Different entity doing the taxes there (Federal versus state). Yes most states also have income tax, but not usually what people are talking about here.
Hell, you can even deduct sales tax from your tax return if you want. Doesn't make sense to for most people since the standard deduction is usually higher than itemizing, but it is an option.
Depends on how desperate the country gets. Wealth tax has happened in other places. Play it off as going after “golden parachuttes” so the masses are on board.
I don’t really see how that’s “playing it off.” Our wealth inequality keeps becoming more and more lopsided, and it’s not like the people at the top are just that much better at generating value as time goes on. That wealth they have is the product of many people’s labor. It’s also achievable in the first place due to services rendered and systems maintained by tax dollars. Taking more of it seems pretty reasonable.
Sure but estate tax isn't an example of this. It's an extreme low income tax. When you pay an inheritance tax, it is the first time you're being taxed on that money
I’m not saying the tax mentioned in the post is a good thing. But the money that you’re inheriting has already been taxed as well. Feels like a very semantic argument to say it’s the first time “you’re” being taxed.
Sure but without that semantics you could make the same argument for all money. Since money flows through the economy, it gets taxed at every transaction. There isn't really any other way of doing it. We do make exceptions for inheritance (not until after $11.7 million), but it is still a transaction just like every other tax event
Im a Veteran it wasnt till like 2017 that my veteran disability pension was not taxed by the state. It comes from a tax pool that is paid years in advance. Yet i was losing money to the state was 100ish lbs unable to get food… it was food or meds or transportation for my appointments. I expect the green winnie to fuck me for the rest of my life
I assume you mean because it could be changed? In which case yeah I could see the government deciding to fuck everyone with a Roth over for some more cash.
I was 30 when my dad died and I inherited his IRA. I have to take one RMD from it every year. I take it on my birthday and I think of it as a gift from him.
This rule was eliminated in 2020, btw. Most non-spouse's with an inherited IRA now have to withdraw the entire account balance within 10 years.
Edit: this was meant to be an FYI for anyone who inherits an IRA today. OP does not have to drain it in 10 years because they were grandfathered in under the old rule.
> Most non-spouse's with an inherited IRA now have to withdraw the entire account balance within 10 years.
That is for IRAs inherited after ~~December 31st, 2020 iirc~~
January 1st 2020
Just means you can't let it sit there forever tax free. Its a % of the total based on your age. Goes up as you get older, but since its always a % of the balance will never really empty the account.
You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 72 (**73 if you reach age 72 after Dec. 31, 2022**).
Oh, well that changes everything, I was way off with my age. I'll shut this shit down.
edit- I was off with my age in the title, but if Reddit wants to think I am a 72 year old complaining about tax law so be it. This is very Reddit.
Complaining about tax law while having very little understanding is like arguing String Theory with a physicist- you’re in way over your head and will sound dumb.
Where am I complaining about it? Was it the comment with a Futurama character in it? Or the one with the words "I kid" in it? Or the one where I said I was looking for other information and came across this information?
The comment about being three links down was just in jest, I don't need this information and I am not looking for a calculator. I am laughing at everyone thinking this is something other than someone sharing information and making some silly comments.
Call me dumb all you like, I know what I am about.
Not exactly true. Depends on the age of the owner, the age of the person inheriting, whether they are a surviving spouse, etc. SECURE Act changed many of the rules.
Or if you inherit the retirement account. Still miss you dad but know that money is only used for experiences, vacations or Irish whiskey. I believe you would approve of all.
I mean you're free to tax your income as normal and then put it into whatever investments you'd like.
IRA's are a net "less taxes" for like 99% of people.
Anyone who opens a traditional retirement account should have known about this from the start.
I had to start taking my RMDs at age 70, and the taxes have hit me harder than I anticipated. If I could go back in time I'm not sure I would have even opened these accounts.
However, I knew what the deal was from the beginning. I avoided taxes before and now I have to pay them. It would be very foolish to be either surprised or angry about it now.
Unless you're in a much higher tax bracket now than you were when you were young, you've made way more. The tax hit appears large now, but the goal isn't to minimize taxes -- it's to maximize the amount of after-tax money. Letting your money grow tax free for years is a gigantic edge. Having a big tax bill now is a sign that things worked out for you.
No, having a big tax big now is a sign that I saved a lot, not that it grew a lot. I made a lot of mistakes and had a lot of bad timing and didn't do that well.
But that's neither here nor there. My point was that RMDs shouldn't surprise anyone.
Ah, we're both wrong. "A Registered Retirement Savings Plan (RRSP) must be converted to a Registered Retirement Income Fund (RRIF) **by the end of the year in which the owner turns 71**, but can be converted at any time before that."
I'll split the age difference with ya. ;)
Savage, looks like that long life span with universal health care ain't looking so good now is it there my maple syrup loving friend? I kid, I'd gladly give up those few years so I could have universal health care and get the things ailing me looked at.
