Great video! Most people think linear, not exponential. You did a great job in fairly simplistic verbiage explaining this concept. What I would like to see in your model is throwing in partial IRA ROTH IRA conversion, small enough to keep you in the same tax rate, if that's possible. Let's say you, after the RMD, move $35K from your IRA to a ROTH IRA account every year starting at 69 years old or play with the numbers and see what you should transfer over every year thereby decreasing your IRA account balance making less RMD balances to rip out of your IRA account.
Another outstanding video from Eric Sajdak of Safeguard Wealth Management shows how to prepare to deal with your largest expense in retirement: Taxes. When it comes to showing you the numbers and explaining them in understandable terms, as Carly SImon sang " nobody does it better."
I have contributed the maximum allowed to the IRA account throughout my career, now, I pay much more taxes due to the investment bubbles and "RMD Creep." I suggest you to delay the Social Security Benefit until you convert all or the significant part of your IRA to Roth IRA.
That is where I am at also. Will retire before 58. I have more in rentals income than wages already. Start converting large amounts of 401k to Roth, using part on the next year's 401K monies to pay the tax. It will be a tax bloodbath but, at least I have lots of money to pay it with!
Or convert a "little" every year so the tax burden is not too high plus you need to think about the impact the RMD will have on how much of you Social Security becomes taxable. I'm 75 and been doing that for several years. Also something that couples need to keep in mind is once one of the partners croaks the surviving spouse gets hit with a double whammy. Social Security income goes down as does the standard deduction so likely a larger portion of income becomes taxable.
We all know you have to take the withdrawal and pay the taxes.... But I would like a presentation on how to manage the excess money after you pay your taxes. Sure you can spend it, but what are more realistic options..
Very good instruction. Makes almost feel glad I do not have that size of a portfolio. Even with the string of RMDs I can keep my annual income out of those higher brackets. Unless of course I want more income.
That's why you have a combination of traditional and Roth. You use the traditional to fill the standard deduction and lower tax brackets. The Roth for your expected same tax rate, higher tax rate and emergency spending.
13:45 concur all - the ideal time to attack this phenomenon is 30-40 yrs prior to RMD age, have a conversion or withdrawal plan for every single tax-deferred $
How about congress pass a law limiting tax on retirement distributions to 10%? Bastards always look out for themselves. Just saying. If you have other non retirement accounts and don't necessarily need to use the retirement accounts to live on the goal should be to get it all into a ROTH account before RMDs kick in. I've been converting to ROTH accounts since 2000. Now 80% Roth with 6 years to go before RMDs kick in, the culmination of a 25 year plan. Living the life in Florida. Good video!!
You have to be separated from employment in order to access the account and do Roth conversions, don’t you? How did you manage 25 years of conversions by age 72?
If a retiree starts taking non-RMD distributions from qualified IRA during ages of 65-72, does that mean that RMDs do NOT kick in ... example, if have $1.5m IRA balance at age 65, and take out $80k/yr to live on years 65-72 ... does that turn OFF requirement for RMDs completely? If no, what is the RMD treatment in that scenario??
No your first RMD will be what your remaining balance is divided by 27.4. 80000 x 7 = 560,000, if you started with 1.5M your probably will have over 1M with earnings remaining in your IRA.
No. If you still have IRA accounts when you turn 72, you will be subject to RMDs -- they will kick in (feel that heel!) as you put it. Whatever the balance of your IRA is on December 31 of the year before you turn 72 will be the balance that your RMD will be based on, no matter what you took out in previous years. If your IRA balance is large or small, the amount you have to take out will be based on the "divisor" 27.4 for someone who turns 72 after that previous December 31. If your IRA balance(s) total(s), say, $500,000 on Dec. 31 of the previous year, your RMD for the year you turn 72 will be about $18,248.20. If the balance is just $75,000 because you withdrew money like mad before you turned 72, your RMD will be $75,000 divided by 27.4: $2,737.23. If your IRA is empty the December 31 before you turn 72, your RMD will be $0.00 (effectively "turned off"). My example: I retired from work at age 67 and withdrew from my IRAs enough cash each month to live on until I turned 70 and began collecting Social Security. Because I turned 70-and-a-half under the old rules, I had to start taking RMDs using the older tables. That's because I still had a balance in my IRA. One strategy to consider is converting IRA balances to Roth IRAs, even when you're retired -- and paying the taxes sooner rather than later. That way, you can hack away at existing IRA balances and reduce them and the RMDs in later years. Good luck!
