RMD's over lifeof IRA

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sailor234
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RMD's over lifeof IRA

Post by sailor234 » Sat Apr 07, 2012 3:41 am

I'm close to starting RMD and finally looked into the details. As most of you already know, RMDs begin around 4% at age 70.5, then grow each year - leading to higher RMDs at age 80 and beyond. But it seems likely my spending will decline (except perhaps for health care) once into the 80s and there is no guarantee I will reach 80 or 85 and beyond. (A while back I read that a 65 year old has a 50/50 chance of reaching 85; I don't have a reference for that.) My income will include a pension, SS and the RMD.

Question: has anyone considered withdrawing a bit more than the required RMD in the first few years?

Typically we plan for a Safe Withdrawal Rate that will keep the portfolio functioning for 30 years. But at age 70.5, living another 30 years is a stretch, at least for me. And, given the experience of both Mom(92) and Dad(88), life in the last five+ years is far less active and certainly less expensive. I'm considering taking a slightly larger withdrawal when I start RMDs and either convert the excess to ROTH or spend it all.

Of course, I will run the risk of a market decline that could compound the effect of taking larger withdrawals but this would be discretionary income/spending; I could always revert to less income and would still have the ROTH to supplement my income if needed.

Ray
The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man. George Bernard Shaw

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desertbandit442
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Re: RMD's over lifeof IRA

Post by desertbandit442 » Sat Apr 07, 2012 4:40 am

Some more pieces of the puzzle would be is there a spouse or not? Have you started taking SS yet or waiting until age 70?

Personal experience observations: My Dad slowed down significantly after about 80, stayed mainly at home until he passed away at 85. My Father-in-Law slowed down significantly at about 81, he is now 84 and stays mainly at home. Neither had/has major health issues--just didn't get out much for anything in their 80s.

So if no spouse, I would take the bulk of the distributions in my 70s and spend it. As long as I have a spouse, I will take RMD and leave rest for spousal IRA.

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Re: RMD's over lifeof IRA

Post by YDNAL » Sat Apr 07, 2012 6:41 am

sailor234 wrote:Typically we plan for a Safe Withdrawal Rate that will keep the portfolio functioning for 30 years. But at age 70.5, living another 30 years is a stretch, at least for me. And, given the experience of both Mom(92) and Dad(88), life in the last five+ years is far less active and certainly less expensive. I'm considering taking a slightly larger withdrawal when I start RMDs and either convert the excess to ROTH or spend it all.
Ray,

Your post is addressed in our Investment Policy Statement. We typically spend 30 years (20s-50s) starting a family then living life as a family until kids leave the home. We spend 30 years primarily living life as an individual/couple. That last decade, for those who make it there or beyond, is obviously the least productive. So for 20 years (60s-70s) we should "party like it is 1999." :)

You don't mention other assets, significant other, inheritance, etc?
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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sailor234
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Re: RMD's over lifeof IRA

Post by sailor234 » Sat Apr 07, 2012 4:25 pm

Thanks for the replies.

To answer the questions:
I do have other assets, a primary residence and a rental income property. Also have some funds outside of my IRA and ROTH, in IBonds and CDs.

There is a significant other, J, who has her own house and IRA. When she retires in 2-3 years she will sell her house and move in with me. In addition to the two houses, I will leave some assets to her. My understanding is that it's better to leave a ROTH than a TIRA, which is why I might add to the ROTH when I can.

Ray
The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man. George Bernard Shaw

ourbrooks
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Re: RMD's over lifeof IRA

Post by ourbrooks » Sat Apr 07, 2012 4:38 pm

You might also want to look at your tax situation. If the RMD at age 70 knocks you into a higher tax bracket, withdrawing earlier in a lower bracket might make sense.

Also, Roth contributions are limited to your taxable compensation; IRA withdrawals don't qualify as compensation. If you have a job in addition, you can put the same amount as you earn from your job into a Roth, provided it doesn't excede the Roth contribution limits.

If you do decide not to spend the money, the simple thing to do is to put the withdrawal in a plain, after tax investment account; see the Wiki for advice about tax positioning of different asset classes. If what you have in the taxable account is primarily stocks, you'll only pay taxes on the dividends until you actually withdraw the money and then it will be a lower, capital gains rate.

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desertbandit442
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Re: RMD's over lifeof IRA

Post by desertbandit442 » Sat Apr 07, 2012 4:45 pm

sailor234 wrote:Thanks for the replies.

To answer the questions:
I do have other assets, a primary residence and a rental income property. Also have some funds outside of my IRA and ROTH, in IBonds and CDs.

There is a significant other, J, who has her own house and IRA. When she retires in 2-3 years she will sell her house and move in with me. In addition to the two houses, I will leave some assets to her. My understanding is that it's better to leave a ROTH than a TIRA, which is why I might add to the ROTH when I can.

Ray
I'm working on TIRA to Roth IRA conversions in my 60s, so I don't have RMDs after I start taking SS at 70. I have a pension now, and when SS and then RMDs hit during my 70th year it looks like it could kick me up to the next tax bracket.

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sailor234
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Re: RMD's over lifeof IRA

Post by sailor234 » Sun Apr 08, 2012 5:10 pm

ourbrooks wrote:You might also want to look at your tax situation. If the RMD at age 70 knocks you into a higher tax bracket, withdrawing earlier in a lower bracket might make sense.

