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Old 01-30-2015, 09:49 AM
 
Location: Florida -
8,764 posts, read 10,845,692 times
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We have a pension and SS and have thus far been fortunate to not have to draw down IRA's, in order to provide living expenses. But, that will change in 2-3 years at age 70-1/2 when RMD's kick-in (Required Minimum Distribution).

Given what I believe are likely future tax increases (and inflation), is there a strategy or something I should be thinking about now ... that might limit or control my future RMD tax liability?
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Old 01-30-2015, 02:51 PM
 
Location: South Jersey
69 posts, read 52,231 times
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Try to convert from your IRA to a Roth IRA in the years before you have to start taking RMDs. Convert an amount each year that will still keep you in the 15% marginal tax bracket. This will reduce the amount you are forced to withdraw, and pay taxes on (at probably a higher marginal rate), from your IRA.
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Old 01-30-2015, 02:54 PM
 
Location: South Jersey
69 posts, read 52,231 times
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Default Convert to Roth IRA

Convert as much as you can from your IRA to a Roth IRA, a bit each year before you turn 70 1/2. Make sure to stay within the 15% marginal tax bracket. This will lower the amount you have to withdraw once RMDs start, when you would be forced to pay taxes at a higher marginal rate.
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Old 01-30-2015, 02:54 PM
 
Location: Wisconsin
21,539 posts, read 44,018,537 times
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Exactly. Begin Roth conversions. I am doing that now to minimize RMDs down the road - and to leave a tax-free inheritance to son/dil. I expect to continue these conversions for a good long while. Brokerage firms have forms which are very simple to complete, return, they do the rest.
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Old 01-30-2015, 03:01 PM
 
Location: Idaho
4,627 posts, read 4,468,721 times
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A somewhat related question about Required Minimum Distributions.

I was just looking at the IRS web site for calculating RMDs and they say that RMDs are required for 401(k) and IRA accounts. Mine is a 403(b). Will I be required to make RMSs when the time comes?
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Old 01-30-2015, 03:37 PM
 
Location: SoCal desert
8,093 posts, read 13,234,579 times
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Quote:
Originally Posted by volosong View Post
A somewhat related question about Required Minimum Distributions.

I was just looking at the IRS web site for calculating RMDs and they say that RMDs are required for 401(k) and IRA accounts. Mine is a 403(b). Will I be required to make RMSs when the time comes?
From the IRS website:

What types of retirement plans require minimum distributions?
The RMD rules apply to all employer sponsored retirement plans, including
profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.
The RMD rules also apply to Roth 401(k) accounts. However, the RMD rules do not apply to Roth IRAs while the owner is alive.
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Old 01-31-2015, 09:05 AM
 
Location: Florida -
8,764 posts, read 10,845,692 times
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Early ROTH conversions sounds like a good approach if one has some room left in the 15-percent bracket, but, we are already at 25-percent, so I don't think that offers us any benefit. (I do plan to activate an annuity earlier than 70-1/2, rather than later, and roll it into an IRA, to build-up a little tax reserve.)

I'm thinking that a good Tax Consultant is in order, but, also wondering if others have found strategic ways to deal with this type situation. - Thanks
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Old 01-31-2015, 09:09 AM
 
71,592 posts, read 71,751,865 times
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we have been discussing a bit of this here

Avoiding Paying Tax on Soc Sec Benefits
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Old 01-31-2015, 01:42 PM
 
2,038 posts, read 1,948,524 times
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How much can you put into Roth IRAs? Isn't there an income limit around $100K where above that limit you cannot put money into Roth IRAs?
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Old 01-31-2015, 02:43 PM
 
29,782 posts, read 34,871,258 times
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Quote:
Originally Posted by jghorton View Post
Early ROTH conversions sounds like a good approach if one has some room left in the 15-percent bracket, but, we are already at 25-percent, so I don't think that offers us any benefit. (I do plan to activate an annuity earlier than 70-1/2, rather than later, and roll it into an IRA, to build-up a little tax reserve.)

I'm thinking that a good Tax Consultant is in order, but, also wondering if others have found strategic ways to deal with this type situation. - Thanks
I found it interesting scrolling down how there was the assumption you were in the 15% tax bracket. The news is good and bad on what to do and what flexibility you have. Roth Conversions now will just increase your taxable income so pay attention to that on a yearly basis. Do you have Taxable investment income also? One of the biggest things to pay attention to down the road is SS, Medicare reform and any associated means testing. This could result in changes to your SS benefits and Medicare cost/eligibility. The current administration seems fixated on people making over 200K a year and who knows who will make future decisions and what they consider reasonable thresholds. MathJak finds folks like us boring and thats a good thing. The bottom line is smile and smile and smile and feel warm and fuzzy all over. You are in the 25% tax bracket retired and still have RMD's to come. Keep your eye on the next brackets up as with RMD's you will hopefully soar.
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