AUTHOR: Bill Minter on 11/12/2024 FIRST: Kevin Madden on 11/12/2024 | RECENT: Mark Eckman on 11/16/2024
Comments
This topic is of utmost importance to my spouse and me as we begin our transition into retirement (while each doing some part-time work for the reasons Jonathon highlighted in today's article). We are blessed knowing we are on course to meet our financial needs for the rest of our lives while also being generous to others. We have always tithed our income to our church and given it to organizations that align with our values and interests-- mostly based on our budget. Now we are at a stage where we are developing a giving plan to be incorporated into a retirement fund withdrawal strategy. This is what we are considering for our situation: 1) Apply many of the concepts we have read in Mike Piper's book, "More Than Enough--- A Brief Guide to the Questions That Arise After Realizing You Have More Than You Need" (2023). 2) Using a modified RMD annual withdrawal rate (RMD x 1.24) based on the "Safe Withdrawal Strategy" work of Dr, Wade Pfau, et al. At the beginning of each year, we will be able to calculate the amount that is "more than enough" for our budgeted spending needs and develop our giving plan for the coming year. This will include giving to our kids while we are alive. 3) I was blessed to do "moonlighting" consulting work one day a month for a local non-profit organization during my entire 33-year career. That extra pay filled in a budget gap as we raised a family on the household's one-and-a-quarter FT incomes. Now that we are empty nesters and have a secure financial future, we plan to gift back the entire income I received from them. In my faith tradition, we call this "mutual aid sharing". Keep the conversation going. The HD community likely has a lot to contribute to each other in the way of experiences on this topic--- and likely financially to society at large.
Yes, I am aware of that as I use that for one of my "above the line" business expenses. But I was questioning the accuracy of Michael1's statement inferring that you could take a distribution from your traditional IRA to use to pay your LTCI premium and not have to pay income taxes on that distribution.
"I know LTC premiums can be paid from an IRA without paying tax on the amount,..." Assuming you are referring to a traditional IRA, that's news to me. Can you provide a source for that? I am aware you can use an annuity tax-free transfer to pay for LTCI premiums.
Good insight, David. Though I am currently active in my Roth conversion sweet spot (two more years before taking SS at 70), I realize I might have some conversion opportunities after that. And what you suggested makes sense when looking at the bigger sphere of the financial account triad. Sounds like you view the world like Mike Piper!
Thanks for your IRA-specific response, Michael1. I don't expect to have any specific need for those funds post-withdrawal (and at least 10 years after) so, considering some of your IRA strategies is helpful.
I concur, John. The challenge is that I lose my Roth status with this inherited account after ten years. I don't want to risk cashing out at year 10 when the sequence-of-returns monster showed up for the previous few years. It seems, with Jo Bo's suggestion, that I could at least ride out the effects of a down market by doing an in-kind (non-cash) distribution, allowing me to transfer my stock into a taxable account and giving them more time to recover.
Thanks for this suggestion. If I understand you correctly, if I see holding these funds for a longer timeframe (say a total of 20 years), I might keep fully invested in stocks for the initial 10-year period. Then there is a financially-legal mechanism that would allow me to keep my stock assets and move them into a taxable account. This would eliminate the need to cash out my stocks in the Roth IRA and then purchase stocks in a taxable account.
I like your idea of "I would think if you wanted to build a little cushion in your planning I would shoot high on your EOY Roth conversion in 2024 and then make a traditional or Roth contribution in 2025 for 2024...to hit the target taxable income you want for 2024". In regards to my QBI deduction, I match my net consulting income to my expected medical insurance premiums and 1/2 FICA such that I really don't have QBI-eligible income--- I enjoy the consulting work, but I have other things I want to do in retirement.The only real uncertainty in projecting our EOY income is our K-2 income from my spouse's S-Corp. (she, and sometimes I, are its only employees). She does her best to estimate by December what the pass-through income (minus the QBI deduction) will be, but applying your suggestion related to making either/or Roth/Traditional IRA contributions in 2025 for 2024 gives me another tool to use.Related to K-2 pass-through income..... this year the S-Corp will need to report I-bond interest from redemptions. My wife knows where it is to be entered on the S-Corp (1120S) reporting form that is the basis for filling out the K-2's. But we are uncertain how this will be reflected on the K-2 "ordinary" income we will need to report on our 1040. That income is one component of our AGI which is the basis for calculating our federal and state taxes, but....... the I-bond interest is exempt from state taxation. The outstanding question for us as we determine our need to pay state estimated tax for Roth conversions: Do we lose that tax advantage for I-bonds held by an S-Corp?" I assume my wife will outlive me by a number of years and I expect her marginal tax rate will be much higher after I am gone so I am willing to pay some tax now so hopefully her income tax after my death will be in her then single status of the then lower tax brackets and our children’s income tax on inherited assets are as close to zero as possible." Ditto!Thanks,"the other Bill"
Lou,I too am on the quest to simplify our finances, so depleting the HSA account would certainly serve that purpose. I am also the detail person in our family, so I keep and tally the receipts on an annual basis. I think I might just convert most of my accumulated HSA expenses at one time. Any excess that I don't need I will use to contribute to my Roth IRA since I am currently earning some income from consulting. I would be sure not to have so much excess that it exceeds my earned income (or the $8k annual limit). In effect, I will be moving some of my HSA funds into my Roth IRA (then use $ in that for SS "bridge" living expenses) while more quickly liquidating my HSA to meet the goal of more simplification. That's something I didn't think of until reading your post. Thanks!
