because of RMDs is not unknown or a surprise. Feel free to donate large amounts to charities of your choice.
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Re: RMD at 70.5 - what am I missing?

Post by samsoes »

jhawktx wrote: Thu Jan 31, 2019 12:18 pm I can't understand all the angst about the coming "boogieman" that goes by the scary name of RMD. Yikes!

Why the angst? We are retired and have about 90% of nest egg in tax deferred IRA and 10% in Roth IRA. 0% taxable. We are not planning to leave a ton of money for heirs. Will eventually get around $50k per year in SS benefits. No pension. So at 70.5 we will be "forced" to withdraw the balance in our tax deferred IRA divided by 27.4. Big deal! Even if RMD didn't exist, we would probably withdraw more than the required RMD amount. What am I missing? Should I be shaking in my boots? Am I just blissfully ignorant?

Unless someone wants to leave a huge inheritance or thinks they will live until 110, why is there so much concern about RMD? I just don't get it.
Agreed.

Just like the garment-tearing angst on another thread about dividend income. :confused
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Re: RMD at 70.5 - what am I missing?

Post by Artsdoctor »

jhawktx wrote: Thu Jan 31, 2019 12:18 pm I can't understand all the angst about the coming "boogieman" that goes by the scary name of RMD. Yikes!

Why the angst? We are retired and have about 90% of nest egg in tax deferred IRA and 10% in Roth IRA. 0% taxable. We are not planning to leave a ton of money for heirs. Will eventually get around $50k per year in SS benefits. No pension. So at 70.5 we will be "forced" to withdraw the balance in our tax deferred IRA divided by 27.4. Big deal! Even if RMD didn't exist, we would probably withdraw more than the required RMD amount. What am I missing? Should I be shaking in my boots? Am I just blissfully ignorant?

Unless someone wants to leave a huge inheritance or thinks they will live until 110, why is there so much concern about RMD? I just don't get it.
I don't think most people are quaking in their boots about RMDs. Sometimes, people can react to unanticipated consequences of tax-deferred accounts.

One of the most important things a retiree has should have flexibility. This is why so many people strive for "tax diversification," including taxable accounts, tax-deferred accounts, Roths, HSAs, etc., in their investment portfolio. If you don't pay attention to the tax ramifications associated with RMDs, you can pay more money than you had anticipated in the form of taxable income, social security taxation, IRMAA, etc.

In your particular case, about 90% of your nest egg is in a tax-deferred account, so you really have very little diversification. It also sounds as if you'll need more than your RMD to live on so you'll be withdrawing more than your RMDs. Some people would prefer to have more of a balance (for example, you could have converted some of that tax-deferred money to a Roth prior to your RMD years) in order to pick and choose where the money is coming from.

If you've been planning all along for those RMDs and you know the tax ramifications, you won't be affected. Some people are just surprised at what that RMD can do regarding tax burden.
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Re: RMD at 70.5 - what am I missing?

Post by dbr »

You are not missing anything except maybe the tax impact, and someone has addressed that above as well. I think the only serious error to make is to neglect to take the RMD and end up with a tax penalty.

I do know one point that confuses some people is not understanding that an RMD is not a withdrawal from assets unless one then takes the second step of actually spending the money. The RMD can just as easily be reinvested in something in a taxable account. Simply holding it in cash is also the same thing.

Another point is that people sometimes imagine they must have money "parked" in a cash holding in their tax deferred account to make sure they have the money to make the withdrawal. That is unnecessary.
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Re: RMD at 70.5 - what am I missing?

Post by The Wizard »

I think that some people simply don't pay attention to retirement income planning in their pre-70 years and then have a bit of a shock when the rules become clear...
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TomatoTomahto
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Re: RMD at 70.5 - what am I missing?

