Priorities (tax related) before RMDs start?

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jtdretiree
Posts: 3
Joined: Tue Dec 05, 2017 8:18 am

Priorities (tax related) before RMDs start?

Post by jtdretiree » Tue May 14, 2019 12:08 pm

Hello all,

I have been working with my daughter on clearing up my finances and she sent me here before, now I am back with another question! I have enjoyed learning a lot about finances over the past several months...having basically no knowledge prior!

Here is some background:

I'm currently 68 and will begin taking RMD from my tIRA in 2021 (June) when I am 70 1/2 years old. Before then I would like help prioritizing (1) continuing to diversify my portfolio and (2) converting tIRA to Roth IRA.

For the last couple of years my daughter has been helping me sell some stock that is all with a single company and buy into a Vanguard 500 index fund instead (less risky). She has been calculating how much I can buy and still minimize taxes since I'm in a very low bracket and pay basically nothing for tax (on SS, disability, etc).

However, I am reading how Roth IRAs are better for heirs (I have 3 children) and I would like to start converting some of my tIRA to Roth to help them in the case they inherit something.

Currently I have $470k invested in Vanguard 500 index fund, bond fund, and company stock (the one I have been selling and reinvesting over the last couple of years). And I have $250k cash approximate. So I don't believe I'll need the RMDs in 2021.

Here is my question: should I continue to change my company stock over to the 500 index fund to diversify during these last 2 years before RMD's increase my taxes? Or should I convert a large portion of my tIRA to Roth in these 2 years, and then go back to slowly diversifying afterward?

Is there a better choice for taxes and long term success?

magicrat
Posts: 669
Joined: Sat Nov 29, 2014 7:04 pm

Re: Priorities (tax related) before RMDs start?

Post by magicrat » Tue May 14, 2019 12:11 pm

Hard to advise without the specifics. I suggest posting in the usual format: https://www.bogleheads.org/wiki/Asking_ ... _questions

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BL
Posts: 8880
Joined: Sun Mar 01, 2009 2:28 pm

Re: Priorities (tax related) before RMDs start?

Post by BL » Tue May 14, 2019 12:26 pm

magicrat wrote:
Tue May 14, 2019 12:11 pm
Hard to advise without the specifics. I suggest posting in the usual format: https://www.bogleheads.org/wiki/Asking_ ... _questions
+!
You will get better answers if you post the above information.

I think company stock risk is the right thing to address. She could use a tax program or estimator to come up with the number which gives you an acceptable tax cost and still reduce single stock. One reason to use a tax program is that at some point the SS income starts to be taxable and it speeds up the taxable amounts by quite a bit. Don't know how much you have, so posting the above would help folks help you.

Since you may be putting RMDs into taxable funds, those funds could increase in value and if not used, they would be inherited at a stepped-up value with no capital gains tax due at all. I would consider that nearly as good as a Roth (but not quite), or at least good enough. If your income is still low with RMDs, you could continue to do either selling company stock or converting to Roth.

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FiveK
Posts: 6761
Joined: Sun Mar 16, 2014 2:43 pm

Re: Priorities (tax related) before RMDs start?

Post by FiveK » Tue May 14, 2019 11:30 pm

jtdretiree wrote:
Tue May 14, 2019 12:08 pm
She has been calculating how much I can buy and still minimize taxes since I'm in a very low bracket and pay basically nothing for tax (on SS, disability, etc).
...
Here is my question: should I continue to change my company stock over to the 500 index fund to diversify during these last 2 years before RMD's increase my taxes? Or should I convert a large portion of my tIRA to Roth in these 2 years, and then go back to slowly diversifying afterward?
Have you (and/or your daughter) looked at what your tax rates will be when RMDs start?

If either of you know anything about Excel, the personal finance toolbox spreadsheet can show you what tax rates you might pay for various amounts of capital gains and conversions, both before and after RMDs start.

is50xenough
Posts: 14
Joined: Sat Jul 28, 2018 1:37 pm

Re: Priorities (tax related) before RMDs start?

Post by is50xenough » Wed May 15, 2019 7:27 am

I would put out another thought that is only tangentially financial. Need to examine the underlying issues. Sounds like you have a loving, honest, bright daughter who is trying to do right for you. Is the reason she directed you to the forum because you disagreed with her suggestions/ strategy?

Is this a “family argument” between your daughter trying to do right by you and you trying to do right by your kids while putting yourself aside?

Might talk to your daughter about this issue. Sorry if I am misunderstanding the situation.

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