RMD @ 72 seems quite high according to calculator

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TheTimeLord
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RMD @ 72 seems quite high according to calculator

Post by TheTimeLord »

I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively so I either lose it or make so much I no longer care about the amount of the RMD

https://www.schwab.com/ira/understand-i ... lators/rmd
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Re: RMD @ 72 seems quite high according to calculator

Post by jebmke »

4) plan to give large portions of the RMD away to charity [limit is $100K per person per year]
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: RMD @ 72 seems quite high according to calculator

Post by Flora »

+1 QCD
Last edited by Flora on Sat Jan 02, 2021 2:38 pm, edited 1 time in total.
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Re: RMD @ 72 seems quite high according to calculator

Post by truenyer »

5) Invest tax-deferred money in an incredibly conservative AA and invest in more aggressive AA outside of your tax-deferred accounts, thus minimizing to the extent possible RMDs.
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Re: RMD @ 72 seems quite high according to calculator

Post by TheTimeLord »

TheTimeLord wrote: Sat Jan 02, 2021 2:32 pm I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively so I either lose it or make so much I no longer care about the amount of the RMD

https://www.schwab.com/ira/understand-i ... lators/rmd
Okay. I am now a little less panicked. From what I can tell looking at the detail of the Schwab calculator it appears to assume growth of your money between now and age 72 which has made the number a lot less horrifying. It does beg the question why are we still contributing to tax-deferred accounts, unless it is just to have the ability to convert those donations to Roth at a later date.
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TheTimeLord
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Re: RMD @ 72 seems quite high according to calculator

Post by TheTimeLord »

jebmke wrote: Sat Jan 02, 2021 2:35 pm 4) plan to give large portions of the RMD away to charity [limit is $100K per person per year]
I was looking more for ways to mitigate the RMD before I reach age 72.
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Re: RMD @ 72 seems quite high according to calculator

Post by TomatoTomahto »

TheTimeLord wrote: Sat Jan 02, 2021 2:42 pm It does beg the question why are we still contributing to tax-deferred accounts, unless it is just to have the ability to convert those donations to Roth at a later date.
There are umpteen threads about being overweight in tax deferred.
I get the FI part but not the RE part of FIRE.
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Re: RMD @ 72 seems quite high according to calculator

Post by Swimmer »

TheTimeLord wrote: Sat Jan 02, 2021 2:32 pm I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively so I either lose it or make so much I no longer care about the amount of the RMD

https://www.schwab.com/ira/understand-i ... lators/rmd

I don’t see your age which is a factor in your decision. IOW, how many years to age 72? You may wish to discontinue contributing to tIRA in favor of Roth rather than allowing tIRA to grow. Options 1and 2 might be reasonable depending on your individual circumstances which we don’t know. IMHO option 3 is reckless, but that’s me.
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Re: RMD @ 72 seems quite high according to calculator

Post by smitcat »

TheTimeLord wrote: Sat Jan 02, 2021 2:42 pm
TheTimeLord wrote: Sat Jan 02, 2021 2:32 pm I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively so I either lose it or make so much I no longer care about the amount of the RMD

https://www.schwab.com/ira/understand-i ... lators/rmd
Okay. I am now a little less panicked. From what I can tell looking at the detail of the Schwab calculator it appears to assume growth of your money between now and age 72 which has made the number a lot less horrifying. It does beg the question why are we still contributing to tax-deferred accounts, unless it is just to have the ability to convert those donations to Roth at a later date.
Have you been using the extended IORP and/or the RPM to review possible scenarios with various amounts in the funds and Roth conversions?

"1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively so I either lose it or make so much I no longer care about the amount of the RMD"
And 4) retire earlier
amitb00
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Re: RMD @ 72 seems quite high according to calculator

Post by amitb00 »

For folks who can retire early, it is better to start converting 401k, tIRA etc to Roth before you get SS or RMD. This way you can minimize on taxes.
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Re: RMD @ 72 seems quite high according to calculator

Post by Pandemic Bangs »

That calculator is nuts.

