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401Ks and Trumps tax cut. Question for old farts

bikeama

bikeama

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AMA #: 1097
This question is for those old enough to make withdrawals from their tax-deferred accounts. Many of us :afm199 have 7 figure money in tax-deferred accounts.* The 22% tax bracket goes up to $165K for those filing joint returns in 2018. Sounds like the tax brackets will go up the next 5 year until there are back to 2017 rate or higher. If you run a RMD calculator you might find a required withdrawal of around $100K when you turn 80 :wtf.


The question is, should us old farts make a larger withdrawal in 2018 and take advantage of the lower tax rate. I can not see taxes going to a lower rate in the future. The withdrawal will go into a taxable account and not grow tax-deferred. The IRS is going to get the tax sooner or later. Sooner may be better at a lower rate. The withdrawal will lower the RMD when/if we hit 80. What say the financial experts?







* yes this is a good problem. :twofinger
 
great question. I'll let the experts answer.

from my POV (as a beneficiary) there were a lot of hoops we needed to jump through in order to get the 401k house to release the funds to us. So, I see no downside of removing as much $$ as financially feasible, when considering tax implications.

and

good job, dude! I plan to be in a similar position when I'm :afm199
 
bikeama said:
This question is for those old enough to make withdrawals from their tax-deferred accounts. Many of us :afm199 have 7 figure money in tax-deferred accounts.* The 22% tax bracket goes up to $165K for those filing joint returns in 2018. Sounds like the tax brackets will go up the next 5 year until there are back to 2017 rate or higher. If you run a RMD calculator you might find a required withdrawal of around $100K when you turn 80 :wtf.


The question is, should us old farts make a larger withdrawal in 2018 and take advantage of the lower tax rate. I can not see taxes going to a lower rate in the future. The withdrawal will go into a taxable account and not grow tax-deferred. The IRS is going to get the tax sooner or later. Sooner may be better at a lower rate. The withdrawal will lower the RMD when/if we hit 80. What say the financial experts?







* yes this is a good problem. :twofinger
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I'm in the same boat and to be honest until you had brought this up I didn't realize that my WIFE's minimum distribution would be almost $200k in her mid 80's.

I'll be dead! :rofl

What I've been doing though is taking a distribution each year that doesn't bump me into a new tax bracket and spending the money or R&M on our 4 homes, (3 rentals).

My wife and I started maximum IRA contributions in our early 20s as 401ks didn't exist back then and then when we had access to a matching 401k maxed out there as well.

So, yeah, we have the same "problem" as you.

Contratulations! :thumbup

As we have only one daughter who won't have any children, (long story), and our IRA balance keeps growing despite withdrawals I'm guessing everything, once we're gone and my daughter is gone, will go to charity.

I feel good about that to be honest.
 
GAJ said:
..........


What I've been doing though is taking a distribution each year that doesn't bump me into a new tax bracket ..........
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Me too, I started when I turned 60 and retired. 8 years later and money has still grown. :thumbup
 
Pull and do Roth conversion if you can. I'm doing one this year. Pay tax today and never again.
 
I'm not sure about which way is the right thing to do. I'm guessing that when I am forced to withdraw, I'll take the minimum amount required by tax law and start doing larger charitable donations to offset some of the tax. With the stock market going great guns, keeping my money in the 401K and the tax free growth more than offsets any future income tax liability so for now I'm all in.
 
One thing to factor in is health. No point and stashing it all away if you won't be well enough to spend it later on. Obviously if you're holding on to it for legacy purposes, then that's a different story.

I'm of the mind set that if you're retirement isn't impacted, take the distribution at a lower tax bracket. This is one of the main reasons why individuals will put in to a Roth-- the idea that we'll be in a significantly (hopefully) lower tax bracket in the future.

The roth conversaion is a nice idea too. Not sure of the eligibility reqs for that after a certain age though :dunno

tuxumino said:
you're talking bout those over 59 and half right?
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Not sure if you and the OP are referencing the same thing, but the RMD (required min distribution), aka forced distribution, age is 70.5

59.5 is the earliest you can take distributions without incurring a tax penalty.
 
what's the limit you can convert IRA to roth if above 59 1/2?

of course get the max out now if you can save on taxes later!