Not to mention current retirees could possibly face a not so Rosie stock market picture. How many people will still have a million dollars in our IRA in their 90s. The number of ira millionaires at 90 I'd imagine is very small
The nursing home you end up in will get the lion's share of your remaining assets if you live too long. Nursing homes review your "health progress" weekly, and if you are not making progress, the government stops paying the bill, and you end up footing the bill.
Yes, that's his main point - deal with it earlier so you aren't forced to accept large RMDs and higher tax brackets later in life with no other options. The best choice would likely turn out to be converting some IRA and 401K dollars into ROTH IRAs, as opposed to just taking the withdrawal and putting the cash into taxable savings or brokerage accounts. That means paying taxes now on the amount you convert but at a rate where you can control what tax bracket you end up in. It can mean raising your tax bracket now, so you avoid a much higher tax bracket later. Check the many other videos he has on his site.
Emphatic yes! And converting some of those withdrawals to Roth IRAs will help you later in retirement by reducing or eliminating RMDs and the taxes that go with them.
@@Lukionest it would mean raising my tax bracket now to avoid raising it later . . . I may as well not, and consider it borrowing money from Uncle Sam at zero interest now, to invest for the rest of my life expectancy. :(
Do you know the percentage of people who invest in tax deferred accounts that actually have problems with RMDs. Only those with a million Dollar Plus accounts and live to like 90. That's a very small percentage
@@johngill2853 problem is a relative term - for me it’s a matter of control, as in it’s my money and I will withdraw it (5 figure Traditional IRA balance, incrementally Roth converting it to zero over 5-10 years) on my terms not on some actuarial schedule as published by IRS - this is a long term program of tax optimization because yes I’ll plan to live past age 90 even if it doesn’t look like I’ll make it there as the day approaches
@@dmoon9037 fair enough but for me it's getting as many years of standard deduction as possible and paying zero tax getting it in traditional and zero tax coming out. My goal is 100% to pay the least amount of taxes
@@johngill2853 exactly, and very close to my plan - my standard deduction now would not be fully consumed unless I were doing these incremental TIRA->RIRA conversions, whereas after I am 70 my standard deduction will be offsetting other ordinary income - so my TIRA will be zeroed out before I get to 70: tax deferral when I contributed in my 20s-30s, opportunistic deduction-sheltered conversion from tax deferred to tax free in my 40s-50s-60s, and ad hoc tax free withdrawal in my 70s and beyond
Great video! Most people think linear, not exponential. You did a great job in fairly simplistic verbiage explaining this concept. What I would like to see in your model is throwing in partial IRA ROTH IRA conversion, small enough to keep you in the same tax rate, if that's possible. Let's say you, after the RMD, move $35K from your IRA to a ROTH IRA account every year starting at 69 years old or play with the numbers and see what you should transfer over every year thereby decreasing your IRA account balance making less RMD balances to rip out of your IRA account.
Another outstanding video from Eric Sajdak of Safeguard Wealth Management shows how to prepare to deal with your largest expense in retirement: Taxes. When it comes to showing you the numbers and explaining them in understandable terms, as Carly SImon sang " nobody does it better."
My largest expense in retirement will not be taxes. It also will not be for most people. Not even close
I have contributed the maximum allowed to the IRA account throughout my career, now, I pay much more taxes due to the investment bubbles and "RMD Creep."
I suggest you to delay the Social Security Benefit until you convert all or the significant part of your IRA to Roth IRA.
That is where I am at also. Will retire before 58. I have more in rentals income than wages already. Start converting large amounts of 401k to Roth, using part on the next year's 401K monies to pay the tax. It will be a tax bloodbath but, at least I have lots of money to pay it with!