It should be 3.9% at age 72. That calculator gave me what looks like 9%. But maybe it factors in the add'l decade or two of account-balance growth? It shouldn't get to 10% until you're like 92.

If at age 72 I find 3.9% of my account balance to be a life-altering amount of money, I will happily deal with that problem!
Last edited by Pandemic Bangs on Sat Jan 02, 2021 3:14 pm, edited 1 time in total.
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Re: RMD @ 72 seems quite high according to calculator

Post by jebmke »

TheTimeLord wrote: Sat Jan 02, 2021 2:43 pm
jebmke wrote: Sat Jan 02, 2021 2:35 pm 4) plan to give large portions of the RMD away to charity [limit is $100K per person per year]
I was looking more for ways to mitigate the RMD before I reach age 72.
The only reason to mitigate it is taxes. QCDs take care of that. Of course, the key is the C part. If that isn't your inclination then it isn't a strategy for you.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: RMD @ 72 seems quite high according to calculator

Post by FIREchief »

6) Just suck it up. Being forced to take "too much" money at age 72 is a good problem to have. Pay the piper and than spend more, save more or give it away. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: RMD @ 72 seems quite high according to calculator

Post by truenyer »

FIREchief wrote: Sat Jan 02, 2021 2:54 pm 6) Just suck it up. Being forced to take "too much" money at age 72 is a good problem to have. Pay the piper and than spend more, save more or give it away. 8-)
Yeah sure these are first world problems... But people come here to get advice on how to optimize our futures. Telling someone to just suck it up isn't helpful! We can do that without asking the experts here for help...
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Re: RMD @ 72 seems quite high according to calculator

Post by retiredjg »

TheTimeLord wrote: Sat Jan 02, 2021 2:43 pm I was looking more for ways to mitigate the RMD before I reach age 72.
Stop working.
If you want to work, stop making tax-deferred contributions.
Put your entire bond allocation in the tax-deferred accounts.
Change your AA to more bonds so the tax-deferred accounts grow slower.
Starting spending the tax-deferred accounts.
Start Roth conversions.
Start using qualified charitable donations at 70.5 even though RMDs don't start till 72.

That's all I can think of right now. You might have to just suck it up and pay the IRS what it has been waiting for all these years. Deferral is not forever.
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Re: RMD @ 72 seems quite high according to calculator

Post by TomatoTomahto »

truenyer wrote: Sat Jan 02, 2021 2:57 pm
FIREchief wrote: Sat Jan 02, 2021 2:54 pm 6) Just suck it up. Being forced to take "too much" money at age 72 is a good problem to have. Pay the piper and than spend more, save more or give it away. 8-)
Yeah sure these are first world problems... But people come here to get advice on how to optimize our futures. Telling someone to just suck it up isn't helpful! We can do that without asking the experts here for help...
Thank you.

BH is supposed to be a friendly site to all who come here to optimize their finances, including those with first world problems.
I get the FI part but not the RE part of FIRE.
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Re: RMD @ 72 seems quite high according to calculator

Post by JoeRetire »

TheTimeLord wrote: Sat Jan 02, 2021 2:32 pm I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively so I either lose it or make so much I no longer care about the amount of the RMD

https://www.schwab.com/ira/understand-i ... lators/rmd
4) Just pay the tax, stop calling it a nightmare, and stop worrying. Take comfort in the fact that you never paid taxes on it before.
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Re: RMD @ 72 seems quite high according to calculator

Post by FIREchief »

truenyer wrote: Sat Jan 02, 2021 2:57 pm
FIREchief wrote: Sat Jan 02, 2021 2:54 pm 6) Just suck it up. Being forced to take "too much" money at age 72 is a good problem to have. Pay the piper and than spend more, save more or give it away. 8-)
Yeah sure these are first world problems... But people come here to get advice on how to optimize our futures. Telling someone to just suck it up isn't helpful! We can do that without asking the experts here for help...
Lighten up. It was a mostly serious suggestion. Based upon the limited info the OP provided, my answer may very well be the correct one. :D

