Big IRA accounts

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Topic Author
elainet7
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Big IRA accounts

Post by elainet7 » Sun Feb 10, 2019 8:18 pm

we have IRAs traditional around 4.15 million and 150k in roths and 725k in munis
Any suggestions to minimize tax bite which really is less than 20%(effective tax rate)
age 68-69 Fla residents SS income 46k joint tax free 30k/yr
should I do some roth conversions

Spirit Rider
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Re: BIG IRA ACCOUNTS

Post by Spirit Rider » Sun Feb 10, 2019 8:36 pm

You are going to get slammed with ~$250K in taxable RMDs in the year you each turn 70 1/2. While you can't impact it much at this point, you might want to do Roth conversions up to the top of the 32% tax bracket.

Edit: Oops, looked at my inherited RMD table by mistake.
Last edited by Spirit Rider on Sun Feb 10, 2019 8:52 pm, edited 1 time in total.

Topic Author
elainet7
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Re: Big IRA accounts

Post by elainet7 » Sun Feb 10, 2019 8:40 pm

when I retire the divisor is about 27.4 which turns out to be about 150k
where did you get 250k from

Topic Author
elainet7
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Re: Big IRA accounts

Post by elainet7 » Sun Feb 10, 2019 8:43 pm

vanguard has a rmd estimator
mine is 3.4 million RMD is 125k in 2020
wife still has another yr

Longdog
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Re: Big IRA accounts

Post by Longdog » Sun Feb 10, 2019 8:52 pm

Do the maximum QCD of $100k to your favorite charities. That will save you a ton in taxes.
Steve

Topic Author
elainet7
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Re: Big IRA accounts

Post by elainet7 » Mon Feb 11, 2019 7:11 am

considering partial roth conversions but this will bump up our medicare part b by 2k/yr
also taking added distributions and buying more munis

JW-Retired
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Re: Big IRA accounts

Post by JW-Retired » Mon Feb 11, 2019 8:32 am

elainet7 wrote:
Sun Feb 10, 2019 8:40 pm
when I retire the divisor is about 27.4 which turns out to be about 150k
where did you get 250k from
What is the total income picture? It sounds like you and spouse are still working, and already taking SS, and have a taxable investment account in addition to the $4M 401k's?
Probably too late for more than a token amount of Roth conversations at a very high tax rate.
JW
Retired at Last

SuzBanyan
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Re: Big IRA accounts

Post by SuzBanyan » Mon Feb 11, 2019 9:41 am

elainet7 wrote:
Mon Feb 11, 2019 7:11 am
considering partial roth conversions but this will bump up our medicare part b by 2k/yr
also taking added distributions and buying more munis
Just remember that income from tax-free investments is added back to your Adjusted Gross Income to calculate the Income Related Medicare Adjustment Amount (IRMAA). So with $150k in RMD, 30k (or more) in Muni income and 85% of 46k in Social Security Income, you are going to be over the $170k first tier threshold and probably also the $215k 2nd tier threshold for MFJ IRMAA. So more Munis won’t help solve that issue.

aristotelian
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Re: Big IRA accounts

Post by aristotelian » Mon Feb 11, 2019 9:43 am

Have you already claimed SS? If so, you could try to do a voluntary suspension. Then pull as much as you can until you both hit 70. Unfortunately that only gives you about a year or so to maximize conversions.

Topic Author
elainet7
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Re: Big IRA accounts

Post by elainet7 » Mon Feb 11, 2019 12:01 pm

both taking SS my wife's is SPOUSAL BENEFIT(1/2 mine and it grows to age 70)
Both not working
guess a good problem-WE OVERSAVED

cherijoh
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Re: Big IRA accounts

Post by cherijoh » Mon Feb 11, 2019 12:10 pm

elainet7 wrote:
Sun Feb 10, 2019 8:18 pm
we have IRAs traditional around 4.15 million and 150k in roths and 725k in munis
Any suggestions to minimize tax bite which really is less than 20%(effective tax rate)
age 68-69 Fla residents SS income 46k joint tax free 30k/yr
should I do some roth conversions
You pretty much lost your window to do "inexpensive" Roth conversions by taking SS before 70. FYI - effective tax rate is meaningless when you are making a decision about whether to add taxable income (e.g., doing a Roth conversion).

