RMD advice

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Topic Author
JaneNC
Posts: 56
Joined: Wed Mar 04, 2015 12:35 pm

RMD advice

Post by JaneNC »

I'm getting ready to take my first RMD's. Should I do a Roth conversion with those funds? Here are my accounts:
T-IRA: Vanguard Total Bond Market Index Fund Admiral Shares and Vanguard Total International Stock Index Fund Admiral Shares
and a smaller T-IRA at my credit union
Roth IRA: Vanguard Total Stock Market Index Fund Admiral Shares
and a smaller Roth IRA at my credit union

A few years ago an accountant advised me not to do any Roth conversions because I was too old to get any benefit from that. But if my kids inherit my Roth, wouldn't they get the benefit? I don't foresee needing to spend this money in the near future, if ever.

Is there an "easy" way to see how the RMD's will affect my tax bracket? Last year we paid 11.13% of our adjusted gross income in taxes (what turbotax calls our effective tax rate), and 13.5% of our taxable income in taxes.

In the 2022 Federal Income Tax Bracket chart, our 2021 income lands us in the 22% tax bracket.

My RMD's alone won't push us into the next tax bracket. I am also selling a house (not our primary residence) this fall, and I will owe capital gains taxes on part of the proceeds. Will that income also affect our tax bracket?

I may be oversimplifying the whole situation. I'm interested in any suggestions you may have.

Thanks for whatever help you can offer.
jebmke
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Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: RMD advice

Post by jebmke »

RMDs cannot be used for Roth conversion. You can do conversions on top of your RMD (ie. distribute additional funds from your Traditional IRA to a Roth IRA) but that will bump your AGI even higher.
When you discover that you are riding a dead horse, the best strategy is to dismount.
Topic Author
JaneNC
Posts: 56
Joined: Wed Mar 04, 2015 12:35 pm

Re: RMD advice

Post by JaneNC »

Thank you! I figured I was overlooking something very obvious.
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JoeRetire
Posts: 13315
Joined: Tue Jan 16, 2018 2:44 pm

Re: RMD advice

Post by JoeRetire »

JaneNC wrote: Thu Aug 04, 2022 2:21 pm I'm getting ready to take my first RMD's. Should I do a Roth conversion with those funds?
The whole point of RMDs is to take the money out of tax-deferred accounts and pay the taxes.
Is there an "easy" way to see how the RMD's will affect my tax bracket?
- Determine your RMD for the year
- Add that amount to your anticipated adjusted gross income for the year
- Look up which bracket that puts you in
My RMD's alone won't push us into the next tax bracket. I am also selling a house (not our primary residence) this fall, and I will owe capital gains taxes on part of the proceeds. Will that income also affect our tax bracket?
Long-term capital gains are taxed separately from your ordinary income and at a lower rate. Long-term capital gains will not push your ordinary income into a higher tax bracket.
This is gonna be my time. Time to taste the fruits and let the juices drip down my chin. I proclaim this: The Summer of George!
Alan S.
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Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: RMD advice

Post by Alan S. »

Be alert to the IRMAA surcharge to your Medicare premiums.

Income from 2022 from RMDs, conversions, and cap gains might affect IRMAA in 2024.
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BL
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Joined: Sun Mar 01, 2009 2:28 pm

Re: RMD advice

Post by BL »

If you choose to give to one or more charities, check out QCDs, qualified charitable distributions. Those can be withdrawn as a check from an IRA tax-free; all QCDs, even those taken before you have withdrawn RMD will be non-taxable up to $100k/year. (You cannot also itemize them as a tax deduction, since you do not pay tax on it.) There is a spot on the 1040 where QCD is written in by your tax program, and that amount is not included in AGI. So you can meet RMD qualifications with a QCD partially or wholly but RMDs must all be taken before Roth conversions.

I believe your CG income will raise your tax bracket, even though that tax will be calculated separately and probably at a lower rate.
niagara_guy
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Joined: Tue Feb 11, 2020 8:32 am

Re: RMD advice

Post by niagara_guy »

I will add that QCDs, if done correctly, reduce your RMDs. So, you could give your whole RMD amount to a charity and have no taxes on it if you are inclined to give to charities (must be a 501c3).
HicksSt
Posts: 8
Joined: Sun Sep 15, 2013 6:30 am

Re: RMD advice

Post by HicksSt »

Can I give QCDs to my Donor Advised Fund ???

Thanks !
jebmke
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Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: RMD advice

Post by jebmke »

HicksSt wrote: Fri Aug 05, 2022 9:10 am Can I give QCDs to my Donor Advised Fund ???

Thanks !
No. DAFs and private foundations are not allowed.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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