Required Minimum Distributions planning

[Schulzes]

I am 61 and recently retired.  I realize I have a few years before I'll need to start RMDs.  I have a pension and will start Social Security soon.  How do I determine if I'll have significant tax consequences when I have to start taking RMDs?  If I will have issues are there things I can do now to alleviate the situation?

Thanks,

Steve

[fanfare]

Plan 9. start converting your IRA to Roth IRA, in bits and pieces over the next decade.

How fast you proceed is determined by your tax bracket, your other income, and how much current tax you are willing to pay to convert X dollars to a Roth.

Other than that there is nothing you can do about the impact of RMD at age 72.

@Schulzes 

[Rangers44]

Hi Schulzes,

That would be hard to determine without knowing other factors:

1) What type of deductions, if you will be Itemizing?

2) Whether you are Single or Married?

3) How much income are you currently receiving in pensions and whether all of it is taxable or partially taxable?

4) Your Social Security Benefits most likely will be subject to Federal tax on 85% of those benefits

Bottom line, once your financial institution determines what your RMD's will be, post 72 years old, it may be reasonably fair to assume you will have to pay Federal income tax on the first dollar of excess income above all Deductions, with an additional deduction for being over 65 (if claimining the Standard Deduction) in the following progressive tax tiers, if SINGLE:

10% - $0 taxable income to $10275

12% - $10275 to $41775

22% - $41775 to $89075

24% - $89075 to $170050

32% - $170050 to $215950

35% - $215950 to $539900

37% - $539900 or more

Taxable Income would only be subject tax within those brackets....

[KeithS01]

Hi, Steve.

You do have several years, as the new age for RMDs is 72. In the year you turn 72, you will be required to take out about 3.65% of the previous year's December 31 balance. That will simply add to your income, so how much of an impact depends on how big that RMD is and how big your other income is.

To minimize the impact at that time, you could convert the money to a Roth IRA now, thus eliminating the need for RMDs. Of course, that comes with a cost, in that you will have pay taxes now on whatever you convert.

Another option is the Qualified Charitable Distribution (QCD). Once you turn 70.5, you can ask your custodian to send money from your IRA directly to a charity (or charities) of your choice. These distributions count towards your RMD (once you turn 72), but are not included in your income. (They are also not deductible as charitable contributions, but especially with the expanded Standard Deduction, I don't find that to be an issue for most retirees; they weren't going to be able to deduct it anyway.)

Also, starting to take it now would (theoretically) decrease the amount of RMDs, because it would reduce the balance. That being said, I know people who have been taking RMDs for 9 years, and their IRA balance is now higher than it was then.

Hope that gives you some ideas.