You might take advantage of any major stock market corrections to limit the tax bite of a Roth Conversion. The stocks or funds can recover in the Roth rather than the traditional IRA. But you probably can't do enough of a conversion to make a huge difference.

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David Jay
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Re: Big IRA accounts

Post by David Jay » Mon Feb 11, 2019 12:17 pm

Longdog wrote:
Sun Feb 10, 2019 8:52 pm
Do the maximum QCD of $100k to your favorite charities. That will save you a ton in taxes.
When RMDs start, definitely look at the QCD. It will reduce your IRMAA and maybe get you down a tax bracket. After start of RMD you should probably do all of your charitable giving through QCD (limit is $100,000 per year per person)

WIKI here: https://www.bogleheads.org/wiki/Qualifi ... tributions
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

DrGoogle2017
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Re: Big IRA accounts

Post by DrGoogle2017 » Mon Feb 11, 2019 1:57 pm

cherijoh wrote:
Mon Feb 11, 2019 12:10 pm
elainet7 wrote:
Sun Feb 10, 2019 8:18 pm
we have IRAs traditional around 4.15 million and 150k in roths and 725k in munis
Any suggestions to minimize tax bite which really is less than 20%(effective tax rate)
age 68-69 Fla residents SS income 46k joint tax free 30k/yr
should I do some roth conversions
You pretty much lost your window to do "inexpensive" Roth conversions by taking SS before 70. FYI - effective tax rate is meaningless when you are making a decision about whether to add taxable income (e.g., doing a Roth conversion).

You might take advantage of any major stock market corrections to limit the tax bite of a Roth Conversion. The stocks or funds can recover in the Roth rather than the traditional IRA. But you probably can't do enough of a conversion to make a huge difference.
He has a few years left. It maybe nice to pay low tax in the beginning of one’s retirement before RMDs and then not. The percentage also does not stay at 3.56% forever.
Last edited by DrGoogle2017 on Mon Feb 11, 2019 2:13 pm, edited 1 time in total.

Topic Author
elainet7
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Re: Big IRA accounts

Post by elainet7 » Mon Feb 11, 2019 2:06 pm

truly low effective tax rates since the new tax law
on 250k its less than 20% for seniors with 27k deduction

Topic Author
elainet7
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Re: Big IRA accounts

Post by elainet7 » Mon Feb 11, 2019 2:10 pm

16.8% effective federal on 250k as seniors over 65

DrGoogle2017
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Re: Big IRA accounts

Post by DrGoogle2017 » Mon Feb 11, 2019 2:16 pm

I thought it’s 24% on income over $168k. So with $27k deduction, it’s still not 20%.
https://www.irs.gov/newsroom/irs-provid ... -year-2019

Topic Author
elainet7
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Re: Big IRA accounts

Post by elainet7 » Mon Feb 11, 2019 2:48 pm

effective and marginal tax rates are two different animals

jhawktx
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Re: BIG IRA ACCOUNTS

Post by jhawktx » Mon Feb 11, 2019 3:19 pm

Spirit Rider wrote:
Sun Feb 10, 2019 8:36 pm
You are going to get slammed with ~$250K in taxable RMDs in the year you each turn 70 1/2. While you can't impact it much at this point, you might want to do Roth conversions up to the top of the 32% tax bracket.

Edit: Oops, looked at my inherited RMD table by mistake.
"Slammed"!!! OMG. Ridiculous. I imagine spending $150k is doable. If not, go taxable with leftover amount of withdrawal. Slammed, LOL.

jhawktx
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Re: Big IRA accounts

Post by jhawktx » Mon Feb 11, 2019 4:08 pm

elainet7 wrote:
Mon Feb 11, 2019 12:01 pm
both taking SS my wife's is SPOUSAL BENEFIT(1/2 mine and it grows to age 70)
Both not working
guess a good problem-WE OVERSAVED
Exactly the right outlook! A fantastic problem to have! You earned it, you saved it, now go out and enjoy life with that money! If you aren't flying first class, start doing so. When you buy tickets to events, buy only the best seats. Travel to the max. African safaris will soak up a chunk of those DREADFUL RMD's you are going to get "slammed" with. Enjoy! I'm green with envy.

