RMD: I know I need a Tax Advisor but.....

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Topic Author
M.Lee
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RMD: I know I need a Tax Advisor but.....

Post by M.Lee » Tue Jan 14, 2020 9:41 am

OMG, I just got some bad news this morning. I know this is beyond the scope of this forum, but perhaps someone can provide me with a little understanding of the situation.

First off, my brain is totally fried from all the stress of the past year.

I inherited my IRA from my non-spouse. He died in Feb. 2019. He was 79. I am 74 this year. I withdrew a RMD this year, based on what Fidelity (where my account is) calculated.

I went over to my Fidelity website this morning and saw my RMD for year 2020. It is twice what I expected.

I started googling and saw the calculation for a non-spouse inherited IRA uses different life expectancy tables than what is used for other situations. Ok, I could see it if they were using the life expectancy for him if he were still alive, which would be 16.7. But no, they are using a multiple of 14.1 for me, which would the the number used for an 86 year old.

Does anyone know why it is like this? Also, who do I go to for help that is not going to cost me an arm and a leg. Do I see a Tax preparer or do I need an attorney? Or, should I just accept this is how it works and forget about it.

Dottie57
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Re: RMD: I know I need a Tax Advisor but.....

Post by Dottie57 » Tue Jan 14, 2020 9:45 am

They are using the divisor for your age which is the law. RMDs are age specific for your inherited IRA.

So take the. IRA amount as of December 31 (eod) and divide by divisor. That is your RMD.

Make sure fidelity has your correct birthdate. Ask for the divisor they are using. Make sure you have the correct IRA account value. The math is easy.

lkar
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Re: RMD: I know I need a Tax Advisor but.....

Post by lkar » Tue Jan 14, 2020 10:10 am

Not sure what a lawyer can do for you. The law is the law.

You will get a bit of a break next year if current proposed regulations, which change the table for inherited IRAs a little, are enacted.

Alan S.
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Re: RMD: I know I need a Tax Advisor but.....

Post by Alan S. » Tue Jan 14, 2020 10:27 am

The reason your RMD is larger than his year of death RMD is that an owner uses the Uniform Table and that table assumes a joint life expectancy with a beneficiary 10 years younger than the owner.

The single life table for beneficiaries is based on just the beneficiary's age and therefore life expectancy. 14.1 is the correct divisor for your 2020 beneficiary RMD if you will still be 74 on 12/31/2020. For each year after that reduce the divisor by 1.0. That said, it is expected that new tables will be in place for 2021 and this happens every 20 years or so. For 2021, you will have to reset your beneficiary RMD using the new tables and your 2021 divisor after the reset will be 14.6. In the unlikely event that the new tables are delayed, your 2021 divisor would be 13.1. Check into this when the time comes.

Note that higher divisors produce a LOWER RMD, but the year end account balance is also a variable to which the divisor is applied.

Finally, the 16.7 divisor you mentioned comes from Table II and contemplates a joint life expectancy for age 79 and 74. That table is not applicable here because even if you were the spouse of the decedent, you were not more than 10 years younger. Therefore the year of death RMD divisor (for 2019) would be 19.5, producing a lower RMD for 2019 from the Uniform Table. You may want to clarify this conflict with respect to the 2019 divisor.

Katietsu
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Re: RMD: I know I need a Tax Advisor but.....

Post by Katietsu » Tue Jan 14, 2020 10:33 am

I see that Alan S provides a complete answer while I was typing. So, I will just summarize and say that it appears that Fidelity has correctly made your RMD distribution. If you inherit an IRA from a non spouse and your first RMD is required while you are 74, the correct divisor is 14.1. The divisor then decreases by 1 each year. So your divisor will be 13.1 next year.

I will just add that this is not really bad news. The taxes need to eventually be paid on the money in the IRA anyway. If you do not need all of the RMD for your support, you can use it to invest in a tax efficient ETF or mutual fund. Qualified dividends will be taxed at a preferential rate that might even be 0. If these funds are later inherited, there will be a stepped up basis which is a tax break your heirs would not get with the IRA.

Topic Author
M.Lee
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Re: RMD: I know I need a Tax Advisor but.....

Post by M.Lee » Tue Jan 14, 2020 11:24 am

Ok, but here is what is happening. I have used several on line calculators. Yes, it starts with 14.1 multiple, and then lowers each year. However, the RMD figure stays the same. It is not taking the account balance and dividing it by the lower multiple. Am I making sense or would it be better if I tried to copy and paste the calculation.

I'll be specific. Assuming an account balance of 1,068,000 . The first RMD at 14.1 multiple is 75,744.58. That is the amount they are showing for an RMD clear through until my account is depleted at age 88.

When I add that 75,744 to my Pension and Social Security, I get creamed tax wise. That is why I am wondering about a tax advisor and whether I should just take the whole thing out and take my lumps now.

Edited to add, that 75,744 is costing me 31,346 in income tax.

mhalley
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Re: RMD: I know I need a Tax Advisor but.....

Post by mhalley » Tue Jan 14, 2020 12:05 pm

One thing you can do to reduce the taxes is to do a qcd, but if you do that you lose the $44428 that you can spend however you wish. I suppose you could decrease the stock percentage in your ira to keep it from rising as fast. The online calculators are taking into account the assumed growth from the account as well as the changing divisor each year. Taking the whole thing out is a terrible, awful, horrible, bad, no good idea.
https://www.bogleheads.org/wiki/Qualifi ... tributions
If you have some non tax effecient funds in taxable that are throwing off a lot of income you could get rid of them, either sell if not much cap gains or put in a donor advised fund. Listing your portfolio in the approved format along with whether there are cap gains in the taxable portion might be helpful.
viewtopic.php?t=6212
Last edited by mhalley on Tue Jan 14, 2020 12:14 pm, edited 3 times in total.

Alan S.
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Re: RMD: I know I need a Tax Advisor but.....

Post by Alan S. » Tue Jan 14, 2020 12:10 pm

M.Lee wrote:
Tue Jan 14, 2020 11:24 am
Ok, but here is what is happening. I have used several on line calculators. Yes, it starts with 14.1 multiple, and then lowers each year. However, the RMD figure stays the same. It is not taking the account balance and dividing it by the lower multiple. Am I making sense or would it be better if I tried to copy and paste the calculation.

I'll be specific. Assuming an account balance of 1,068,000 . The first RMD at 14.1 multiple is 75,744.58. That is the amount they are showing for an RMD clear through until my account is depleted at age 88.

When I add that 75,744 to my Pension and Social Security, I get creamed tax wise. That is why I am wondering about a tax advisor and whether I should just take the whole thing out and take my lumps now.

Edited to add, that 75,744 is costing me 31,346 in income tax.
Your beneficiary RMD each year is calculated using the prior 12/31 account balance. Perhaps the calculator is not making that clear.

Using your numbers, if you withdraw your 75,744 RMD this year and if there are no gains or losses by year end your 12/31/2020 balance will be 992,255. If there are investment gains the year end balance will be higher, if losses it will be lower. If there are no gains or losses your 2021 RMD will be the same using the 13.1 divisor. However, as mentioned above your 2021 RMD will be somewhat lower due to new tables.