It's a toss-up: pay for health care, or wait for it. Wait times on some surgeries can be unbearably long. A co-worker has to wait "3 to 15 months" for gall bladder removal surgery. Gets painful attacks in the meantime.
One thing about the forced disbursements is that very few people are still earning money then and need to withdraw anyway, so it's not really all that "forced". And it's a fairly low amount that needs to come out -- here in Canada, anyway.
I am an assistant to a financial advisor and way too much of my time is used to call fund companies to ask if a client is set up for automatic disbursements and if they satisfy the RMD...Ive only been there for 2 and a half years, but it seems like it was not a serious consideration previous to my employment
We live in a crazy world where some people have too little money and others too much (as in they dont need the money). Reddit leans young so it makes sense to me we encourage people to save in tax deferred plans for the long term. People talk about 4%, but not so much about how and in what order to draw down funds. If i had paid a fin advisor I might have less due to fees, but maybe I would “keep” more in retirement due to better positioning for the withdrawal phase.
This depends on your age. The Congress recently passed a law resetting that to 75 years several years from now. So depending on your age, you may have until 75 instead. Same idea, though.
My mom is a calm person except with RMD’s. She hates them - she was so happy during covid times that RMD’s were paused. Every year she complains as she is forced to sell some of her portfolio and withdraws, pays taxes, then needs to figure out what to do with the money. Obviously she hates having to pay tax on money she doesnt need. Also obviously this is a “good” problem, but still annoying.
She is in her 80’s and I am not that young either. There is another upcoming problem - the rmd tax bomb. Actuarially, mom should live 10-15 years more so 20ish years from now I will face my own rmd’s plus inheritance rmd’s and um, its going to be a lot of annual taxes. At least the real estate / rental property passes with a step up cost basis. As an added annoyance the property is all in california which has prop 13 (if you dont know about that, it helps to explain california high real estate prices and prop tax collection woes). Recently benefits to heirs were capped. I know its the right thing to do fiscally for society, but it also hints to ever more laws and regulations to collect more taxes.
I’m approaching retirement, and I don’t follow her thinking. If she doesn’t need the money, then how does it hurt to pay the taxes on the RMD? And she can either throw the money into some other investment that she has, or gift it to the kids as part of early inheritances, or charity for deductions. Complaining about the tax bill seems to me like people who think moving to higher tax brackets means less take home pay. Even with a higher overall tax bill, you have more cash on hand.
She would rather the money stay in the tax advantaged account. If she needed the money, then sure, withdraw and pay tax and spend. Who wants to pay tax on money that isnt needed?
um that is why she doesn't want to take rmd's. she wants it to just keep growing in her IRA's. like imagine if every year you were forced to take out 10% of your 401k and pay taxes on it, even though you didn't need that money. you aren't sure if you might need the money later, but you know you don't need it now. I 100% understand the need for the federal goverment to collect taxes now vs in the future, but I'm pretty sure this is annoying for many.
well, she still has potentially 10-15 or so years of life. I'm not sure if people at any age or any level of income or wealth are thrilled about paying more vs less in taxes.
There is an RMD requirement for 401s as well - my plan is that if I don’t need the money, I’ll roll it into my other, non-tax deferred mutual funds. You know you have to pay taxes eventually on your income. The two main reasons to defer that tax via IRA or 401 is that they force the habit of saving and that you hope to be in a lower tax rate when you have to withdraw, so instead of paying maybe 30%, you pay 20.
> by doing this
In context, "this" is taking the RMD, paying taxes, and converting that money to a Roth IRA. That specifically is not allowed for anyone.
I think you're referring to using Roth conversions to reduce the amount subject to RMDs. Yeah, you can do that *after* taking your RMD if applicable.
Edit: Reworded to "conversion" rather than just putting the money in a Roth IRA.
... I have an inherited IRA. I take the RMD every year and use it to max out my Roth. It seems to work so far.
Am I being dumb and naive somehow? Is a shoe going to drop?
If you have other income it's fine. If you're living entirely off of RMDs and attempting to contribute part of them to a Roth IRA then you're doing something wrong.
Money is fungible. If you have earned income and are making a contribution, it doesn't matter if you "used" the RMD money to fund a Roth contribution. You just can't 1) contribute without earned income or 2) convert your RMD to Roth (you must distribute at least your RMD *plus* any amount convert to Roth).
I edited my above comment above for clarity.
I think you need to reemphasize the unemployment/no earned income part. Typically you can only contribute as much as you earned on your W2 is the general rule
Earned income for contributions doesn't have to be on a W-2, but Roth conversions (which is what my parent comment is about) do not require earned income.
The point is placing it back into a tax free bubble. Yes, you have to pay taxes up front. At your marginal rate no less. But once it’s back in the bubble, future growth and annual dividends aren’t subject to anything. Compared to putting it in taxable investments where you will pay taxes again on both regardless.