Perhaps JoeRetire said the same thing in a manner more acceptable to the forum police:
JoeRetire wrote: Sat Jan 02, 2021 3:06 pm 4) Just pay the tax, stop calling it a nightmare, and stop worrying. Take comfort in the fact that you never paid taxes on it before.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: RMD @ 72 seems quite high according to calculator

Post by BabaWawa »

Looks like the Schwab calculator defaults to a relatively robust 6% rate of return. Keep mostly bonds in the tIRA to control growth and override the calculator to a reasonable 2-4% return.

Keep your equities in taxable and Roth. Also plan on series of Roth conversions between now and age 72 and you should breath easier.
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Re: RMD @ 72 seems quite high according to calculator

Post by epictetus »

as others have said, putting all bonds in tax-deferred and stocks in Roth and taxable account is one approach.
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Re: RMD @ 72 seems quite high according to calculator

Post by JoeRetire »

FIREchief wrote: Sat Jan 02, 2021 3:15 pm Perhaps JoeRetire said the same thing in a manner more acceptable to the forum police:
JoeRetire wrote: Sat Jan 02, 2021 3:06 pm 4) Just pay the tax, stop calling it a nightmare, and stop worrying. Take comfort in the fact that you never paid taxes on it before.
We have police? :shock:
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Re: RMD @ 72 seems quite high according to calculator

Post by TheTimeLord »

Pandemic Bangs wrote: Sat Jan 02, 2021 2:53 pm That calculator is nuts.

It should be 3.9% at age 72. That calculator gave me what looks like 9%. But maybe it factors in the add'l decade or two of account-balance growth? It shouldn't get to 10% until you're like 92.

If at age 72 I find 3.9% of my account balance to be a life-altering amount of money, I will happily deal with that problem!
It does include calculated returns between today and 72 which is what got my attention before I figured it out. The percentage was off the charts. I had always assumed around 4% and this was significantly more. Now that I know it is 3.9% I realize it needs to be managed but it isn't the scary number I originally saw in the calculator.
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Re: RMD @ 72 seems quite high according to calculator

Post by rhinson »

i like this one https://www.calcxml.com/calculators/qua07 Expand the detailed part for a complete table for each year.
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Re: RMD @ 72 seems quite high according to calculator

Post by willthrill81 »

TheTimeLord wrote: Sat Jan 02, 2021 2:42 pm
TheTimeLord wrote: Sat Jan 02, 2021 2:32 pm I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively so I either lose it or make so much I no longer care about the amount of the RMD

https://www.schwab.com/ira/understand-i ... lators/rmd
Okay. I am now a little less panicked. From what I can tell looking at the detail of the Schwab calculator it appears to assume growth of your money between now and age 72 which has made the number a lot less horrifying. It does beg the question why are we still contributing to tax-deferred accounts, unless it is just to have the ability to convert those donations to Roth at a later date.
I much prefer this RMD calculator from Schwab. It allows you to change the estimated rate of return and visually see changes in both the portfolio balance and RMDs over time.

First, take a look at how high returns would have to be to push you into a higher tax bracket. If you believe those returns are reasonable and want to prepare accordingly, you should consider doing Roth conversions accordingly, at least to the top of your current tax bracket.
Last edited by willthrill81 on Sat Jan 02, 2021 3:32 pm, edited 1 time in total.
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Re: RMD @ 72 seems quite high according to calculator

Post by truenyer »

FIREchief wrote: Sat Jan 02, 2021 3:15 pm
truenyer wrote: Sat Jan 02, 2021 2:57 pm
FIREchief wrote: Sat Jan 02, 2021 2:54 pm 6) Just suck it up. Being forced to take "too much" money at age 72 is a good problem to have. Pay the piper and than spend more, save more or give it away. 8-)
Yeah sure these are first world problems... But people come here to get advice on how to optimize our futures. Telling someone to just suck it up isn't helpful! We can do that without asking the experts here for help...
Lighten up. It was a mostly serious suggestion. Based upon the limited info the OP provided, my answer may very well be the correct one. :D