The larger picture is that you will be able to stretch this inherited IRA for roughly 15 years. If you took out a lump sum distribution your marginal rate would spike to the highest bracket and you would lose considerably more to taxes than if you stretched it out. Had the decedent passed after 2019, you would only get 10 years due to the Secure Act just signed into law. I would focus not on the taxes due which are indeed considerable, but rather on what you have left after taxes.

As stated earlier, the decedent might have been taking too large an RMD if they used Table II from age 70.5. Nothing can be done about that now, but whoever recommended Table II was incorrect. Of course, if the decedent had taken the correct lower RMD, you would have inherited an even larger balance and your RMDs would also be higher.

Nothing can be done about your RMDs, but perhaps an investment advisor can help with respect to what you invest the RMD money in given that your marginal rate will be higher until the inherited IRA is drained. Maybe ETFs that do not pass out cap gain distributions, or muni bonds etc.so that you do not see much taxable investment income from your investments outside the IRA.

Topic Author
M.Lee
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Re: RMD: I know I need a Tax Advisor but.....

Post by M.Lee » Tue Jan 14, 2020 1:48 pm

Thanks all. I will read the link later about why lump sum is not recommended, but from my current calculations it is the best for me.

All my calculations are based on not growing my money. Yes, I know you all would :oops: , but I just can't take any risk right now.

My calculations are that based on my current pre-tax dollars, if I took a lump sum of it all and added to my meager pension and social security, I would have a tax bill of $415,883. That would be the 37% bracket which is the highest right now. [OT comment deleted by moderator oldcomputerguy]

If I were to take the $75k annual distribution, it would cost $31346 in taxes. That would be the 24% tax bracket. In 14 years, that would come to $438,844, which is more than if I took the lump sum.

I assume the reason for not taking a lump sum is because it is expected that people would use the pre-tax money to invest.

I'll read the links.

cas
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Re: RMD: I know I need a Tax Advisor but.....

Post by cas » Tue Jan 14, 2020 2:05 pm

M.Lee wrote:
Tue Jan 14, 2020 1:48 pm
...added to my meager pension and social security...

If I were to take the $75k annual distribution, it would cost $31346 in taxes. That would be the 24% tax bracket.
What is included in that $31,346 in taxes? State taxes (maybe California?) as well as federal taxes?

$31,346/$75,744 => 42% marginal rate.

Sometimes odd things happen with marginal rates, especially when social security is involved, but that $31K tax bill really doesn't sound like it could be just federal taxes.

(As a related question, how are you calculating your tax bill? Some sort of online calculator? This tax calculator is the one often used on bogleheads: https://www.mortgagecalculator.org/calc ... ulator.php )

cas
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Re: RMD: I know I need a Tax Advisor but.....

Post by cas » Tue Jan 14, 2020 2:16 pm

Also, I know it is unpleasant to think about, but keep in mind that if you ever need long term care (or have some other expensive medical condition), the large medical expense deduction ... combined with "meager" pension + SS ... will likely mean you will pay extremely low taxes (maybe 0% ) on any RMDs from the IRA.

lkar
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Re: RMD: I know I need a Tax Advisor but.....

Post by lkar » Tue Jan 14, 2020 3:11 pm

Alan S. wrote:
Tue Jan 14, 2020 12:10 pm
Nothing can be done about your RMDs, but perhaps an investment advisor can help with respect to what you invest the RMD money in
This really seems to be the key takeaway. You can only control what you can control really, and the minimum allowed distribution is in the category of can't control.

So, you have to move the other chess pieces around as best you can to make it last as long as possible.

Katietsu
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Re: RMD: I know I need a Tax Advisor but.....

Post by Katietsu » Tue Jan 14, 2020 4:20 pm

I have read the your past posts. I understand that you have been through a lot in the past year and are trying to sort out your future.

I do believe you may wish to sit down with someone locally to discuss this. I would probably wait until May when tax professionals have more time.

I am not sure how you did your math or what went wrong with your calculations. However, you must realize that if you assume no growth and therefore an identical total amount of withdrawals, that a 37% marginal tax rate will result in more taxes paid than a 24% marginal tax rate. I have tried to get at your numbers by assuming different amounts of state tax, pension and social security. However, I have not yet come up with something that matches your conclusion. You might be right because odd things can happen, but I think I would want a tax professional to take a look because your conclusion would be unusual. Did you include the taxes on your social security and pension equivalently in both scenarios? The tax professional should also consider the affect of income on Medicare premiums.

Also, I hope you do not mean no growth. I am risk adverse too. But, I would hope you are earning at least 1% to 3% from money markets, high yield savings, CDs or treasuries. If you take out a lump sum, you also need to account for taxes on the interest you will hopefully receive going forward. And you must remember that $1 of taxes now is more expensive than $1 of taxes in 14 years because of inflation.

The Stone Wall
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Re: RMD: I know I need a Tax Advisor but.....

Post by The Stone Wall » Tue Jan 14, 2020 4:49 pm

I think you are potentially conflating some things. Is your total income (pensions, SS, IRA, etc) in the range of $160,000 producing a federal tax of $31K? If so, the $75K IRA is not actually producing the total $31K tax estimate. If this is the case, your tax bill would be around $14K without the IRA with an increase of $17K as a result of the IRA. Am I trying to read too much into the limited information presented?

Dottie57
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Re: RMD: I know I need a Tax Advisor but.....

Post by Dottie57 » Tue Jan 14, 2020 8:15 pm

The Stone Wall wrote:
Tue Jan 14, 2020 4:49 pm
I think you are potentially conflating some things. Is your total income (pensions, SS, IRA, etc) in the range of $160,000 producing a federal tax of $31K? If so, the $75K IRA is not actually producing the total $31K tax estimate. If this is the case, your tax bill would be around $14K without the IRA with an increase of $17K as a result of the IRA. Am I trying to read too much into the limited information presented?
I agree. Federal tax of 31 k would require 90k income in addition to the 75k RMD.

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celia
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Re: RMD: I know I need a Tax Advisor but.....

Post by celia » Tue Jan 14, 2020 10:22 pm

The Stone Wall wrote:
Tue Jan 14, 2020 4:49 pm
I think you are potentially conflating some things. Is your total income (pensions, SS, IRA, etc) in the range of $160,000 producing a federal tax of $31K? If so, the $75K IRA is not actually producing the total $31K tax estimate. If this is the case, your tax bill would be around $14K without the IRA with an increase of $17K as a result of the IRA. Am I trying to read too much into the limited information presented?
+1 This is what I was going to say too. Instead of your taxes increasing BY $31K, I think you meant to say your taxes would be increasing TO $31K. Along the way, some/all of your SS that was tax-free is now taxed until 85% of your SS is taxed (and 15% is not).

