RMD age has no real impact?

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corn18
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RMD age has no real impact?

Post by corn18 »

I set up an input in my model to adjust when RMDs start. When I start them @ 75 vs 72, there is no real impact to my probability of success. That has me wondering if I am modeling it correctly.

To change the age, I start RMDs at the age selected. Instead of the RMD's, I do Roth conversions to the top of the 12% tax bracket. Then I start RMDs in the year selected. The limiting factor for how much I can convert from 70 on is SS. SS+pension puts me closer to the top of the 12% tax bracket. I have some headroom to keep converting after SS starts.

My guess is that the Roth conversions replace the RMD and that is a wash. Even if I stop Roth conversions @ 70, there is very little impact in the long run.

Does this sound right?
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Re: RMD age has no real impact?

Post by Shallowpockets »

Your RMD timeframe is mandated by the government. There is no starting at 75.
You need to read up. Your post shows confusion about RMDs and Roth conversions.
Last edited by Shallowpockets on Fri May 27, 2022 12:58 pm, edited 1 time in total.
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Re: RMD age has no real impact?

Post by jebmke »

You can't defer the RMD to age 75.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: RMD age has no real impact?

Post by corn18 »

Shallowpockets wrote: Fri May 27, 2022 12:57 pm Your RMD timeframe is mandated by the government. There is no starting at 75.
I like to model different scenarios to see what impact they might have.
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Re: RMD age has no real impact?

Post by SmileyFace »

corn18 wrote: Fri May 27, 2022 12:58 pm
Shallowpockets wrote: Fri May 27, 2022 12:57 pm Your RMD timeframe is mandated by the government. There is no starting at 75.
I like to model different scenarios to see what impact they might have.
You like to model different scenarios that include dishonest ones? We don't do that here - breaks forum rules.
The impact to your possibility of success are the penalties, etc you will pay when audited for breaking the tax laws.
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corn18
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Re: RMD age has no real impact?

Post by corn18 »

SmileyFace wrote: Fri May 27, 2022 1:01 pm
corn18 wrote: Fri May 27, 2022 12:58 pm
Shallowpockets wrote: Fri May 27, 2022 12:57 pm Your RMD timeframe is mandated by the government. There is no starting at 75.
I like to model different scenarios to see what impact they might have.
You like to model different scenarios that include dishonest ones? We don't do that here - breaks forum rules.
Can you imagine any scenario in the next 14 years where the RMD age might change? I am not going to break the law. :annoyed
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WestCoastPhan
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Re: RMD age has no real impact?

Post by WestCoastPhan »

SECURE Act 2.0 passed by the House last month would raise the age to 75.

https://www.barrons.com/articles/secure ... 1648594141

So it's a reasonable thing to model, in my opinion.
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Re: RMD age has no real impact?

Post by gwe67 »

RMD age has changed in the past and may change in the future.
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Re: RMD age has no real impact?

Post by SmileyFace »

corn18 wrote: Fri May 27, 2022 1:03 pm
SmileyFace wrote: Fri May 27, 2022 1:01 pm
corn18 wrote: Fri May 27, 2022 12:58 pm
Shallowpockets wrote: Fri May 27, 2022 12:57 pm Your RMD timeframe is mandated by the government. There is no starting at 75.
I like to model different scenarios to see what impact they might have.
You like to model different scenarios that include dishonest ones? We don't do that here - breaks forum rules.
Can you imagine any scenario in the next 14 years where the RMD age might change? I am not going to break the law. :annoyed
So you are talking about hypothetical tax code/law changes? Sorry that wasn't clear (but also breaks forum rules 😉)
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Re: RMD age has no real impact?

Post by bsteiner »

SmileyFace wrote: Fri May 27, 2022 1:05 pm ...
So you are talking about hypothetical tax code/law changes? Sorry that wasn't clear (but also breaks forum rules 😉)
To stay within the rules, we could assume that the original poster was referring to pre-1987 403(b) benefits for which the age is 75.
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Re: RMD age has no real impact?

Post by SmileyFace »

gwe67 wrote: Fri May 27, 2022 1:04 pm RMD age has changed in the past and may change in the future.
Note that discussions of proposed laws or regulations are prohibited.
...Forum Policy page.
Thread will be likely locked.
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Re: RMD age has no real impact?

Post by WestCoastPhan »

Secure Act 2.0 passed the House by 414-5. The Senate is now considering it. It's a good bit more than "hypothetical."
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Re: RMD age has no real impact?