Just reinvest your RMD back into a diversified Index Fund.
The fuss is that you will be taxed like an Englishman. Tax planning is good planning.
@@Gregarious3 Can’t avoid taxes.
1/22/22 A good way to deal with the RMD tax burden is to convert a portion of your IRA/401K into a Roth IRA during a deep stock market decline.
💯
Or convert a "little" every year so the tax burden is not too high plus you need to think about the impact the RMD will have on how much of you Social Security becomes taxable. I'm 75 and been doing that for several years.
Also something that couples need to keep in mind is once one of the partners croaks the surviving spouse gets hit with a double whammy. Social Security income goes down as does the standard deduction so likely a larger portion of income becomes taxable.
Fill your IRA with bonds so it doesn’t grow. Keep the growth in your Roth
@@rickyaz8640 Also take distributions from IRA to enjoy life instead of paying higher taxes.
Keep in mind, once you convert to a Roth, that Roth is now UNTOUCHABLE for 5 years from date of conversion, no matter what your age.
We all know you have to take the withdrawal and pay the taxes.... But I would like a presentation on how to manage the excess money after you pay your taxes. Sure you can spend it, but what are more realistic options..
Thankful to be blessed to have rising income in retirement..
Very good instruction. Makes almost feel glad I do not have that size of a portfolio. Even with the string of RMDs I can keep my annual income out of those higher brackets. Unless of course I want more income.
That's why you have a combination of traditional and Roth. You use the traditional to fill the standard deduction and lower tax brackets. The Roth for your expected same tax rate, higher tax rate and emergency spending.
13:45 concur all - the ideal time to attack this phenomenon is 30-40 yrs prior to RMD age, have a conversion or withdrawal plan for every single tax-deferred $
You nailed it. Plan, plan and plan.
Great video, very informative about RMD and taxes. Thanks!
Thanks Wizard!
Making investment decisions now based on future unknown tax rates is foolish. Based on your curve at 100, I’ll have a problem
This video is a nothingburger. Exponential in nature? Here are the actual RMD numbers: Age 72, 3.65 %, 80 yo, 4.95%, 85 yo 6.25%.
How about congress pass a law limiting tax on retirement distributions to 10%? Bastards always look out for themselves. Just saying.
If you have other non retirement accounts and don't necessarily need to use the retirement accounts to live on the goal should be to get it all into a ROTH account before RMDs kick in. I've been converting to ROTH accounts since 2000. Now 80% Roth with 6 years to go before RMDs kick in, the culmination of a 25 year plan.
Living the life in Florida.
Good video!!
You have to be separated from employment in order to access the account and do Roth conversions, don’t you? How did you manage 25 years of conversions by age 72?
@@genxx2724 I was able to do a partial transfer from 401k to IRA then convert to Roth. If you ever change jobs send the old 401k to an IRA
@@larryusagmail4751 You were able to do it because you changed jobs?
What about using a Qualified Longevity Annuity Contract to reduce RMDs? I read it is not counted as part of the RMD calculation.
If a retiree starts taking non-RMD distributions from qualified IRA during ages of 65-72, does that mean that RMDs do NOT kick in ... example, if have $1.5m IRA balance at age 65, and take out $80k/yr to live on years 65-72 ... does that turn OFF requirement for RMDs completely? If no, what is the RMD treatment in that scenario??
No your first RMD will be what your remaining balance is divided by 27.4. 80000 x 7 = 560,000, if you started with 1.5M your probably will have over 1M with earnings remaining in your IRA.