The reasoning behind the bigger RMD is this: As a non-spouse beneficiary, you need to withdraw the money faster than the original owner had to because the taxes were deferred and the original owner no longer needs the money for his retirement. If you were a spouse inheritor, you would have been able to use your own life expectancy instead, and the RMDs would have been lower than his since you are younger (have a longer life expectancy). I think of it as spouses are treated the same as the original owner because the contributions were probably withheld from your combined income during the working years. In other words, the spouse was ‘paying’ part of the contributions while they were married.

To explain why your RMDs are the same as this year for the next 13 years, you are already assuming the money won’t grow or shrink (for RMD discussion purposes). To make my explanation easier to understand, let’s be assume this year’s divisor is 14.0. If you divide the 2019 year end value by 14, you get $75K, right? So put $75K into each of 14 buckets. This year you withdraw one. Next year there are 13 buckets left, so you withdraw one (1/13 of the account). The following year, there are 12 buckets left, so you withdraw one (1/12 of the account)
... fast forward to 13 years from now and there is only one bucket left, so you withdraw that bucket (1/1 of the account or 100% of what’s left).

...Then you can go back to filing taxes with your lower income.

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celia
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Re: RMD: I know I need a Tax Advisor but.....

Post by celia » Tue Jan 14, 2020 10:40 pm

Alan S. wrote:
Tue Jan 14, 2020 10:27 am
That said, it is expected that new tables will be in place for 2021 and this happens every 20 years or so. For 2021, you will have to reset your beneficiary RMD using the new tables and your 2021 divisor after the reset will be 14.6.
Alan, Doesn’t the SECURE act only apply when the deceased dies on or after January 1, 2020? And one of the changes is that non-spouse beneficiaries (with some exceptions) need to empty the account within 10 years?

OP has a more favorable situation, than if he had died this year.
Last edited by celia on Tue Jan 14, 2020 10:45 pm, edited 1 time in total.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

Geologist
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Re: RMD: I know I need a Tax Advisor but.....

Post by Geologist » Tue Jan 14, 2020 10:44 pm

celia wrote:
Tue Jan 14, 2020 10:40 pm
Alan S. wrote:
Tue Jan 14, 2020 10:27 am
That said, it is expected that new tables will be in place for 2021 and this happens every 20 years or so. For 2021, you will have to reset your beneficiary RMD using the new tables and your 2021 divisor after the reset will be 14.6.
Alan, Doesn’t the SECURE act only apply when the deceased dies on or after January 1, 2020?
The proposed new tables for RMD's have nothing to do with the SECURE act and have been in the works for some time before it was passed. The public comment period closed last week. If the new tables go into effect as is likely, they cover everyone who is taking RMD's no matter when they started.

mhalley
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Re: RMD: I know I need a Tax Advisor but.....

Post by mhalley » Wed Jan 15, 2020 12:39 am

There is absolutely NO WAY that taking the money out all at once is a good idea. By doing so, you are foregoing the many years of appreciation of the money that will be gone forever if you give it to Uncle Sam. In addition, you are not taking inflation into account. While most people can figure things out on their own, the fact that you think this is a good idea means you should definitely sit down with a tax guy, or maybe a fee only financial planner like garret planning network.
As far as not taking any risk, the major risk to everyone is inflation. To keep up with inflation, you need a minimum of 30% stocks. Again I recommend posting your portfolio.
There are many proverbs related to not letting the tax tail wag the dog, which is what you are doing here. Having a large RMD is a good thing, it means you have a lot of money in your ira, which sure beats not having any.
Here is what WCI says about pulling money out to avoid rmds:
So now that we’ve pointed out what reasonable solutions are, let’s point out what the solution IS NOT.

# 1 Pull all your money out now.

The solution is NOT to pull all the money out of your 401(k) now, pay the taxes and penalties, and reinvest it in taxable. This solution is generally advocated by someone who wants to sell you something, like whole life insurance. It’s stupid. Not only do you pay the penalties, pay taxes at the highest possible rate, lose the asset protection benefits and lose the estate planning benefits, but you also lose the benefit of that tax-protected compounding for the rest of your life and that of your heirs. And you probably end up with a crummy investment. It’s idiotic. Really, really dumb. Don’t do that.
https://www.whitecoatinvestor.com/dont- ... aper-rmds/

mhalley
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Re: RMD: I know I need a Tax Advisor but.....

Post by mhalley » Wed Jan 15, 2020 1:02 am

I’d also like to mention what happens to the IRA account value over the course of taking rmds. This article at seeking alpha assumes a 6% rate of return on a portfolio of 500k with rmds taken from 70 to 93. The account ends up with a remaining balance of over 400k.
https://seekingalpha.com/instablog/8749 ... ed-cowbell

The Stone Wall
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Re: RMD: I know I need a Tax Advisor but.....

Post by The Stone Wall » Wed Jan 15, 2020 9:38 am

In the OP's analysis of the taxes to take it all out in one year, they did not include the 'base' tax that remains. In my example (which admittedly has some gross estimates), there would be 13 years of taxes they did not include with the lump sum withdrawal. In this case, the $415K has to include 13 years of $14K taxes of an additional $182K of taxes (at a minimum). So the comparison is $597K in taxes with a lump sum withdrawal versus $438K with withdrawals distributed over a 14 year period. Clearly, a distributed withdrawal is better using the broad assumption of everything remaining essentially flat.

wrongfunds
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Re: RMD: I know I need a Tax Advisor but.....

Post by wrongfunds » Wed Jan 15, 2020 11:05 am

Forget about the numbers. If somebody had given you extra "TAX FREE $44398" to do anything with as you wish, would you be unhappy? Can you ignore the numbers 75744 *and* 31346 and just look at the number 44398?

I know I can NOT follow my own advice and that is precisely the reason I don't buy lottery tickets. It will kill me if I had to pay millions of dollars in taxes if I were to win the megabucks. Who wants that hassle? Not me!

Alan S.
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Re: RMD: I know I need a Tax Advisor but.....

Post by Alan S. » Wed Jan 15, 2020 11:41 am

Of course, the tax hit will be greater for non spouse beneficiaries of plan owners who pass after 2019, as the 10 year rule will apply to most such non spouse beneficiaries. And instead of having annual RMDs, these beneficiaries will have to voluntarily manage distributions over the 10 or 11 tax year period to roughly equalize their taxable income over that period of time. Some may not be disciplined enough to take these voluntary distributions and will end up with large lump sum in the final year.

14 years is certainly a better deal than 10 years.

Frugal1M
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Re: RMD: I know I need a Tax Advisor but.....

Post by Frugal1M » Wed Jan 15, 2020 1:36 pm

Here is the RMD calculator that I have been using to plan on future amounts...
https://www.schwab.com/ira/understand-i ... lators/rmd

Alan S.
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Re: RMD: I know I need a Tax Advisor but.....

Post by Alan S. » Wed Jan 15, 2020 5:41 pm

Here's the new Uniform Table which is expected to apply starting in 2021. You will be delighted to see that at 120 your IRA will still be there.

