Tad Borek wrote:
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I am certainly considering funding our charitable gifts from IRA's, if
possible.

Thanks all, for your comments. Much to think about.

DLC

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DLC wrote:
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DLC, if that's the case, there's an argument for taking distributions
early irrespective of whether the market dips. Generally speaking,
markets go up over time. Even if there isn't a dip in the beginning of
the year, your 12/31 value (on average) is going to be higher than your
1/1 value. So you might take early distributions in all years, to shift
a bit of your gains into the taxable account.

Given that you'll essentially be moving money from one pocket to
another, it seems the principal focus of your RMD planning will be tax
planning, to the extent that's possible. Your RMDs will be $60k+ so
there may be other effects...eg Social Security taxed, perhaps losing
some state & federal tax benefits associated with lower AGIs. There may
not be much you can do about that, these being RMDs. But you may be able
to do other things to reduce ordinary income. Shift from taxable
interest to tax-exempt, even for money-market checking. Try to realize
up to $3,000 in capital losses each year, to offset ordinary income.
These little things could add up -- though of course, weigh them against
simply paying the tax (tax-exempt funds might yield less even factoring
in taxes).

And there may be one way to directly lower your RMD, by giving all or
part of it to charity -- if that special provision is extended past this
year. There's a bill to do that floating around and that's one to keep
an eye on if you do any charitable giving.

-Tad

Tad Borek wrote:
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normal income rates for the IRA RMD.

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would be a good move. I do intend to transfer stock funds first and
bond funds last.

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DLC wrote:
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From your first post, you sound like you are in a low (even 15%)
bracket now. All the more reason to start converting now. At $1.75M,
your first year RMD is $64K. The real problem is the growth in the
account is likely higher than the withdrawal rates, age 70 divisor is
27.4 or 3.65%, not till 79 does it go above 5%. I'd highly recommend
running a spreadsheet to forecast if/when you will be thrown into the
28% bracket. Whatever you decide, knowledge is power. Three years of
conversions at 15% vs 25% can save you $20K on the cumulative $200K
you'd transfer.
JOE

DLC wrote:
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DLC, I'm wondering how you decided on this withdrawal approach,
specifically the idea of taking your RMD early in the year only if your
IRA declines in value. As you probably know your RMD amount is fixed as
of 12/31 of the prior year, so any subsequent fluctuations in account
value won't change the amount that you need to withdrawal. What your
approach would do, as the years go by, is to shift some of your
mutual-fund gains into a taxable account, when they could have happened
within the IRA instead. Which could make sense, but is that your intention?

Also: why keep the same investments? One typical change would be to
choose something slightly different based on tax considerations. For
example, if you had the money invested in a bond mutual fund within the
IRA, and wanted to keep it in bonds, you might change to a tax-exempt
bond fund in the taxable account. There are some similar considerations
with stock mutual funds -- using tax-inefficient ones within the IRAs,
and the more tax-neutral ones in the taxable accounts.

-Tad

People may need to watch their RMDs now that medicare is
means tested. A large RMD could quadruple the monthly
medicare premium ($374 instead of $93).
Currently this only affects 7% of seniors according to SSA statistics.
But in the 2020s this may affect half of seniors
beacuse the means formulas are NOT COLA-indexed.
This would be an argument to for withdrawing earlier, though I
havent crunched the numbers yet.

joetaxpayer wrote:
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Thanks for your comments.

I guess I could have mentioned that I am 67, so there are only three
years before RMD starts.

Also, The amount we have in traditional IRA and 403B accounts exceeds
1.75 million. We do have $200,000 in Roth accounts.

I have not been willing to convert to Roth accounts and paying the taxes
now. I know that I will be in a much higher bracket when I do start the
RMD, but I will also have (presumably) more investment value with which
to pay the taxes.

DLC


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You could "lock-in" todays "high" stock prices by buying your RMD in
laddered bonds. For example if your RMD's begin in 3 years, you could
buy individual bonds that mature in 3, 4, 5 ... years out. The amount
for at maturityfor a specific year could be the RMD or the RMD plus
taxes.

I like Joe's idea too.

Frank

On Apr 22, 6:04 pm, DLC <d...[at]dlc.net> wrote:
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DLC wrote:

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I'd suggest looking at what your current marginal rate is, and doing a
Roth conversion to "top off" that rate (i.e. convert enough to stay just
within that bracket). Since a Roth conversion does not necessitate a
sale, just movement to a different account, you don't have to worry
about a buy/sell. This will lessen your RMDs and reduce the risk those
RMDs push you into the higher bracket further down the road.
See http://www.joetaxpayer.com/roth.html for two delightful anecdotes on
how I've used Roth conversions for those I've advised.

JOE

We are thinking ahead to when we must begin the required minimum IRA
distributions. At present, our expenses are covered by social security
and pension and a small (less than 1 percent) distribution from investments.

Over 70 percent of our investments are in traditional IRA or 403B
accounts held in mutual finds.

We are planning on transferring an amount equal to the RMD from IRA
mutual funds to identical funds outside the IRA at the end of each year.
If there is a substantial decline in prices earlier in the year, We
would do the transfer then.

We would pay the taxes from current income in the early years, but would
need to factor in taxes later on.

It seems to us that his would reduce the effect of market prices when
meeting the need to take the RMD.

We would value thought on this approach.

Thanks, DLC