I often use my RMDs for gifting within the family. I feel it is important to help when needed and outright gift to share small portions of their inheritance when it is needed and will make a difference rather than years later when it won't mean nearly as much or have as much impact on their lives. Larry, Central Valley, Ca.
The IRMMA consideration is a difficult thing to manage. You don’t know what the levels are going to be when you’re estimating them and if you’re not careful you may just go over that cliff by accident. It’s a terrible law that should be reformed so effective tax planning can take place
Isn't it amazing that when IRA's, 401k's, 403b's, etc. were first formulated in the 1980's, no mention of their "downsides" were ever mentioned? At 76, I knew then that they were just a way for companies to eliminate their pension plans & put the onus of providing a comfortable retirement on the backs of the individual! Americans 'fell for it' & are now paying the price!
we didn't 'fall for it' we were dragged into it with little to no other options ... when reagan changed the civil service retirement to social security & 401k it set the stage ...
@@direwolf6234Jimmy Carter was President when the 401(k) was created by Congress. And why shouldn’t civil servants have to be under SS like the rest of us?
Really? I guess you didn’t use the benefit of Corp match and tax deferral. Compound investment gains are drivers of accumulation. Downside? Without these plans taxes would eliminate compounding. saving money?, for which which many have. NO discipline We’d be social security dependent.
Paying the price? I am one of the few that retired with a pension, but my 401k, which I chose to fund heavily, is far, far more valuable than my pension, particularly after 9 years of retirement and Bidenflation. Most pensions have no COLA so my pension is already much less valuable now than it was 9 years ago when I retired. My 401k is still growing. Pensions are great for those who lack the knowledge and discipline to plan for their own retirement, but for those of us willing to do a little work on our own, the 401k is FAR more valuable.
They work great if you just make regular contributions and don't fret about the ups and downs of the market. Plus many employers will match dollar for dollar up to 5-10% of your salary. If you're smart, you can build generational wealth.
Congratulations to everyone who find themselves in the situation that they don’t want/need to take the RMD! It’s a wonderful position to be in. RMD‘s were brought to my attention by my CPA when I was 68 years old. I didn’t think my wife and I would need to take any RMD’s. We converted all of our tax deferred assets to Roth’s at age 68 and 66. When we each turned 70, RMD was simply a non-issue. The first big upside is that now the money earns money totally tax free! The second big upside is that we still have the money that we can use if we need/want it or if not, it becomes part of our Childrens inherence. So far, so good. A WIN/WIN!😎
I wish I would have done that with my (small) IRA before I hit Medicare age - the RMD is forced MAGI. She calls her friend IRMAA to find me and smack me around. My personal philosophy is to give up $20k of income to avoid $2k of IRMAA penalty, on principle - it just seems morally wrong to be forced to pay higher health insurance premiums because I saved in an IRA or 401k (before IRMAA was ever a gleam in a slimy bureaucrats squinty eyes). Fed and state tax on withdrawals - fair enough, that was the deal when I paid into the deferred accounts. But the sneaky backdoor IRMAA, started after I retired in 2005, is unfair to someone who contributed to IRA long ago. The law should exclude deferred withdrawals from the MAGI total that triggers IRMAA. Tax - yes. IRMAA penalty - no.
I have done a few IRA-to-Roth Conversions - not a bad deal, get to control the amount - but it DOES NOT replace the RMD for the current year. RMD must be withdrawn first, then convert-to-Roth. Must pay taxes, which was always known - IRA is a tax-deferred savings. But at least the conversion reduces future RMDs. More emphasis is needed on the 5-YEAR RULE. Every time you make a conversion, that amount is locked in the Roth for 5 years (for tax- and penalty-free withdrawal.) That means if you must withdraw it, you pay tax (FOR THE SECOND TIME) plus a penalty. Also, all the earnings in the Roth are unavailable for 5 years after the latest conversion, because the IRS regulations determine priority of withdrawals - first out comes your contributions from earnings (already taxed and available anytime tax free), then any CONVERTED-from-IRA amounts FIFO (hope they were there for 5 years), then lastly the earnings in Roth IRA are withdrawn. You do not get to choose precedence of withdrawals. So w/d in excess of contributions could trigger tax-and-penalty on fresh conversions as they come out. Beware. If you might need the funds tax-free, conversion plus all Roth earnings can be locked in for five years. Tricky.
Taking a larger than needed RMD can look like a terrible (even unfair?) tax hit, but it seems we should also factor in all of the benefits we gained over many years with taxes deferred. We could have paid it up front, and then annually on the gains, but we chose not to because it was better to delay the taxes. Not saying we shouldn’t optimize our current position, but some of the money in my tax deferred account is really just a loan from the government, and loans come due.
@@filly3594 sorry it didn’t work for you. I can see if you’re in a low tax bracket while you’re working it may not make sense to defer taxes. I am very satisfied with how it worked in my case.
Thank you for mentioning QCDs - this is what I use to avoid IRMAA when possible. Avoid federal income tax, avoid state income tax (mine is based on federal AGI), avoid IRMAA. And satisfy the RMD while reducing future RMDs. I don't need the income and IRA is a small part of my savings. It is a satisfying feeling to give it to a (hopefully) worthwhile non-profit instead of fed and state gummint. At least there is some control of where I send it, versus the legislatures' checkbooks. And starting in 2024, the QCD limit per person is indexed to inflation ($105k for tax year 2024.)
My sister gave most of her RMD's directly to charity to avoid taxes on the RMD's. My wife and i give our post tax RMD's to various family 529 programs.