Uniform Lifetime Table (Proposed effective Year 2021)
Age of employee/d Distribution period
70 29.1
71 28.2
72 27.3
73 26.4
74 25.5
75 24.6
76 23.7
77 22.8
78 21.9
79 21.0
80 20.2
81 19.3
82 18.4
83 17.6
84 16.8
85 16.0
86 15.2
87 14.4
88 13.6
89 12.9
90 12.1
91 11.4
92 10.8
93 10.1
94 9.5
95 8.9
96 8.3
97 7.8
98 7.3
99 6.8
100 6.4
101 5.9
102 5.6
103 5.2
104 4.9
105 4.6
106 4.3
107 4.1
108 3.9
109 3.7
110 3.5
111 3.4
112 3.2
113 3.1
114 3.0
115 2.9
116 2.8
117 2.7
118 2.5
119 2.3
120 + 2.0

Jablean
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Re: RMD: I know I need a Tax Advisor but.....

Post by Jablean » Wed Jan 15, 2020 7:55 pm

But that last big table is not for inherited IRAs, that's for your own IRAs.

Topic Author
M.Lee
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Re: RMD: I know I need a Tax Advisor but.....

Post by M.Lee » Thu Jan 16, 2020 8:42 am

I realize my posts my be unclear and I sound uneducated on this. Trust me, I am not. Certainly many of you are more knowledgeable, but I have done a lot of homework on this.

First off, to Allan S, inherited IRAs use the Single Life Expectancy Table. See, this is why I have to do my own homework.

My original figures on tax penalties were a quick calculation. I have since put those numbers in my H&R Block Tax Cut program. I had not accounted for my Standard Deduction and I had not assumed that only 85% of my social security would be taxable.

If I put in my social security + pension + 75844 RMD, i get a tax bill of around $22,201 (give or tax a few bucks_

If I put i my social security + pension + 1,069400 lump sum, I get a tax bill of $371,855

If I multiply the $22, 201 times 20 years, it comes to $444,020 tax which is more than the lump sum
If 20 years more living is too optimistic, than $22,201 x 15 years is $330,015 which is darn close to the lump sum.

As someone mentioned, my Medicare costs will go up each year using the RMD method. And who knows if the RMD method will change again like it is doing in 2021.

My portfolio is right now 100% cash sitting in a fidelity money market fund getting 1.3% and that might even go lower. That's a recent thing. I had 500k invested at one point.

I'm not going to pay a financial planner 5k or more for advice I likely won't find valuable. I have a good bit of experience with financial advisors and my opinion of them all is low.

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Re: RMD: I know I need a Tax Advisor but.....

Post by Jack FFR1846 » Thu Jan 16, 2020 8:57 am

I'm sorry, but you're receiving a boatload of untaxed money. You should pay tax and since it is a virtual boatload of money, you should be paying taxes in a high bracket. If you don't like paying taxes, donate it all to charity and the taxes are reduced.

That's how tax deferred accounts work. You owe taxes when the money comes out. And the law says that at some point, the money has to come out and that's where RMDs come from.
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wrongfunds
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Re: RMD: I know I need a Tax Advisor but.....

Post by wrongfunds » Thu Jan 16, 2020 9:07 am

M.Lee wrote:
Thu Jan 16, 2020 8:42 am
If I put in my social security + pension + 75844 RMD, i get a tax bill of around $22,201 (give or tax a few bucks_

If I put i my social security + pension + 1,069400 lump sum, I get a tax bill of $371,855

If I multiply the $22, 201 times 20 years, it comes to $444,020 tax which is more than the lump sum
If 20 years more living is too optimistic, than $22,201 x 15 years is $330,015 which is darn close to the lump sum.
What number do you get if you put in "social security + pension + 0" ? Is the answer zero or not?

GlacierRunner
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Re: RMD: I know I need a Tax Advisor but.....

Post by GlacierRunner » Thu Jan 16, 2020 9:43 am

wrongfunds wrote:
Thu Jan 16, 2020 9:07 am
M.Lee wrote:
Thu Jan 16, 2020 8:42 am
If I put in my social security + pension + 75844 RMD, i get a tax bill of around $22,201 (give or tax a few bucks_

If I put i my social security + pension + 1,069400 lump sum, I get a tax bill of $371,855

If I multiply the $22, 201 times 20 years, it comes to $444,020 tax which is more than the lump sum
If 20 years more living is too optimistic, than $22,201 x 15 years is $330,015 which is darn close to the lump sum.
What number do you get if you put in "social security + pension + 0" ? Is the answer zero or not?
+1

The Stone Wall
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Re: RMD: I know I need a Tax Advisor but.....

Post by The Stone Wall » Thu Jan 16, 2020 10:07 am

+1
Also remember that the $1M lump withdrawal will throw off additional yearly (taxable) income over the years.

Alan S.
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Re: RMD: I know I need a Tax Advisor but.....

Post by Alan S. » Thu Jan 16, 2020 10:11 am

M.Lee wrote:
Thu Jan 16, 2020 8:42 am
I realize my posts my be unclear and I sound uneducated on this. Trust me, I am not. Certainly many of you are more knowledgeable, but I have done a lot of homework on this.

First off, to Allan S, inherited IRAs use the Single Life Expectancy Table. See, this is why I have to do my own homework.

My original figures on tax penalties were a quick calculation. I have since put those numbers in my H&R Block Tax Cut program. I had not accounted for my Standard Deduction and I had not assumed that only 85% of my social security would be taxable.

If I put in my social security + pension + 75844 RMD, i get a tax bill of around $22,201 (give or tax a few bucks_

If I put i my social security + pension + 1,069400 lump sum, I get a tax bill of $371,855

If I multiply the $22, 201 times 20 years, it comes to $444,020 tax which is more than the lump sum
If 20 years more living is too optimistic, than $22,201 x 15 years is $330,015 which is darn close to the lump sum.

As someone mentioned, my Medicare costs will go up each year using the RMD method. And who knows if the RMD method will change again like it is doing in 2021.

My portfolio is right now 100% cash sitting in a fidelity money market fund getting 1.3% and that might even go lower. That's a recent thing. I had 500k invested at one point.

I'm not going to pay a financial planner 5k or more for advice I likely won't find valuable. I have a good bit of experience with financial advisors and my opinion of them all is low.
Obviously, you use the single life table.

If you will note, the person that posted before me posted a Schwab calculator for owned IRA RMDs which is based on the current tables which will not apply after this year, so those projections would not be accurate. The single life table will also change, but it is very long so I did not include it, and I also explained how your divisor will be reset next year in my 1/14 post. As I explained to you earlier, the change in tables will reduce your future inherited IRA RMDs a small amount.
Sorry that we got somewhat off topic from your specific situation.

cas
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Re: RMD: I know I need a Tax Advisor but.....