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Re: Big IRA accounts

Post by Jack FFR1846 » Mon Feb 11, 2019 4:12 pm

Pay over MSRP for a Porsche 911 GT3 RS.
Bogle: Smart Beta is stupid

Spirit Rider
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Re: BIG IRA ACCOUNTS

Post by Spirit Rider » Mon Feb 11, 2019 5:23 pm

jhawktx wrote:
Mon Feb 11, 2019 3:19 pm
Spirit Rider wrote:
Sun Feb 10, 2019 8:36 pm
You are going to get slammed with ~$250K in taxable RMDs in the year you each turn 70 1/2. While you can't impact it much at this point, you might want to do Roth conversions up to the top of the 32% tax bracket.

Edit: Oops, looked at my inherited RMD table by mistake.
"Slammed"!!! OMG. Ridiculous. I imagine spending $150k is doable. If not, go taxable with leftover amount of withdrawal. Slammed, LOL.
Even if my math was wrong, I was referring to the fact that the OP was going to be subject to far higher taxes with the substantial increase in taxable income. Nothing to laugh about.

cherijoh
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Re: BIG IRA ACCOUNTS

Post by cherijoh » Mon Feb 11, 2019 5:28 pm

jhawktx wrote:
Mon Feb 11, 2019 3:19 pm
Spirit Rider wrote:
Sun Feb 10, 2019 8:36 pm
You are going to get slammed with ~$250K in taxable RMDs in the year you each turn 70 1/2. While you can't impact it much at this point, you might want to do Roth conversions up to the top of the 32% tax bracket.

Edit: Oops, looked at my inherited RMD table by mistake.
"Slammed"!!! OMG. Ridiculous. I imagine spending $150k is doable. If not, go taxable with leftover amount of withdrawal. Slammed, LOL.
Some of the $150K RMD will go to cover taxes so it won't be a matter of spending it all.

It sounds like they will fall over one or more of the IRMAA cliffs though. The "slamming" will likely occur when the surviving spouse has to switch from MFJ to single tax filing status. But certainly first world problems.

Topic Author
elainet7
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Re: Big IRA accounts

Post by elainet7 » Mon Feb 11, 2019 7:57 pm

just bought 5 BKRB to get 7% auto ins discount

DrGoogle2017
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Re: Big IRA accounts

Post by DrGoogle2017 » Mon Feb 11, 2019 11:39 pm

elainet7 wrote:
Mon Feb 11, 2019 2:48 pm
effective and marginal tax rates are two different animals
You wrote two rates so I’m confused which one. One said 2% and one said 16%.
Last edited by DrGoogle2017 on Mon Feb 11, 2019 11:44 pm, edited 1 time in total.

DrGoogle2017
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Re: Big IRA accounts

Post by DrGoogle2017 » Mon Feb 11, 2019 11:40 pm

jhawktx wrote:
Mon Feb 11, 2019 4:08 pm
elainet7 wrote:
Mon Feb 11, 2019 12:01 pm
both taking SS my wife's is SPOUSAL BENEFIT(1/2 mine and it grows to age 70)
Both not working
guess a good problem-WE OVERSAVED
Exactly the right outlook! A fantastic problem to have! You earned it, you saved it, now go out and enjoy life with that money! If you aren't flying first class, start doing so. When you buy tickets to events, buy only the best seats. Travel to the max. African safaris will soak up a chunk of those DREADFUL RMD's you are going to get "slammed" with. Enjoy! I'm green with envy.
This is a funny post, what makes you think people want to go on African Safaris, I know I’m not going to.

Topic Author
elainet7
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Re: Big IRA accounts

Post by elainet7 » Tue Feb 12, 2019 5:46 am

will always be frugal'
an article on line that those who was Ziploc bags are most likely millionaires
thanx for the kind words

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TomatoTomahto
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Re: Big IRA accounts

Post by TomatoTomahto » Tue Feb 12, 2019 6:35 am

Yes, it’s an admittedly first world problem, but it’s a problem. RMD percentages go up every year. We also “over-saved,” and are somewhat addressing that by spending on home improvements, contributing to Roth 401k rather than traditional, gifting before we die, etc.
Okay, I get it; I won't be political or controversial. The Earth is flat.