The implication is that an RMD in excess of one’s needs is a problem. The only problem you have is how to enjoy your good fortune. Charity, your kids, reinvestment, splurge. PSA - this is not a problem.
I’m 71 and wish that I had opened a Roth 5 years ago. If I open it this year I will need to wait 5 more years before withdrawing from the Roth to avoid taxation on the withdrawals. Having to take an $80K RMD next year and more each year thereafter is a major concern as we aren’t spenders and don’t need that much income. It will also cause my SS benefits (85%) to be taxable whereas I paid zero taxes last year.
My tax advisor, who is my age, told me to spend it. He is right. (Of course you could save it to invest, or put that money into a new IRA ... or you could spend it.)
@@allanc9472 I had a friend whose father earmarked a significant chunk of cash in his will with the express directive that it be used for family vacations. He was afraid that after his death, his children and grandchildren would drift apart. They went on cruises, safaris, you name it. That’s the kind of reaching from the grave I can get behind!
Another way to invest the excess RMD is to invest in I Bonds. It's in effect a de facto IRA on the interest accruing as you do not have to pay taxes on the interest until redemption.
Next year I will turn 70. Thinking about giving a distribution to my church for my offerings that year then take what I was giving out of my income and putting it into my brokerage account to reinvest. In a sense I will be putting money into my taxable account with out paying income tax on it. Have been doing Roth conversions for the last 4 years. Doing some of those may or may not make sense after I turn 72 yrs old.
Might be a good strategy and one I'll look at as I get closer. We have been making ROTH conversions for over 7 years and another 7 to go, but still won't get the IRAs converted. Market has done so well the last few years the account gains outpace the conversions so we will still have some tax bombs to diffuse at 72 and also decide if it makes sense to keep converting after 72. Trying to avoud being permanently pushed up a tax bracket when those RMDs hit. Good luck with your plan.
If you don't like those charities, find different ones. If you have enough retirement savings to care about this video and you don't like any charities, I'm sorry for you.
There are some excellent organizations which report on worthy/unworthy Charities! I found out one of the charities I'd been supporting for years was actually supporting awful liberal causes. If you are Catholic, check out Leponto. He does a great job.
When Roth IRA's ;1997; became available we had $300k in traditional IRA's. Spent hours, this is pre-internet, on the phone with my accountant and the IRS to tell me my cost of converting the traditional IRA's to Roth. No one had guidance in first couple of years, so I left $'s in these accounts. I did , from that point on use Roth's. Really wish there had been tax info in first couple of years! We've been converting for three years and will continue for at least another five.
thanks for your service; i like your channel; informative; nicely done; easy to understand; i particularly like the chart/graph; your speaking rate is perfect; your given example is short/sweet (not rambling). Thanks again.
Excellent presentation. Currently I am withdrawing RMDs. I have a large position in Tesla in my IRA and the "experts" are forecasting a 10X growth in this stock in the next 5 years. We do not need the money from RMD as our SS & Pensions more than cover our expense. We have one son to whom we (me & my wife) gift $30K/year. Based on all the tax "problems" you articulated would I be better off liquidating my position in Tesla and buy a ETF/Bond fund that has "average" rate of return? Thanks.
At 74 now haven't been doing RMD's very long but I find it extremely annoying. So much so I use my tax software to compute a hypothetical tax bill should I divest the entire balance our accounts. It's a significant amount which gives me pause but if the mood strikes me I just might pull the trigger. Leave it to congress to develop the best strategy for fleecing the retired population. Not against paying taxes but this is bs.
There are only 2 certainties in life - death and taxes. Make hay while the sun shines and have some fun. Live long, and prosper. Remember, shrouds don't have pockets, and hearses don't have luggage racks. You can't take it with you. You come into this world naked and alone, and that's precisely how you leave it.
I have BRKA/B & every year transfer BRKB required to satisfy RMD. Called Berkshire Hathaway office to get instructions on how to to do this. I use Schwab and with these instructions they convert a BRKA to BRKB with no fees for this & have another portfolio that has now about $1 million in this portfolio.
Pass it down 1 or 2 generations. Handing out a Christmas check that lifts them out of the pay check to paycheck existence is a great feeling. Use your discretion to make sure they are responsible enough to make smart decisions with the windfall if the are not don't give them anything.
Just turned 72. I have an ESOP where I am required to withdraw 10% which amount to $146,000. Better to invest it or pay off my $120,000 mortgage on my home?
I will be 72 this year and will get clobbered by RMD taxes for the rest of my (our) life(s).. I never converted, as it was too expensive at the time....
If you are in the top tax bracket your entire life, it doesnt make much difference if you convert to Roth or take the RMDs, you still have to pay the top rate.
Why clobbered? You didn't pay taxes on this when you earned it. Now you probably paying less taxes than you would have when earned it. You should be happy.
Some of your comments assume my investments are actually growing you mentioned 8% so what happens when you have losses of 30% drop in investment income as has been the case the last year.
Or you could just increase your heroin or cocaine purchases. If you are interested, I think there is a guy on the corner at 30th Street and Ames Ave who will accept your contribution, cash only accepted.
I agree with the conversion idea, because we now have lower tax rates than we will have in 2026, so now is a good time to do it. Hopefully the capital gains tax rate doesn't go up/favorable rates go away. That would be bad news.
So at 90 years old you would have to withdraw $125000. What a difficult situation to deal with. But the good news is at 110, you would only have to withdraw $50000.
I think a related question is whether you should spend down your tax-deferred accounts early in your retirement or keep them to cause this RMD headache later when you are in your late 80's or 90's. If you have both tax-deferred savings and also non-tax-deferred savings which do you spend first?