Post by cas » Thu Jan 16, 2020 10:20 am

wrongfunds wrote:
Thu Jan 16, 2020 9:07 am
M.Lee wrote:
Thu Jan 16, 2020 8:42 am
If I put in my social security + pension + 75844 RMD, i get a tax bill of around $22,201 (give or tax a few bucks_

If I put i my social security + pension + 1,069400 lump sum, I get a tax bill of $371,855

If I multiply the $22, 201 times 20 years, it comes to $444,020 tax which is more than the lump sum
If 20 years more living is too optimistic, than $22,201 x 15 years is $330,015 which is darn close to the lump sum.
What number do you get if you put in "social security + pension + 0" ? Is the answer zero or not?
In addition to the "SS + pension" that would continue to be entered into your annual tax return, even if you pulled the whole 1 millionish out of the IRA at once, also keep in mind that, if you pulled the whole 1 millionish out at once, it would now be sitting in your taxable account. (Edit: After you pay the taxes due, there would be about $700,000 sitting in your taxable account.)

Assume you invest it very conservatively in a ladder of CDs and/or treasury bonds earning an average of 2% interest. That would be another $20,000 (Edit: $14,000 .... 2% * $700,000) of income per year.***

So then, an additional question is

"What number do you get if you put in 'social security + pension + 20,000 $14,000' ? Is the answer zero or not?"

***Admittedly, amount and tax details of the investment income from the $1 million $700,000 could vary if it was invested so that some of the income was qualified dividends from stocks or municipal bond interest ... or if interest rates strayed significantly from what they are now. Feel free to make whatever assumptions you want about what you would do with that $1 million $700K. But that $1 million $700K in your taxable account would be kicking off some sort of annual income. And even tax-exempt income from municipal bonds affects taxation of SS and determination of Medicare premiums.

Topic Author
M.Lee
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Re: RMD: I know I need a Tax Advisor but.....

Post by M.Lee » Thu Jan 16, 2020 12:08 pm

Answer to poster CAS

Prior to requiring an RMD
Pension 28179
SS 25704 (10476 taxable)
Tax Due $2819

Assuming lump sum and 14,000 growth on Taxable 700k

Tax Due $4290 (with 22466 of SS taxable)

Also to the poster that insinuated one shouldn't complain about paying tax on Pre-Tax account. That's not my complaint. My complaint is that the tax tables are different for an Inherited IRA for a Non-Spouse. I was a legal Domestic Partner and just as much as wife as someone that was married. Had my partner not died, he would be 80 this year and his RMD on this same account would be less than mine. I certainly can see why somone very young inheriting an IRA should not be able to drag out not paying tax forever, but I feel my situation is different.

mhalley
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Re: RMD: I know I need a Tax Advisor but.....

Post by mhalley » Thu Jan 16, 2020 12:32 pm

Multiple people have posted what a bad idea taking the entire lump sum out of the inherited IRA. If you aren’t willing to pay 5k for a financial planner, and seem to not believe everyone on this thread who says withdrawing the money as a lump sum is a horrible idea, Why not get a consultation with Mark Zoril for $149?

https://planvisionmn.com/?page_id=11

wrongfunds
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Re: RMD: I know I need a Tax Advisor but.....

Post by wrongfunds » Thu Jan 16, 2020 12:43 pm

Your anger about the different treatment accorded to legal domestic partner vs legal spouse by the society and government seems to be futile and too late. I had sensed that in your original post but did not want to bring out the delicate issue. I think you need to let that anger go. Everybody who replied here had nothing but the best of intention to help you and for you to chose the correct financial decision. Do not let perceived societal injustice cloud your financial transactions.

cas
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Re: RMD: I know I need a Tax Advisor but.....

Post by cas » Thu Jan 16, 2020 1:35 pm

M.Lee wrote:
Thu Jan 16, 2020 8:42 am

If I put in my social security + pension + 75844 RMD, i get a tax bill of around $22,201 (give or tax a few bucks_

If I put i my social security + pension + 1,069400 lump sum, I get a tax bill of $371,855

If I multiply the $22, 201 times 20 years, it comes to $444,020 tax which is more than the lump sum
If 20 years more living is too optimistic, than $22,201 x 15 years is $330,015 which is darn close to the lump sum.

As someone mentioned, my Medicare costs will go up each year using the RMD method.
M.Lee wrote:
Thu Jan 16, 2020 12:08 pm
Answer to poster CAS

Prior to requiring an RMD
Pension 28179
SS 25704 (10476 taxable)
Tax Due $2819

Assuming lump sum and 14,000 growth on Taxable 700k

Tax Due $4290 (with 22466 of SS taxable)
OK, so let's work with these numbers for a bit. (I have no idea how this is going to work out. I'm typing out loud.)

(Edit: for those who want the summary up front. By the time I got to the end, I came up with this:
  • 15 year total for federal tax + IRMAA, if IRA emptied in lump sum in Year 1: ~$480K ~$475K
  • 15 year total for federal tax + IRMAA, if IRA stretched over 15 years of RMDs: ~$390K ~360K
)

I'm sure you know this, but just to get it out there for other readers: This is a really, really high level, back of the envelope guestimate, since it doesn't take into account general inflation, Medicare (IRMAA) inflation, unknown future investment returns in and out of the IRA, any COLA (or not) on the pension, unknown future changes in your situation (e.g. large medical bills) that might change your tax situation, unknown future changes in tax law, Medicare premium law, etc etc etc. It also doesn't take into account that, if you stretched annual RMDs, you probably wouldn't spend them all, so your taxable account (and associated taxable dividends) would probably be gradually building up.

In other words, maybe there are so many simplifications that this exercise is completely useless. Nevertheless, onward...

How many years should we look at? I propose 15 years, because the way the single life expectancy table works (if I understand correctly, which I might not), it forces you to have completely drained the IRA via RMDs by the time you get to the 14th year plus a bit (or 15 years plus a bit if the tables reset for 2021, as expected). After the 15 years, your taxes should be exactly the same regardless of whether you took the lump sum or stretched out the RMDs.

What about IRMAA (Medicare premiums)?

(Edit (later correction): note that $144.60 is the base Medicare rate that you will pay regardless of IRMAA bracket.)

If you take lump sum:
  • Year 1 (you take the lump sum, which pushes you to the highest IRMAA bracket): extra (($491.60-$144.60)/month Medicare B IRMAA + $76.40/month Medicare D IRMAA) * 12 months = $6816 $5080 in IRMAA
  • Year 2-15: income ~68K, so lowest IRMAA bracket: $0 in IRMAA
  • Total over 15 years: $6816 $5080 in IRMAA
If you stretch out the RMDs (assuming constant $76K RMD):
  • Year 1-15: income ~130K, so (lowest + 2) IRMAA bracket: ((289.20 -$144.60) /month B + 31.50/month D)x 12 months = $3848$2113/year
  • Total over 15 years: ~58K~32K in IRMAA
OK...now let's look at federal income tax:

If you take the lump sum:
  • Year 1: 372K
  • Years 2-15: (hmmm...I'm getting tax of ~6900 on ($25K SS + 28K pension + 14K interest, over 65, filing single, tax year 2020 brackets and standard deduction), rather than the ~$4300 you got. All of my other tax #s more or less match yours.). $6900 x 14 years = ~96K
  • 15 year total for federal tax: $372K + 96K = $472K federal tax
  • 15 year total, including IRMAA: $472K + 7K~5K IRMAA = ~479K ~$477K
If you stretch the RMDs over the 15 years (assuming constant $76K RMD)
  • Years 1-15: $22K x 15 years = 330K
  • 15 year total, including IRMAA: $330K + 58K ~32K IRMAA = ~388K ~362K

So ... very, very, extremely rough, back-of-envelope ... I'm having you come out about $90K $115K better off if you stretch the RMDs over the whole 15 years.

