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You've probably run the $125K income taxes with/without a part-time job, however, by not taking your SS until 71, it will not decrease your SS amount. When your income drops back to $55K at 71, your SS will take up some of the income slack, and your RMD's will take-up the remaining slack. Since you will need to pay RMD taxes, the amount will likely offset your taxes, so your net income should not change. By that time, you will likely have much of your travel out of the way and be on the downside of your acquisition stage in life.
Since your savings and Roth are already in post-tax dollars, you will have the flexibility in make the best 'tax bucket' decisions annually as you move along... in preparation for the change at 71. In the interim, you have lot of investment flexibility within your IRA. It might be in your best interest to strategically convert part of your IRA to Roth funds - so that at RMD time, the bite will be lessened. We're were in a similar situation and will now allocate our RMD income to college for the grandkids , inflation-protected income and taxes.
Regardless of what you do, "the taxman cometh" and anything you take out of deferred funds will cost you 30-35% taxes now plus work income, (unless the tax rate comes down) ... and RMD taxes when you turn 70-1/2. I've not found any way to beat the RMD taxes (which is obviously the government's intent. Meanwhile, the estate tax rate may turn to your favor at some point to better benefit a Trust account for your heirs.
Retired end of last year at 62 with severance etc behind me. Looking to draw funds in the most tax efficient manner going forward.
I don't quite get the problem. Currently you have 1 taxable item that is fixed:
- pension
In a few years you will have 3 taxable items with fixed amount:
- pension
- SS
- IRA RMDs
If you want to minimize taxes, then don't go above your bracket when you add income from your taxable investment accounts. This seems like just an arithmetic problem.
The one knob you might have to tweak in this is when to sell taxable equities. You didn't say what is in your other accounts, but if they have unrealized capital gains, there is always the question as to whether it is better to sell those now or later. There is a lot of debate on that but most people opt to not spend the IRA until you have to and to live off cap gains until then.
My brother is in this situation. He somehow thought, wrongly, that he didn't have to take RMDs from 401k, he knows about IRA, until I mentioned this to him. Double the trouble(nice problem) is that his wife is in the same boat. Nice problem to have but if people are not careful, it will be all eaten by tax. Maybe he will retire when he turns 62.
Do you have to take the full $70K out at one time?
If yes, then one thing you can do to put at least some of that money into your Roth where it can generate future tax-free returns. That may not be the best tax-advantaged thing to do with a $70K payout, but if you don't need the money but you are getting it nonetheless, might as well do something with it that can help in the future.
I think some key information was omitted. Let me start with the part time income. Unless that is something that takes very little time or is something you really enjoy, why bother?
Second, I am unclear about the retirement savings. It seems there are 3 accounts each with over $500K. I will assume the total is a bit short of $2 million. With a 4% safe withdrawal rate that will about compensate for the $70k. It seems you would not be pulling from those accounts at this time. If you do pull from them, the amounts should be minimal leaving the rest to make up for the loss of the $70K income. Since you will be pulling little or nothing from your accounts, there is no strategy to minimize taxes.
Well there is a way to minimize taxes on that $70K yearly draw and that is give all of it or some portion of it away to a qualified charity or foundation each year.
Giving money away to improve your tax bill usually works out to a losing proposition when you net it all out. Why would you consider giving away 70k to avoid paying 17.5k in taxes?
Giving money away to improve your tax bill usually works out to a losing proposition when you net it all out. Why would you consider giving away 70k to avoid paying 17.5k in taxes?
Giving money away to improve your tax bill usually works out to a losing proposition when you net it all out. Why would you consider giving away 70k to avoid paying 17.5k in taxes?
If one gets $70K/year they absolutely do not need, and will never need to live on, charitable giving is one option for the use of all or some of those monies. There are some tax savings that come as a part of charitable giving, but the underlying desire to donate and support causes is what drives most. The very rich create their foundations of course.
Among a range of options to be explored, this is one to throw on a list. It might be readily discarded, but it is an option of what to do with an infusion of $$$ each year.
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