Perhaps JoeRetire said the same thing in a manner more acceptable to the forum police:
JoeRetire wrote: Sat Jan 02, 2021 3:06 pm 4) Just pay the tax, stop calling it a nightmare, and stop worrying. Take comfort in the fact that you never paid taxes on it before.
It's not the point though... OP is asking how to optimize tax strategy. Why shouldn't they ask for help if making the right decision NOW can net them a larger amount of money in retirement for making the right decision? It's a fair question...
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Re: RMD @ 72 seems quite high according to calculator

Post by TheTimeLord »

FIREchief wrote: Sat Jan 02, 2021 2:54 pm 6) Just suck it up. Being forced to take "too much" money at age 72 is a good problem to have. Pay the piper and than spend more, save more or give it away. 8-)
Sorry to ask the board for planning assistance. Also I will try to temper my dramatic flourishes in the future.
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Re: RMD @ 72 seems quite high according to calculator

Post by Barefoot »

JoeRetire wrote: Sat Jan 02, 2021 3:27 pm Perhaps JoeRetire said the same thing in a manner more acceptable to the forum police:

We have police? :shock:
They get their badges from facebook marketplace
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Re: RMD @ 72 seems quite high according to calculator

Post by retiredjg »

TheTimeLord wrote: Sat Jan 02, 2021 3:27 pm It does include calculated returns between today and 72 which is what got my attention before I figured it out. The percentage was off the charts. I had always assumed around 4% and this was significantly more. Now that I know it is 3.9% I realize it needs to be managed but it isn't the scary number I originally saw in the calculator.
Last I looked, the first RMD was about 3.6% of the tax deferred account. But it does go up every year.
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Re: RMD @ 72 seems quite high according to calculator

Post by willthrill81 »

retiredjg wrote: Sat Jan 02, 2021 3:35 pm
TheTimeLord wrote: Sat Jan 02, 2021 3:27 pm It does include calculated returns between today and 72 which is what got my attention before I figured it out. The percentage was off the charts. I had always assumed around 4% and this was significantly more. Now that I know it is 3.9% I realize it needs to be managed but it isn't the scary number I originally saw in the calculator.
Last I looked, the first RMD was about 3.6% of the tax deferred account. But it does go up every year.
At age 72 and with the current RMD tables, it's a smidge over 3.9%. Recall that the RMD age was moved up from 70.5 to 72.
Last edited by willthrill81 on Sat Jan 02, 2021 3:37 pm, edited 1 time in total.
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TheTimeLord
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Re: RMD @ 72 seems quite high according to calculator

Post by TheTimeLord »

JoeRetire wrote: Sat Jan 02, 2021 3:06 pm
TheTimeLord wrote: Sat Jan 02, 2021 2:32 pm I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively so I either lose it or make so much I no longer care about the amount of the RMD

https://www.schwab.com/ira/understand-i ... lators/rmd
4) Just pay the tax, stop calling it a nightmare, and stop worrying. Take comfort in the fact that you never paid taxes on it before.
Sorry I tried to add a bit of drama to my post to spice up a previously visited topic. FWIW, "Just pay the tax" doesn't help improve the situation, pretty much the status quo.
Last edited by TheTimeLord on Sat Jan 02, 2021 3:39 pm, edited 1 time in total.
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Re: RMD @ 72 seems quite high according to calculator

Post by qwertyjazz »

The statement of too much to withdrawal can be 2 different things. One is: good grief that is a lot. For that answer, the response is yes or it is what it is. Two is: how can I legally lower it? For which you get the response of that is not the goal. The goal is not to pay less taxes. The goal is to maximize money with minimum risk. You can always lower taxes by making less. So the. Two updated becomes: how do I maneuver my accounts to optimize RMD? Stuff like that is what this forum excels at.
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Re: RMD @ 72 seems quite high according to calculator