Post by TomatoTomahto »

Dottie57 wrote: Thu Jan 31, 2019 12:45 pm
neilpilot wrote: Thu Jan 31, 2019 12:37 pm
TomatoTomahto wrote: Thu Jan 31, 2019 12:34 pm
GAAP wrote: Thu Jan 31, 2019 12:28 pm Depending on what your retirement income is, those RMDs can kick you into higher tax brackets. Depending on the brackets involved, that difference can be small or large.
This. Between SS, non-elective deferred comp, RMDs, the dividends that are thrown off by our taxable accounts, etc., we expect to be in high tax brackets. I don’t expect to need any of the RMDs to pay our expenses in retirement, so meh.
Not only that, but those RMDs may also mean that starting 2 years later you have the opportunity to pay IRMAA as well.
Everyone should have understood the rules regarding RMD when deferring taxes. The possibility of higher taxes because of RMDs is not unknown or a surprise. Feel free to donate large amounts to charities of your choice.
I don’t think that neilpilot or I didn’t understand the rules regarding RMDs. I will admit to not anticipating the eventual consequences when I left my final “outside the home” employer and transferred my 401k to a Vanguard IRA (precluding spousal backdoor rIRAs down the road). I don’t think “meh” qualifies as angst, just that I wish I had known then what I know now.

ETA: I’m sure charities would prefer to enjoy the undiluted contributions (ie, without the impact of my taxes). I know my biological heirs would also, but c’est la vie.
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Re: RMD at 70.5 - what am I missing?

Post by Youngblood »

From the OP's post: “ We would probably need to take out more than the required RMD”. They are probably in a low tax bracket so, of course, being forced to take out money they need at a low tax rate is no big deal.
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Re: RMD at 70.5 - what am I missing?

Post by 2015 »

The Wizard wrote: Thu Jan 31, 2019 1:17 pm I think that some people simply don't pay attention to retirement income planning in their pre-70 years and then have a bit of a shock when the rules become clear...
This. Taxes are one of those things you have at least some control over and can plan for. No angst necessary*.

*I am reserving my angst for wondering when they are ever going to finish with the tiling of my shower.
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Re: RMD at 70.5 - what am I missing?

Post by David Jay »

jhawktx wrote: Thu Jan 31, 2019 12:18 pmSo at 70.5 we will be "forced" to withdraw the balance in our tax deferred IRA divided by 27.4.

But it doesn’t STAY there. At age 85, it is balance divided by 14. At 90, balance divided by 10.7. At 95, balance divided by 8.1

And by then, one spouse has likely passed so the surviving spouse is filing single with the corresponding higher tax rates.
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Re: RMD at 70.5 - what am I missing?

Post by dink2win »

Like everyone mentioned, taxes, but also that could impact other things like SS (if you took before your full retirement age) and Medicare premiums.

If you are going to have like a 200k + income stream from taxable accounts when you are retired you probably don't have to worry. You'd just be irritated when your tax bill is huge and you have to pay way more than normal people for Medicare.
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Re: RMD at 70.5 - what am I missing?

Post by jdb »

I have become a proselytizer among my friends of a certain age for QCD’s. Have enjoyed donating to local and national 501(c)(3) organizations past six months since turned 70.5. If don’t need the RMD for income and don’t need for heirs it is great way to contribute to society and avoid taxes on RMD or at least the portion not needed. In fact just sent QCD check to John C Bogle Center yesterday in memory of his great work. Good luck.
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Re: RMD at 70.5 - what am I missing?

Post by indexonlyplease »

I think the concern is with the person like my self that with SS and pension will put me at the top of the 22% tax bracket. So, I believe when I am fully retired I will start withdrawing money up to the top of the tax bracket before SS kicks in. I Beleive this will also cause me to delay SS until 70. Which I plan to do as of now.


Hope I am thinking correctly.
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Re: RMD at 70.5 - what am I missing?