No. If you still have IRA accounts when you turn 72, you will be subject to RMDs -- they will kick in (feel that heel!) as you put it. Whatever the balance of your IRA is on December 31 of the year before you turn 72 will be the balance that your RMD will be based on, no matter what you took out in previous years. If your IRA balance is large or small, the amount you have to take out will be based on the "divisor" 27.4 for someone who turns 72 after that previous December 31. If your IRA balance(s) total(s), say, $500,000 on Dec. 31 of the previous year, your RMD for the year you turn 72 will be about $18,248.20. If the balance is just $75,000 because you withdrew money like mad before you turned 72, your RMD will be $75,000 divided by 27.4: $2,737.23. If your IRA is empty the December 31 before you turn 72, your RMD will be $0.00 (effectively "turned off"). My example: I retired from work at age 67 and withdrew from my IRAs enough cash each month to live on until I turned 70 and began collecting Social Security. Because I turned 70-and-a-half under the old rules, I had to start taking RMDs using the older tables. That's because I still had a balance in my IRA. One strategy to consider is converting IRA balances to Roth IRAs, even when you're retired -- and paying the taxes sooner rather than later. That way, you can hack away at existing IRA balances and reduce them and the RMDs in later years. Good luck!
Man, this is gonna take some serious math.
if the median income is 60-something-thousand, why does everyone in retirement need a 6 figure income?
Probably to pay for healthcare and property taxes especially if you live in a place like NJ.
My wife and I don't believe we'll be making it to 90 so the effects are not as critical as you say.
Not to mention current retirees could possibly face a not so Rosie stock market picture. How many people will still have a million dollars in our IRA in their 90s. The number of ira millionaires at 90 I'd imagine is very small
The nursing home you end up in will get the lion's share of your remaining assets if you live too long. Nursing homes review your "health progress" weekly, and if you are not making progress, the government stops paying the bill, and you end up footing the bill.
I understand the UA-cam algorithm needs videos to be a certain length but I think the first 13:20 minutes could be summarized to one minute.
So would it help to start withdrawals earlier?
Yes, that's his main point - deal with it earlier so you aren't forced to accept large RMDs and higher tax brackets later in life with no other options. The best choice would likely turn out to be converting some IRA and 401K dollars into ROTH IRAs, as opposed to just taking the withdrawal and putting the cash into taxable savings or brokerage accounts. That means paying taxes now on the amount you convert but at a rate where you can control what tax bracket you end up in. It can mean raising your tax bracket now, so you avoid a much higher tax bracket later. Check the many other videos he has on his site.
@@Lukionest ok thanks.
Retired at 60 started taking out my Ira at 62 .Don’t need the money but taking out early to stay ahead of the RMD,S coming around the pipe.
Emphatic yes! And converting some of those withdrawals to Roth IRAs will help you later in retirement by reducing or eliminating RMDs and the taxes that go with them.
@@Lukionest it would mean raising my tax bracket now to avoid raising it later . . . I may as well not, and consider it borrowing money from Uncle Sam at zero interest now, to invest for the rest of my life expectancy. :(
All tax-deferred savers should rebrand this in her or his mind as the (RMSoD) Required Minimum Sword of Damocles!
Do you know the percentage of people who invest in tax deferred accounts that actually have problems with RMDs. Only those with a million Dollar Plus accounts and live to like 90. That's a very small percentage
@@johngill2853 problem is a relative term - for me it’s a matter of control, as in it’s my money and I will withdraw it (5 figure Traditional IRA balance, incrementally Roth converting it to zero over 5-10 years) on my terms not on some actuarial schedule as published by IRS - this is a long term program of tax optimization because yes I’ll plan to live past age 90 even if it doesn’t look like I’ll make it there as the day approaches
@@dmoon9037 fair enough but for me it's getting as many years of standard deduction as possible and paying zero tax getting it in traditional and zero tax coming out. My goal is 100% to pay the least amount of taxes
@@johngill2853 exactly, and very close to my plan - my standard deduction now would not be fully consumed unless I were doing these incremental TIRA->RIRA conversions, whereas after I am 70 my standard deduction will be offsetting other ordinary income - so my TIRA will be zeroed out before I get to 70: tax deferral when I contributed in my 20s-30s, opportunistic deduction-sheltered conversion from tax deferred to tax free in my 40s-50s-60s, and ad hoc tax free withdrawal in my 70s and beyond
please, please, get to the point and quit repeating the same thing.
First! 😁