Post by Leif »

TheTimeLord wrote: Sat Jan 02, 2021 2:32 pm I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively conseratively so I either lose it or make so much I no longer care about the amount of the RMD gain little each year and when RMDs come each year my tIRA will be less since it will grow slower than my withdrawal rate.

https://www.schwab.com/ira/understand-i ... lators/rmd
Welcome to the land of the awoken! I was told many years ago, by a financial advisor, to watch out, or one day I would have my head handed to me on a platter (tax wise). Of course I did not listen. When I awoke I did the 3 points above, except not so much #2. I'm using CDs in taxable to carry me to SS/RMD time. Also, a few years before retiring, I set up a 401k Roth.

I'm pulling out equities from my tIRA to my Roth as fast as possible (within my tax parameters). I'm hoping to have 100% bonds in my tIRA by RMD time (without changing my overall AA).
Last edited by Leif on Sat Jan 02, 2021 3:59 pm, edited 3 times in total.
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Re: RMD @ 72 seems quite high according to calculator

Post by retiredjg »

willthrill81 wrote: Sat Jan 02, 2021 3:36 pm At age 72 and with the current RMD tables, it's a smidge over 3.9%. Recall that the RMD age was moved up from 70.5 to 72.
I guess I assumed the table ages changed with the law.
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Re: RMD @ 72 seems quite high according to calculator

Post by willthrill81 »

retiredjg wrote: Sat Jan 02, 2021 3:40 pm
willthrill81 wrote: Sat Jan 02, 2021 3:36 pm At age 72 and with the current RMD tables, it's a smidge over 3.9%. Recall that the RMD age was moved up from 70.5 to 72.
I guess I assumed the table ages changed with the law.
It wasn't long ago that the IRS updated the life expectancy tables, which effectively reduced RMDs a little bit. But even with that, RMDs are still higher at 72 now than they were at 70.5 a few years ago.
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Re: RMD @ 72 seems quite high according to calculator

Post by FIREchief »

truenyer wrote: Sat Jan 02, 2021 3:31 pm
FIREchief wrote: Sat Jan 02, 2021 3:15 pm
truenyer wrote: Sat Jan 02, 2021 2:57 pm
FIREchief wrote: Sat Jan 02, 2021 2:54 pm 6) Just suck it up. Being forced to take "too much" money at age 72 is a good problem to have. Pay the piper and than spend more, save more or give it away. 8-)
Yeah sure these are first world problems... But people come here to get advice on how to optimize our futures. Telling someone to just suck it up isn't helpful! We can do that without asking the experts here for help...
Lighten up. It was a mostly serious suggestion. Based upon the limited info the OP provided, my answer may very well be the correct one. :D

Perhaps JoeRetire said the same thing in a manner more acceptable to the forum police:
JoeRetire wrote: Sat Jan 02, 2021 3:06 pm 4) Just pay the tax, stop calling it a nightmare, and stop worrying. Take comfort in the fact that you never paid taxes on it before.
It's not the point though... OP is asking how to optimize tax strategy. Why shouldn't they ask for help if making the right decision NOW can net them a larger amount of money in retirement for making the right decision? It's a fair question...
Did you miss the "6)" in my post? There were five prior options listed and none of them involved just sticking with things as they are. Is that not an option to consider? :? How do you know that this isn't the optimal tax strategy? Do you have insider info that wasn't shared in this thread? IOW: I think option "6" was a fair answer to the fair question. 8-)
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Re: RMD @ 72 seems quite high according to calculator

Post by JoeRetire »

TheTimeLord wrote: Sat Jan 02, 2021 3:37 pm
JoeRetire wrote: Sat Jan 02, 2021 3:06 pm
TheTimeLord wrote: Sat Jan 02, 2021 2:32 pm I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively so I either lose it or make so much I no longer care about the amount of the RMD

https://www.schwab.com/ira/understand-i ... lators/rmd
4) Just pay the tax, stop calling it a nightmare, and stop worrying. Take comfort in the fact that you never paid taxes on it before.
Sorry I tried to add a bit of drama to my post to spice up a previously visited topic. FWIW, "Just pay the tax" doesn't help improve the situation, pretty much the status quo.
The improvement comes from the rest of the statement: "stop calling it a nightmare, and stop worrying. Take comfort in the fact that you never paid taxes on it before."