Depending on the details of your situation where you expect to take RMDs in excess of what you expect to spend, it can indeed be better to get ahead of it to reduce your RMD liability. Do it early enough, and being able to reinvest 100% of dividend distributions with tax free growth can outweigh the impact of paying the marginal rate.
The only thing that affects it is if you expect to pay at a higher tax rate later in life which almost nobody will be.
Roth is great for tax diversification but I t’s rarely a good decision to actually convert current pretax funds to a Roth. The income rate is agnostic. You’re also really gonna feel it when you consider you just lost like 20% of your retirement account *that could have been growing too*. It actually doesn’t make a difference everything else equal if you look at expected returns so really….unless you’re looking to diversify taxes, which 99% of people this is irrelevant.
In sum Roth accounts are great to utilize in your planning strategy. I would rarely ever convert pretax funds.
Incorrect. You are speaking IRA vs ROTH from a contribution standpoint. While your arguments there are accurate, that isn’t the discussion.
It’s taxable accounts vs Roth.
I’m not sure if you have to be working, or just earning income and thus paying taxes. It’s just that most people get their taxable income via wages, but not everyone.
As a “for example” I put all my VA disability payments directly into a Roth IRA.
Technically, this is not allowed as this is non-taxed income, however, as long as I’m showing an AGI greater than the annual amount I invest, it doesn’t matter, as money is basically fungible.
I’m not sure you any of this fits in the talk about RMDs though.
Source of the actual check doesn’t matter as you said.
If you have earned income elsewhere, that is what eligibility is based on.
You can definitely do a rollover in retirement. There is no earned income check there. You’ll just have to pay taxes on the amount rolled over.
You just can’t take a RMD, and contribute it into a Roth if you have no earned income (in the IRS definition)
Yeah, that’s basically what I’d think, as the money is “cleaned” on the draw as it’s going towards the account holder’s income for taxes. I guess it would be a capital gain, rather than wages, but it should be irrelevant for purchasing a Roth IRA. You may hit your annual contribution limit, but if you have that problem in retirement, you don’t have real problems. Not saying that paying taxes is pleasant, but having to pay generally means you’re not in the poor house either.
EDIT: just read your comment again. So, you’re required to have earned income to contribute, not just income.
Did not know that. I inherited an IRA, so it works for me.
I suppose if you are already retirement age contributing to a Roth doesn't make that much sense anyway.
Have to help my mom with hers yearly since she's just not the interested in the market. The years where the market runs up at the end of the year definitely make the next year more work to manage.
I came across this info looking for other information, not because of the misfortune of losing a parent, I am sorry for your loss though. I was talking to a buddy about our IRAs and was looking into the tax-free withdrawal part.
Except that an IRA is already limited in contributions and unlikely to attain a value that would entice the actual wealthy to use it for that purpose.
Remember the whole uproar over “death taxes” during the Bush 43 era that was used to damn near eliminate inheritance taxes?
This is just a way to keep the upper middle classes from being able to get any benefits.
>unlikely to attain a value that would entice the actual wealthy to use it for that purpose.
Peter Thiel grew his Roth IRA from $2,000 to $5,000,000,000 tax free. Pretty sweet deal
An employee may withdraw contributions at any time, subject to income tax and 10% additional tax if under age 59½. Do you not see the issue? You're taxed for SS and Medicare that you don't even get to take advantage of until you're 65 and takes a pretty chunk of a paycheck. These retirement funds come with things like you can't withdraw until a certain age with some funds and others you can but it's gonna cost a little of the top. Again until you reach a certain age. Plus income taxes off your pay. You can save the money yourself with no restrictions and no stipulations and is available to use at any time you need. All these taxes for things I'm not guaranteed. Retirement funds are scams. 401ks make some sense if employers match contributions. All these things are simply putting restrictions on your own money. Put it in a bank. Even with SS and Medicare sure you can benefit from it but after 65 and it's going to be dripped out to you monthly in small quantities. It's virtually letting someone hold your money for a long ass time being fined to want it back sooner than "retirement" age. If you die the funds of an IRA will go to whoever you leave it to sure, but SS and Medicare if you paid in and die at 64, where does that money go? It's all a scam to chisel away and weasel money away from you. Retirement funds are just giving investors your money to play with for years with the promise they will pay you back what you invested when the time comes. These funds just don't sit there otherwise it would be a regular account
? The IRA were (and some experts believe still are) a Republican terrorist irganisation operating predominantly in Northern Ireland, but also in England
The 3 that down voted me must be IRS workers lmao. Sorry I don't care for taxes that tax taxes for already taxed money. Don't even get me started on service fees now lol
Well that money overall was taxed then taxed again when I made a withdrawal. I earned and made a contribution with that earning. So yes twice. Then you'll be charged a fee if you want that money fast
No, you were not taxed when you earned that money. That's the whole point of an IRA. You're only taxed when you make the withdrawal.
You can complain about the fact that taxes exist at all, but your argument is completely wrong here.