Post by infotrader »

dbr wrote: Thu Jan 31, 2019 1:10 pm Another point is that people sometimes imagine they must have money "parked" in a cash holding in their tax deferred account to make sure they have the money to make the withdrawal. That is unnecessary.
Please elaborate. If you don't "park" money in a cash position, what you should do?
Is there any strategy for RMD, or just simply withdraw whatever position that you feel right?
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Re: RMD at 70.5 - what am I missing?

Post by neilpilot »

indexonlyplease wrote: Thu Jan 31, 2019 2:56 pm I think the concern is with the person like my self that with SS and pension will put me at the top of the 22% tax bracket. So, I believe when I am fully retired I will start withdrawing money up to the top of the tax bracket before SS kicks in. I Beleive this will also cause me to delay SS until 70. Which I plan to do as of now.


Hope I am thinking correctly.
Do you plan a Roth conversion with all or part of that withdrawal, which I presume is from a tIRA?
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Re: RMD at 70.5 - what am I missing?

Post by indexonlyplease »

neilpilot wrote: Thu Jan 31, 2019 3:00 pm
indexonlyplease wrote: Thu Jan 31, 2019 2:56 pm I think the concern is with the person like my self that with SS and pension will put me at the top of the 22% tax bracket. So, I believe when I am fully retired I will start withdrawing money up to the top of the tax bracket before SS kicks in. I Beleive this will also cause me to delay SS until 70. Which I plan to do as of now.


Hope I am thinking correctly.
Do you plan a Roth conversion with all or part of that withdrawal, which I presume is from a tIRA?
With all. Pension provides our retirement. Investments from my 457 government fund.
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Re: RMD at 70.5 - what am I missing?

Post by MathIsMyWayr »

infotrader wrote: Thu Jan 31, 2019 2:59 pm
dbr wrote: Thu Jan 31, 2019 1:10 pm Another point is that people sometimes imagine they must have money "parked" in a cash holding in their tax deferred account to make sure they have the money to make the withdrawal. That is unnecessary.
Please elaborate. If you don't "park" money in a cash position, what you should do?
Is there any strategy for RMD, or just simply withdraw whatever position that you feel right?
You simply transfer to your taxable account in kind or sell whatever you want to meet RMD, and buy some back in your taxable account after paying taxes and spending.
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Re: RMD at 70.5 - what am I missing?

Post by The Wizard »

infotrader wrote: Thu Jan 31, 2019 2:59 pm
dbr wrote: Thu Jan 31, 2019 1:10 pm Another point is that people sometimes imagine they must have money "parked" in a cash holding in their tax deferred account to make sure they have the money to make the withdrawal. That is unnecessary.
Please elaborate. If you don't "park" money in a cash position, what you should do?
Is there any strategy for RMD, or just simply withdraw whatever position that you feel right?
Most custodians have a Pro Rata option for withdrawals which takes same percentage from each of however many funds you have.
I do this now to withdraw a certain amount each month from tax deferred and will continue in a similar vein when RMDs start for me in 12 months...
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Re: RMD at 70.5 - what am I missing?

Post by RadAudit »

jhawktx wrote: Thu Jan 31, 2019 12:18 pm What am I missing?
Artsdoctor wrote: Thu Jan 31, 2019 1:01 pm Some people are just surprised at what that RMD can do regarding tax burden.
The Wizard wrote: Thu Jan 31, 2019 1:17 pm I think that some people simply don't pay attention to retirement income planning in their pre-70 years and then have a bit of a shock when the rules become clear...
OK. I'll volunteer to be the cynic. You may be missing the point, that after close to 40+ years of tax deferred contributions, and tax deferred re-invested capital gains and dividends, some folks get to 70.5 and discover not only do they have to take RMDs, they have to pay taxes on what they take. Some folks think that's not fair.
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Re: RMD at 70.5 - what am I missing?