I wish I had withdrawn my tax-deferred savings before Medicare eligibility, to avoid IRMAA. After retiring at 55, it was available for withdrawal, but I rolled over to a personal IRA. For me, soon after retirement (before SS benefits) would have been my lowest effective income tax rates. Rates don't go down in retirement, like the IRA spiels promised years ago.
If you already have your basic income needs met, you should be putting your RMDs in dividend paying stocks. the idea that the current market will provide individual accounts growing at 8% going forward is a little bit antiquated. It may not be if the market drops to 20k and stabilizes there (something I'm sure most people wouldn't want to see). Not being too critical, Someone 100% equity invested may still get that. I don't specialize in tax, and not even investments, or anything of the sort - so folks may have some special estate planning needs, or like my FIL, an extreme aversion to taxes that sometimes leads to unreasonable decisions yielding him less net value in the end (same with my parents). If someone has so much money that taxes are that big of a deal, and they don't need the income, then giving it away shouldn't seem that bad. And some guy trying to sell an annuity to the people getting distributions from their accounts - some guy like that is always right around the corner- there is no window in history where that's been a better option than just buying high dividend equity and paying on an after-tax basis.
I did a QCD to a charity several years ago. Then I did a trial run on on my tax program, taking the same RMD amount out, paying taxes on it and then giving the same amount to a charity & itemizing deductions. It was a wash, charity got same amount and I ended with the same amount after taxes. There was no benefit to me for doing the QCD and my records were simpler with out the QCD. That was my only time to do a QCD. Besides, I'm old school enough to want to put something in the basket when it is passed. I don't like thumping the bottom.
Thanks for your post, I was thinking of doing the same thing, but if there is no tax advantage, I'll keep contributing during the year for charity as it is less stress for me at tax time.
@@c7042 You may need to check your own tax situation - are there state income taxes involved? My state income tax is 5% on a distribution, 0% for QCD. Could make distribution-donation more expensive. Are there other deductions available for itemizing ? Does the distribution trigger IRMAA penalty for Medicare B & D premiums in two years? (QCD does not) And those IRMAAs go up each year - a wash this year could be different next. For me QCD is simpler - one check mailed, one line item with "QCD" note which avoids AGI, and the standard deduction. Paperwork for QCD record is about the same for donation-itemized-deduction. For itemizing or for QCD, record must be kept of donation and acknowlegement. 1099R for income is the same either way, distribution or QCD.
Another option is using it to pass along wealth to the next generations. It could be used to help with education, buying a home/paying property taxes or even reducing income taxes with 401k/IRA contributions although that would sort of recreate the same problems. Worried about irresponsible children? Have them put the gifted money into a taxable account and if they can't show that it's still there next year, no more funds until it's replaced. Perhaps using it to purchase a multi-generational vacation property...of course there's always hookers and beer but to each their own.
I’m always confused on figuring out my adjusted gross income. I never know how much I will make in dividends or capital gain distributions from my investments. Other than that my only income is social security.
I was hoping you'd discuss a 5th situation, which is what I'm considering for my RMD. First off I have no tax deduction for interest on a mortgage since my home was paid off long ago. I have also wanted to make many improvements on my existing home in which I currently have a large amount of equity. So my thinking is why not take out a mortgage loan to make my improvements as my RMD can cover the payments on the mortgage thus at the same time the RMD can produce a tax deduction due to the interest on the mortgage. The improvements on my home will simultaneously increase the value of my real estate and improve my living conditions. This seems like a win win to me, what am I missing??
@john edwards Under current tax code not many can benefit from deduction on mortgage, over the standard deduction. that will change though soon. Me personally I don’t like taxes, but I don’t like loan interest either :)
My plan is to begin using a portion of my RMD at 70 1/2 as a QCD to my church rather than to give out of cash on hand thereby reducing the net tax impact of the total RMD. Would rather the church get it rather than the government. Also you get the benefit of a tax credit on the gift if you file using the standard deduction.
A QCD is not included in income (AGI). It is not taxable, and therefore not deductible from income. It also will not trigger IRMAA. I agree that it is better sent to a non-profit than to revenooers. You can send the entire RMD directly to the church as QCD, limit $105k in 2024 (make sure the QCD check from custodian is paid directly to the church, not to you.)
Currently 27. My current plan is to begin withdrawing as much as I'm willing to pay in income taxes from my 401k at age 60 and investing it in tax efficient dividend etfs in my brokerage account. I intend to primarily live off the tax-free income dividends from my roth IRA since I'm never required to withdraw the principle. I intend to pay healthcare related expenses from my HSA. I still need to learn the most effective methods for passing this wealth to my descendants while avoiding unnecessary taxes and decreasing the likelihood of them falling into the trap of squandering inherited generational wealth.
Your chart is way overly optimistic about how long people are going to live, especially in good health. According to the Centers for Disease Control and Prevention (CDC), the most common age of death is 78 years old.
From birth, yes. But as you age, your life expectancy actually increases. This is because as you age, you outlived those who passed away (who drag down the averages). For instance, as of 2019, the life expectancy of a 65 year old female was 86.
@@SafeguardWealthManagement I spent 27 years working as a clinical bedside RN and I am intimately familiar with the ages and health conditions of people as they age and no your life expectancy does not increase with increasing age, it decreases with every passing year. Women live longer than men, but not by much on average. There are the exceptions, but they are not numerous which is what makes them exceptions. Anyway, most people still die around the age of 78 plus or minus 5 years. What increases life expectancy is with an increasing population we have more people living to old age, but beyond about 85 the percentages (and absolute numbers) fall dramatically.