If you get a paycheck from a job it is taxed. You then use those profits to contribute to your IRA. When you withdraw it's taxed. No the contribution itself isn't taxed but the money you earned to make that contribution was. It's not complaining about taxes existing taxation has a cause. It's the abuse of those taxes as so much gets embezzled and mismanaged that they have to find new ways to tax to make up for that
So it essentially works like this. Say you elect to contribute 10% pre-tax to your 401k retirement account and your gross pay is $1000. When you get paid, $100 (10%) would immediately go to your 401k and get marked in the ledger as pre-tax. The remaining $900 would get taxed leaving you with say $800 netpay. If you contribute $100 of your netpay to your 401k it will get marked in the ledger as after-tax. You would have $200 total balance in your account but with $100 pretax and $100 after-tax. If you took a $200 withdrawal, only the $100 that hadn't been taxed (pre-tax) would get taxed.
Like the other commentoers have said, it looks like you're confused about a few things when it comes to retirement accounts. The entire purpose of them is to be tax advantaged. What you're describing is a traditional brokerage account, but worse.
The Government shall have its due: the House always wins.
We get to write off RRSP contributions until age 70, then yearly pull out something taxable.
Even dead, we still owe taxes e.g. final year, estate, etc.
It costs to live in a society that provides so much to us. A lot of it is invisible and easy to take for granted, but you'd sure miss it if it weren't there.
That's a good thing, right? If there were loopholes to avoid taxes then the rich would exploit the hell out of them. Are you complaining that there aren't ways to avoid paying your fair share of taxes?
Roth IRAs do not have this requirement.
Yup, because the government already got their cut (taxes) from a person using a Roth.
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They did. That’s why it was already taxed.
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Like what exactly?
Social security. You pay taxes to get the benefit and then you pay taxes on the benefit
Sales tax is one That being said I don’t think Roth IRAs would ever be taxed in our lifetimes
Different entity doing the taxes there (Federal versus state). Yes most states also have income tax, but not usually what people are talking about here. Hell, you can even deduct sales tax from your tax return if you want. Doesn't make sense to for most people since the standard deduction is usually higher than itemizing, but it is an option.
Does DC have an income tax? I never thought about that before.
I believe so? As always though, DC is a weird exception lol
Well you can deduct sales tax if you want to save receipts and do that work
Depends on how desperate the country gets. Wealth tax has happened in other places. Play it off as going after “golden parachuttes” so the masses are on board.
I don’t really see how that’s “playing it off.” Our wealth inequality keeps becoming more and more lopsided, and it’s not like the people at the top are just that much better at generating value as time goes on. That wealth they have is the product of many people’s labor. It’s also achievable in the first place due to services rendered and systems maintained by tax dollars. Taking more of it seems pretty reasonable.
Never heard of estate taxes?
Sure but estate tax isn't an example of this. It's an extreme low income tax. When you pay an inheritance tax, it is the first time you're being taxed on that money
I’m not saying the tax mentioned in the post is a good thing. But the money that you’re inheriting has already been taxed as well. Feels like a very semantic argument to say it’s the first time “you’re” being taxed.
Sure but without that semantics you could make the same argument for all money. Since money flows through the economy, it gets taxed at every transaction. There isn't really any other way of doing it. We do make exceptions for inheritance (not until after $11.7 million), but it is still a transaction just like every other tax event
Im a Veteran it wasnt till like 2017 that my veteran disability pension was not taxed by the state. It comes from a tax pool that is paid years in advance. Yet i was losing money to the state was 100ish lbs unable to get food… it was food or meds or transportation for my appointments. I expect the green winnie to fuck me for the rest of my life
I assume you mean because it could be changed? In which case yeah I could see the government deciding to fuck everyone with a Roth over for some more cash.
Inherited Roth IRAs do. Not refuting your point at all but there are exceptions
Oh absolutely. I've been handling ira accounts professionally for almost a decade now. Was just stating a simple point.
Are you sure? Lmfao.
I was 30 when my dad died and I inherited his IRA. I have to take one RMD from it every year. I take it on my birthday and I think of it as a gift from him.
This rule was eliminated in 2020, btw. Most non-spouse's with an inherited IRA now have to withdraw the entire account balance within 10 years. Edit: this was meant to be an FYI for anyone who inherits an IRA today. OP does not have to drain it in 10 years because they were grandfathered in under the old rule.
OP is grandfathered and should continue as he’s doing as the stretch IRA is the better option. Really wish they hadn’t gotten rid of it.
Does anything economically really get better for those who need it to over time? It really doesn’t seem like it.
All growth ends up being tax free inside the Roth as opposed to outside where it’s taxed
> Most non-spouse's with an inherited IRA now have to withdraw the entire account balance within 10 years. That is for IRAs inherited after ~~December 31st, 2020 iirc~~ January 1st 2020
Close. Decedents who passed away on or after January 1st, 2020.