Post by MathIsMyWayr »

neilpilot wrote: Thu Jan 31, 2019 12:37 pm
TomatoTomahto wrote: Thu Jan 31, 2019 12:34 pm
GAAP wrote: Thu Jan 31, 2019 12:28 pm Depending on what your retirement income is, those RMDs can kick you into higher tax brackets. Depending on the brackets involved, that difference can be small or large.
This. Between SS, non-elective deferred comp, RMDs, the dividends that are thrown off by our taxable accounts, etc., we expect to be in high tax brackets. I don’t expect to need any of the RMDs to pay our expenses in retirement, so meh.
Not only that, but those RMDs may also mean that starting 2 years later you have the opportunity to pay IRMAA as well.
When you are working, you try to pay as much tax as possible by making as much active income as possible. However, once you are retired, your source of active income is gone. The only knob in your control is tax. Unfortunately your knob is not entirely free because of RMD.
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Re: RMD at 70.5 - what am I missing?

Post by The Wizard »

RadAudit wrote: Thu Jan 31, 2019 3:31 pm OK. I'll volunteer to be the cynic. You may be missing the point, that after close to 40+ years of tax deferred contributions, and tax deferred re-invested capital gains and dividends, some folks get to 70.5 and discover not only do they have to take RMDs, they have to pay taxes on what they take. Some folks think that's not fair.
This happened to my parents many decades ago when IRAs were new.
$2000/year was the limit back then.
Then a few years later in retirement they took out money from that IRA to go to Hawaii.
Then when tax season next came: "What? We have to pay tax on this?"
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Re: RMD at 70.5 - what am I missing?

Post by dbr »

infotrader wrote: Thu Jan 31, 2019 2:59 pm
dbr wrote: Thu Jan 31, 2019 1:10 pm Another point is that people sometimes imagine they must have money "parked" in a cash holding in their tax deferred account to make sure they have the money to make the withdrawal. That is unnecessary.
Please elaborate. If you don't "park" money in a cash position, what you should do?
Is there any strategy for RMD, or just simply withdraw whatever position that you feel right?
You have an asset allocation, in general partly in tax deferred assets and partly in taxable assets. When you need to move the RMD from one to the other it is an opportunity to sell asset classes that are a little higher than target and buy those that are a little lower than target, having taken out whatever is to be withdrawn for spending. The exact details depend on how much is in tax deferred and taxable assets, what funds are in each kind of account, and what the asset allocation is. If one chooses to keep an allocation to cash/CDs that just goes into the formula but there doesn't need to be an allocation to that asset class distinct from stock and actual bond funds.

When the cash RMD does appear in the taxable account it can be invested in stocks, in bonds, in CDs, or left in a checking or savings account. People would generally prefer to keep the money working in stocks and bonds rather than just stuck in a checking account unless spending is imminent.

I think the real issue is that people want a system in advance instead of an "it depends" process. A couple of years ago I took out my RMD and immediately put the money in my checking account where I used it for buying a car. The next year I waited to year end, took the RMD and used it to buy more shares in the stocks I hold in my taxable account. As it happens most of my 401k is bonds, so that caused a little shift from bonds to stocks which was fine considering the asset allocation at the time. Etc., etc.
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Re: RMD at 70.5 - what am I missing?

Post by JMacDonald »

The RMD kicks me up into another tax bracket. I have simplified this by having using the Vanguard LifeStrategy Moderate Growth in my IRA. No need to rebalance. I just withdraw the RMD, pay fed and state taxes, and move it to my taxable fund.
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Re: RMD at 70.5 - what am I missing?

Post by Broken Man 1999 »

So, if I figured it correctly, one would have to take about 3.65% of the collective value of all TIRAs, as measured on 12/31 of the year before the age of 70.5 is reached? That is first year's RMD only.

That RMD figure (assuming my figuring was correct) doesn't bother me so much. It is my maturing Series I-bonds I have some angst about. But, it is a great problem to have.

There are ways to reduce the RMDs or postpone them via converting portions of TIRAs to Roths, QCDs, and QLACs.

Over all if your RMD is not needed, then you are already in a good place. :moneybag

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Re: RMD at 70.5 - what am I missing?