RMD is not that much even with 1 mil balance and age 72

you need a financial advisor..
 
fast4d said:
what's the limit you can convert IRA to roth if above 59 1/2?

of course get the max out now if you can save on taxes later!

RMD is not that much even with 1 mil balance and age 72

you need a financial advisor..
Click to expand...

There is none. I am doing it at age 71. And the added benefit is that if the conversion is five years old, the heirs to it do not need to pay taxes either! It's the best fucking deal in the tax picture today. I ended up prepaying far too much federal tax and state tax this year, and am using Roth conversion to move a bunch of money out of an IRA into a Roth.
 
afm199 said:
There is none. I am doing it at age 71. And the added benefit is that if the conversion is five years old, the heirs to it do not need to pay taxes either! It's the best fucking deal in the tax picture today. I ended up prepaying far too much federal tax and state tax this year, and am using Roth conversion to move a bunch of money out of an IRA into a Roth.
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Thanks :afm199

Looks like I may be doing this too. Would like the market to drop a little and lower the taxable amount.
 
bikeama said:
Thanks :afm199

Looks like I may be doing this too. Would like the market to drop a little and lower the taxable amount.
Click to expand...

Almost forgot. The conversion doesn't count as an RMD on the year of the conversion. So if you have a $40k RMD, you have to take that and THEN take another withdrawl to convert. Def tax burden.
 
afm199 said:
Almost forgot. The conversion doesn't count as an RMD on the year of the conversion. So if you have a $40k RMD, you have to take that and THEN take another withdrawl to convert. Def tax burden.
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Only 68 this year so no RMD yet. I am trying to move some tax-deferred money out so I don't get hit with large RMD later. :thumbup
 
bikeama said:
Only 68 this year so no RMD yet. I am trying to move some tax-deferred money out so I don't get hit with large RMD later. :thumbup
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O, didn't know you were so young. Gotcha! Not too late to do this for 2017.

One more item. You can also convert backwards if you want in most instances.
 
Why pull out the entire thing and convert, unless you are on your death bed and it's time to spend it like it's monopoly money?

Although the recent tax act flattened it a bit, America's tax system is still very progressive. I would assume that you could take out 50-75k each year and still have pretty minimal income tax liability. It would make sense to leave a decent chunk remaining, and sip it through a straw until your final days.
 
mercurial said:
Why pull out the entire thing and convert, unless you are on your death bed and it's time to spend it like it's monopoly money?

Although the recent tax act flattened it a bit, America's tax system is still very progressive. I would assume that you could take out 50-75k each year and still have pretty minimal income tax liability. It would make sense to leave a decent chunk remaining, and sip it through a straw until your final days.
Click to expand...

Could be. Though "minimal tax" is not exactly what it sounds like. The OP is probably in the current 22% tax bracket for sure, most likely in the 24% and quite likely in the 32%. That's the rate your withdrawl will be taxed at.

So a $60k withdrawl yearly could easily cost $12k to $18k in taxes. You may consider that minimal. The point of the Roth conversion is that you pay that once. convert $60k, pay tax once, and never pay it again.
 
mercurial said:
Why pull out the entire thing and convert, unless you are on your death bed and it's time to spend it like it's monopoly money?

Although the recent tax act flattened it a bit, America's tax system is still very progressive. I would assume that you could take out 50-75k each year and still have pretty minimal income tax liability. It would make sense to leave a decent chunk remaining, and sip it through a straw until your final days.
Click to expand...

afm199 said:
Could be. Though "minimal tax" is not exactly what it sounds like. The OP is probably in the current 22% tax bracket for sure, most likely in the 24% and quite likely in the 32%. That's the rate your withdrawl will be taxed at.

So a $60k withdrawl yearly could easily cost $12k to $18k in taxes. You may consider that minimal. The point of the Roth conversion is that you pay that once. convert $60k, pay tax once, and never pay it again.
Click to expand...

:afm199 is correct. Have been lucky and saved. Full pension, rental property and SSI give me taxable income. 22% bracket is less than I paid last year. If the market keeps dropping could be a double win. Stocks I have in the IRA are down and should go up again. Conversion, when price is down, will save on taxes.

Biggest incentive is to move some tax-sheltered money and prevent large RMD in the future.
 
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