Ignoring RMDs completely in early retirement?

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sc9182
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Joined: Wed Aug 17, 2016 7:43 pm

Re: Ignoring RMDs completely in early retirement?

Post by sc9182 »

RubyTuesday wrote: Sun Jun 20, 2021 6:57 am
wolf359 wrote: Mon May 24, 2021 9:49 am
retired@50 wrote: Mon May 24, 2021 9:18 am
Helium wrote: Sun May 23, 2021 10:10 pm I’m currently trying to model our annual retirement income, trying to find a balance between ACA subsidies vs Roth conversions (to lower RMDs 35+ years from now).
If RMDs don't start for 35 more years, that means you're what, 37 years old?

Given the time frame, frankly, I'd put it out of your mind for at least another 25 years.

There's no telling how many times the laws and/or rules will change between now and then.

Regards,
Well, I can tell you one known change (and I'm allowed to discuss it because it's in current law!) In 2025, the current low tax rates will expire, and taxes will increase.

If you were to choose one time period to conduct Roth conversions, doing so over the next 4 years is probably a good time.

As for the sequence of returns risk, I think people overreact to it. You have to be aware of it and accommodate it. It's not really a risk of failure. It's a likelihood that you'll need to make some changes to your portfolio, spending, or income. If we get a really bad year, well don't do the Roth conversion that year, and cut back on your spending.

If you're a typical Boglehead and built discretionary expenses into your plan, and have backup plans if things go wrong, you're fine. If you're voluntarily retiring early, you're typically doing so with planning. It's the unplanned retirements where you can't earn any more income, had insufficient assets to retire, or otherwise lack financial flexibility that sequence of returns risk is more devastating.

Agree with your post generally, but may disagree with the underlined and bold section. If assets in tax deferred accounts go down 40% would be a great time to convert MORE not less. Let Uncle Sam share your losses and convert.
Conversion assuming you have sufficient outside Monies/income to pay for “conversion” related taxes upon such crashes !! Or you have low-growth/stable monies in Tax-deferred, and you DO want to move to aggressive portfolio into Roth via conversion - when equities taken a beating ..

If you are doing like-to-like assets in both Tras and upon conversion - while needing to do additional withdrawals from traditional to pay for those taxes — especially during distressed markets — conversion may prove to sub-optimal.
crefwatch
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Location: New Jersey, USA
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Re: Ignoring RMDs completely in early retirement?

Post by crefwatch »

I admit that we have a rather high retirement income (at ages 69/65). But when we were both in our peak earning years, it would have been punitive to do Roth conversions anyway. Right now, if I do a $100,000 Roth conversion, I'll have to pay an extra:
$22K in F.I.T.
--$3K in lost 0% LTCG tax (could be higher if our income were lower ... )
--$1K in NIIT
--$5K in IRMAA two years out.
---------
$31 K total, not considering state tax.

Since distant future, meaning two RMD taxpayers, (current law) taxation is around 33%, this argues against paying the taxes in advance.
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