I’m not complaining. I’m describing and explaining a situation that I’m in that relates to the original question, which was about withdrawing money in retirement.
I posted that one thing people don’t consider is that if they leave everything in untaxed accounts, then the beneficiaries have a tax headache. They are paying taxes because you didn’t.
I was giving examples, and reflecting on my own experience. That is not complaining. That is not me being ungrateful.
My point, which you missed, is that ONE thing to consider in retirement money planning is how your decisions affect your beneficiaries. It depends on age/situation, but I’m finding that as a benficiary of accounts that owe taxes, I have to thread a fine needle to do the withdrawals so my own situation doesn’t get messed up. Plus, I have to research the right way to file fed/state taxes (I don’t have an accountant).
The money I inherited in already-taxed accounts (Roth or non-retirement accounts) causes me no problems.
So I’m just giving a description of the effect of these decisions on beneficiaries.
Going through this is changing my own planning – I question the conventional wisdom of keeping so much of my retirement money untaxed (IRA etc), both for my beneficiaries and for my own tax/income situation in 10+ years. It’s a good argument for Roth IRAs.
I was just making a point about ONE thing to consider about retirement money, but you see it as a complaint or my being ungrateful.
I never said anything about turning money down. You did. You made it up.
I am not complaining. I am describing and explaining the situation I find myself in, to address the original question about withdrawing money in retirement–just one factor to think about.
I’m also reflecting about it – that it is changing the way I’m doing my own retirement planning.
Instead of thinking or reflecting about it, you just react by being snarky, which helps no one.
Here’s what you wrote in your first post on this thread:
I’m sorry if I offended you, but your words left me with the impression that if you have to pay taxes on given money, you feel put upon by the giver. And you are taking steps to make sure you don’t burden your beneficiaries with the same tax-paying headaches as you were forced to bear.
And the taxes we all pay helps fund our democracy and our way of life.
I don’t regard paying taxes due as anything unfair. And certainly in the end, I still inherited money (not a fortune, but enough that I have to plan). I’m much more fortunate some with a parent leaving behind bills and debts.
But – it has been a headache in the sense that I’ve had to spend a lot of time learning how to properly do the withdrawals and plan the tax bill, both federal and state. Plus, if I’m not careful, I can mess up other situations (more related to state taxes, benefits, etc) if my income goes over certain limits, which will then cost me money unnecessarily. I don’t have an accountant, nor will I hire one to do this one thing.
I would imagine that there have been beneficiaries who have just cashed out inherited IRA money because they didn’t know/learn/think about the tax consequences.
And in the same way, the original owners think only about avoiding taxes themselves, not that their beneficiaries will have to figure them out and pay them. So, to me, it is ONE thing to consider when withdrawing money in retirement – you’re paying taxes on money that you already got a tax break on, and that has gone tax-free for years. But it’s not really tax-free – someone is going to pay the taxes…
I’ve heard older people complaining about having to make their RMD from retirement accounts – they act like they’re losing all of that money! They owe taxes after decades of tax breaks, and the money isn’t lost – they can reinvest it elsewhere.
So maybe the conventional wisdom about keeping everything pre-tax/“tax-free” in traditional IRA/401k accounts ‘forever’ isn’t the best idea? A better approach might be to do Roth conversions over time (which can also be done with 401k and 403b plans), pay the taxes and continue with the tax-free growth, except that this is truly tax-free growth. (at least, until the politicians decide otherwise)
My Mother passed away in Dec of 2019 so I’m not facing the same situation you are but I do understand it. Most of my retirement money is in tradition and some of it is in roth. The only retirement money I will take out and pay taxes on will be when or if I ever get old enough for my own RMD’s. I am not going to convert anything and the people that inherit my money will have a much bigger headache then you. No matter how you look at it it is still a good thing so I hope you figure out a way that works for you. Sooner or later I would expect the Roth’s to be a thing of the past, that will really suck.
We have been retired for 6 years and have had to use RMDs for 3 of those years. We find with our other sources of income (Social Security) that using only RMD as withdrawals so far has worked, but again it has only been 3 years.
When you reach the age when you are forced to take RMDs they are really handy for paying all your FIT for the year… You can stop having monthly FIT withholdings taken out of your other income source funds and have all of the FIT due for the year withheld from a single 401K RMD check cut in December. No monthly withholding, no estimated quarterly FIT payment and no late FIT penalties. The reason that is so is because taxes withheld from it are considered paid throughout the year.
RMDs will increase each year until you are about age 95. Tthen the RMDs will begin to decrease. RMD tables are designed to have the IRA/401k/403b at zero dollars when you reach the end of your life assuming you fit the average life expectancy.
But that is not likely to happen as the RMD is a percent of your IRA and is not 100%, Other factors are the growth of your account and the value of your IRA at the end of the previous year.
I think most of here are the choir Clark is preaching to. The only debt we have is a small mortgage that does not make any sense to pay off since it is at a rate of 2.125% for a 15 year term which we have only 9 years left. My CPA from years ago told me in a time of financial distress that we owed FIT for the prior year and on top of that we should make quarterly payments. I asked him about the withholding tax since was still a wage earner at the time. He told me the same thing. Taxes paid through withholding count as paid throughout the year. I have never made quarterly payments to the IRS. In 2022 we sold some real estate that caused us to owe tax (we underpaid for 2022 but had paid at least what we had the year before so no penalty) and again he gave me quarterly forms to make payments. I told him I would just do it with my RMD through out the year. He gave them to me anyway and said “I prefer you make the quarterly payments because people tend to forget things like that” Really ? I have been at this before he was born.
I’ve had fluctuating earnings since 1975 thru the present, so I’m pretty used to paying estimated taxes. I’ve always done my own taxes and the two or three times I’ve paid for tax accounting services or professional financial advice I found that I always did better on my own. FIT tax penalties for current due taxes are pretty small, to the point of being insignificant compared to the cost of professional tax help.
The non-commissioned CFP’s I’ve interviewed wanted 1% of my net worth just to work up a starter portfolio. And my accounting stuff is pretty basic, every tax-advantaged scheme I’ve ever had pitched to me by a CPA or CFP penciled out iffy at best and a sure loser at worst. I haven’t had any debt of any kind for over 20 years.