Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Please read both of my posts. I actually spell out why he would have a high 89% tax, based on the INITIAL $1000 RMD (or MRD, both are correct), putting him past the tax line threshold with regards to SS. For the 3rd time,mits called the Tax Torpedo and has been discussed in multiple retirement forums to death. Its real, but not as daunting as it sounds, be aus rthe actual AMOUNTS are relatively small, the nly the percentage is high. On e the RMD is greater than about 3000, the real tax rate drops immensely.
On e the RMD is greater than about 3000, the real tax rate drops immensely.
Which his is - about $13,224, near as I can figure. Yes, I suppose tiny amounts are disproportionately taxed - but that isn't his situation. I don't understand his particular complaint at all.
Please read both of my posts. I actually spell out why he would have a high 89% tax, based on the INITIAL $1000 RMD (or MRD, both are correct), putting him past the tax line threshold with regards to SS. For the 3rd time,mits called the Tax Torpedo and has been discussed in multiple retirement forums to death. Its real, but not as daunting as it sounds, be aus rthe actual AMOUNTS are relatively small, the nly the percentage is high. On e the RMD is greater than about 3000, the real tax rate drops immensely.
I read your posts and while the maths works out such that if you look at the ratio of the total tax of all income (SS + RMD + other sources of income) over the RMD (especially when the RMD is a very small part of the total income), the percentage is very high, it still does not mean that the RMD itself is taxed at that rate.
The way I see it, without a pension or with tiny pensions as in our case, it is still much better to pay taxes on RMD of your IRA or 401K than not having any RMD at all.
BTW, I googled 'SS Tax Torpedo' and found this article
1.Under age 70: Contribute more often to a Roth IRA.
2.Between age 59.5 and 70.5 and retired: Take money out of your traditional IRA
3. Age 62 to 70? Delay Social Security
Since our income is above the Roth IRA contribution limit, we will only be able to exercise option 2 and 3 which are what I had planned to do before reading the article - I will convert portions of our 401K or IRA to ROTH IRA after retirement and before taking SS. I have not done the maths to see if we may be able to avoid the torpedo like the Perino's quote in the article but expect that actions 2 & 3 will help to reduce the torpedo occurrence frequency.
Quote:
"After 10 years of doing this, the amount subject to RMDs will be reduced," she explains. "And more money will be in my Roth IRA (or in my pocket), not subject to the RMDs. And maybe I'll avoid the torpedo."
Go to a tax CPA and run the numbers for a number of years. Should take less than hour so cost should be minimal. My guess, convert most to a Roth before 70 1/2
I feel your pain. We, too, scrimped and saved to fund the 401(k) and then some. Now it turns out that because we invested it wisely, we'd have been much better off paying the tax on the initial contributions and then cashing out (as needed, not prescribed by some RMD table) and paying long-term capital gains on the profits. Especially with capital gains rates so much lower now than when we first started funding these plans.
Oh, well, we make the best of it. We weren't eligible to fund Roths for very many years before we retired, but that didn't bother us because we truly believe those will become taxable. Not many people (but I'm guessing the vast majority here) know that Social Security started out as totally tax-free income . . .
I feel your pain. We, too, scrimped and saved to fund the 401(k) and then some. Now it turns out that because we invested it wisely, we'd have been much better off paying the tax on the initial contributions and then cashing out (as needed, not prescribed by some RMD table) and paying long-term capital gains on the profits. Especially with capital gains rates so much lower now than when we first started funding these plans.
Oh, well, we make the best of it. We weren't eligible to fund Roths for very many years before we retired, but that didn't bother us because we truly believe those will become taxable. Not many people (but I'm guessing the vast majority here) know that Social Security started out as totally tax-free income . . .
Nothing kept you from doing that in taxable accounts like many other people who put the max into 401k traditionals and invest an equal amount or even more into taxable accounts.
........... Not many people (but I'm guessing the vast majority here) know that Social Security started out as totally tax-free income . . .
Wasn't it in 1984 that up to 85% of SS benefits became taxable depending on how much other income there was? And the thing is those tipping points (amounts of other income) were not indexed to inflation and remain the same as they were in 1984. So over time the number of people paying federal income tax on their SS has grown and grown with inflation.
Nothing kept you from doing that in taxable accounts like many other people who put the max into 401k traditionals and invest an equal amount or even more into taxable accounts.
Well, of COURSE we did that. But now, when we could live comfortably off the after-tax investments, we're required to take an RMD in addition (starting next year) and pay regular income tax on it. Our AGI will be significantly higher because of those RMDs than it ever was when we were working. The way I see it, it's a penalty for saving so much for retirement. The tax rates were supposed to be lower when we retired. We're penalized for saving assiduously and, perhaps more to the point, managing our investments shrewdly.
I know, I know, such a problem to have. But we denied ourselves a lot when we were younger and now that we're older and have the money, it isn't all that much fun to spend it.
Wasn't it in 1984 that up to 85% of SS benefits became taxable depending on how much other income there was? And the thing is those tipping points (amounts of other income) were not indexed to inflation and remain the same as they were in 1984. So over time the number of people paying federal income tax on their SS has grown and grown with inflation.
Well, of COURSE we did that. But now, when we could live comfortably off the after-tax investments, we're required to take an RMD in addition (starting next year) and pay regular income tax on it. Our AGI will be significantly higher because of those RMDs than it ever was when we were working. The way I see it, it's a penalty for saving so much for retirement. The tax rates were supposed to be lower when we retired. We're penalized for saving assiduously and, perhaps more to the point, managing our investments shrewdly.
I know, I know, such a problem to have. But we denied ourselves a lot when we were younger and now that we're older and have the money, it isn't all that much fun to spend it.
The tax rates ARE lower now than before. The way I see it, you invested well so you have a HIGHER AGI but that AGI is taxed at LOWER rates than when you were working. So you are well off and keeping more of the money so why are you complaining like the OP? Just pay the taxes and have fun.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