Also, Roth contributions are limited to your taxable compensation; IRA withdrawals don't qualify as compensation. If you have a job in addition, you can put the same amount as you earn from your job into a Roth, provided it doesn't exceed the Roth contribution limits.
Actually I considered the tax consequences of RMDs a while back, which led me to do TIRA to ROTH conversions each year after retiring at 58 until full SS benefits at 66. And I believe you are partly correct; RMD distributions cannot be converted to a ROTH but anything over the RMD can be converted to a ROTH account, with taxes due of course.

Ray
The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man. George Bernard Shaw

ourbrooks
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Re: RMD's over lifeof IRA

Post by ourbrooks » Sun Apr 08, 2012 5:50 pm

Here's what the IRS has to say:

http://www.irs.gov/publications/p590/ch ... k100023035

They don't specially mentioned IRA withdrawals, but from the other things they mention, I don't think IRA withdrawals, even in excess of the RMD, count as taxable compensation, although they do count as income.

If the OP has an existing Roth, then it's not a problem; just do the rollover to the TIRA instead of withdrawing the funds. Also, even if an existing Roth wasn't available, you could earn only $50 and still be able to open a new Roth.

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sailor234
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Re: RMD's over lifeof IRA

Post by sailor234 » Mon Apr 09, 2012 5:48 am

Hello ourbrooks

OK, now I understand the language confusion. Yes, anything over an RMD, that is targeted for a ROTH, would have to be done within the rules.
Regards
Ray
The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man. George Bernard Shaw

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Epsilon Delta
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Re: RMD's over lifeof IRA

Post by Epsilon Delta » Mon Apr 09, 2012 11:26 am

ourbrooks wrote:Here's what the IRS has to say:

http://www.irs.gov/publications/p590/ch ... k100023035

They don't specially mentioned IRA withdrawals, but from the other things they mention, I don't think IRA withdrawals, even in excess of the RMD, count as taxable compensation, although they do count as income.

If the OP has an existing Roth, then it's not a problem; just do the rollover to the TIRA instead of withdrawing the funds. Also, even if an existing Roth wasn't available, you could earn only $50 and still be able to open a new Roth.
I'm not sure of the context of this post, so I may be addressing the wrong question, but ...

You do not need to be eligible for a Roth contribution or have an existing Roth IRA to perform a Roth conversion. If you are otherwise eligible for a Roth conversion (and this basically means if you have a traditional IRA) you can open a brand spanking new Roth to hold the conversion.

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Re: RMD's over lifeof IRA

Post by The Wizard » Mon Apr 09, 2012 11:39 am

sailor234 wrote:...Of course, I will run the risk of a market decline that could compound the effect of taking larger withdrawals but this would be discretionary income/spending; I could always revert to less income and would still have the ROTH to supplement my income if needed.
Ray
You're confusing two related issues:
1) how much to withdraw from your tax-sheltered IRA
2) how much to SPEND from what you withdraw

Some folks probably pay 25% in federal tax on what they withdraw and then reinvest the entire 75% remaining...
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sailor234
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Re: RMD's over lifeof IRA

Post by sailor234 » Thu Apr 12, 2012 10:02 pm

Actually, Wizard, I'm looking to spend more than the RMD in my 70's rather than wait for larger RMDs later, when I will be slowing down and spending less. I could easily spend less now - less travel, less entertainment, etc. - but there seems no strong reason to do so.
Ray
The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man. George Bernard Shaw

Retired Finally
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Re: RMD's over lifeof IRA

Post by Retired Finally » Thu Apr 19, 2012 4:28 pm

Folks on this topic mention a TIRA. I googled TIRA and got nothing. Is TIRA short for a tax-sheltered IRA? Is it different than a regular IRA? Can any of you give me sites for more info?

Many thanks

Alan S.
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Re: RMD's over lifeof IRA

Post by Alan S. » Thu Apr 19, 2012 4:55 pm

TIRA is just shorthand for a Traditional IRA as opposed to a Roth IRA, SEP IRA, or SIMPLE IRA. It is what you are referring to as a "Regular IRA", which is also an unofficial term.

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Re: RMD's over lifeof IRA

Post by mickeyd » Thu Apr 19, 2012 6:28 pm

RMD time is still a few years off for us, but my current thinking on how I may dispose of those assets via RMD by withdrawing the RMD amount each December in a lump sum and stash part (half?) in savings, pay Uncle Sam his part and try to spend what's left. The balance (other half) will probably be exchanged into my taxable TSM fund.

We are currently living quite well on taxable savings, pensions and SS so taping our TIRA will only increase our income by adding yet another pesky slug of money to try to spend away. I can see many more cruses in our future. :beer
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Re: RMD's over lifeof IRA

Post by SGM » Fri Apr 20, 2012 4:48 am

Why not run your numbers through http://www.i-orp.com, the optimal retirement site? I find the results not completely satisfying, but they show a plan for withdrawals from tIRA and Roth conversions and taxable after entering your personal assets, age, pensions, ss, inflatiion rates, etc. It is interesting to run some different scenarios and see if has any effect on the results of their model.
"Let us endeavor, so to live, that when we die, even the undertaker will be sorry." Mark Twain

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GregLee
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Re: RMD's over lifeof IRA

Post by GregLee » Fri Apr 20, 2012 6:44 am

The Wizard wrote: You're confusing two related issues:
1) how much to withdraw from your tax-sheltered IRA
2) how much to SPEND from what you withdraw
My situation is similar to sailor234's. I'll hit 70.5 in 5 months, and my wife already hit it, so RMDs are coming right up. I think of the RMDs as governing when I pay income tax on our IRAs, but I'll be meeting the RMD rule by transferring money out of our IRAs and into a taxable investment account. How fast we spend the money is a different issue, except of course before spending it, we have to withdraw it.
Greg, retired 8/10.

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