sc9182 wrote: ↑Tue Jun 15, 2021 10:28 am
smitcat wrote: ↑Tue Jun 15, 2021 8:26 am
lazynovice wrote: ↑Mon Jun 14, 2021 8:04 pm
VanGar+Goyle wrote: ↑Mon Jun 14, 2021 7:50 pm
Total in "RMD" type investments: $2,168,511
2020 Marginal Tax Rate: 37%
Did we ever estimate what they would pay in marginal tax rate after retiring in 7 years at 65, or 14 years at 72, with no changes?
The pre-tax total may almost double to $4M, so RMDs could be around $160K, plus other income,
and could drop 4 tax brackets to 22% ( 25% TCJA ) Married Filing Jointly + IRMAA.
Very few retirees are going to end up in the 37% bracket due to RMDs. You’d need a massive deferred account, pensions, SS and maybe a young spouse who works in a high paying job when the older spouse is retired. A few of those people here but not many.
At 70...
$175K first year - if left untouhed $4 million in tax defferred
$ 80K+ SS - if taken at 70
$ 80K+ Divs and cap gains - if account has funds like OP seems to have indicated
$335K+ first year guess for state and local taxes.
Questions:
- what state does the OP/example person live in?
- what happens as the deferred account continues to grow?
- what happens to RMD %'s as the account holder(s) age?
- what happens when one spouse passes?
- what is the tax rate of heirs?
Eventually you need to remove all of the funds from the deferred account. Often the longer you wait the worse the problem becomes and the less ability to optimize it. Action item - do not look at this as a problem that may occurr at age 70 but more as a problem to be solved in its entirety.
Emptying tax/deferred in-all - is wrong advise or wrong solution to large tax-deferred portfolio. Mitigate along the way till age 72, retire early , Roth convert (don’t fester it longer by chose to do nothing!), life-insurance to mitigate overall effective tax rate, use it as building generational wealth/inheritance, QCDs, if all else fails — pray for the market to crash — so your RMDs (and Dividends likely cut too) will be half as much. And If markets go crazy high — then plan on donation a million or two at your alma-mater toward “
Smitcat Chaired Professorship” for a designated purpose etc. your heirs may get ample admissions/scholarships at that Univ
(your generational college fund
Show us the money - there are ways to make good use of it!
Like lazynovice pointed it - mitigate problems along the way - rather than avoid using 37% tax-deferred space currently !!
Worse yet - someone is one (or two) gray-divorces and/or re-marriages away from cutting RMD/portfolio to less than 50% .. we are not even talking bad-market returns/lull.
"retire early , Roth convert (don’t fester it longer by chose to do nothing!)"
Agreed - but this is not "doing nothing untill RMD time" as the orginal problem was stated
"life-insurance to mitigate overall effective tax rate,"
Again ...please reference any reasonably detailed articles on the math and mechiancs of how this could/would work.
"use it as building generational wealth/inheritance, QCDs, if all else fails"
Same here - what good detailed articles descibe how this works to stay under the future marginal rates.
"then plan on donation a million or two at your alma-mater toward “
Smitcat Chaired Professorship” for a designated purpose etc. your heirs may get ample admissions/scholarships at that Univ
(your generational college fund
"
Yes - you can always give it away as one alternative. That is not really the topic for potential solutions here.
"Like lazynovice pointed it - mitigate problems along the way - rather than avoid using 37% tax-deferred space currently !!"
The PO's situation as example per original question - is he able to mitigate it along the way?
You do not have the details to know but he/she is getting very close to running out of planning room based upon my read so far.
- he can retire early , does not plan to
- he can Roth convert, he plans to make that option very limited
- he can limit after tax incomes, likely not a good long term play
- he can divert to Roth or after tax accounts, no plan there either
- all pretax to fixed income, maybe a help if he wants to limit growth there
He/she has time now to assess and optimize - saying dont worry about it till RMD time will provide a poor solution.