But that is a lot of numbers, and I could easily have made a mistake. And we have the unresolved issue of why our tax numbers come out more or less the same for everything except the "years after the lump sump is taken", where I'm calculating taxes being about $6900 per year and you are calculating them being $4300/year. We obviously have some different assumption or entry somewhere...
Last edited by cas on Sun Jan 26, 2020 11:32 am, edited 2 times in total.

Topic Author
M.Lee
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Re: RMD: I know I need a Tax Advisor but.....

Post by M.Lee » Thu Jan 16, 2020 3:15 pm

cas wrote:
Thu Jan 16, 2020 1:35 pm
And we have the unresolved issue of why our tax numbers come out more or less the same for everything except the "years after the lump sump is taken", where I'm calculating taxes being about $6900 per year and you are calculating them being $4300/year. We obviously have some different assumption or entry somewhere...
That would be my error. I have $3100 tax taken out of my pension check so your $6900 would be the correct number. I'm manipulating this Tax Cut file and forget to edit some things.

So then Cas, sounds like it is a bit of a wash whether to take a lump sum or yearly withdrawals. I'll have to look closer at your figures, as I'm foggy from looking at this all day.

The reason this hit me so hard was that I wasn't aware of the Single Life Table. I had all my planning down assuming a much lower RMD. It was a big shock to me. And really, nobody knows what else is going on in someone's life, especially the life of someone elderly.

GlacierRunner
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Re: RMD: I know I need a Tax Advisor but.....

Post by GlacierRunner » Thu Jan 16, 2020 4:11 pm

cas wrote:
Thu Jan 16, 2020 1:35 pm

(Edit: for those who want the summary up front. By the time I got to the end, I came up with this:
  • 15 year total for federal tax + IRMAA, if IRA emptied in lump sum in Year 1: ~$480K
  • 15 year total for federal tax + IRMAA, if IRA stretched over 15 years of RMDs: ~$390K
Thank you Cas for so generously taking the time to figure this out for the OP. Bogleheads are the best!

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M.Lee
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Re: RMD: I know I need a Tax Advisor but.....

Post by M.Lee » Sat Jan 18, 2020 6:21 am

mhalley wrote:
Thu Jan 16, 2020 12:32 pm
Multiple people have posted what a bad idea taking the entire lump sum out of the inherited IRA. If you aren’t willing to pay 5k for a financial planner, and seem to not believe everyone on this thread who says withdrawing the money as a lump sum is a horrible idea, Why not get a consultation with Mark Zoril for $149?
https://planvisionmn.com/?page_id=11

Thank you for that link for Zoril. I think it may be a good source 'if' a Financial Planner is what I need. My understanding is that Financial Planners are looking how to grow your portfolio and do not look at the tax consequences. They tell you to seek a Tax Advisor. Am I wrong?

I did some more rough calculations. Initially, it was the Federal Tax I was concerned with. I had not considered the IRMMA. A huge thank you to poster CAS for alerting me of that.

All of CAS's estimated calculations are good except for one thing. In the Lump Sum calculation, it was assumed I would grow 2% in my taxable account. In the RMD stretch calculation it was assumed no growth on the money. If the 2% growth were put into the RMD calculation, then not only would the Federal tax be higher, but so would the IRMMA, and it would continue to increase as the distributions increased. Also, the net money from the RMD distribution would go into the taxable acccount and there would be growth on that too added to everything. I haven't done the calculations yet, but I'm pretty sure this would result in the Lump distrubtion being cheaper than the RMD over the long haul.

Also, while we can't predict tax tables, I believe that it's more likely for the IRMMA to increase than the Federal Tax.

So my question now is to ask what kind of professional do I see to get guidance on this?

cas
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Re: RMD: I know I need a Tax Advisor but.....

Post by cas » Sat Jan 18, 2020 10:33 am

M.Lee wrote:
Sat Jan 18, 2020 6:21 am
All of CAS's estimated calculations are good except for one thing. In the Lump Sum calculation, it was assumed I would grow 2% in my taxable account. In the RMD stretch calculation it was assumed no growth on the money. If the 2% growth were put into the RMD calculation, then not only would the Federal tax be higher, but so would the IRMMA, and it would continue to increase as the distributions increased. Also, the net money from the RMD distribution would go into the taxable acccount and there would be growth on that too added to everything. I haven't done the calculations yet, but I'm pretty sure this would result in the Lump distrubtion being cheaper than the RMD over the long haul.
Good catch on the fact that I neglected to include investment gains/compounding on assets left in the IRA. That mistake occurred to me at some point after I posted, so I gave some thought to whether that threw off my back-of-the-napkin calculations enough to be really, really wrong.

In the end, I decide that ... *IF* we were assuming very conservatively invested assets with a 2% return ... since inflation is also around 2%, the potential increase in the RMD would just about match the annual inflation adjustment to the income tax and IRMAA brackets, so (at a back-of-the-envelope level), I could continue to ignore them.

But it could be a different story if the assets were invested a bit less conservatively and had a real return greater than inflation. In particular, the $130K AGI you had in the "take RMDs for 15 years" scenario is up close to the $136K threshold to the next IRMAA bracket. If you wanted to make very conservative assumptions, I don't think you would be wrong to plug in the IRMAA costs for the next bracket up from the one I used. (You can google "2020 Medicare B costs" and "2020 Medicare D costs" to get the exact numbers.)

Ooo ... I just noticed a mistake I made with IRMAA in the initial calculations - I forgot to subtract out the base rate for the lowest IRMAA bracket (that you will pay regardless of any decision you make on the IRA). So here are the reworked numbers.
What about IRMAA (Medicare premiums)?

If you take lump sum:
Year 1 (you take the lump sum, which pushes you to the highest IRMAA bracket): extra (($491.60 -144.60)/month Medicare B IRMAA + $76.40/month Medicare D IRMAA) * 12 months = $6816$5080 in IRMAA
Year 2-15: income ~68K, so lowest IRMAA bracket: $0 in IRMAA
Total over 15 years: $6816$5080 in IRMAA

If you stretch out the RMDs (assuming constant $76K RMD):
Year 1-15: income ~130K, so (lowest + 2) IRMAA bracket: ((289.20-144.60)/month B + 31.50/month D)x 12 months = $3848$2113/year
Total over 15 years: ~58K$32K in IRMAA

cas
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Re: RMD: I know I need a Tax Advisor but.....

Post by cas » Sat Jan 18, 2020 11:19 am

M.Lee wrote:
Sat Jan 18, 2020 6:21 am

I haven't done the calculations yet, but I'm pretty sure this would result in the Lump distrubtion being cheaper than the RMD over the long haul.