I'm not even necessarily saying you should do that. Only that it's an option that wasn't originally listed.
Last edited by JoeRetire on Sat Jan 02, 2021 3:51 pm, edited 1 time in total.
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TheTimeLord
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Re: RMD @ 72 seems quite high according to calculator

Post by TheTimeLord »

Leif wrote: Sat Jan 02, 2021 3:39 pm
TheTimeLord wrote: Sat Jan 02, 2021 2:32 pm I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively conseratively so I either lose it or make so much I no longer care about the amount of the RMD gain little each year and when RMDs come each year will be less since it will grow slower than my withdrawal rate.

https://www.schwab.com/ira/understand-i ... lators/rmd
Welcome to the land of the awoken! I was told many years ago, by a financial advisor, to watch out, or one day I would have my head handed to me on a platter (tax wise). Of course I did not listen. When I awoke I did the 3 points above, except not so much #2. I'm using CDs in taxable to carry me to SS/RMD time. Also, a few years before retiring, I set up a 401k Roth.

I'm pulling out equities from my tIRA to my Roth as fast as possible (within my tax parameters). I'm hoping to have 100% bonds in my tIRA by RMD time (without changing my overall AA).
I had already been considering of accelerating Roth conversions, this pretty much seals the deal that it needs to start for real in 2021.
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Re: RMD @ 72 seems quite high according to calculator

Post by JoeRetire »

FIREchief wrote: Sat Jan 02, 2021 3:44 pmThere were five prior options listed and none of them involved just sticking with things as they are. Is that not an option to consider?
"Do nothing" is always an option.
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Re: RMD @ 72 seems quite high according to calculator

Post by goodenyou »

There is a tendency to respond with snark on this site when it comes to what is considered privilege. The knee-jerk “first-world problem” response is never helpful. Some of us have experienced it and have declined to reveal personal information because of it.

Tax strategies are difficult. The tax code and politics are ever-changing. I have resorted to having a diversity of accounts in order to construct a strategic withdrawal plan in retirement. We started a Backdoor Roth in 2020 and we are considering doing more Roth in the future even though we are in a high bracket. Just like having capital gains in a poorly constructed investment account with high fee funds, I think it’s important to think about future tax strategies to the extent that you can control good future tax planning.
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Re: RMD @ 72 seems quite high according to calculator

Post by prd1982 »

I think a lot of people forget to compare the life expectancy and RMD tables. People 65 can expect to live 20 more years. At 85, you are only taking an RMD 6.25% (with the 2022 table). So it it likely that you will die with a large amount in your tIRA. Granted, if you are married, one of you will switch to single tax brackets. So plan what will happen with your tIRA remainder. In our case, it goes to charity (never taxed) and folks in a low tax bracket.
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Re: RMD @ 72 seems quite high according to calculator

Post by ballons »

amitb00 wrote: Sat Jan 02, 2021 2:52 pm For folks who can retire early, it is better to start converting 401k, tIRA etc to Roth before you get SS or RMD. This way you can minimize on taxes.
Also remember SECURE ACT and if you have plans for beneficiaries. Fill out the schwab calc for inherited non-spouse IRA, then realize they haven't adjusted it for the new 10 year rule for deaths after 2019.
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Re: RMD @ 72 seems quite high according to calculator