I’m unaware of how gifts reduce taxes. Gifts are not tax deductible, and the amount of gifts you give people are deducted from your estate’s taxable threshold. For most people estate taxes will never come into play, and, likewise, gift tax will never come into play. But giving people gifts doesn’t “reduce taxes”.
WRONG!!! Go directly to the coin shop and buy a gold maple leaf coin. It's: 1) portable 2) holds its real value 3) can't be traced 4) can't be taxed. Hand a bag of them to your grand kids to pay for their education. You're welcome.
Do I need to be 70 1/2 to do a qualified charitable distribution on an inherited IRA? Under the secure act I’m forced to withdraw the funds before age 70 1/2.
Thanks for all the great content! Can you advise how much would be an ideal amount to leave it a tax deferred account? I am in my late fifties with most of my money in tax deferred accounts and starting to convert from tax deferred accounts to Roth accounts. Can you advise how much to leave in tax deferred accounts to maximize tax savings? What should I focus on, social security limits, Medicare part B limits, or simply the tax bracket. I want to leave enough in my tax account to take advantage of the lower tax rates but not too much that I pay a higher tax now missing out on the lower rate in the future. Any advise you can offer would be greatly appreciated!
You're at a good age to begin Roth conversions. Right now you'll only have to focus on tax bracket. Doing it before Medicare will avoid the IRMMA premium mentioned early in this video. Also, you will pay less taxes while the Trump tax cuts are in effect. (I think rates go back up in 2026.) Safeguard Wealth Management has a lot of great advice about Roth conversions before RMDs hit. Wish I learned all this a few years ago! If you make charitable contributions, I'd leave enough in an IRA so the RMD is roughly equal to your contribution amount as a QCD. (Note: you can begin making QCD contributions from an IRA at age 70-1/2.)
@@fredtd1 Yes, and the RMD must be withdrawn first. "Once you meet the minimum amount, you're free to convert the rest of your account (in whole or in part) into a Roth." " ...the IRS specifically prohibits you from converting any required distributions into a Roth IRA."
I am now 75 and had an RMD of 52,000 which did a QVC of the entire amount to charity. I like the 529 donation idea also. Sooner or later I will run into the 100,000 cap on donations. Is their a certain point where my IRA gets reduced enough by RMD payments that this also reduces the amount I owe in future years?😂
Good news, QCD limit per person is indexed to inflation now - $105k in 2024. Maybe the increase in cap will stay ahead of your RMD while you burn it down. Or just start donating the limit now, to reduce the balance and future RMD.
@@john_nip_nop I do contribute QCD the full amount of my RMD. So far the market has produced returns in excess so my IRA still increases. There is a good chance that the market might tank this year. Either way I will never get the benefit of my IRA.
Maximum IRMAA in 2024 for B & D is $6,156 per year and climbing. Non-trivial for most people, especially if they have been frugal for most of their life. A $6k+ penalty because you saved for retirement. I would rather lose $20k on investments than pay a $6k penalty for the same health benefits as everyone else. It is a slimy way to impose a progressive tax. It is the principle of the thing. IRA enacted 1974 - IRMAA enacted 2003. All IRA-401k-TSP existing should have been grandfathered in 2003, so distributions from them are not included in MAGI for IRMAA calculation. It is simple fairness - changing the rules after the fact.
The problem is despite donating thousands a year, with the current tax codes, u still ended up taking a standard deduction coz the donations r insufficient (not worth enough) to itemize.
Not a worry as I'll be dead b4 my money runs out . Should I out last my money I'll only need diapers and baby food to survive ok someone's to rotate me twice a day when changing diapers
I often use my RMDs for gifting within the family. I feel it is important to help when needed and outright gift to share small portions of their inheritance when it is needed and will make a difference rather than years later when it won't mean nearly as much or have as much impact on their lives. Larry, Central Valley, Ca.
I use a portion of my RMD to contribute to the grandchildren’s 529, reducing my state income by the amount of the contribution. Works for me.
What state are you able to deduct 529 contributions?
@@steveharmon9000 I’m thinking all. If you use that state’s 529.
The IRMMA consideration is a difficult thing to manage. You don’t know what the levels are going to be when you’re estimating them and if you’re not careful you may just go over that cliff by accident. It’s a terrible law that should be reformed so effective tax planning can take place
If you do your own tax returns, then IRMMA is not difficult to manage.
@ the difficulty is trying to convert an amount from my IRÁ as to not exceed an IRMMA level, that requires a crystal ball.
Isn't it amazing that when IRA's, 401k's, 403b's, etc. were first formulated in the 1980's, no
mention of their "downsides" were ever mentioned? At 76, I knew then that they were just a
way for companies to eliminate their pension plans & put the onus of providing a comfortable
retirement on the backs of the individual! Americans 'fell for it' & are now paying the price!
we didn't 'fall for it' we were dragged into it with little to no other options ... when reagan changed the civil service retirement to social security & 401k it set the stage ...
@@direwolf6234Jimmy Carter was President when the 401(k) was created by Congress. And why shouldn’t civil servants have to be under SS like the rest of us?
Really? I guess you didn’t use the benefit of Corp match and tax deferral. Compound investment gains are drivers of accumulation. Downside? Without these plans taxes would eliminate compounding. saving money?, for which which many have. NO discipline We’d be social security dependent.
Paying the price? I am one of the few that retired with a pension, but my 401k, which I chose to fund heavily, is far, far more valuable than my pension, particularly after 9 years of retirement and Bidenflation. Most pensions have no COLA so my pension is already much less valuable now than it was 9 years ago when I retired. My 401k is still growing. Pensions are great for those who lack the knowledge and discipline to plan for their own retirement, but for those of us willing to do a little work on our own, the 401k is FAR more valuable.