[. . .[

So my question now is to ask what kind of professional do I see to get guidance on this?
As a higher level issue, perhaps of more general interest to readers of this thread than the calculation details...

I certainly sympathize with the sticker shock, when you are used to an ($2800 income tax + $0 IRMAA) annual bill and are suddenly looking at an ($22,000 income tax + $2000 IRMAA) annual bill.

Personally, I'm pretty sure that taking the RMDs over the 15 years will end up giving you more money in your pocket (as opposed to taking the lump sum), BUT (***huge BUT!!!***), I think that the difference will probably be a lot smaller than people who aren't used to thinking about the financial complications of being over 65 may be assuming. Once you are over 65, it isn't as easy as looking at a 37% top "tax bracket" (nominal tax bracket) on lump sum vs a 24% top "tax bracket" (nominal tax bracket) for stretch RMDs and saying "slam dunk decision!" The financial complications of being over 65 can do really unexpected things to marginal tax rates. (But I'm still pretty sure that your overall marginal tax rate (even including other non-income-tax things like IRMAA ) will end up be overall lower on the stretch RMDs route than on the lump sum route.)

(Complications of being over 65 already mentioned in this thread: "Social Security tax hump", IRMAA. There may be even more possible complications - e.g. do you own property and do you get a reduction in your property tax if you are over 65 and your income is under a certain level? Would taking a lump sum vs taking a RMD stretch affect whether you got that property tax break?)

I see a lot of threads on Bogleheads where spouses (usually men at the current time) are worried about what their surviving spouse (usually their wife) will do about making financial decisions when they become a widow. You have some special complications (the non-spousal IRA), but, nevertheless, I suspect that reading about the complications (and emotions) of your situation gives these Bogleheads' readers a cold lump in their stomach. I suspect that these Boglehead readers would really hope that their widow could find a professional of the type you are looking for - one
  • who could take all the "over age 65" complications into account and have proper software to do much better tax/income/asset projections than my inadequate,rinky-dink back-of-the-envelope calculations (at a reasonable price).
  • one who could give some investment advice as well
  • one who could be trusted not to immediately get a gleam in the eye about the opportunity to start sweet talking about some sort of nasty annuity as the easy cure to all the confusions, concerns, and fog of being a new widow
And, really, it isn't just widows that need such a professional. I'm being asked to help elderly relatives more and more ... situations where both the husband and wife are still alive, but advancing age is starting to cause problems with math or declining interest in finances. This situation does not mix well with the financial complications of being over age 65. The situation worries me ... for society, generally, but for my own aging self in particular.

But, personally, I don't know how to find such a professional. But I'm not really the person to ask. I've never really tried to find such a person.

I hope someone else on this thread has better knowledge about whether this type of professional service exists.
Last edited by cas on Sat Jan 18, 2020 11:24 am, edited 1 time in total.

SuzBanyan
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Re: RMD: I know I need a Tax Advisor but.....

Post by SuzBanyan » Sat Jan 18, 2020 11:23 am

M.Lee wrote:
Sat Jan 18, 2020 6:21 am
mhalley wrote:
Thu Jan 16, 2020 12:32 pm
Multiple people have posted what a bad idea taking the entire lump sum out of the inherited IRA. If you aren’t willing to pay 5k for a financial planner, and seem to not believe everyone on this thread who says withdrawing the money as a lump sum is a horrible idea, Why not get a consultation with Mark Zoril for $149?
https://planvisionmn.com/?page_id=11

Thank you for that link for Zoril. I think it may be a good source 'if' a Financial Planner is what I need. My understanding is that Financial Planners are looking how to grow your portfolio and do not look at the tax consequences. They tell you to seek a Tax Advisor. Am I wrong?

I did some more rough calculations. Initially, it was the Federal Tax I was concerned with. I had not considered the IRMMA. A huge thank you to poster CAS for alerting me of that.

All of CAS's estimated calculations are good except for one thing. In the Lump Sum calculation, it was assumed I would grow 2% in my taxable account. In the RMD stretch calculation it was assumed no growth on the money. If the 2% growth were put into the RMD calculation, then not only would the Federal tax be higher, but so would the IRMMA, and it would continue to increase as the distributions increased. Also, the net money from the RMD distribution would go into the taxable acccount and there would be growth on that too added to everything. I haven't done the calculations yet, but I'm pretty sure this would result in the Lump distrubtion being cheaper than the RMD over the long haul.

Also, while we can't predict tax tables, I believe that it's more likely for the IRMMA to increase than the Federal Tax.

So my question now is to ask what kind of professional do I see to get guidance on this?
I am currently a client of Mark Zoril’s. His system requires lots of client input for your accounts, which is fine with me but others may find it tedious. Inherited IRA RMDs will require his intervention, as it is on the planner — not the client — side of the software. He will also work with the client on running various scenarios.

The output includes a report on estimated taxes On a year by year basis.

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Sandi_k
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Re: RMD: I know I need a Tax Advisor but.....

Post by Sandi_k » Sat Jan 18, 2020 12:58 pm

M.Lee wrote:
Sat Jan 18, 2020 6:21 am

I did some more rough calculations. Initially, it was the Federal Tax I was concerned with. I had not considered the IRMMA. A huge thank you to poster CAS for alerting me of that.

Also, while we can't predict tax tables, I believe that it's more likely for the IRMMA to increase than the Federal Tax.
I am not sure this is correct. Remember that the federal tax tables are set to revert to the pre-TCJA brackets in 2026.

https://taxfoundation.org/tax-reform-isnt-done/

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M.Lee
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Re: RMD: I know I need a Tax Advisor but.....

Post by M.Lee » Sat Jan 18, 2020 2:06 pm

Sandi_k wrote:
Sat Jan 18, 2020 12:58 pm
I am not sure this is correct. Remember that the federal tax tables are set to revert to the pre-TCJA brackets in 2026.
https://taxfoundation.org/tax-reform-isnt-done/
Yes, I missed that. If I follow my current thinking, it won't affect me much if at all.

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M.Lee
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Re: RMD: I know I need a Tax Advisor but.....

Post by M.Lee » Sat Jan 18, 2020 2:56 pm

cas wrote:
Sat Jan 18, 2020 11:19 am
Personally, I'm pretty sure that taking the RMDs over the 15 years will end up giving you more money in your pocket (as opposed to taking the lump sum), BUT (***huge BUT!!!***), I think that the difference will probably be a lot smaller than people who aren't used to thinking about the financial complications of being over 65 may be assuming.
At my age, I'm want simplicity. Managing the RMD's and the Medicare penalties are going to cause me more anxiety. It would have to be well over 100k benefit for me to think it was worth it.

Another consideration missed was that I can't have all the pre-tax dollars invested because there has to be money free for the RMD. For example, I can't take out a multi-year CD, because it might have to be cashed in early.

I've done a lot of reading in the last 24 hours. For the IRMMA, the last two highest tiers on the table won't change until 2028. The lower tiers will increase and the estimate is by 2% a year. Yet another reason for the RMD choice not to be attractive.