Post by Mel Lindauer »

jdb wrote: Thu Jan 31, 2019 2:51 pm I have become a proselytizer among my friends of a certain age for QCD’s. Have enjoyed donating to local and national 501(c)(3) organizations past six months since turned 70.5. If don’t need the RMD for income and don’t need for heirs it is great way to contribute to society and avoid taxes on RMD or at least the portion not needed. In fact just sent QCD check to John C Bogle Center yesterday in memory of his great work. Good luck.
Thank you for that. We promise to be good stewards of your donation.

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Re: RMD at 70.5 - what am I missing?

Post by Bikealot »

I agree, I don't understand the angst either. We are both retired. I am 66 and my wife is 67. She took SS at FRA and I am getting spousal SS until I reach 70. We have 84%/7%/9% in IRA's/Roths/Brokerage. I did a 10 year cash flow and found at age 70.5 with the additional SS and the RMD's we will have more than we need to live on after taxes. This leaves our Roths and Brokerage accounts untouched.

When you calculate out that your first year of RMD is 3.65% (which is less than most financial planners recommendations of 4%/yr drawdowns) and that decreases each year thereafter, why not just take it and spend it. Also, you should average atleast a 3.65% ROI over 10 years and therefore not see any reduction in principle. Enjoy it. You earned it.
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Re: RMD at 70.5 - what am I missing?

Post by sadie wess »

jdb wrote: Thu Jan 31, 2019 2:51 pm I have become a proselytizer among my friends of a certain age for QCD’s. Have enjoyed donating to local and national 501(c)(3) organizations past six months since turned 70.5. If don’t need the RMD for income and don’t need for heirs it is great way to contribute to society and avoid taxes on RMD or at least the portion not needed. In fact just sent QCD check to John C Bogle Center yesterday in memory of his great work. Good luck.
I am not even close to RMD but +1 for this response. I have strong feelings about morality and philanthropy. They are based on that damned complicated book: the Bible.

I am honored to have spent time with Jack Bogle at Boglehead Conferences and I continue to enjoy his books and his teachings. No, he was not a God, just a humble human being with a sense of morality and that, my dears, is missing in too many "financial engineers" today.

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Re: RMD at 70.5 - what am I missing?

Post by FrankLUSMC »

David Jay wrote: Thu Jan 31, 2019 1:57 pm
jhawktx wrote: Thu Jan 31, 2019 12:18 pmSo at 70.5 we will be "forced" to withdraw the balance in our tax deferred IRA divided by 27.4.

But it doesn’t STAY there. At age 85, it is balance divided by 14. At 90, balance divided by 10.7. At 95, balance divided by 8.1

And by then, one spouse has likely passed so the surviving spouse is filing single with the corresponding higher tax rates.
Thinking about this, maybe better to take more than RMDs before age 80 of either spouse considering that the survivor will be filing single (hopefully :D ).
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Re: RMD at 70.5 - what am I missing?

Post by TomatoTomahto »

Bikealot wrote: Thu Jan 31, 2019 4:42 pm When you calculate out that your first year of RMD is 3.65% (which is less than most financial planners recommendations of 4%/yr drawdowns) and that decreases each year thereafter, why not just take it and spend it. Also, you should average atleast a 3.65% ROI over 10 years and therefore not see any reduction in principle. Enjoy it. You earned it.
For what it’s worth, the percentage of your accounts that needs distributing goes up each year, it does not decrease.

ETA: We are not angst ridden, but this year my wife is contributing to a Roth 401k, in part to increase the non-RMD portion of her accounts, even though conventional wisdom is that, at the highest brackets, she should contribute to traditional 401k.
I get the FI part but not the RE part of FIRE.
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Re: RMD at 70.5 - what am I missing?