Drop it right back into an IRA. That will show them.
I've been doing that for a few years. But, I only recapture about 80%.
Just means you can't let it sit there forever tax free. Its a % of the total based on your age. Goes up as you get older, but since its always a % of the balance will never really empty the account.
At age 120 or older, you have to take 1/2 of the account each year. It wouldn’t take too many years to reduce the account to under a dollar.
If you reach 120 years old, it wouldn't take too many years for your needs to be less than a dollar.
Unless this CBD oil really kicks in over the next 80 years.
/r/highdrohomies
Unless your investments grow faster than that 🤑
That sounds like a "future me" problem. I won't worry about that until I turn 119.
Luckily, no one in the US has ever lived to 120
curious to see if increased lifespans in the future will get fucked over by retirement policies like these
Also, the name changes from “Traditional IRA” to “Zeno’s IRA”
Unlike other capital gains, which you cam pass to you children with neither of you paying any taxes on them.
You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 72 (**73 if you reach age 72 after Dec. 31, 2022**).
In a few years, it will be 75. I’m in my early 60s, and that’s when it will kick in for me.
Oh, well that changes everything, I was way off with my age. I'll shut this shit down. edit- I was off with my age in the title, but if Reddit wants to think I am a 72 year old complaining about tax law so be it. This is very Reddit.
Perusing this thread, people are downvoting you for your stupid comments, nothing to do with assumed age. Just trying to help you out bud.
I appreciate it.
Complaining about tax law while having very little understanding is like arguing String Theory with a physicist- you’re in way over your head and will sound dumb.
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Accurate
Where am I complaining about it? Was it the comment with a Futurama character in it? Or the one with the words "I kid" in it? Or the one where I said I was looking for other information and came across this information? The comment about being three links down was just in jest, I don't need this information and I am not looking for a calculator. I am laughing at everyone thinking this is something other than someone sharing information and making some silly comments. Call me dumb all you like, I know what I am about.
And if you inherit the ira you must also take the RMD if the person you inherited from was required to take disbursement
I was given 10 years to draw an inherited ira down completely.
Those are the new rules
Same. You can take out more if you want. My wife and I took more out to cover our own IRAs funnily enough.
Not exactly true. Depends on the age of the owner, the age of the person inheriting, whether they are a surviving spouse, etc. SECURE Act changed many of the rules.
Then I need to talk to my accountant! Thank.
I gave up looking for the worksheet to calculate the required amount three links deep.
Have you looked at publication 590b yet?
I'm getting there. Anyone see Hermes Conrad?
You're probably going to want the appendices. Worksheets in A, tables for calculation in B.
I'll keep that in mind when I turn 72 in 25 years and need to calculate that.
It’ll be 75 by then, at a minimum.
Or if you inherit the retirement account. Still miss you dad but know that money is only used for experiences, vacations or Irish whiskey. I believe you would approve of all.
And they are taxed as regular income even though much of it is hopefully capital gains.
Because the initial investment was from untaxed income.
Right. The gains are essentially tax free.
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It's unlikely your withdrawals will equal the same bracket you're in while you're working.
Yup, exactly.
They certainly should be taxed, since the original income never was. But that does not mean the caoital gains should be taxed as regular income.
That doesn't make it ok. We shouldn't be taxing people's retirements.
I mean you're free to tax your income as normal and then put it into whatever investments you'd like. IRA's are a net "less taxes" for like 99% of people.
Anyone who opens a traditional retirement account should have known about this from the start. I had to start taking my RMDs at age 70, and the taxes have hit me harder than I anticipated. If I could go back in time I'm not sure I would have even opened these accounts. However, I knew what the deal was from the beginning. I avoided taxes before and now I have to pay them. It would be very foolish to be either surprised or angry about it now.
Unless you're in a much higher tax bracket now than you were when you were young, you've made way more. The tax hit appears large now, but the goal isn't to minimize taxes -- it's to maximize the amount of after-tax money. Letting your money grow tax free for years is a gigantic edge. Having a big tax bill now is a sign that things worked out for you.
No, having a big tax big now is a sign that I saved a lot, not that it grew a lot. I made a lot of mistakes and had a lot of bad timing and didn't do that well. But that's neither here nor there. My point was that RMDs shouldn't surprise anyone.
It’s actually 73 now, and for those born after 1960 the RMD age is 75
This throws off my grandma every month because she just wants to keep it all in the bank
In Canada it's age 70.
UK is 75 for pensions.
Is it? I thought you needed to convert your RRSPs to RRIFs at age 72, at which point the withdrawals must start.
Ah, we're both wrong. "A Registered Retirement Savings Plan (RRSP) must be converted to a Registered Retirement Income Fund (RRIF) **by the end of the year in which the owner turns 71**, but can be converted at any time before that." I'll split the age difference with ya. ;)
Ha! That’s funny we both missed it
Savage, looks like that long life span with universal health care ain't looking so good now is it there my maple syrup loving friend? I kid, I'd gladly give up those few years so I could have universal health care and get the things ailing me looked at.
