Retired, taking advantage of last "low income" year

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talus1976
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Retired, taking advantage of last "low income" year

Post by talus1976 »

I will be turning 72 in October, 2023. Next year, I must take an RMD that will be well into six figures. However, my income this year consists of approximately $50,000 in Social Security, $24,000 in dividends and an additional $30,000 in interest. This most likely will be the last "low income" year that I will ever have. How do I take advantage of this unique situation? Roth conversions, etc.?
bloom2708
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Re: Retired, taking advantage of last "low income" year

Post by bloom2708 »

Single or Married Filing Jointly?

MFJ 24% goes up to $190,750 for 2023. Figure in your standard deduction.

Do you have any gains you can harvest in Taxable accounts? A last Roth conversion.

I don't see much value in going outside of 24% just to pay tax.

Even if you get in the 32% bracket in 2024, it is only the bits that go over the ~$215k.

If you really have "too much", charitable donations can be used to get rid of the extra pesky money.

Good problems really. Congrats.
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FiveK
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Re: Retired, taking advantage of last "low income" year

Post by FiveK »

Perhaps the easiest way to look at your situation, if you can use Excel, is described in the Using a spreadsheet section of that wiki. If you follow that example, what do you see for your situation?

The answers may differ significantly depending on your filing status.
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Watty
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Re: Retired, taking advantage of last "low income" year

Post by Watty »

talus1976 wrote: Mon Jun 05, 2023 3:34 pm Next year, I must take an RMD that will be well into six figures.
That implies a IRA that could be in the ballpark of ten million dollars.

That could grow to huge amount if you live another couple of decades and you likely have other assets outside of the IRA too.

You could easily be well above the estate tax exemption and it has changed many time and the exemption limit could be much lower by the time you die. Your state may have an estate tax too.

The estate taxes could end up being a dramatically larger issue then the taxes on the RMD. I would highly suggest that you hire a good estate planning lawyer to figure out a stragety for you and what to do this year would be part of that.

In your planning keep in mind that the tax rates are scheduled to revert to the old higher tax rates in 2026 if there are no tax law changes. It would be good to take a hard look at doing Roth conversions up to the maybe top of the 24% federal tax bracket since you are unlikely ever be in a tax bracket that low again after 2025.
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FreddieFIRE
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Re: Retired, taking advantage of last "low income" year

Post by FreddieFIRE »

talus1976 wrote: Mon Jun 05, 2023 3:34 pm Next year, I must take an RMD that will be well into six figures.
How much is "well into six figures?" $150,000? $500,000? 999,000? The answers would likely very considerably based upon your answer to this.
A house and a job. Once the American dream. Two things I'll never again have. Life is simple (and good).
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MJS
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Re: Retired, taking advantage of last "low income" year

Post by MJS »

Watty wrote: Mon Jun 05, 2023 4:52 pm
talus1976 wrote: Mon Jun 05, 2023 3:34 pm Next year, I must take an RMD that will be well into six figures.
That implies a IRA that could be in the ballpark of ten million dollars.
Very surprisingly, one "only" needs tax deferred of $2,450,000 to require an RMD of $102,000 at age 73. Around age 90, it would be nearly $300k/yr. Even MFJ and with inflation, that will be taxed. If filing Single, it could be quite expensive.

https://www.schwab.com/ira/ira-calculators/rmd
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FreddieFIRE
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Re: Retired, taking advantage of last "low income" year

Post by FreddieFIRE »

MJS wrote: Mon Jun 05, 2023 5:08 pm
Watty wrote: Mon Jun 05, 2023 4:52 pm
talus1976 wrote: Mon Jun 05, 2023 3:34 pm Next year, I must take an RMD that will be well into six figures.
That implies a IRA that could be in the ballpark of ten million dollars.
Very surprisingly, one "only" needs tax deferred of $2,450,000 to require an RMD of $102,000 at age 73. Around age 90, it would be nearly $300k/yr. Even MFJ and with inflation, that will be taxed. If filing Single, it could be quite expensive.

https://www.schwab.com/ira/ira-calculators/rmd
I plugged in a 1% rate of return, and the annual RMDs at age 90 are basically level. Since tax brackets are indexed to inflation, the meaningful number is the real rate of return. My assumption is based upon 100% TIPS in the pre-tax IRA with a real rate of return (over time) of 1%. I think that is quite reasonable for planning purposes. Hold equities in Roth or after-tax where they belong. 8-)
A house and a job. Once the American dream. Two things I'll never again have. Life is simple (and good).
CuriousGeorgeTx
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Re: Retired, taking advantage of last "low income" year

Post by CuriousGeorgeTx »

Hav you considered converting part of your IRA to a Roth? It’s a little late in the game to move the needle very much, but directionally it might make sense. Every situation is unique, but for many with significant IRA, it makes sense, especially with tax rates a relatively low levels, to fill the brackets that begin with a 2. You will meet your friend IRMAA (Income Related Monthly Adjustment Amount) and have to higher Medicare premiums, but even with that, you may pay taxes at 2x% that will otherwise be due at 3x% in the future (x is an unknown integer - not the multiplication operator.)
billfromct
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Re: Retired, taking advantage of last "low income" year

Post by billfromct »

I have never done this, but I believe if you are over 70.5, you can do a Qualified Charitable Distribution (QCD) of up to $100k from your IRA that would decrease your income & lower your IRA value over time. I believe a check would be made by your IRA broker directly to the charity.

So you could do it for 2023 & for 2024. I think it would reduce your 2024 RMD amount directly.

You may want to google “Qualified Charitable Distribution” for the details.

bill
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Watty
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Re: Retired, taking advantage of last "low income" year

Post by Watty »

MJS wrote: Mon Jun 05, 2023 5:08 pm
Watty wrote: Mon Jun 05, 2023 4:52 pm
talus1976 wrote: Mon Jun 05, 2023 3:34 pm Next year, I must take an RMD that will be well into six figures.
That implies a IRA that could be in the ballpark of ten million dollars.
Very surprisingly, one "only" needs tax deferred of $2,450,000 to require an RMD of $102,000 at age 73. Around age 90, it would be nearly $300k/yr. Even MFJ and with inflation, that will be taxed. If filing Single, it could be quite expensive.

https://www.schwab.com/ira/ira-calculators/rmd
Even "only" $2.4 million could grow very large in 15 or 20 years.

The OP also described the RMD as being well into six figures so I would guess that their IRA would be much larger.
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