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Old 07-27-2014, 01:47 PM
 
Location: High Cotton
6,131 posts, read 6,447,015 times
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Quote:
Originally Posted by theoldnorthstate View Post
but doesn't doing Reed's strategy preclude you from bumping up into a higher tax bracket because the RMDs at 70.5 would be less because the amount to be withdrawn from is less?

once you start layering pension + social security + other income you are pushing up pretty close to higher tax brackets.
Like so many things related to the future pertaining to tax consequences (tax law changes, tax brackets, loopholes, investment outcomes, unexpected sales/gains, death, etc.) such a strategy is just a wild guess. One cannot say with any certainty whatsoever the results of what is done 9 years, or even 2-3 years, before reaching age 70.5. Also, when you bump into a higher bracket, only the 'bump' is higher.

What many people fail to grasp is that once you take a distribution from a tax-deferred dedicated retirement account, not only do you pay taxes on the gains but from that point forward any gains this money makes is no longer deferred from taxes. The key all along for dedicated retirement accounts was the advantage of growing tax-deferred. Take the tax-deferred part away (when you take a distribution) and the advantage disappears. The longer in time one can keep the most amount of money possible in a tax-deferred position, the better... Unless, of course, one has a crystal ball and see into the future concerning a wide range of factors.

I guess one could use the same logic that so many people choose as their logical reasoning to collect SS at age 62 - that SS may not be there later on for them. Or that their benefit may be reduced. Or that they may die sooner, rather than later. In most every case the real reason for their decision is because they either truly 'need' the money, or they just 'want' the money to spend it. Oftentimes, their decision has nothing intelligent to do with good investment logic. I suspect the same applies to the habit Reed has had of taking 9 years of withdrawing money from his tax-deferred retirement account starting at age 59.5. It was on a 'need' or 'want' basis, not an advantageous tax consequence strategy. And, there's nothing wrong with that. I just did not want anyone to think that taking withdrawals before age 70.5 would reduce tax consequence due to it being a certain money-saving or tax-saving strategy of sorts.

Last edited by highcotton; 07-27-2014 at 02:02 PM..
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Old 07-27-2014, 01:50 PM
 
1,316 posts, read 1,184,415 times
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I predict that within the next 20 years, the Govt. will seize and roll everybody's IRA, 401K, and the like, into the Social Security system for National Security reasons i.e.(Bonds being called) or some other monetary catastrophe....I remember during WW 2 people from the govt. coming around and collecting unused metal and other stuff that could be used for the war effort from the families on our street.....That's why I maxed out my Roth and diminished my IRA as much as I could.....however, even the Roth's may be seized but not until much later otherwise some civil unrest may happen. That's why I always suggest to my rich friends to spend it NOW....Most of my democrat friends keep saying it's NOT FAIR that some people have all those savings and 90% of the rest of the citizens have squat...I think those 90% will vigorously support the Govt. in that action....Remember, right now in the USA there are more takers than makers....JMHO

Last edited by Chaffeetrekker; 07-27-2014 at 02:14 PM.. Reason: syntax
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Old 07-27-2014, 01:55 PM
 
Location: High Cotton
6,131 posts, read 6,447,015 times
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Quote:
Originally Posted by Lowexpectations View Post
There is a tax strategy behind it with potential tax savings. If I withdrawl 200-300k from my Ira under normal distributions between 59.5 and 70 I would reduce my rmd amount and possibly my income tax for those years. I would guess the smaller the Ira the better ie if you were able to remove everything with limited tax implications during that time and had zero rmd's to deal with. Could make as much as 12k in income difference if you dropped your Ira from 1mm to 700m before 70.5
The RMD amount, along with the tax you must pay in your 70s, 80s and 90s, is not the real problem. The minimum distribution is only a few percent. When you withdraw money from your IRA that money has now lost its tax-deferred status forever, and not only do you have to pay taxes on the gains when you withdrew it, but now you have to pay taxes on the gains it may make every year.
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Old 07-27-2014, 01:59 PM
 
18,868 posts, read 13,631,032 times
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Quote:
Originally Posted by highcotton View Post
The RMD amount, along with the tax you must pay in your 70s, 80s and 90s, is not the real problem. The minimum distribution is only a few percent. When you withdraw money from your IRA that money has now lost its tax-deferred status forever, and not only do you have to pay taxes on the gains when you withdrew it, but now you have to pay taxes on the gains it may make every year.
You don't have to pay taxes on the gains every year in taxable accounts unless you are realizing gains. You also don't pay taxes on the gains as you withdrawl, because there might not be gains. The withdrawals are subject to income tax though
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Old 07-27-2014, 02:00 PM
 
18,868 posts, read 13,631,032 times
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Quote:
Originally Posted by highcotton View Post
Like so many things related to the future pertaining to tax consequences (tax law changes, tax brackets, loopholes, investment outcomes, unexpected sales/gains, death, etc.) such a strategy is just a wild guess. One cannot say with any certainty whatsoever the results of what is done 9 years, or even 2-3 years, before reaching age 70.5. Also, when you bump into a higher bracket, only the 'bump' is higher.