Post by smitcat »

corn18 wrote: Fri May 27, 2022 1:03 pm
SmileyFace wrote: Fri May 27, 2022 1:01 pm
corn18 wrote: Fri May 27, 2022 12:58 pm
Shallowpockets wrote: Fri May 27, 2022 12:57 pm Your RMD timeframe is mandated by the government. There is no starting at 75.
I like to model different scenarios to see what impact they might have.
You like to model different scenarios that include dishonest ones? We don't do that here - breaks forum rules.
Can you imagine any scenario in the next 14 years where the RMD age might change? I am not going to break the law. :annoyed
I know what you intended and we have played around with that as well. You could also just model taking withdrawals at 67 vs 72 and not see any significant differences unless combined with some other variables - and that would be 'cheating'.
If you keep all AA's, tax's, performances, ages, and the like the same ...then it will not change the 'results' of taking from one account earlier than another.
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Re: RMD age has no real impact?

Post by radiowave »

WestCoastPhan wrote: Fri May 27, 2022 1:04 pm SECURE Act 2.0 passed by the House last month would raise the age to 75.

https://www.barrons.com/articles/secure ... 1648594141

So it's a reasonable thing to model, in my opinion.
From the Forum Rules:

Discussions about enacted laws or regulations that affect the individual investor. Note that discussions of proposed laws or regulations are prohibited.

rules
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Re: RMD age has no real impact?

Post by WestCoastPhan »

SmileyFace wrote: Fri May 27, 2022 1:07 pm
gwe67 wrote: Fri May 27, 2022 1:04 pm RMD age has changed in the past and may change in the future.
Note that discussions of proposed laws or regulations are prohibited.
...Forum Policy page.
Thread will be likely locked.
The OP never mentioned the proposed law. He mentioned some modeling he was doing. And got accused of planning fraud. :oops:
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Re: RMD age has no real impact?

Post by corn18 »

radiowave wrote: Fri May 27, 2022 1:08 pm
WestCoastPhan wrote: Fri May 27, 2022 1:04 pm SECURE Act 2.0 passed by the House last month would raise the age to 75.

https://www.barrons.com/articles/secure ... 1648594141

So it's a reasonable thing to model, in my opinion.
From the Forum Rules:

Discussions about enacted laws or regulations that affect the individual investor. Note that discussions of proposed laws or regulations are prohibited.

rules
If ya'll would stop bringing it up, we might have a reasonable discussion and not get the thread locked. :annoyed :annoyed
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Re: RMD age has no real impact?

Post by smitcat »

SmileyFace wrote: Fri May 27, 2022 1:07 pm
gwe67 wrote: Fri May 27, 2022 1:04 pm RMD age has changed in the past and may change in the future.
Note that discussions of proposed laws or regulations are prohibited.
...Forum Policy page.
Thread will be likely locked.
Your posts add no value but the modeling of when to take funds from a sheltered account does have value.
Instead we can model withdrawals from those accounts from 67 to 72 to see if there are tangible advantages/disadvantages in delays to those withdrawals.
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Re: RMD age has no real impact?

Post by corn18 »

smitcat wrote: Fri May 27, 2022 1:08 pm
corn18 wrote: Fri May 27, 2022 1:03 pm
SmileyFace wrote: Fri May 27, 2022 1:01 pm
corn18 wrote: Fri May 27, 2022 12:58 pm
Shallowpockets wrote: Fri May 27, 2022 12:57 pm Your RMD timeframe is mandated by the government. There is no starting at 75.
I like to model different scenarios to see what impact they might have.
You like to model different scenarios that include dishonest ones? We don't do that here - breaks forum rules.
Can you imagine any scenario in the next 14 years where the RMD age might change? I am not going to break the law. :annoyed
I know what you intended and we have played around with that as well. You could also just model taking withdrawals at 67 vs 72 and not see any significant differences unless combined with some other variables - and that would be 'cheating'.
If you keep all AA's, tax's, performances, ages, and the like the same ...then it will not change the 'results' of taking from one account earlier than another.
That's a pretty good analogy, I think. I will take a closer look at that.
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Re: RMD age has no real impact?

Post by SmileyFace »

WestCoastPhan wrote: Fri May 27, 2022 1:10 pm The OP never mentioned the proposed law. He mentioned some modeling he was doing. And got accused of planning fraud. :oops:
I actually knew nothing about proposed law changes. So yes - I was trying to understand why someone would be modeling something that can only be achieved by committing fraud.
The thought of modeling a scenario that breaks tax law just never occurred to me.
The "oops" is not warranted.
Last edited by SmileyFace on Fri May 27, 2022 1:16 pm, edited 1 time in total.
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Re: RMD age has no real impact?