They work great if you just make regular contributions and don't fret about the ups and downs of the market. Plus many employers will match dollar for dollar up to 5-10% of your salary. If you're smart, you can build generational wealth.
I like Strategy 4!! However I find it difficult to get out of saver mode🙃🙃
Congratulations to everyone who find themselves in the situation that they don’t want/need to take the RMD! It’s a wonderful position to be in. RMD‘s were brought to my attention by my CPA when I was 68 years old. I didn’t think my wife and I would need to take any RMD’s. We converted all of our tax deferred assets to Roth’s at age 68 and 66. When we each turned 70, RMD was simply a non-issue.
The first big upside is that now the money earns money totally tax free! The second big upside is that we still have the money that we can use if we need/want it or if not, it becomes part of our Childrens inherence. So far, so good. A WIN/WIN!😎
Must have been a painful couple of years tax-wise when those conversions occurred. Ripped off that bandaid, did you!
I wish I would have done that with my (small) IRA before I hit Medicare age - the RMD is forced MAGI. She calls her friend IRMAA to find me and smack me around. My personal philosophy is to give up $20k of income to avoid $2k of IRMAA penalty, on principle - it just seems morally wrong to be forced to pay higher health insurance premiums because I saved in an IRA or 401k (before IRMAA was ever a gleam in a slimy bureaucrats squinty eyes). Fed and state tax on withdrawals - fair enough, that was the deal when I paid into the deferred accounts. But the sneaky backdoor IRMAA, started after I retired in 2005, is unfair to someone who contributed to IRA long ago. The law should exclude deferred withdrawals from the MAGI total that triggers IRMAA. Tax - yes. IRMAA penalty - no.
I have done a few IRA-to-Roth Conversions - not a bad deal, get to control the amount - but it DOES NOT replace the RMD for the current year. RMD must be withdrawn first, then convert-to-Roth. Must pay taxes, which was always known - IRA is a tax-deferred savings. But at least the conversion reduces future RMDs. More emphasis is needed on the 5-YEAR RULE. Every time you make a conversion, that amount is locked in the Roth for 5 years (for tax- and penalty-free withdrawal.) That means if you must withdraw it, you pay tax (FOR THE SECOND TIME) plus a penalty. Also, all the earnings in the Roth are unavailable for 5 years after the latest conversion, because the IRS regulations determine priority of withdrawals - first out comes your contributions from earnings (already taxed and available anytime tax free), then any CONVERTED-from-IRA amounts FIFO (hope they were there for 5 years), then lastly the earnings in Roth IRA are withdrawn. You do not get to choose precedence of withdrawals. So w/d in excess of contributions could trigger tax-and-penalty on fresh conversions as they come out. Beware.
If you might need the funds tax-free, conversion plus all Roth earnings can be locked in for five years. Tricky.
Taking a larger than needed RMD can look like a terrible (even unfair?) tax hit, but it seems we should also factor in all of the benefits we gained over many years with taxes deferred. We could have paid it up front, and then annually on the gains, but we chose not to because it was better to delay the taxes. Not saying we shouldn’t optimize our current position, but some of the money in my tax deferred account is really just a loan from the government, and loans come due.
@@filly3594 sorry it didn’t work for you. I can see if you’re in a low tax bracket while you’re working it may not make sense to defer taxes. I am very satisfied with how it worked in my case.
Thank you for mentioning QCDs - this is what I use to avoid IRMAA when possible. Avoid federal income tax, avoid state income tax (mine is based on federal AGI), avoid IRMAA. And satisfy the RMD while reducing future RMDs. I don't need the income and IRA is a small part of my savings. It is a satisfying feeling to give it to a (hopefully) worthwhile non-profit instead of fed and state gummint. At least there is some control of where I send it, versus the legislatures' checkbooks. And starting in 2024, the QCD limit per person is indexed to inflation ($105k for tax year 2024.)
My sister gave most of her RMD's directly to charity to avoid taxes on the RMD's. My wife and i give our post tax RMD's to various family 529 programs.
This is my plan as well. Win/win.
The implication is that an RMD in excess of one’s needs is a problem. The only problem you have is how to enjoy your good fortune. Charity, your kids, reinvestment, splurge. PSA - this is not a problem.
I’m 71 and wish that I had opened a Roth 5 years ago. If I open it this year I will need to wait 5 more years before withdrawing from the Roth to avoid taxation on the withdrawals. Having to take an $80K RMD next year and more each year thereafter is a major concern as we aren’t spenders and don’t need that much income. It will also cause my SS benefits (85%) to be taxable whereas I paid zero taxes last year.
It's hard for me to feel the least bit sorry for your predicament.
My tax advisor, who is my age, told me to spend it. He is right. (Of course you could save it to invest, or put that money into a new IRA ... or you could spend it.)
I loved the "family vacation" strategy, passing along more than just money!
Good point.
And you earned hard for your money, why don't you enjoy it along with the family instead of just passing it on. :)
@@allanc9472 I had a friend whose father earmarked a significant chunk of cash in his will with the express directive that it be used for family vacations. He was afraid that after his death, his children and grandchildren would drift apart. They went on cruises, safaris, you name it. That’s the kind of reaching from the grave I can get behind!
Another way to invest the excess RMD is to invest in I Bonds. It's in effect a de facto IRA on the interest accruing as you do not have to pay taxes on the interest until redemption.
And no state or local tax when cashed!
Next year I will turn 70. Thinking about giving a distribution to my church for my offerings that year then take what I was giving out of my income and putting it into my brokerage account to reinvest. In a sense I will be putting money into my taxable account with out paying income tax on it. Have been doing Roth conversions for the last 4 years. Doing some of those may or may not make sense after I turn 72 yrs old.
