Question about IRA distributions in retirement

[disneysteve]

I have 3 non-Roth IRAs. One is a traditional IRA; one is a rollover IRA; one is a SEP. I know that I will be required to take distributions starting no later than the year I turn 70.5 (unless I am still working which I highly doubt). How does that work exactly when there are multiple accounts involved? Will I have to take an RMD from each account or can I calculate the total RMD and take it from just one account?

How about distributions I take prior to 70.5? Are there any minimums or limits on how much can be taken each year? I know that the distributions are taxable income so you have to factor that in but otherwise, does anybody care how much I take out each year?

[Like2Plan]

Disney Steve,
You have to take RMD’s for IRAs starting at age 70.5 whether you are still working or not. You can delay RMDs from your 401k from your current employer (if plan rules allow for it)— this exception doesn’t apply to 401ks from previous employers (unless you roll your funds into your current 401k).

You can take funds out of any one of your IRAs and it counts towards the RMDs In the IRS’s eyes you only have 1 IRA no matter how many separate accounts you have set up.

On the other hand, RMDs from 401ks are per account.

There are no limits on distributions taken after 59.5 but prior to 70.5- you just have to pay the tax.

[corn18]

Make sure you take a look at doing Roth conversions of your IRA's before you reach 70.5. The only reason to do this is if your RMD's will put you in a higher tax bracket when you take them vs. the tax bracket in which you could convert them now. For me, if I convert them between 55 and 70 I can pay 12% tax vs. 22% when I reach 70.5. Does not apply to everyone.

[Like2Plan]

Also, something worth looking at now is what RMDs will do to your income at 70.5– there are lots of pitfalls that a few conversions in the years leading up to 70.5 could smooth out the tax liability over your retirement years.

[Like2Plan]

(Corn, you beat me to it )

[creditcardfree]

Disney Steve,
You can take funds out of any one of your IRAs and it counts towards the RMDs In the IRS’s eyes you only have 1 IRA no matter how many separate accounts you have set up.

Agree!

[disneysteve]

Thanks for the info everyone. Retirement is still a while away but I'm starting to pay more attention to some advanced planning as I know the years will (hopefully) fly by.

[LivingAlmostLarge]

If you do rollovers though and you have all those IRA don't forget the pro-rata tax rules. That you can't just move and claim all is after tax dollars. You have to do it as a percentage.

[TexasHusker]

My only advice would be not to make financial decisions based on taxes or the deferment thereof. That would epitomize the phrase "tail wagging the dog."

My mother needs some more income, and has about $350K in a 401K. It's all sitting in money markets earning basically nothing, but she dare not take it out to actually invest it in a good piece of income producing property, as she doesn't want to give Uncle Sam any more. So I guess she'll take the 401K to the grave, withdrawing her piddly RMD every year. And then I'll pay the taxes on her 401K.

[corn18]

My only advice would be not to make financial decisions based on taxes or the deferment thereof. That would epitomize the phrase "tail wagging the dog."

My mother needs some more income, and has about $350K in a 401K. It's all sitting in money markets earning basically nothing, but she dare not take it out to actually invest it in a good piece of income producing property, as she doesn't want to give Uncle Sam any more. So I guess she'll take the 401K to the grave, withdrawing her piddly RMD every year. And then I'll pay the taxes on her 401K.

Can she convert up to the top of the 0% tax bracket? Not sure how much, if any, SS she gets, but she should be able to recognize $22k of income / year and not pay any taxes.

[Like2Plan]

My only advice would be not to make financial decisions based on taxes or the deferment thereof. That would epitomize the phrase "tail wagging the dog."

My mother needs some more income, and has about $350K in a 401K. It's all sitting in money markets earning basically nothing, but she dare not take it out to actually invest it in a good piece of income producing property, as she doesn't want to give Uncle Sam any more. So I guess she'll take the 401K to the grave, withdrawing her piddly RMD every year. And then I'll pay the taxes on her 401K.

It becomes a minefield to convert after social security and RMD's kick in. It would be something to run through tax software and model before doing.

The first problem is social security benefits are taxed up to 85% if you exceed a certain level.

• file a federal tax return as an "individual" and your combined income* is
  • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $34,000, up to 85 percent of your benefits may be taxable.
• https://www.ssa.gov/planners/taxes.html

The second problem is the IRMAA surcharge that kicks in starting at above 85k (single) https://medicare.com/about-medicare/...-part-b-irmaa/

She can run conversions after she has taken out her RMDs. But, even if she was willing to pay taxes on the income and do the conversions more quickly she would jump up to the 22% tax rate pretty quickly (single $38,701 to 82,500)

Given the goal of acquiring a good piece of income producing property, I wonder if she would be able to finance a piece of property and make payments (or would the interest expense exceed the tax expense)?

Alternatively, could she do a rollover to tIRA and have the IRA own the property? (I don't know how RMDs would be handled in that situation, though)

.

[TexasHusker]

Can she convert up to the top of the 0% tax bracket? Not sure how much, if any, SS she gets, but she should be able to recognize $22k of income / year and not pay any taxes.

She earns far too much $$ to escape income taxes.

[TexasHusker]

It becomes a minefield to convert after social security and RMD's kick in. It would be something to run through tax software and model before doing.

The first problem is social security benefits are taxed up to 85% if you exceed a certain level.

• file a federal tax return as an "individual" and your combined income* is
  • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $34,000, up to 85 percent of your benefits may be taxable.
• https://www.ssa.gov/planners/taxes.html

The second problem is the IRMAA surcharge that kicks in starting at above 85k (single) https://medicare.com/about-medicare/...-part-b-irmaa/

She can run conversions after she has taken out her RMDs. But, even if she was willing to pay taxes on the income and do the conversions more quickly she would jump up to the 22% tax rate pretty quickly (single $38,701 to 82,500)

Given the goal of acquiring a good piece of income producing property, I wonder if she would be able to finance a piece of property and make payments (or would the interest expense exceed the tax expense)?

Alternatively, could she do a rollover to tIRA and have the IRA own the property? (I don't know how RMDs would be handled in that situation, though)

.

Your post underscores why I have utter contempt for all of these IRS-designated retirement plans. They are mired in complexity and bind the account holder with volumes of dos and dont's. I am a simpleton: Pay my taxes and move on with my money. Have I paid more tax than I could have? Probably.

[Like2Plan]

Of course we are only getting a glance at one aspect of her tax situation. I think it might be fair to say that she would not have accumulated as much had it been after tax. For all we know she may have been in a 28% bracket while in the accumulation phase and only too happy to pay 22 or 24%?

I’ll grant you that it takes some study to pick the best pathway forward.

[disneysteve]

My mother needs some more income, and has about $350K in a 401K. It's all sitting in money markets earning basically nothing

Why doesn't she put at least some of that money into something that will pay a higher return? If she is concerned about risk, even something like a short term bond fund would pay a lot more than the money market. My Vanguard short term bond fund is yielding 3%. What's the money market paying her? 1%? Less? She could triple her income from the account.