Post by jebmke »

ballons wrote: Sat Jan 02, 2021 4:01 pm
amitb00 wrote: Sat Jan 02, 2021 2:52 pm For folks who can retire early, it is better to start converting 401k, tIRA etc to Roth before you get SS or RMD. This way you can minimize on taxes.
Also remember SECURE ACT and if you have plans for beneficiaries. Fill out the schwab calc for inherited non-spouse IRA, then realize they haven't adjusted it for the new 10 year rule for deaths after 2019.
So one option is to marry a much younger person and then off yourself right before you hit 72. I think then the spousal IRA can be stretched over the life of the surviving spouse.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: RMD @ 72 seems quite high according to calculator

Post by retire2022 »

TheTimeLord wrote: Sat Jan 02, 2021 3:50 pm
I had already been considering of accelerating Roth conversions, this pretty much seals the deal that it needs to start for real in 2021.
TheTimeLord

I concur it is shocking I am in the same boat 1.4 million in pretax 457, Roth Conversion is the way to go before 72.

Check out Celia posting which is clear in favor of Roth over a large Pretax balance.

viewtopic.php?p=5690748#p5690748

good luck
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Re: RMD @ 72 seems quite high according to calculator

Post by willthrill81 »

prd1982 wrote: Sat Jan 02, 2021 3:58 pm I think a lot of people forget to compare the life expectancy and RMD tables. People 65 can expect to live 20 more years. At 85, you are only taking an RMD 6.25% (with the 2022 table). So it it likely that you will die with a large amount in your tIRA. Granted, if you are married, one of you will switch to single tax brackets. So plan what will happen with your tIRA remainder. In our case, it goes to charity (never taxed) and folks in a low tax bracket.
Based on the Schwab calculator I linked to above, with 4% nominal growth, the nominal RMD amount withdrawn would not even begin to decline until age 94.
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Re: RMD @ 72 seems quite high according to calculator

Post by marcopolo »

TomatoTomahto wrote: Sat Jan 02, 2021 3:03 pm
truenyer wrote: Sat Jan 02, 2021 2:57 pm
FIREchief wrote: Sat Jan 02, 2021 2:54 pm 6) Just suck it up. Being forced to take "too much" money at age 72 is a good problem to have. Pay the piper and than spend more, save more or give it away. 8-)
Yeah sure these are first world problems... But people come here to get advice on how to optimize our futures. Telling someone to just suck it up isn't helpful! We can do that without asking the experts here for help...
Thank you.

BH is supposed to be a friendly site to all who come here to optimize their finances, including those with first world problems.
+1
Pretty much every thread here is about 1st world problems.
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Re: RMD @ 72 seems quite high according to calculator

Post by marcopolo »

TheTimeLord wrote: Sat Jan 02, 2021 2:42 pm
TheTimeLord wrote: Sat Jan 02, 2021 2:32 pm I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively so I either lose it or make so much I no longer care about the amount of the RMD

https://www.schwab.com/ira/understand-i ... lators/rmd
Okay. I am now a little less panicked. From what I can tell looking at the detail of the Schwab calculator it appears to assume growth of your money between now and age 72 which has made the number a lot less horrifying. It does beg the question why are we still contributing to tax-deferred accounts, unless it is just to have the ability to convert those donations to Roth at a later date.
Yeah. When i read your original post, I tried the calculator as well. Initially had the same reaction as you. I then saw that the default portfolio growth rate was 6%. I keep pretty much just fixed income assets in my tax-deferred accounts. Changing the calculator's growth assumptions top match current yields produced a much more reasonable number. Small opportunistic Roth conversions between now and then should take care of the issue.

Are you still contributing? I thought you had retired again.
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Re: RMD @ 72 seems quite high according to calculator

Post by willthrill81 »

Leif wrote: Sat Jan 02, 2021 3:39 pmI was told many years ago, by a financial advisor, to watch out, or one day I would have my head handed to me on a platter (tax wise).
I've heard some say people say tax-deferred accounts are only a 'tax bomb', but the math says otherwise. It's better for me to pay 12% tax in retirement than 22% now. That's not complicated. And if I'm blessed with returns so great that I have a much larger than anticipated tax-deferred balance, it will mean that I can retire that much earlier ( :D ) and give myself even more time to do Roth conversions. And if that's still not enough, when RMDs do begin, QCDs and the ability to pay for sizable medical expenses very tax-efficiently will be great 'pressure relief valves'.