Might be a good strategy and one I'll look at as I get closer. We have been making ROTH conversions for over 7 years and another 7 to go, but still won't get the IRAs converted. Market has done so well the last few years the account gains outpace the conversions so we will still have some tax bombs to diffuse at 72 and also decide if it makes sense to keep converting after 72. Trying to avoud being permanently pushed up a tax bracket when those RMDs hit. Good luck with your plan.
I’ve been thinking of doing the same thing!
I would never give my RMD to a charity. Especially United Way, Red Cross or Salvation Army.
If you don't like those charities, find different ones. If you have enough retirement savings to care about this video and you don't like any charities, I'm sorry for you.
There are some excellent organizations which report on worthy/unworthy Charities! I found out one of the charities I'd been supporting for years was actually supporting awful liberal causes. If you are Catholic, check out Leponto. He does a great job.
Give it to the government. After all they are so good with our money!
@@efremmallach6501 yes, there are local charities that do great work.
@@jay-in-az Nah. I would give it to my nieces and nephews.
Excellent content and presentation!
When Roth IRA's ;1997; became available we had $300k in traditional IRA's. Spent hours, this is pre-internet, on the phone with my accountant and the IRS to tell me my cost of converting the traditional IRA's to Roth. No one had guidance in first couple of years, so I left $'s in these accounts. I did , from that point on use Roth's. Really wish there had been tax info in first couple of years! We've been converting for three years and will continue for at least another five.
thanks for your service; i like your channel; informative; nicely done; easy to understand; i particularly like the chart/graph; your speaking rate is perfect; your given example is short/sweet (not rambling). Thanks again.
Excellent presentation.
Currently I am withdrawing RMDs. I have a large position in Tesla in my IRA and the "experts" are forecasting a 10X growth in this stock in the next 5 years. We do not need the money from RMD as our SS & Pensions more than cover our expense. We have one son to whom we (me & my wife) gift $30K/year.
Based on all the tax "problems" you articulated would I be better off liquidating my position in Tesla and buy a ETF/Bond fund that has "average" rate of return?
Thanks.
At 74 now haven't been doing RMD's very long but I find it extremely annoying. So much so I use my tax software to compute a hypothetical tax bill should I divest the entire balance our accounts. It's a significant amount which gives me pause but if the mood strikes me I just might pull the trigger. Leave it to congress to develop the best strategy for fleecing the retired population.
Not against paying taxes but this is bs.
There are only 2 certainties in life - death and taxes. Make hay while the sun shines and have some fun. Live long, and prosper. Remember, shrouds don't have pockets, and hearses don't have luggage racks. You can't take it with you. You come into this world naked and alone, and that's precisely how you leave it.
I have BRKA/B & every year transfer BRKB required to satisfy RMD. Called Berkshire Hathaway office to get instructions on how to to do this. I use Schwab and with these instructions they convert a BRKA to BRKB with no fees for this & have another portfolio that has now about $1 million in this portfolio.
I am pretty savvy at planning but that tax torpedo is still tough for me to understand.
Could you make a video on giving gifts as an strategy for an excess RMD problem? Thank you.
Pass it down 1 or 2 generations. Handing out a Christmas check that lifts them out of the pay check to paycheck existence is a great feeling. Use your discretion to make sure they are responsible enough to make smart decisions with the windfall if the are not don't give them anything.
Just turned 72. I have an ESOP where I am required to withdraw 10% which amount to $146,000. Better to invest it or pay off my $120,000 mortgage on my home?
I will be 72 this year and will get clobbered by RMD taxes for the rest of my (our) life(s).. I never converted, as it was too expensive at the time....
@@_-Karl-_ i see your replies; i like your mentality because i feel the same way.
Well, enjoy every penny.
If you are in the top tax bracket your entire life, it doesnt make much difference if you convert to Roth or take the RMDs, you still have to pay the top rate.
Why clobbered? You didn't pay taxes on this when you earned it. Now you probably paying less taxes than you would have when earned it. You should be happy.
Some of your comments assume my investments are actually growing you mentioned 8% so what happens when you have losses of 30% drop in investment income as has been the case the last year.
At these higher income levels I recommend you consider larger charitable giving to offset RMD and ROTH conversion costs
Or you could just increase your heroin or cocaine purchases. If you are interested, I think there is a guy on the corner at 30th Street and Ames Ave who will accept your contribution, cash only accepted.
I like 3 if you can find a buy and hold investment, like a tax efficient ETF or really good stocks.
If you don't need it put it in a cd.
I agree with the conversion idea, because we now have lower tax rates than we will have in 2026, so now is a good time to do it. Hopefully the capital gains tax rate doesn't go up/favorable rates go away. That would be bad news.
@@_-Karl-_ I agree completely. Either we demand less services from the government and cost cuts or we have to pay more.
So at 90 years old you would have to withdraw $125000. What a difficult situation to deal with. But the good news is at 110, you would only have to withdraw $50000.
You have excess funds from your R.M.D. pay the tax and reinvest the balance, it is that simple.
I think a related question is whether you should spend down your tax-deferred accounts early in your retirement or keep them to cause this RMD headache later when you are in your late 80's or 90's. If you have both tax-deferred savings and also non-tax-deferred savings which do you spend first?
I wish I had withdrawn my tax-deferred savings before Medicare eligibility, to avoid IRMAA. After retiring at 55, it was available for withdrawal, but I rolled over to a personal IRA. For me, soon after retirement (before SS benefits) would have been my lowest effective income tax rates. Rates don't go down in retirement, like the IRA spiels promised years ago.
