Reinvesting RMDs - inherited IRA as I am 55

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Socrates
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Reinvesting RMDs - inherited IRA as I am 55

Post by Socrates »

My mother recently passed away and inherited some money from her that was set up through my dad, years before, and who had passed 20 years ago.

The amount of the inherited IRA was about $370,000 and there is another $300,000 in a beneficiary IRA and credit trust.
This question is just for the inherited IRA:


I just turned 55 and was told, under the new tax laws, I have to take RMDs for the next 10 years until the account is emptied. I do not need this money now as I am still working and I will have a pension of about $8000 with CalSTRS when I reach 60. I would like to reinvest the RMDs from the inherited IRA. What is the best way to do this:

1. Should I max out my 403(b) and 457 (I now contribute $1000 a month to 403(b)) to mitigate the taxes on the RMDs and use the RMD income to supplement my income that has been diverted to monthly TSA?
2. DO I do a roth conversion? I was reading about it here, but confused. Pay taxes up front, but grows tax free and I will probably be using this money in 10-15 years. Am I still required to take RMDs with roth conversion?
3. Put RMD money in taxable investment account?

Bottom line, I don't need the income, but would to ensure it stays invested.

Me:
Married
wife, age 37, no income
only debt $1500 mortgage
$350,000 in home equity
$90,000 cash bank
about $940,000 in TSA 403(b) and inheritance
State teachers retirement pension estimated at around $8000 @ month depending when I retired (anywhere from 57-60)

Thank you for your help. I hope to meet with tax person at some point, but not even sure what questions to ask.
“Don't waste your time looking back. You're not going that way.” ― Ragnar Lothbrok.
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Flobes
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Re: Reinvesting RMDs - inherited IRA as I am 55

Post by Flobes »

Socrates wrote: Thu Jun 10, 2021 11:41 am My mother recently passed away and inherited some money from her
Sincere condolences. It is difficult to lose a mom and to become an orphan.
Socrates wrote: Thu Jun 10, 2021 11:41 am The amount of the inherited IRA was about $370,000...
2. DO I do a roth conversion?
Roth conversions from an Inherited IRA are not allowed.
Socrates wrote: Thu Jun 10, 2021 11:41 am I just turned 55 and... I will have a pension of about $8000 with CalSTRS when I reach 60.
Can you delay the start of the pension? Then simply empty the Inherited IRA when you have neither employment income nor pension income?
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Socrates
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Re: Reinvesting RMDs - inherited IRA as I am 55

Post by Socrates »

Thank you for the quick reply. Thank you for the condolences....I lost my dad unexpectedly when younger, but I found losing my 90 year old mother just as hard even though her health had been going for years.

My goal would be to retire at 57 or 58....and yes I can delay the retirement pension. If I wait there is an incentive as the money goes up. I also have the option to purchase service credits with the pension.

So maybe increase 403b contribution for now until I retire and then use that inherited IRA to live off and delay pension?
“Don't waste your time looking back. You're not going that way.” ― Ragnar Lothbrok.
JWooden10
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Re: Reinvesting RMDs - inherited IRA as I am 55

Post by JWooden10 »

I just turned 55 and was told, under the new tax laws, I have to take RMDs for the next 10 years until the account is emptied
I believe this is only somewhat correct. You have to empty it in 10 years but don’t have to take annual rmd’s. You’ll need to assess other income to decide what strategy makes sense, but could theoretically let it grow and extract it all at once at the end of the allowable time period.
sailaway
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Re: Reinvesting RMDs - inherited IRA as I am 55

Post by sailaway »

JWooden10 wrote: Thu Jun 10, 2021 12:11 pm
I just turned 55 and was told, under the new tax laws, I have to take RMDs for the next 10 years until the account is emptied
I believe this is only somewhat correct. You have to empty it in 10 years but don’t have to take annual rmd’s. You’ll need to assess other income to decide what strategy makes sense, but could theoretically let it grow and extract it all at once at the end of the allowable time period.

There was a recent publication from the IRS that made it seem like RMDs are required, but I believe it is still being hashed out.

Irregardless, I think the best strategy is likely to take some out and increase contributions to the 403b. This will effectively move money from the inherited IRA with a 10 year limit to the 403b, increasing the time before you are actually forced to take RMDs. Then, if you can retire early and delay the pension, you can have a few years of high control to do Roth conversions at that time.
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Socrates
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Re: Reinvesting RMDs - inherited IRA as I am 55

Post by Socrates »

JWooden10 wrote: ↑Thu Jun 10, 2021 10:11 am
I just turned 55 and was told, under the new tax laws, I have to take RMDs for the next 10 years until the account is emptied
I believe this is only somewhat correct. You have to empty it in 10 years but don’t have to take annual rmd’s. You’ll need to assess other income to decide what strategy makes sense, but could theoretically let it grow and extract it all at once at the end of the allowable time period.

There was a recent publication from the IRS that made it seem like RMDs are required, but I believe it is still being hashed out.

Irregardless, I think the best strategy is likely to take some out and increase contributions to the 403b. This will effectively move money from the inherited IRA with a 10 year limit to the 403b, increasing the time before you are actually forced to take RMDs. Then, if you can retire early and delay the pension, you can have a few years of high control to do Roth conversions at that time.
Thank you both....that would be huge if I had that option as I could let bulk grow/invest 403(b) and take out some to mitigate.

There is about $1000 difference a month if I choose to defer my pension from 60-62 so that would be worth it - especially if I had income to live on - Lol :D
“Don't waste your time looking back. You're not going that way.” ― Ragnar Lothbrok.
Katietsu
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Re: Reinvesting RMDs - inherited IRA as I am 55

Post by Katietsu »

1. Should I max out my 403(b) and 457 (I now contribute $1000 a month to 403(b)) to mitigate the taxes on the RMDs and use the RMD income to supplement my income that has been diverted to monthly TSA?
Almost definitely from a tax perspective. It sounds like you have $52,000 a year of space to effectively shift the money from the inherited IRA to your own tax protected space. What about IRAs? You can put another $7000 into a Roth IRA for you and $6000 for your wife. Of course, you will need enough salary (after things like health insurance premium deductions and mandatory pension contributions) to qualify for all these contributions.

One issue that I would have a question about though would be how this would effect the split of assets in a divorce. It seems that this might be moving your separate inheritance into the mix of assets to be split during a divorce. However, I know nothing about CA divorce law.
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