Mr.BB
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Re: Big IRA accounts

Post by Mr.BB » Tue Feb 12, 2019 7:09 am

What about a SPIA? You can take up to $125,000 and use it for a future monthly payout and it will lower your cost of your RMD. I know you can do it with the 401k, but you would have to check to see if you could do it with your Traditional IRA.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

MathIsMyWayr
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Re: Big IRA accounts

Post by MathIsMyWayr » Tue Feb 12, 2019 9:54 am

elainet7 wrote:
Sun Feb 10, 2019 8:18 pm
IRAs traditional around 4.15 million and 150k in roths and 725k in munis
...
age 68-69 Fla residents SS income 46k joint tax free 30k/yr
should I do some roth conversions
The RMD factor (denominator) becomes smaller each year. In a good problematic scenario, your RMD amount will get even bigger than that if your IRA account grows even after withdrawal. You should use spread sheets or i-orp whether or how to proceed with aggressive Roth conversion. Since future is unknown, you have to make various assumptions and select the optimal strategy. However, the key is numbers, not fancy arguments, even though the basic assumptions are shaky. in the end, it is a judgement call.

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TomatoTomahto
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Re: Big IRA accounts

Post by TomatoTomahto » Tue Feb 12, 2019 10:05 am

Mr.BB wrote:
Tue Feb 12, 2019 7:09 am
What about a SPIA? You can take up to $125,000 and use it for a future monthly payout and it will lower your cost of your RMD. I know you can do it with the 401k, but you would have to check to see if you could do it with your Traditional IRA.
SPIA are helpful in some circumstances, but not if you want to leave money to heirs. It’s actually worse, in that situation, than taking the RMD, paying the taxes on it, and putting the remainder in a taxable account for your heirs.
Okay, I get it; I won't be political or controversial. The Earth is flat.

Mr.BB
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Re: Big IRA accounts

Post by Mr.BB » Tue Feb 12, 2019 11:14 am

TomatoTomahto wrote:
Tue Feb 12, 2019 10:05 am
Mr.BB wrote:
Tue Feb 12, 2019 7:09 am
What about a SPIA? You can take up to $125,000 and use it for a future monthly payout and it will lower your cost of your RMD. I know you can do it with the 401k, but you would have to check to see if you could do it with your Traditional IRA.
SPIA are helpful in some circumstances, but not if you want to leave money to heirs. It’s actually worse, in that situation, than taking the RMD, paying the taxes on it, and putting the remainder in a taxable account for your heirs.
Good point. I was only thinking about the RMD factor.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

DrGoogle2017
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Re: Big IRA accounts

Post by DrGoogle2017 » Tue Feb 12, 2019 11:17 am

TomatoTomahto wrote:
Tue Feb 12, 2019 10:05 am
Mr.BB wrote:
Tue Feb 12, 2019 7:09 am
What about a SPIA? You can take up to $125,000 and use it for a future monthly payout and it will lower your cost of your RMD. I know you can do it with the 401k, but you would have to check to see if you could do it with your Traditional IRA.
SPIA are helpful in some circumstances, but not if you want to leave money to heirs. It’s actually worse, in that situation, than taking the RMD, paying the taxes on it, and putting the remainder in a taxable account for your heirs.
SPIA should be a small part of the account. If one spouse is comatose, yeah extreme example, the other spouse can’t even take RMD. Plus there’s fraud, someone I read from Money magazine got scammed the whole $1 million at age 60. Had her husband purchase some SPIA, at least she still has some of that money. It comes in handy, regularly payment without much work from the heirs.

bloom2708
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Re: Big IRA accounts

Post by bloom2708 » Tue Feb 12, 2019 11:22 am

This is a side thought. How do you get $4 million in Traditional IRAs?

Even with starting when the Traditional IRA started and 401k started, hitting maxes, generous matches, 100% stocks how do you get $4 million.