Another maybe unimportant tidbit is that I have 137k sitting in my Fidelity taxable account. My plan was to use this up for expenses over and above what my income pays for. I can't predict inflation, but I have enough with my income to not require me to take out any distributions. My annual mandatory expenses are 39263 and my net current income is 49752. I was going way over my budget for years because of the super expensive hobby I have. Those expenses are over at the end of this year.
cas wrote: There may be even more possible complications - e.g. do you own property and do you get a reduction in your property tax if you are over 65 and your income is under a certain level? Would taking a lump sum vs taking a RMD stretch affect whether you got that property tax break?)
My state has something called 'the senior freeze'. Taxes can't go up once you qualify and do the documentation. I looked at it once a while back, and the income level had to be some incredibly low number like 30k to qualify. Yes, I own property and no mortgage. My taxes are 9k a year. I also have a lot of acerage that needs mowing. Partner used to do that, but now I pay, and it's nearly 7k a year. I get asked all the time why don't you move and downsize to a condo. :) Because, the condo taxes and home association fees exceed what I'm paying here. Plus, they aren't as nice as my place. There is always the dreaded reverse mortage if I get destitute.
cas wrote:I see a lot of threads on Bogleheads where spouses (usually men at the current time) are worried about what their surviving spouse (usually their wife) will do about making financial decisions when they become a widow. You have some special complications (the non-spousal IRA), but, nevertheless, I suspect that reading about the complications (and emotions) of your situation gives these Bogleheads' readers a cold lump in their stomach. I suspect that these Boglehead readers would really hope that their widow could find a professional of the type you are looking for
While most of this inheritance stuff is new to me, I've been preparing my own taxes and that of my partner for 40 years. We kept our money separate. I also starting preparing for his death long before he died. I still missed a lot of things. I was executrix of my dad's estate back in 1997, so I got some experience there too. Actually, I may have mentioned in one of my other posts here how I lost nearly all of his inheritance, thanks to a Financial Advisor at Merrill Lynch. Maybe that helps explain why I don't have confidence in those people.
cas wrote:one who could take all the "over age 65" complications into account and have proper software to do much better tax/income/asset projections than my inadequate,rinky-dink back-of-the-envelope calculations (at a reasonable price).
I don't know if anyone 'could' do it, but I doubt anyone 'wants' to do it. Your pinky-dink-back-of-the-envelope calculations are very much appreciated. I like the price too. :P

Edited post note: There is also State Tax involved in all this.

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M.Lee
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Re: RMD: I know I need a Tax Advisor but.....

Post by M.Lee » Sun Jan 26, 2020 10:57 am

I just saw post Cas's edits. Thanks Cas!

Some things have happened since I last posted in case anyone is interested (probably not). Perhaps it is my ignorance, but this is a lot more complex a calculation than it seems due to too many variables. The variables being growth rate and other things.

I saw an independent Financial Advisor/CPA last week. I had a 'working session' that was $500 for 2 hours. What did I get out of that session? I got $500 less in my checking account. The guy was no help at all. I think he was expecting someone more clueless than I was. I arrived with many calculations. He said "you ought to be in my line of work". :o Little did he know that math is my weak suit but I've devoted days to doing nothing but calculating.

I did check into the real estate benefit for seniors, and it's a 'senior freeze' and the gross amount to quality needs to be less than 87k.

With respect to the IRMAA money, Any increase you pay there is out of the SS check, so that is less money taxed by the IRS. There is also the unknown increases in SS. Just too many unknowns.

As of now, I'm going to do the auto distributions. I haven't decided yet if I want to grow the funds a little more than the 1.2% I'm getting. Who knows, that rate may even decrease if the economy keeps soaring.

There are fleeting moments when I feel like just spending 200k on some frivolous things, such as my hobby which I recently gave up.

cas
Posts: 845
Joined: Wed Apr 26, 2017 8:41 am

Re: RMD: I know I need a Tax Advisor but.....

Post by cas » Sun Jan 26, 2020 11:23 am

M.Lee wrote:
Sun Jan 26, 2020 10:57 am
Some things have happened since I last posted in case anyone is interested (probably not). Perhaps it is my ignorance, but this is a lot more complex a calculation than it seems due to too many variables.
As it so happens, someone ( buckeye7983) just posted over on this thread who pretty much echoed your current thoughts and is probably quite interested in your experience with the FA/CPA. (The link should take you directly to buckeye7983's post, but in case it doesn't buckeye7983's is fairly far down the 2nd page of that thread.)
[. . .]With so many moving parts (present and future federal and state income taxes, Obamacare investment income surtax, IRMMA cliffs, uncertainty of longevity, single tax filing status of surviving spouse, taxation of assets inherited by children/grandchildren, etc.), I am unsure we can make the best decision on our own. This is despite being comfortable with portfolio self-management.

I have no doubt that some on this forum have the skills to figure this out on their own, but I think many self-investors may not.

Would it be appropriate to utilize an hourly compensated professional to come up with an appropriate plan for "tax optimization"? What type of professional would that be (accountant, retirement planner, tax attorney, ?)

M.Lee wrote:
Sun Jan 26, 2020 10:57 am
With respect to the IRMAA money, Any increase you pay there is out of the SS check, so that is less money taxed by the IRS.
Sadly, the money deducted from the SS check for IRMAA is still listed as part of total SS income on the SSA-1099 that you use to fill out your IRS Form 1040. Medicare premiums are not an automatic pre-tax deduction. (Medicare B and D premiums can be deducted on Schedule A, but there are quite a few hurdles that prevent them from being actually deductible for probably most people.)

kaneohe
Posts: 6038
Joined: Mon Sep 22, 2008 12:38 pm

Re: RMD: I know I need a Tax Advisor but.....

Post by kaneohe » Sun Jan 26, 2020 11:42 am

M.Lee wrote:
Sun Jan 26, 2020 10:57 am
..........................................................

With respect to the IRMAA money, Any increase you pay there is out of the SS check, so that is less money taxed by the IRS. ............................................................................
https://www.forbes.com/sites/kellyphill ... fdb33d48e9

don't think it works that way...........your gross SS amount is in the colored box 5 . Despite its name of "net benefits", in a normal yr if you don't repay any SS, it is the gross amount of your SS ,not what you receive. Your payments for Medicare including the IRMAA money are included in that amount so the whole amount is used for the tax calculation.

Topic Author
M.Lee
Posts: 18
Joined: Tue Jun 25, 2019 8:26 am

Re: RMD: I know I need a Tax Advisor but.....

Post by M.Lee » Sun Jan 26, 2020 2:34 pm

cas wrote:
Sun Jan 26, 2020 11:23 am
Sadly, the money deducted from the SS check for IRMAA is still listed as part of total SS income on the SSA-1099 that you use to fill out your IRS Form 1040. Medicare premiums are not an automatic pre-tax deduction. (Medicare B and D premiums can be deducted on Schedule A, but there are quite a few hurdles that prevent them from being actually deductible for probably most people.)
Well duh on me. Of course it is. See, I am getting dizzy from moving numbers all around. I guess it wouldn't have saved all that much in taxes anyway. I'll go over and visit that other thread you linked.

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