Post by David Jay »

Bikealot wrote: Thu Jan 31, 2019 4:42 pmWhen you calculate out that your first year of RMD is 3.65%...and that decreases each year thereafter... why not just take it and spend it.
I guess you missed the point that I made above (I was using the OPs “divisor” formulation instead of percentage) your percentage goes UP every year.

Age 70.5 - 3.65% of outstanding balance
Age 85 - 7.1% of outstanding balance
Age 90 - 10.7% of outstanding balance
Age 95 - 12.3% of outstanding balance
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Re: RMD at 70.5 - what am I missing?

Post by Epsilon Delta »

FrankLUSMC wrote: Thu Jan 31, 2019 6:05 pm Thinking about this, maybe better to take more than RMDs before age 80 of either spouse considering that the survivor will be filing single (hopefully :D ).
You might consider a Roth conversion for any "withdrawal" above and beyond the RMD.
infotrader
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Re: RMD at 70.5 - what am I missing?

Post by infotrader »

I would say that everyone's situation is different.
RMD just makes the tax situation complicated and unexpected for some people.
I have a friend who retired as a professor when he was 70. Due to two tax deferral plans, his taxable portion of income was about 130k a year before retirement. He has zero roth balance.
After retirement, he has full pension at about 170k, ss starts at 70, and 3m+ tax deferred account, and he cannot defer anything now.
Due to RMD, his taxable income is about 300k a year. I don't think it is an isolated case among savvy savers.
The Wizard
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Re: RMD at 70.5 - what am I missing?

Post by The Wizard »

infotrader wrote: Fri Feb 01, 2019 9:31 am I would say that everyone's situation is different.
RMD just makes the tax situation complicated and unexpected for some people.
I have a friend who retired as a professor when he was 70. Due to two tax deferral plans, his taxable portion of income was about 130k a year before retirement. He has zero roth balance.
After retirement, he has full pension at about 170k, ss starts at 70, and 3m+ tax deferred account, and he cannot defer anything now.
Due to RMD, his taxable income is about 300k a year. I don't think it is an isolated case among savvy savers.
$300k per year in retirement is nice.
I'd be OK with that...
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infotrader
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Re: RMD at 70.5 - what am I missing?

Post by infotrader »

The Wizard wrote: Fri Feb 01, 2019 9:39 am
infotrader wrote: Fri Feb 01, 2019 9:31 am I would say that everyone's situation is different.
RMD just makes the tax situation complicated and unexpected for some people.
I have a friend who retired as a professor when he was 70. Due to two tax deferral plans, his taxable portion of income was about 130k a year before retirement. He has zero roth balance.
After retirement, he has full pension at about 170k, ss starts at 70, and 3m+ tax deferred account, and he cannot defer anything now.
Due to RMD, his taxable income is about 300k a year. I don't think it is an isolated case among savvy savers.
$300k per year in retirement is nice.
I'd be OK with that...
I know, it is a nice problem to have, but he basically did all the deferrals for nothing.
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Epsilon Delta
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Re: RMD at 70.5 - what am I missing?

Post by Epsilon Delta »

infotrader wrote: Fri Feb 01, 2019 10:51 am I know, it is a nice problem to have, but he basically did all the deferrals for nothing.
Do not mistake outcome for strategy. If you go by outcome any strategy that did not involve Nvidia was wrong.

When I was young I used tax deferrals because they would increase my spendable income in retirement if I was poor in retirement and needed the money. If I am not eating cat food tax deferral was not entirely wrong.
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Watty
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Re: RMD at 70.5 - what am I missing?

Post by Watty »

jhawktx wrote: Thu Jan 31, 2019 12:18 pm I can't understand all the angst about the coming "boogieman" that goes by the scary name of RMD. Yikes!
The kids in the mythical town of Lake Wobegon are all above average. In a similar manner people like to think that it is likely that they will live to an advanced age and have so much money after paying for decades of retirement that they will still be in a high tax bracket.

Paying taxes is never fun and proper planning is important but I agree that the concern about RMD's is overblown. For some people paying high taxes on the RMD's may be the least bad choice.