If you already have your basic income needs met, you should be putting your RMDs in dividend paying stocks.
the idea that the current market will provide individual accounts growing at 8% going forward is a little bit antiquated. It may not be if the market drops to 20k and stabilizes there (something I'm sure most people wouldn't want to see).
Not being too critical, Someone 100% equity invested may still get that.
I don't specialize in tax, and not even investments, or anything of the sort - so folks may have some special estate planning needs, or like my FIL, an extreme aversion to taxes that sometimes leads to unreasonable decisions yielding him less net value in the end (same with my parents).
If someone has so much money that taxes are that big of a deal, and they don't need the income, then giving it away shouldn't seem that bad.
And some guy trying to sell an annuity to the people getting distributions from their accounts - some guy like that is always right around the corner- there is no window in history where that's been a better option than just buying high dividend equity and paying on an after-tax basis.
Yeah, given it's very likely 60% or less in stocks.
I did a QCD to a charity several years ago. Then I did a trial run on on my tax program, taking the same RMD amount out, paying taxes on it and then giving the same amount to a charity & itemizing deductions. It was a wash, charity got same amount and I ended with the same amount after taxes. There was no benefit to me for doing the QCD and my records were simpler with out the QCD. That was my only time to do a QCD.
Besides, I'm old school enough to want to put something in the basket when it is passed. I don't like thumping the bottom.
Thanks for your post, I was thinking of doing the same thing, but if there is no tax advantage, I'll keep contributing during the year for charity as it is less stress for me at tax time.
@@c7042 You may need to check your own tax situation - are there state income taxes involved? My state income tax is 5% on a distribution, 0% for QCD. Could make distribution-donation more expensive. Are there other deductions available for itemizing ? Does the distribution trigger IRMAA penalty for Medicare B & D premiums in two years? (QCD does not) And those IRMAAs go up each year - a wash this year could be different next. For me QCD is simpler - one check mailed, one line item with "QCD" note which avoids AGI, and the standard deduction. Paperwork for QCD record is about the same for donation-itemized-deduction. For itemizing or for QCD, record must be kept of donation and acknowlegement. 1099R for income is the same either way, distribution or QCD.
The advantage is in lowering your adjusted gross income, which is used to determine Medicare premiums and other things.
Excellent presentation and suggestions!
Sadly, there is NEVER any advice for those in their late 70's or later especially since a spouse died.
My ex employer reimburses any amount of IRMA for me and spouse. Sweet until things change
Excellent explanations.
Another option is using it to pass along wealth to the next generations. It could be used to help with education, buying a home/paying property taxes or even reducing income taxes with 401k/IRA contributions although that would sort of recreate the same problems. Worried about irresponsible children? Have them put the gifted money into a taxable account and if they can't show that it's still there next year, no more funds until it's replaced. Perhaps using it to purchase a multi-generational vacation property...of course there's always hookers and beer but to each their own.
Much of what you discuss is new to viewers and takes time to assimilate. Please slow down a bit ..
I’m always confused on figuring out my adjusted gross income. I never know how much I will make in dividends or capital gain distributions from my investments. Other than that my only income is social security.
I was hoping you'd discuss a 5th situation, which is what I'm considering for my RMD. First off I have no tax deduction for interest on a mortgage since my home was paid off long ago. I have also wanted to make many improvements on my existing home in which I currently have a large amount of equity. So my thinking is why not take out a mortgage loan to make my improvements as my RMD can cover the payments on the mortgage thus at the same time the RMD can produce a tax deduction due to the interest on the mortgage. The improvements on my home will simultaneously increase the value of my real estate and improve my living conditions. This seems like a win win to me, what am I missing??
@john edwards Under current tax code not many can benefit from deduction on mortgage, over the standard deduction. that will change though soon.
Me personally I don’t like taxes, but I don’t like loan interest either :)
My plan is to begin using a portion of my RMD at 70 1/2 as a QCD to my church rather than to give out of cash on hand thereby reducing the net tax impact of the total RMD. Would rather the church get it rather than the government. Also you get the benefit of a tax credit on the gift if you file using the standard deduction.
A QCD is not included in income (AGI). It is not taxable, and therefore not deductible from income. It also will not trigger IRMAA. I agree that it is better sent to a non-profit than to revenooers. You can send the entire RMD directly to the church as QCD, limit $105k in 2024 (make sure the QCD check from custodian is paid directly to the church, not to you.)
Reinvest in stocks you can control and count yourself lucky.
The stepwell in Amer, Rajasthan? Clever.
Excellent info and advice.😀
THank you for the video. But the earning is less than 1%.
My grandchildren's 529 accounts get the large portion of.the extra income.
Currently 27. My current plan is to begin withdrawing as much as I'm willing to pay in income taxes from my 401k at age 60 and investing it in tax efficient dividend etfs in my brokerage account. I intend to primarily live off the tax-free income dividends from my roth IRA since I'm never required to withdraw the principle. I intend to pay healthcare related expenses from my HSA. I still need to learn the most effective methods for passing this wealth to my descendants while avoiding unnecessary taxes and decreasing the likelihood of them falling into the trap of squandering inherited generational wealth.
Your chart is way overly optimistic about how long people are going to live, especially in good health. According to the Centers for Disease Control and Prevention (CDC), the most common age of death is 78 years old.
From birth, yes. But as you age, your life expectancy actually increases. This is because as you age, you outlived those who passed away (who drag down the averages). For instance, as of 2019, the life expectancy of a 65 year old female was 86.