Would it have to be a company stock of Apple or Alphabet or some scenario where you invest in the company stock and it explodes in value?
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

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Re: BIG IRA ACCOUNTS

Post by Dottie57 » Tue Feb 12, 2019 11:34 am

Spirit Rider wrote:
Mon Feb 11, 2019 5:23 pm
jhawktx wrote:
Mon Feb 11, 2019 3:19 pm
Spirit Rider wrote:
Sun Feb 10, 2019 8:36 pm
You are going to get slammed with ~$250K in taxable RMDs in the year you each turn 70 1/2. While you can't impact it much at this point, you might want to do Roth conversions up to the top of the 32% tax bracket.

Edit: Oops, looked at my inherited RMD table by mistake.
"Slammed"!!! OMG. Ridiculous. I imagine spending $150k is doable. If not, go taxable with leftover amount of withdrawal. Slammed, LOL.
Even if my math was wrong, I was referring to the fact that the OP was going to be subject to far higher taxes with the substantial increase in taxable income. Nothing to laugh about.
Actually, I am laughing. Congrats to OP for the opportunity to have a terrific retirement. Best wishes :sharebeer

DrGoogle2017
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Re: Big IRA accounts

Post by DrGoogle2017 » Tue Feb 12, 2019 11:42 am

bloom2708 wrote:
Tue Feb 12, 2019 11:22 am
This is a side thought. How do you get $4 million in Traditional IRAs?

Even with starting when the Traditional IRA started and 401k started, hitting maxes, generous matches, 100% stocks how do you get $4 million.

Would it have to be a company stock of Apple or Alphabet or some scenario where you invest in the company stock and it explodes in value?
SEP IRA, like some doctors can put in larger amount, maybe 25% of their salary.

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elainet7
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Re: Big IRA accounts

Post by elainet7 » Wed Feb 13, 2019 10:52 am

Too many negatives with annuities
DO THE MATH

Topic Author
elainet7
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Re: Big IRA accounts

Post by elainet7 » Wed Feb 13, 2019 10:54 am

INVESTING is a marathon, not a sprint
USE a financial calculator and plug in you contributions and estimated returns to see what you have to sock away till retirement
The goal of investing is to reach your goal; not to achieve the highest possible returns

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elainet7
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Re: Big IRA accounts

Post by elainet7 » Wed Feb 13, 2019 11:03 am

Was considering taking some addl distributions, pay 24% tax, and buy more munis

SuzBanyan
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Re: Big IRA accounts

Post by SuzBanyan » Wed Feb 13, 2019 11:22 am

elainet7 wrote:
Wed Feb 13, 2019 11:03 am
Was considering taking some addl distributions, pay 24% tax, and buy more munis
If you want to take additional distributions for your IRAs, I would think you would be better off doing a Roth conversion. This would allow you to shield all additional income generated from taxes, including when calculating IRMAA. Muni income is included in the IRMAA calculation and only helps in that it reduces your income because a Muni will generally pay, for example, 2% when a taxable fixed income instrument is paying 2.5%.

Investment101
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Re: Big IRA accounts

Post by Investment101 » Thu Feb 14, 2019 12:08 pm

Can you fund traditional IRA CD with inheritance money? Not ROTH IRA CD right that's earnings from job.

How does traditional IRA CD work, just need to keep renewing the CD until you are 50 and take it out? no penalty until then right.

Spirit Rider
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Re: Big IRA accounts

Post by Spirit Rider » Thu Feb 14, 2019 5:27 pm

It does not matter whether they are traditional IRA or Roth IRA contributions. You need at least as much compensation as IRA contributions.

With some limited exceptions, you will pay a 10% early withdrawal penalty prior to age 59 1/2.

Investment101
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Re: Big IRA accounts

Post by Investment101 » Thu Feb 14, 2019 5:31 pm

Spirit Rider wrote:
Thu Feb 14, 2019 5:27 pm
It does not matter whether they are traditional IRA or Roth IRA contributions. You need at least as much compensation as IRA contributions.

With some limited exceptions, you will pay a 10% early withdrawal penalty prior to age 59 1/2.
Neighbor lives off her inheritance, can she have IRA accounts?