What many people fail to grasp is that once you take a distribution from a tax-deferred dedicated retirement account, not only do you pay taxes on the gains but from that point forward any gains this money makes is no longer deferred from taxes. The key all along for dedicated retirement accounts was the advantage of growing tax-deferred. Take the tax-deferred part away (when you take a distribution) and the advantage disappears. The longer in time one can keep the most amount of money possible in a tax-deferred position, the better... Unless, of course, one has a crystal ball and see into the future concerning a wide range of factors.

I guess one could use the same logic that so many people choose as their logical reasoning to collect SS at age 62 - that SS may not be there later on for them. Or that their benefit may be reduced. Or that they may die sooner, then later. In most every case the real reason for their decision is because they either truly 'need' the money, or they just 'want' the money to spend it. Oftentimes, their decision has nothing intelligent to do with good investment logic. I suspect the same applies to the habit Reed has had of taking 9 years of withdrawing money from his tax-deferred retirement account starting at age 59.5. It was on a 'need' or 'want' basis, not an advantageous tax consequence strategy. And, there's nothing wrong with that. I just did not want anyone to think that taking withdrawals before age 70.5 would reduce tax consequence due to it being a strategy of sorts.

If you feel a 10 year tax plan is a total crap shoot, what would you call the 30-40 year attempted guesses at retirement planning?
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Old 07-27-2014, 02:10 PM
 
Location: High Cotton
6,131 posts, read 6,447,015 times
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Quote:
Originally Posted by Lowexpectations View Post
You don't have to pay taxes on the gains every year in taxable accounts unless you are realizing gains. You also don't pay taxes on the gains as you withdrawl, because there might not be gains. The withdrawals are subject to income tax though
You will pay income tax on the withdrawal. Then, you must invest that money in hopes of making a gain. Most investors do like to have gains on their investments! Why would anyone take a distribution and pay income taxes on the distribution, and then tax on the gains when they could have left it in a tax-deferred account and not paid any taxes...and withdraw the minimum amount beginning at age 70.5? All on the assumption of course the money we're taking about is not 'needed' or just 'wanted'.
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Old 07-27-2014, 02:13 PM
 
Location: High Cotton
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Quote:
Originally Posted by Lowexpectations View Post
If you feel a 10 year tax plan is a total crap shoot, what would you call the 30-40 year attempted guesses at retirement planning?
You are comparing apples and bowling balls.
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Old 07-27-2014, 02:32 PM
 
18,868 posts, read 13,631,032 times
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Quote:
Originally Posted by highcotton View Post
You are comparing apples and bowling balls.


Really ones a shorter term tax planning vs much longer tax planning. It's actually apples to apples with one being much longer term
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Old 07-27-2014, 02:37 PM
 
Location: Central Massachusetts
4,800 posts, read 4,853,880 times
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Quote:
Originally Posted by Lowexpectations View Post
If you feel a 10 year tax plan is a total crap shoot, what would you call the 30-40 year attempted guesses at retirement planning?
Here is the real truth of the matter. The only time you pay taxes on those funds (IRA, 401k, 403b, SEP and KEOUGH) is when you take distribution. You only pay taxes on that amount you take out. If you take out a lot you will pay a lot in taxes. Take out a little you pay a little in taxes. It can grow in that tax deferred status as long as it is in.

Quote:
Originally Posted by highcotton View Post
You are comparing apples and bowling balls.
Excellent comparison.

Everyone should understand that simple fact and the most important thing for all to remember is that you must take RMD by 15 April of the year following your advancement to 70 and a half. Married couples must follow this rule.

Quote:
Each spouse is responsible for making a required minimum distribution (RMD) withdrawal based on his or her own individual tax-deferred retirement savings account (e.g., IRA and 401(k) plan) balances. Just as these accounts have been funded separately over a couple's working years, the individual balances of a husband and wife must be handled separately for the purposes of an RMD withdrawal calculation.
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Old 07-27-2014, 02:39 PM
 
18,868 posts, read 13,631,032 times
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Quote:
Originally Posted by highcotton View Post
You will pay income tax on the withdrawal. Then, you must invest that money in hopes of making a gain. Most investors do like to have gains on their investments! Why would anyone take a distribution and pay income taxes on the distribution, and then tax on the gains when they could have left it in a tax-deferred account and not paid any taxes...and withdraw the minimum amount beginning at age 70.5? All on the assumption of course the money we're taking about is not 'needed' or just 'wanted'.


Of course everyone likes gains and wants them. I want 20 million dollars too but that doesn't mean I'm going to get them. You can take the distributions from your Ira to your taxable account in securities, receive new cost basis and then you have more control over the tax scenario. Because of the change in basis you could have unrealized losses from the time of distribution to the time of need even though you truly made a lot of money on said position over the years. If you need the money take it in cash no capital gains problems. If you don't need the money take securities withdrawals and harvest losses/ltcg to minimize your tax bill.

If you delay ss until 70 taking the compounding effect your income could jump a decent amount at that age even more so combined with rmd's and if your income is too high you might have to pay taxes on up to 85% of your ss benefit.


Your take is that there is no tax savings benefit or strategy. There is and it's been explained a few times. If you don't like the strategy that's fine however it doesn't mean a strategy and potential benefit don't exist
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