Post by Kenkat »

I think the reason you don’t see a change in terms of probability of success is because RMDs don’t represent an outflow from your portfolio as expenses do. The amount you pay in taxes is an outflow, but that is just a percentage and an outflow only to the extent that your required RMDs exceed total expenses.

It’s just not a large enough amount to move the needle.
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Re: RMD age has no real impact?

Post by smitcat »

corn18 wrote: Fri May 27, 2022 1:13 pm
smitcat wrote: Fri May 27, 2022 1:08 pm
corn18 wrote: Fri May 27, 2022 1:03 pm
SmileyFace wrote: Fri May 27, 2022 1:01 pm
corn18 wrote: Fri May 27, 2022 12:58 pm

I like to model different scenarios to see what impact they might have.
You like to model different scenarios that include dishonest ones? We don't do that here - breaks forum rules.
Can you imagine any scenario in the next 14 years where the RMD age might change? I am not going to break the law. :annoyed
I know what you intended and we have played around with that as well. You could also just model taking withdrawals at 67 vs 72 and not see any significant differences unless combined with some other variables - and that would be 'cheating'.
If you keep all AA's, tax's, performances, ages, and the like the same ...then it will not change the 'results' of taking from one account earlier than another.
That's a pretty good analogy, I think. I will take a closer look at that.
After playing with this a couple of years back I believe this really falls under the area of "maximizing drawdown strategies" which has many moving parts and very dependent upon each person's exact holding and goals.
KItces is one person who has had some great articles in this area - there are many others as well.
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Re: RMD age has no real impact?

Post by corn18 »

Kenkat wrote: Fri May 27, 2022 1:16 pm I think the reason you don’t see a change in terms of probability of success is because RMDs don’t represent an outflow from your portfolio as expenses do. The amount you pay in taxes is an outflow, but that is just a percentage and an outflow only to the extent that your required RMDs exceed total expenses.

It’s just not a large enough amount to move the needle.
I think you are right. The Roth conversions are taxed at the same 12% as the RMDs. I had it in my brain that RMDs that start later would allow more time for conversions, which it does, but there is no positive impact in my case because of the taxes being the same for either scenario.
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Re: RMD age has no real impact?

Post by delamer »

Kenkat wrote: Fri May 27, 2022 1:16 pm I think the reason you don’t see a change in terms of probability of success is because RMDs don’t represent an outflow from your portfolio as expenses do. The amount you pay in taxes is an outflow, but that is just a percentage and an outflow only to the extent that your required RMDs exceed total expenses.

It’s just not a large enough amount to move the needle.
I thought the same thing.

Plus if you are only doing conversions to the top of the 12% bracket and you have large tax-deferred accounts, they aren’t going to have much of an impact either (which isn’t to say that you shouldn’t do them).
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Re: RMD age has no real impact?

Post by BluesH »

1. I agree with others - stop complaining about discussions of proposed laws. The OP did not start a discussion about the proposed law, he started a discussion about modeling. I hope it doesn't get locked due to what I consider to be topic drift by other contributors.

2. I believe that the effect of RMDs will depend on how large your RMDs will be, and hence what bracket they will push you into. I've been doing as the OP has suggested -- doing Roth conversions to the top of the 12% bracket. My RMDs will start either next year or the year after, depending... But my RMDs will be large, pushing me into the 22% or 24% bracket when they start, and into the 28% bracket by 2026. I do believe that if I ran OPs spreadsheet, RMD age would make a large difference to me. I've been paying very close attention to the legislation in progress that's been mentioned above.
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Re: RMD age has no real impact?

Post by corn18 »

delamer wrote: Fri May 27, 2022 1:22 pm
Kenkat wrote: Fri May 27, 2022 1:16 pm I think the reason you don’t see a change in terms of probability of success is because RMDs don’t represent an outflow from your portfolio as expenses do. The amount you pay in taxes is an outflow, but that is just a percentage and an outflow only to the extent that your required RMDs exceed total expenses.

It’s just not a large enough amount to move the needle.
I thought the same thing.

Plus if you are only doing conversions to the top of the 12% bracket and you have large tax-deferred accounts, they aren’t going to have much of an impact either (which isn’t to say that you shouldn’t do them).
Concur. I have a lot of room for conversions in the 12% tax bracket before SS kicks in @ 70 ($56k / year). Even in the year I turn 70, I still have $43k of space. But after I and my wife take SS at my age 71 (she is 4 years younger than me), the 12% headroom goes down to $9k. I think that's why there isn't a big impact for me if RMDs don't start until 75.
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Re: RMD age has no real impact?

Post by finite_difference »

jebmke wrote: Fri May 27, 2022 12:58 pm You can't defer the RMD to age 75.
You can if you defer retirement.
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Re: RMD age has no real impact?