Some things to keep in mind are;

1) For most people the RMD's do not get above 7% until they are 86. (See table 3 at this link.) This means that if your investments are earning 7% then you do even need to start drawing down your IRA until you are 86.

viewtopic.php?t=237297

2) If you have to take an unneeded RMD then if you do not give it to a charity then you will likely just invest it in a taxable account that will eventually go to your heirs. They will get it at a stepped up cost basis and that tax break will at least partially make up for the taxes you paid when you took the RMD.

3) Even if you had a crystal ball and knew that you would live to be 100 and have large RMDs then using the IRA could still be the best choice since you might get 50 years of tax deferred growth. If you had invested in a taxable account you could have had 50 years of paying taxes on the dividends. Your heirs may also be in a lower tax bracket which could make paying high taxes on RMDs while you are alive a good choice so that your heirs could get the money someday when they are in a low tax bracket.

4) Interest rates are still low now but it was not that long ago when you could get 5% in a money market account. When interest rate are higher your RMD might be a lower percent than if the money was invested in a taxable account and earning interest.
Rwsawbones
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Re: RMD at 70.5 - what am I missing?

Post by Rwsawbones »

RMDS can result in higher part B Medicare premiums since they increase with income. This can result in a premium as high as $438 per month per person in steps from the base premium of $135 per month per person. I believe that partD monthly premiums taken from one’s SS also increase with income. The part of the part D premium paid directly to the insurer is not affected by income.
Jimmie
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Re: RMD at 70.5 - what am I missing?

Post by Jimmie »

David Jay wrote: Thu Jan 31, 2019 6:44 pm Age 70.5 - 3.65% of outstanding balance
Age 85 - 7.1% of outstanding balance
Age 90 - 10.7% of outstanding balance
Age 95 - 12.3% of outstanding balance
This shouldn't be a surprise.

The federal government allowed people, through the set up of the 401k plan, to defer the taxes. At some point, they want those taxes paid back. The RMD schedule forces those tax deferred funds to be taxed as the investor ages into his or her retirement. Simple.
4nwestsaylng
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Re: RMD at 70.5 - what am I missing?

Post by 4nwestsaylng »

The tax cuts "sunset" in 2026. Roth Conversion should be considered,even if it puts you in higher IRMAA for a few years.

Read the new book "The Power of Zero" by David McKnight.
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One Ping
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Re: RMD at 70.5 - what am I missing?

Post by One Ping »

4nwestsaylng wrote: Fri Feb 01, 2019 5:32 pm The tax cuts "sunset" in 2026. Roth Conversion should be considered,even if it puts you in higher IRMAA for a few years.

Read the new book "The Power of Zero" by David McKnight.
I agree. I think people are too afraid of incurring an 'IRMAA'. Going from the Baseline to Tier 1 premium results in an additional $798/person/year (in 2019). I think the benefit needs to be weighed against the cost. In our case spending the extra dollars associated with IRMAA resulted in a benefit worth well more than the cost. YMMV.
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sailaway
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Re: RMD at 70.5 - what am I missing?

Post by sailaway »

One Ping wrote: Fri Feb 01, 2019 5:47 pm
4nwestsaylng wrote: Fri Feb 01, 2019 5:32 pm The tax cuts "sunset" in 2026. Roth Conversion should be considered,even if it puts you in higher IRMAA for a few years.

Read the new book "The Power of Zero" by David McKnight.
I agree. I think people are too afraid of incurring an 'IRMAA'. Going from the Baseline to Tier 1 premium results in an additional $798/person/year (in 2019). I think the benefit needs to be weighed against the cost. In our case spending the extra dollars associated with IRMAA resulted in a benefit worth well more than the cost. YMMV.
It seems that the whole point of this thread is that most people panic just thinking about taxes and fees, rather than taking into consideration costs and benefits.
The Wizard
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Re: RMD at 70.5 - what am I missing?