While we don't yet know how much belongs to whom, a proportion of your tax-deferred balances will become Uncle Sam's; in our case, I estimate that number to be around 10%.

It's called tax-deferred for good reason.
Last edited by willthrill81 on Sat Jan 02, 2021 4:15 pm, edited 1 time in total.
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Re: RMD @ 72 seems quite high according to calculator

Post by TheTimeLord »

retire2022 wrote: Sat Jan 02, 2021 4:05 pm
TheTimeLord wrote: Sat Jan 02, 2021 3:50 pm
I had already been considering of accelerating Roth conversions, this pretty much seals the deal that it needs to start for real in 2021.
TheTimeLord

I concur it is shocking I am in the same boat 1.4 million in pretax 457, Roth Conversion is the way to go before 72.

Check out Celia posting which is clear in favor of Roth over a large Pretax balance.

viewtopic.php?p=5690748#p5690748

good luck
Maybe it is my imagination but lately I thought I had been seeing a fair amount of anti-Roth posts in threads which made this issue even a bit more confusing.
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Re: RMD @ 72 seems quite high according to calculator

Post by willthrill81 »

TheTimeLord wrote: Sat Jan 02, 2021 4:14 pm
retire2022 wrote: Sat Jan 02, 2021 4:05 pm
TheTimeLord wrote: Sat Jan 02, 2021 3:50 pm
I had already been considering of accelerating Roth conversions, this pretty much seals the deal that it needs to start for real in 2021.
TheTimeLord

I concur it is shocking I am in the same boat 1.4 million in pretax 457, Roth Conversion is the way to go before 72.

Check out Celia posting which is clear in favor of Roth over a large Pretax balance.

viewtopic.php?p=5690748#p5690748

good luck
Maybe it is my imagination but lately I thought I had been seeing a fair amount of anti-Roth posts in threads which made this issue even a bit more confusing.
There has been a lot of tax-deferred vs. Roth discussion lately, but the reality of the situation is that for most contributions for most people most of the time, tax-deferred is the clear winner. Some want to argue endlessly about this, but the math is usually quite clear.
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Re: RMD @ 72 seems quite high according to calculator

Post by TheTimeLord »

marcopolo wrote: Sat Jan 02, 2021 4:12 pm
TheTimeLord wrote: Sat Jan 02, 2021 2:42 pm
TheTimeLord wrote: Sat Jan 02, 2021 2:32 pm I was bored today so I used the Schwab RMD calculator to get an idea of what percentage of my tax deferred accounts would need to be withdrawn at age 72 to meet the required RMD and I was horrified. Even though this event is still a pretty good ways off, terror is now filling my heart. Am I correct I have 3 ways of addressing this nightmare on my financial horizon?

1) Convert tax-deferred money to Roth
2) Spend down tax-deferred accounts before age 72
3) Invest tax-deferred money in an incredibly aggressively so I either lose it or make so much I no longer care about the amount of the RMD

https://www.schwab.com/ira/understand-i ... lators/rmd
Okay. I am now a little less panicked. From what I can tell looking at the detail of the Schwab calculator it appears to assume growth of your money between now and age 72 which has made the number a lot less horrifying. It does beg the question why are we still contributing to tax-deferred accounts, unless it is just to have the ability to convert those donations to Roth at a later date.
Yeah. When i read your original post, I tried the calculator as well. Initially had the same reaction as you. I then saw that the default portfolio growth rate was 6%. I keep pretty much just fixed income assets in my tax-deferred accounts. Changing the calculator's growth assumptions top match current yields produced a much more reasonable number. Small opportunistic Roth conversions between now and then should take care of the issue.

Are you still contributing? I thought you had retired again.
DW is and plans to continue working for a few years, and I am not yet 100% sold on being retired. The DW 401K is mediocre so I had already been thinking about discussing discontinuing contributions.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
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