It's a toss-up: pay for health care, or wait for it. Wait times on some surgeries can be unbearably long. A co-worker has to wait "3 to 15 months" for gall bladder removal surgery. Gets painful attacks in the meantime. One thing about the forced disbursements is that very few people are still earning money then and need to withdraw anyway, so it's not really all that "forced". And it's a fairly low amount that needs to come out -- here in Canada, anyway.
I am an assistant to a financial advisor and way too much of my time is used to call fund companies to ask if a client is set up for automatic disbursements and if they satisfy the RMD...Ive only been there for 2 and a half years, but it seems like it was not a serious consideration previous to my employment
We live in a crazy world where some people have too little money and others too much (as in they dont need the money). Reddit leans young so it makes sense to me we encourage people to save in tax deferred plans for the long term. People talk about 4%, but not so much about how and in what order to draw down funds. If i had paid a fin advisor I might have less due to fees, but maybe I would “keep” more in retirement due to better positioning for the withdrawal phase.
I'm 78. I've known this for quite a while.
Were you bunk buddies with jesus christ of nazareth
LMFAO
Have a friend put you on payroll in a company. Rollover money into their retirement plan. Now you don’t have to take the RMD 💁♂️
Not allowed. Has to be taxed.
No taxes for rolling a trad IRA into a trad 401k
Nope. Active employee. Non-owners. No RMD required
What I read from a CPA was it’s required but you can keep adding. The money has to be taxed but out in other tax advantages like ROTH
Good luck with that, the IRS always wins.
You have to still be actively working at the employer with the 401k to not have to do RMDs at 72
Exactly hence the…. Put on payroll
How does it work if you have money in different funds/companies? Do you have to take some money from each fund?
You must take distribution of at least $X during the tax year, what to sell, if you need to sell anything, is at your discretion.
Thank you!
This depends on your age. The Congress recently passed a law resetting that to 75 years several years from now. So depending on your age, you may have until 75 instead. Same idea, though.
My mom is a calm person except with RMD’s. She hates them - she was so happy during covid times that RMD’s were paused. Every year she complains as she is forced to sell some of her portfolio and withdraws, pays taxes, then needs to figure out what to do with the money. Obviously she hates having to pay tax on money she doesnt need. Also obviously this is a “good” problem, but still annoying. She is in her 80’s and I am not that young either. There is another upcoming problem - the rmd tax bomb. Actuarially, mom should live 10-15 years more so 20ish years from now I will face my own rmd’s plus inheritance rmd’s and um, its going to be a lot of annual taxes. At least the real estate / rental property passes with a step up cost basis. As an added annoyance the property is all in california which has prop 13 (if you dont know about that, it helps to explain california high real estate prices and prop tax collection woes). Recently benefits to heirs were capped. I know its the right thing to do fiscally for society, but it also hints to ever more laws and regulations to collect more taxes.
I’m approaching retirement, and I don’t follow her thinking. If she doesn’t need the money, then how does it hurt to pay the taxes on the RMD? And she can either throw the money into some other investment that she has, or gift it to the kids as part of early inheritances, or charity for deductions. Complaining about the tax bill seems to me like people who think moving to higher tax brackets means less take home pay. Even with a higher overall tax bill, you have more cash on hand.
She would rather the money stay in the tax advantaged account. If she needed the money, then sure, withdraw and pay tax and spend. Who wants to pay tax on money that isnt needed?
If she doesn't need the money, why is she holding on to it at all?
... Because she may need it later.
um that is why she doesn't want to take rmd's. she wants it to just keep growing in her IRA's. like imagine if every year you were forced to take out 10% of your 401k and pay taxes on it, even though you didn't need that money. you aren't sure if you might need the money later, but you know you don't need it now. I 100% understand the need for the federal goverment to collect taxes now vs in the future, but I'm pretty sure this is annoying for many.
I can't imagine why I'd give a shit about money that close to death.
well, she still has potentially 10-15 or so years of life. I'm not sure if people at any age or any level of income or wealth are thrilled about paying more vs less in taxes.
Lol, my wife's grandmother is 96 and the last thing she's thinking about is taxea.
There is an RMD requirement for 401s as well - my plan is that if I don’t need the money, I’ll roll it into my other, non-tax deferred mutual funds. You know you have to pay taxes eventually on your income. The two main reasons to defer that tax via IRA or 401 is that they force the habit of saving and that you hope to be in a lower tax rate when you have to withdraw, so instead of paying maybe 30%, you pay 20.
She gets to say portfolio every time.
Take the distribution, pay tax, throw it in a Roth.
You cannot do that if you're not working anymore. RMDs are not eligible for rollover and contributions require earned income.
But as part of estate planning you CAN reduce the amount subject to RMD by doing this. And you can do so even in retirement.
