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Any ideas on how to reduce or contain RMD taxes. One seems to be to convert one's 401K's/IRA's to Roth's before one's RMD's kick-in. Is there a way to get tax breaks on grandkids college, annuity payouts - or to better control one's annual tax bite? --- Many of us are interested in your successful and creative strategies.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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QLAC (qualified longevity annuity contracts).
A variation is, GLWB, not all.
We use deferred GLWB Variable Annuities. Which have a 5% payout rate on Income Acct at first withdrawal. RMDs exceeding 5% will not occur into about age 76. You do not annuitize this type of contract. There is a remainder, if you die before the Acct Value is exhausted.
We bank the excess RMD into other accounts that we think will make or preserve value.
YMMV
As for taxes resulting from RMD payout... someone mentioned charitable donations. Otherwise, our tax situation is so far manageable and not onerous. Just breaking 25% marginal.
YMMV
The only ways I know of to reduce the tax bite of the RMD is to start converting before taking Social Security and while in a lower tax bracket (if possible), convert to a ROTH before the RMD kicks in, or purchase a QLAC
The QLAC (Qualified Longevity Annuity Contract) has a lot of rules:
It can be purchased in a 401(k), 403(b) and 457(b) plan, and in Traditional (not a ROTH) IRA.
It CAN NOT be used in inherited IRAs, ROTH, or Defined Benefit plans.
You can defer the QLAC up to age 85, but the income stream must begin by age 85
Only 25% of the total amount of all qualified accounts can be put into the QLAC up to a total of $125K (whichever is less) The $125K cap is supposed to be indexed for inflation
QLACs can have a death benefit but there are specific rules. Depending upon the insurance company providing the QLAC it is possible to have 100% of the initial premium given to your beneficiary in the event you die BEFORE the income stream starts
Both you and your spouse can both purchase a QLAC up to the funding limits providing you each have your own IRA, 401(k), etc.
QLAC payments are based upon your life expectancy at the time you start the income stream
The tax savings happens because the dollar amount in the QLAC is not included in your RMD calculations. It defers taxes until the QLAC income stream starts for a potential of 15 years (by age 85)
It provides a lifetime income guarantee (like a SPIA/DIA). There are no annual fees. The contracts are simple to understand. COLA riders can be added for a cost. You can ladder the QLAC. Money can be added to the QLAC (in other words, it is a flexible annuity) over time but cannot exceed the limitations.
It is a rigid contract, so make sure you really want to purchase a QLAC.
QLAC (qualified longevity annuity contracts).
A variation is, GLWB, not all.
We use deferred GLWB Variable Annuities. Which have a 5% payout rate on Income Acct at first withdrawal. RMDs exceeding 5% will not occur into about age 76. You do not annuitize this type of contract. There is a remainder, if you die before the Acct Value is exhausted.
We bank the excess RMD into other accounts that we think will make or preserve value.
YMMV
As for taxes resulting from RMD payout... someone mentioned charitable donations. Otherwise, our tax situation is so far manageable and not onerous. Just breaking 25% marginal.
YMMV
It looks like the GLWB RMD is about 5% annual on the entire death benefit amount - Is that your understanding? -- I've also been doing a non-annuitized rollover for a couple of years, but, that falls under RMD's for another account.
"“Qualified Longevity Annuity Contract” (QLAC) can even be purchased inside of an IRA or other retirement account, allowing a portion of a retiree’s RMDs to be deferred from 70 ½ to as late as age 85!
However, as it turns out the unique nature of a longevity annuity’s payment structure is not very hospitable as an RMD deferral strategy. The fact that it can take until a retiree’s late 80s just to break even and recover principal means the retiree risks significant foregone growth by trying to merely defer RMDs through the use of a QLAC. And of course, the RMDs will still eventually happen anyway, as the QLAC merely defers when payments begin. In fact, ironically, if the retiree does live, the accelerated payments of a QLAC in the later years can actually deplete an IRA even faster than normal IRA RMDs would have anyway!
Any ideas on how to reduce or contain RMD taxes. One seems to be to convert one's 401K's/IRA's to Roth's before one's RMD's kick-in. Is there a way to get tax breaks on grandkids college, annuity payouts - or to better control one's annual tax bite? --- Many of us are interested in your successful and creative strategies.
one of the best ways is single premium life insurance .
permanent life insurance is actually a good tool for taking forever taxed money and turning it in to never taxed money .
the fact that permanent life insurance policy's are generally cashed in rather than used makes the pricing screwy .
you can generally buy policy's at any age that payout more than they cost so they are actually leveraged in a way .
so lets say you have a million dollars in ira's with taxes due on it . so you pay taxes on a lot less ira money buying the policy .
for less than a million you can buy a million dollar policy that goes to your spouse tax free . no rmd's , no taxes , ever .
whatever is left in the ira's you can leave to your kids who get to pay the taxes over their lifetimes .
that tax free money can out do investing on your own because so much is linked to retirement income too . imagine your spouse not getting ss taxed , or getting Medicare premium increases once rmd's kicked in , perhaps they can stay in the 15% bracket and make use of the zero capital gains brackets .
the life insurance swap is guaranteed too unlike your investing which can have a whole lot of uncertain out comes .
so combining your own investing with the permanent life insurance can be very powerful .
in fact integrating that strategy with a single premium immediate annuity can really build an effective package coupled with your own investing and the permanent life insurance .
you don't take a joint annuity though . you take a single annuity and you use the life insurance instead for the spouse .
the annuity is taxable to the spouse , the life insurance is not . so the single annuity provides a higher income than a joint one too .
thanks to the work of ed slot and dr pfau , they have looked in to the integrated strategy and found it to be far more effective over a wider range of investment outcomes than trying to do this via just investing and dealing with the taxes
Last edited by mathjak107; 03-11-2017 at 03:44 AM..
An option to the conversion method or buying an annuity product is to just use the money. Start taking it out and using it. Any excess put that in the bank. Yes eventually you might need to adjust and add savings accounts but..... it does the same job. Start a monthly withdrawal from your accounts at age 59.5 or when you retire (whichever you feel more comfortable beginning at) and use the money. You were putting that money away for this time. Why do you want to keep it longer and not use it?
Right now I am kicking myself in the a$$ because I neglected to heed my own advice. I started last year with withdrawals of 1500 a month. The amount worked good for last year. I upped it cause my account grew during that time to 1800 a month. Now 3 months into the year I have added to travel trips that this money would be used for and I have to wait until next year to raise the withdrawal. (TSP - Thrift Savings Program) has rules on the withdrawals and one is changes occur only once a year. Well I just guess I am going to have to double that withdrawal next year to make up for this year. Thankfully I can manage to do it but it will be a slower process to pay down credit cards paying interest on the trips that might not have needed to happen.
reinvesting the money in a brokerage account if you are not in the zero percent capital gains bracket can really hurt by having dividends and distributions taxed .
on the other hand we gain more by not spending our deferred accounts and letting the money compound tax deferred growing money on money that would normally go for taxes than we would be taxed more in rmd's later.
someone else with a smaller income and draw than us can delay ss and draw as much as 22k out of the ira's and pay zero tax just using standard deductions and exemptions .for them spending down deferred money first is a no brainer .
just arbitrarily hitting deferred money first is not always going to be a good idea nor make sense tax wise .. it is individual situation dependent
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