Spirit Rider
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Re: Big IRA accounts

Post by Spirit Rider » Thu Feb 14, 2019 5:48 pm

Investment101 wrote:
Thu Feb 14, 2019 5:31 pm
Neighbor lives off her inheritance, can she have IRA accounts?
She can "have" IRA accounts, but any IRA contribution cannot exceed her compensation.

Compensation is W-2 (Box 1 - Box 11) and/or Form 1040 (line 12 - line 27).

No compensation, no IRA contributions.

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Watty
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Re: Big IRA accounts

Post by Watty » Thu Feb 14, 2019 7:27 pm

SuzBanyan wrote:
Wed Feb 13, 2019 11:22 am
If you want to take additional distributions for your IRAs, I would think you would be better off doing a Roth conversion. This would allow you to shield all additional income generated from taxes, including when calculating IRMAA. Muni income is included in the IRMAA calculation and only helps in that it reduces your income because a Muni will generally pay, for example, 2% when a taxable fixed income instrument is paying 2.5%.
+1

And the Roth would be much better for your heirs.

Some things to keep in mind;

1) It is likely that one of you will survive the other and be in a higher tax bracket then. If the money will clearly not be needed it might be best to let your heirs inherit some of that money then if they will be in a lower tax bracket.

2) There is a reasonable(likely ?) chance that tax rates will be higher in the future. Doing Roth conversions now would beat future possible tax increases.

3) I am not sure why you have any munis in the taxable account. It would likely make more sense to have the $724K in stocks and hold all your bonds in the retirement accounts.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

4) Most people will use Table III here to calculate their RMD.

https://www.bogleheads.org/wiki/IRA_distribution_tables

It does not get above 7% until you are 86 years old. This means that you will not need to start drawing down the IRA until you are 86 if your investments are also earning 7%. Paying taxes is not fun and you would want to minimize the taxes you pay but it may be a long time until the RMDs get to be a big problem.

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Epsilon Delta
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Re: Big IRA accounts

Post by Epsilon Delta » Fri Feb 15, 2019 12:18 am

Spirit Rider wrote:
Thu Feb 14, 2019 5:48 pm

Compensation is W-2 (Box 1 - Box 11) and/or Form 1040 (line 12 - line 27).

In 2017. 2018 1040 doesn't even have a line 27.

letsgobobby
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Re: Big IRA accounts

Post by letsgobobby » Fri Feb 15, 2019 1:34 am

Deleted
Last edited by letsgobobby on Thu Apr 18, 2019 1:19 am, edited 1 time in total.

Spirit Rider
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Re: Big IRA accounts

Post by Spirit Rider » Fri Feb 15, 2019 9:04 am

Epsilon Delta wrote:
Fri Feb 15, 2019 12:18 am
Spirit Rider wrote:
Thu Feb 14, 2019 5:48 pm

Compensation is W-2 (Box 1 - Box 11) and/or Form 1040 (line 12 - line 27).

In 2017. 2018 1040 doesn't even have a line 27.
All the references to Form 1040 line numbers 10 - 36, refer to the equivalent line numbers on 2018 Form 1040 Schedule 1. In fact all of the prior Form 1040 line numbers 10+ are simply moved to Form 1040 Schedules 1 - 6 keeping the same line numbers.

Nowizard
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Re: Big IRA accounts

Post by Nowizard » Fri Feb 15, 2019 12:20 pm

Probably should make conversions. Like you, we began taking SS before age 70. Some choose to defer SS until age 70 and withdraw from tax-deferred accounts for living expenses, thus increasing SS and lowering the balances in tax-deferred accounts that will require withdrawal. Get ready for your Medicare B and D payments to increase based on your increasing AGI when you begin RMD's.

Tim

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elainet7
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Re: Big IRA accounts

Post by elainet7 » Sat Feb 16, 2019 9:28 am

munis are in our personal acct.
have owned them for 40yrs when they were once paying double digits
nothing beats tax free income
Check out the Bogleheads Financial Literacy Project-a wonderful presentation

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elainet7
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Re: Big IRA accounts

Post by elainet7 » Mon Feb 18, 2019 8:13 pm

our effective tax rate on 250k is about 16.8%-Florida
taking excess distributions at 24% tax seems not crazy but will increase medicare part b premiums by 2k/yr

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