@@SafeguardWealthManagement I spent 27 years working as a clinical bedside RN and I am intimately familiar with the ages and health conditions of people as they age and no your life expectancy does not increase with increasing age, it decreases with every passing year. Women live longer than men, but not by much on average. There are the exceptions, but they are not numerous which is what makes them exceptions. Anyway, most people still die around the age of 78 plus or minus 5 years. What increases life expectancy is with an increasing population we have more people living to old age, but beyond about 85 the percentages (and absolute numbers) fall dramatically.
Could you make a video on life time gift tax to reduce taxes.
I’m unaware of how gifts reduce taxes. Gifts are not tax deductible, and the amount of gifts you give people are deducted from your estate’s taxable threshold. For most people estate taxes will never come into play, and, likewise, gift tax will never come into play. But giving people gifts doesn’t “reduce taxes”.
@@dorothyyoung8231 0
just put the money in your open account because you never know
WRONG!!! Go directly to the coin shop and buy a gold maple leaf coin. It's: 1) portable 2) holds its real value 3) can't be traced 4) can't be taxed. Hand a bag of them to your grand kids to pay for their education. You're welcome.
I wish. Gold can be very volatile, especially at today’s historically high prices.
Can’t see video. Audio is fine
Do I need to be 70 1/2 to do a qualified charitable distribution on an inherited IRA? Under the secure act I’m forced to withdraw the funds before age 70 1/2.
Yes, you need to be 70.5
Excellent! Thanks.
Thanks for all the great content! Can you advise how much would be an ideal amount to leave it a tax deferred account? I am in my late fifties with most of my money in tax deferred accounts and starting to convert from tax deferred accounts to Roth accounts. Can you advise how much to leave in tax deferred accounts to maximize tax savings? What should I focus on, social security limits, Medicare part B limits, or simply the tax bracket. I want to leave enough in my tax account to take advantage of the lower tax rates but not too much that I pay a higher tax now missing out on the lower rate in the future. Any advise you can offer would be greatly appreciated!
You're at a good age to begin Roth conversions. Right now you'll only have to focus on tax bracket. Doing it before Medicare will avoid the IRMMA premium mentioned early in this video. Also, you will pay less taxes while the Trump tax cuts are in effect. (I think rates go back up in 2026.) Safeguard Wealth Management has a lot of great advice about Roth conversions before RMDs hit. Wish I learned all this a few years ago! If you make charitable contributions, I'd leave enough in an IRA so the RMD is roughly equal to your contribution amount as a QCD. (Note: you can begin making QCD contributions from an IRA at age 70-1/2.)
@@_-Karl-_ Thanks
Very helpful. Thanks
Reinvest in a non retirement fund. Taxes are taken out. Make donations to Church favorite Charities. Jeanne
Can I take some of our RMD‘s from an IRA and move it to a Roth IRA?
No. A Roth conversion must be done separately from an RMD.
@@fredtd1 Yes, and the RMD must be withdrawn first. "Once you meet the minimum amount, you're free to convert the rest of your account (in whole or in part) into a Roth." " ...the IRS specifically prohibits you from converting any required distributions into a Roth IRA."
I am now 75 and had an RMD of 52,000 which did a QVC of the entire amount to charity. I like the 529 donation idea also. Sooner or later I will run into the 100,000 cap on donations. Is their a certain point where my IRA gets reduced enough by RMD payments that this also reduces the amount I owe in future years?😂
Good news, QCD limit per person is indexed to inflation now - $105k in 2024. Maybe the increase in cap will stay ahead of your RMD while you burn it down. Or just start donating the limit now, to reduce the balance and future RMD.
@@john_nip_nop I do contribute QCD the full amount of my RMD. So far the market has produced returns in excess so my IRA still increases. There is a good chance that the market might tank this year. Either way I will never get the benefit of my IRA.
Do people talk this way when they get a big raise at work? Well its too big, just give it away.
It is silly to use IRMA as a major reason for anything. You talk about 2 or 3000 per yr.
Interesting. Out of curiosity, what is your dollar threshold where planning for something is no longer silly?
Maximum IRMAA in 2024 for B & D is $6,156 per year and climbing. Non-trivial for most people, especially if they have been frugal for most of their life. A $6k+ penalty because you saved for retirement. I would rather lose $20k on investments than pay a $6k penalty for the same health benefits as everyone else. It is a slimy way to impose a progressive tax. It is the principle of the thing. IRA enacted 1974 - IRMAA enacted 2003. All IRA-401k-TSP existing should have been grandfathered in 2003, so distributions from them are not included in MAGI for IRMAA calculation. It is simple fairness - changing the rules after the fact.
Why you are not discussing gifts to reduce taxes.
You work and save for 35yrs , then you have a nice nest egg, only to give some to charities??? I don't think so.
The problem is despite donating thousands a year, with the current tax codes, u still ended up taking a standard deduction coz the donations r insufficient (not worth enough) to itemize.
What a generous heart you have.
@@JT_70they can save for 40 years for their own money.
I thank God there are so many who don’t think the way you do.
Why not?
No such thing as an excess RMD.
If you have grandchildren you have an automatic money sink ,their college education, to suck up your RMD.
This is about how to die rich.
tax exempt bonds !😢
You can give it to me.
No such thing!
You talk way too fast….way. All this crap is really confusing.
Not a worry as I'll be dead b4 my money runs out . Should I out last my money I'll only need diapers and baby food to survive ok someone's to rotate me twice a day when changing diapers
how optimistic - you think medicaid will pay someone to change you twice a day.
@@john_nip_nopThat cost to keep you changed and fed is gonna go up dramatically in the future if it's like everything else.😢😢😢