Post by corn18 »

BluesH wrote: Fri May 27, 2022 1:26 pm 1. I agree with others - stop complaining about discussions of proposed laws. The OP did not start a discussion about the proposed law, he started a discussion about modeling. I hope it doesn't get locked due to what I consider to be topic drift by other contributors.

2. I believe that the effect of RMDs will depend on how large your RMDs will be, and hence what bracket they will push you into. I've been doing as the OP has suggested -- doing Roth conversions to the top of the 12% bracket. My RMDs will start either next year or the year after, depending... But my RMDs will be large, pushing me into the 22% or 24% bracket when they start, and into the 28% bracket by 2026. I do believe that if I ran OPs spreadsheet, RMD age would make a large difference to me. I've been paying very close attention to the legislation in progress that's been mentioned above.
That is interesting. If I do no Roth conversions, most of my RMDs will be pushed into the 22% tax bracket. Because my model ends @ age 95, every year the RMD age is delayed removes a year of paying 22% on the RMDs. So it looks better.
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Re: RMD age has no real impact?

Post by sport »

finite_difference wrote: Fri May 27, 2022 1:30 pm
jebmke wrote: Fri May 27, 2022 12:58 pm You can't defer the RMD to age 75.
You can if you defer retirement.
This is true for 401k's, but not true for IRAs.
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Re: RMD age has no real impact?

Post by Watty »

corn18 wrote: Fri May 27, 2022 12:54 pm My guess is that the Roth conversions replace the RMD and that is a wash. Even if I stop Roth conversions @ 70, there is very little impact in the long run.

Does this sound right?
An unneeded RMD should have minimal impact since the money will just be invested in a taxable account and not spent.

You also need to keep in mind that the RMDs usually start out at less than 4% and do not get above 5% until you are in your 80s. If you are just taking the RMD then you may be be taking out less that you could spend with a 4% safe withdrawal rate stragety until you are in your late 80s if then.

This is because the model 4% SWR starts at 4% at 65 and then the percentage increases each year as the inflation adjusted withdrawals stay the same. For example someone with a million dollar portfolio would start taking out $40K a year at 65. By the time they are in their 80s they would still be taking out $40K(adjusted for inflation) but their portfolio might be down to $400K(adjusted for inflation) so they are now at a 10% withdraw rate.
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Re: RMD age has no real impact?

Post by BluesH »

corn18 wrote: Fri May 27, 2022 1:35 pm That is interesting. If I do no Roth conversions, most of my RMDs will be pushed into the 22% tax bracket. Because my model ends @ age 95, every year the RMD age is delayed removes a year of paying 22% on the RMDs. So it looks better.
Interesting. I just noticed that your model output was probability of success, not net worth. I've been thinking about effect on net worth. Obviously, higher net worth should translate into higher probability of success, given constant spending. But I think you would see it more directly in the net worth.
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Re: RMD age has no real impact?

Post by Exchme »

Yes, the RMD date simply sets the plan for the latest that you can start paying the taxes due on the IRA, but they are going to be paid someday. If you have a level tax bracket throughout life due to Roth conversions, then a later RMD start simply means a few more $ got into Roth vs. Taxable compared to an earlier RMD date.

So the only impact is removal of a bit of tax drag on a few $.
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Re: RMD age has no real impact?

Post by Peter Foley »

Back to the original post . . . .

I would closely check the impact of RMD's on the taxation of SS Benefits. The same would hold true of doing Roth conversions. There is more to this than the top of the 12% bracket.
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Re: RMD age has no real impact?

Post by corn18 »

Peter Foley wrote: Fri May 27, 2022 2:26 pm Back to the original post . . . .

I would closely check the impact of RMD's on the taxation of SS Benefits. The same would hold true of doing Roth conversions. There is more to this than the top of the 12% bracket.
I am well past the hump for SS. I am pretty much stuck with 85% taxable SS because of my COLA pension.

The big killer for all of us is that the SS deductions on worksheet 915 are not inflation indexed. So they go down every year in nominal dollars. Line 9 (Base amount for filing status ($32,000/$25,000/$0)) is $32,000 this year for MFJ and will only be $21,774 in 2036 when I turn 70 (in 2022 dollars). And line 11 (Factor for filing status ($12,000/$9,000)) will go from $12,000 to $8,165 in 2022 dollars. This assumes 2.6% inflation over this time period. As my SS benefit goes up due to inflation, the amount taxed goes up as well. Awesome!
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Re: RMD age has no real impact?

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This thread is now in the Personal Finance (Not Investing) forum (RMD).
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