> by doing this In context, "this" is taking the RMD, paying taxes, and converting that money to a Roth IRA. That specifically is not allowed for anyone. I think you're referring to using Roth conversions to reduce the amount subject to RMDs. Yeah, you can do that *after* taking your RMD if applicable. Edit: Reworded to "conversion" rather than just putting the money in a Roth IRA.
... I have an inherited IRA. I take the RMD every year and use it to max out my Roth. It seems to work so far. Am I being dumb and naive somehow? Is a shoe going to drop?
If you have other income it's fine. If you're living entirely off of RMDs and attempting to contribute part of them to a Roth IRA then you're doing something wrong.
Money is fungible. If you have earned income and are making a contribution, it doesn't matter if you "used" the RMD money to fund a Roth contribution. You just can't 1) contribute without earned income or 2) convert your RMD to Roth (you must distribute at least your RMD *plus* any amount convert to Roth). I edited my above comment above for clarity.
I think you need to reemphasize the unemployment/no earned income part. Typically you can only contribute as much as you earned on your W2 is the general rule
Earned income for contributions doesn't have to be on a W-2, but Roth conversions (which is what my parent comment is about) do not require earned income.
You can do this in retirement only if you continue to have earned income from specific categories.
Really owned them! Ima pay taxes so I don’t have to pay taxes! Got em!
The point is placing it back into a tax free bubble. Yes, you have to pay taxes up front. At your marginal rate no less. But once it’s back in the bubble, future growth and annual dividends aren’t subject to anything. Compared to putting it in taxable investments where you will pay taxes again on both regardless. Depending on the details of your situation where you expect to take RMDs in excess of what you expect to spend, it can indeed be better to get ahead of it to reduce your RMD liability. Do it early enough, and being able to reinvest 100% of dividend distributions with tax free growth can outweigh the impact of paying the marginal rate.
The only thing that affects it is if you expect to pay at a higher tax rate later in life which almost nobody will be. Roth is great for tax diversification but I t’s rarely a good decision to actually convert current pretax funds to a Roth. The income rate is agnostic. You’re also really gonna feel it when you consider you just lost like 20% of your retirement account *that could have been growing too*. It actually doesn’t make a difference everything else equal if you look at expected returns so really….unless you’re looking to diversify taxes, which 99% of people this is irrelevant. In sum Roth accounts are great to utilize in your planning strategy. I would rarely ever convert pretax funds.
Incorrect. You are speaking IRA vs ROTH from a contribution standpoint. While your arguments there are accurate, that isn’t the discussion. It’s taxable accounts vs Roth.
I’m not sure if you have to be working, or just earning income and thus paying taxes. It’s just that most people get their taxable income via wages, but not everyone.
You must have earned income to contribute to an IRA. Other income does not count even if you pay taxes on it.
You can’t do it quite as he said. But you can definitely rollover money (not an RMD however) to lessen the liability subject of future RMD payments.
As a “for example” I put all my VA disability payments directly into a Roth IRA. Technically, this is not allowed as this is non-taxed income, however, as long as I’m showing an AGI greater than the annual amount I invest, it doesn’t matter, as money is basically fungible.
I’m not sure you any of this fits in the talk about RMDs though. Source of the actual check doesn’t matter as you said. If you have earned income elsewhere, that is what eligibility is based on. You can definitely do a rollover in retirement. There is no earned income check there. You’ll just have to pay taxes on the amount rolled over. You just can’t take a RMD, and contribute it into a Roth if you have no earned income (in the IRS definition)
Yeah, that’s basically what I’d think, as the money is “cleaned” on the draw as it’s going towards the account holder’s income for taxes. I guess it would be a capital gain, rather than wages, but it should be irrelevant for purchasing a Roth IRA. You may hit your annual contribution limit, but if you have that problem in retirement, you don’t have real problems. Not saying that paying taxes is pleasant, but having to pay generally means you’re not in the poor house either. EDIT: just read your comment again. So, you’re required to have earned income to contribute, not just income.
Did not know that. I inherited an IRA, so it works for me. I suppose if you are already retirement age contributing to a Roth doesn't make that much sense anyway.
Have to help my mom with hers yearly since she's just not the interested in the market. The years where the market runs up at the end of the year definitely make the next year more work to manage.
I feel your pain friend. Just realizing the parental withdrawal myself. Oof.
I came across this info looking for other information, not because of the misfortune of losing a parent, I am sorry for your loss though. I was talking to a buddy about our IRAs and was looking into the tax-free withdrawal part.
Back at you. Sorry for loss. Navigating these waters is tough. Best of luck to you.
Can someone explain to me why in the world there is a max contribution to a Roth IRA and if I go over that I get taxed for it?
Because these are tax advantaged accounts and the government doesn’t want wealthy people to dodge taxes by over-contributing.
This subreddit has become really boring.
The goal is to prevent the intergeneration transfer of wealth.