Post by The Wizard »

One Ping wrote: Fri Feb 01, 2019 5:47 pm
4nwestsaylng wrote: Fri Feb 01, 2019 5:32 pm The tax cuts "sunset" in 2026. Roth Conversion should be considered,even if it puts you in higher IRMAA for a few years.

Read the new book "The Power of Zero" by David McKnight.
I agree. I think people are too afraid of incurring an 'IRMAA'. Going from the Baseline to Tier 1 premium results in an additional $798/person/year (in 2019). I think the benefit needs to be weighed against the cost. In our case spending the extra dollars associated with IRMAA resulted in a benefit worth well more than the cost. YMMV.
Right.
Important thing is to understand where the IRMAA thresholds are and to avoid being just over an IRMAA threshold.

I've dealt with this myself. In December, 2017, my projected MAGI was just under another threshold, so I avoided doing an additional lump Roth conversion on top of the regular one I do each month.

But in December, 2018, my projected MAGI was a bit over that threshold, so I did an additional Roth conversion...
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One Ping
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Re: RMD at 70.5 - what am I missing?

Post by One Ping »

The Wizard wrote: Fri Feb 01, 2019 6:18 pm
One Ping wrote: Fri Feb 01, 2019 5:47 pm
4nwestsaylng wrote: Fri Feb 01, 2019 5:32 pm The tax cuts "sunset" in 2026. Roth Conversion should be considered,even if it puts you in higher IRMAA for a few years.

Read the new book "The Power of Zero" by David McKnight.
I agree. I think people are too afraid of incurring an 'IRMAA'. Going from the Baseline to Tier 1 premium results in an additional $798/person/year (in 2019). I think the benefit needs to be weighed against the cost. In our case spending the extra dollars associated with IRMAA resulted in a benefit worth well more than the cost. YMMV.
Right.
Important thing is to understand where the IRMAA thresholds are and to avoid being just over an IRMAA threshold.

I've dealt with this myself. In December, 2017, my projected MAGI was just under another threshold, so I avoided doing an additional lump Roth conversion on top of the regular one I do each month.

But in December, 2018, my projected MAGI was a bit over that threshold, so I did an additional Roth conversion...
Yup. If you are going to bust the limit due to a Roth conversion, you might as well go big. That's what we did.
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Re: RMD at 70.5 - what am I missing?

Post by dcop »

jhawktx wrote: Thu Jan 31, 2019 12:18 pm I can't understand all the angst about the coming "boogieman" that goes by the scary name of RMD. Yikes!

Why the angst?
What I dread is having to pay tax AGAIN on my SS due to RMD's. if it wasn't for that RMD's at 70 wouldn't be that big of a deal considering age and declining quality of life due to aging. You should enjoy your retirement savings at some point.
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One Ping
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Re: RMD at 70.5 - what am I missing?

Post by One Ping »

dcop wrote: Fri Feb 01, 2019 6:45 pm What I dread is having to pay tax AGAIN on my SS due to RMD's. if it wasn't for that RMD's at 70 wouldn't be that big of a deal considering age and declining quality of life due to aging. You should enjoy your retirement savings at some point.
Again? When did you pay tax on your SS the first time?
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The Wizard
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Re: RMD at 70.5 - what am I missing?

Post by The Wizard »

dcop wrote: Fri Feb 01, 2019 6:45 pm
jhawktx wrote: Thu Jan 31, 2019 12:18 pm I can't understand all the angst about the coming "boogieman" that goes by the scary name of RMD. Yikes!

Why the angst?
What I dread is having to pay tax AGAIN on my SS due to RMD's. if it wasn't for that RMD's at 70 wouldn't be that big of a deal considering age and declining quality of life due to aging. You should enjoy your retirement savings at some point.
The income tax attributable to SS that we higher income retirees pay actually gets fed back into the SS Trust Fund somehow, thus ensuring eternal solvency of the system...
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