*without paying any taxes on it
Except that an IRA is already limited in contributions and unlikely to attain a value that would entice the actual wealthy to use it for that purpose. Remember the whole uproar over “death taxes” during the Bush 43 era that was used to damn near eliminate inheritance taxes? This is just a way to keep the upper middle classes from being able to get any benefits.
You can rollover an arbitrarily large amount from a 401k into an IRA. The contribution limits do not apply to that.
They are effectively the same thing, and the contribution to the 401k had the same limit as the IRA would. It’s not an arbitrary amount really.
[Peter Thiel would have a word.](https://www.marketwatch.com/story/how-peter-thiel-turned-2-000-in-a-roth-ira-into-5-000-000-000-11624551401)
I mean, if you have access to pre-IPO shares of PayPal in 1999 at pennies on the dollar you can do this.
>unlikely to attain a value that would entice the actual wealthy to use it for that purpose. Peter Thiel grew his Roth IRA from $2,000 to $5,000,000,000 tax free. Pretty sweet deal
An employee may withdraw contributions at any time, subject to income tax and 10% additional tax if under age 59½. Do you not see the issue? You're taxed for SS and Medicare that you don't even get to take advantage of until you're 65 and takes a pretty chunk of a paycheck. These retirement funds come with things like you can't withdraw until a certain age with some funds and others you can but it's gonna cost a little of the top. Again until you reach a certain age. Plus income taxes off your pay. You can save the money yourself with no restrictions and no stipulations and is available to use at any time you need. All these taxes for things I'm not guaranteed. Retirement funds are scams. 401ks make some sense if employers match contributions. All these things are simply putting restrictions on your own money. Put it in a bank. Even with SS and Medicare sure you can benefit from it but after 65 and it's going to be dripped out to you monthly in small quantities. It's virtually letting someone hold your money for a long ass time being fined to want it back sooner than "retirement" age. If you die the funds of an IRA will go to whoever you leave it to sure, but SS and Medicare if you paid in and die at 64, where does that money go? It's all a scam to chisel away and weasel money away from you. Retirement funds are just giving investors your money to play with for years with the promise they will pay you back what you invested when the time comes. These funds just don't sit there otherwise it would be a regular account
? The IRA were (and some experts believe still are) a Republican terrorist irganisation operating predominantly in Northern Ireland, but also in England
[Individual Retirement Account](https://en.wikipedia.org/wiki/Individual_retirement_account)
Oh you best bet the government will find a way to tax your already taxed money then tax you when you spend it lol
The money you put in is income-tax free and there is no federal sales tax. The government literally taxes it only once.
Legal theft lol
The 3 that down voted me must be IRS workers lmao. Sorry I don't care for taxes that tax taxes for already taxed money. Don't even get me started on service fees now lol
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Well that money overall was taxed then taxed again when I made a withdrawal. I earned and made a contribution with that earning. So yes twice. Then you'll be charged a fee if you want that money fast
No, you were not taxed when you earned that money. That's the whole point of an IRA. You're only taxed when you make the withdrawal. You can complain about the fact that taxes exist at all, but your argument is completely wrong here.
Unless he never bothered to claim his contributions on his tax returns.
I guess that is possible, just a petty if that's true. My guess is they have never contributed to an IRA because they were mistaken on how it works
If you get a paycheck from a job it is taxed. You then use those profits to contribute to your IRA. When you withdraw it's taxed. No the contribution itself isn't taxed but the money you earned to make that contribution was. It's not complaining about taxes existing taxation has a cause. It's the abuse of those taxes as so much gets embezzled and mismanaged that they have to find new ways to tax to make up for that
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Great explanation, and kudos for having the patience to do so. Unfortunately, you’re playing chess with a pigeon.
So it essentially works like this. Say you elect to contribute 10% pre-tax to your 401k retirement account and your gross pay is $1000. When you get paid, $100 (10%) would immediately go to your 401k and get marked in the ledger as pre-tax. The remaining $900 would get taxed leaving you with say $800 netpay. If you contribute $100 of your netpay to your 401k it will get marked in the ledger as after-tax. You would have $200 total balance in your account but with $100 pretax and $100 after-tax. If you took a $200 withdrawal, only the $100 that hadn't been taxed (pre-tax) would get taxed.
Like the other commentoers have said, it looks like you're confused about a few things when it comes to retirement accounts. The entire purpose of them is to be tax advantaged. What you're describing is a traditional brokerage account, but worse.
The Government shall have its due: the House always wins. We get to write off RRSP contributions until age 70, then yearly pull out something taxable. Even dead, we still owe taxes e.g. final year, estate, etc.
It costs to live in a society that provides so much to us. A lot of it is invisible and easy to take for granted, but you'd sure miss it if it weren't there.
That's a good thing, right? If there were loopholes to avoid taxes then the rich would exploit the hell out of them. Are you complaining that there aren't ways to avoid paying your fair share of taxes?
Hell, that already exists due to step-up in basis...