Comments
This topic is of utmost importance to my spouse and me as we begin our transition into retirement (while each doing some part-time work for the reasons Jonathon highlighted in today's article). We are blessed knowing we are on course to meet our financial needs for the rest of our lives while also being generous to others. We have always tithed our income to our church and given it to organizations that align with our values and interests-- mostly based on our budget. Now we are at a stage where we are developing a giving plan to be incorporated into a retirement fund withdrawal strategy. This is what we are considering for our situation: 1) Apply many of the concepts we have read in Mike Piper's book, "More Than Enough--- A Brief Guide to the Questions That Arise After Realizing You Have More Than You Need" (2023). 2) Using a modified RMD annual withdrawal rate (RMD x 1.24) based on the "Safe Withdrawal Strategy" work of Dr, Wade Pfau, et al. At the beginning of each year, we will be able to calculate the amount that is "more than enough" for our budgeted spending needs and develop our giving plan for the coming year. This will include giving to our kids while we are alive. 3) I was blessed to do "moonlighting" consulting work one day a month for a local non-profit organization during my entire 33-year career. That extra pay filled in a budget gap as we raised a family on the household's one-and-a-quarter FT incomes. Now that we are empty nesters and have a secure financial future, we plan to gift back the entire income I received from them. In my faith tradition, we call this "mutual aid sharing". Keep the conversation going. The HD community likely has a lot to contribute to each other in the way of experiences on this topic--- and likely financially to society at large.
Post: Give It Away Already
Link to comment from January 25, 2025
Yes, I am aware of that as I use that for one of my "above the line" business expenses. But I was questioning the accuracy of Michael1's statement inferring that you could take a distribution from your traditional IRA to use to pay your LTCI premium and not have to pay income taxes on that distribution.
Post: Retirement Realignment by Ken Cutler
Link to comment from January 14, 2025
"I know LTC premiums can be paid from an IRA without paying tax on the amount,..." Assuming you are referring to a traditional IRA, that's news to me. Can you provide a source for that? I am aware you can use an annuity tax-free transfer to pay for LTCI premiums.
Post: Retirement Realignment by Ken Cutler
Link to comment from January 14, 2025
Good insight, David. Though I am currently active in my Roth conversion sweet spot (two more years before taking SS at 70), I realize I might have some conversion opportunities after that. And what you suggested makes sense when looking at the bigger sphere of the financial account triad. Sounds like you view the world like Mike Piper!
Post: An Inherited Roth IRA… Now What?
Link to comment from January 13, 2025
Thanks for your IRA-specific response, Michael1. I don't expect to have any specific need for those funds post-withdrawal (and at least 10 years after) so, considering some of your IRA strategies is helpful.
Post: An Inherited Roth IRA… Now What?
Link to comment from January 13, 2025
Thanks, Jeff. I will duly note that for my spouse on the financial affairs crib sheet I have set up for her.
Post: An Inherited Roth IRA… Now What?
Link to comment from January 13, 2025
I concur, John. The challenge is that I lose my Roth status with this inherited account after ten years. I don't want to risk cashing out at year 10 when the sequence-of-returns monster showed up for the previous few years. It seems, with Jo Bo's suggestion, that I could at least ride out the effects of a down market by doing an in-kind (non-cash) distribution, allowing me to transfer my stock into a taxable account and giving them more time to recover.
Post: An Inherited Roth IRA… Now What?
Link to comment from January 13, 2025
Thanks for this suggestion. If I understand you correctly, if I see holding these funds for a longer timeframe (say a total of 20 years), I might keep fully invested in stocks for the initial 10-year period. Then there is a financially-legal mechanism that would allow me to keep my stock assets and move them into a taxable account. This would eliminate the need to cash out my stocks in the Roth IRA and then purchase stocks in a taxable account.
Post: An Inherited Roth IRA… Now What?
Link to comment from January 13, 2025
I like your idea of "I would think if you wanted to build a little cushion in your planning I would shoot high on your EOY Roth conversion in 2024 and then make a traditional or Roth contribution in 2025 for 2024...to hit the target taxable income you want for 2024". In regards to my QBI deduction, I match my net consulting income to my expected medical insurance premiums and 1/2 FICA such that I really don't have QBI-eligible income--- I enjoy the consulting work, but I have other things I want to do in retirement. The only real uncertainty in projecting our EOY income is our K-2 income from my spouse's S-Corp. (she, and sometimes I, are its only employees). She does her best to estimate by December what the pass-through income (minus the QBI deduction) will be, but applying your suggestion related to making either/or Roth/Traditional IRA contributions in 2025 for 2024 gives me another tool to use. Related to K-2 pass-through income..... this year the S-Corp will need to report I-bond interest from redemptions. My wife knows where it is to be entered on the S-Corp (1120S) reporting form that is the basis for filling out the K-2's. But we are uncertain how this will be reflected on the K-2 "ordinary" income we will need to report on our 1040. That income is one component of our AGI which is the basis for calculating our federal and state taxes, but....... the I-bond interest is exempt from state taxation. The outstanding question for us as we determine our need to pay state estimated tax for Roth conversions: Do we lose that tax advantage for I-bonds held by an S-Corp? " I assume my wife will outlive me by a number of years and I expect her marginal tax rate will be much higher after I am gone so I am willing to pay some tax now so hopefully her income tax after my death will be in her then single status of the then lower tax brackets and our children’s income tax on inherited assets are as close to zero as possible." Ditto! Thanks, "the other Bill"
Post: The Luxury of Choosing Tax-Free Cash from a Roth IRA or HSA….but Which One?
Link to comment from November 14, 2024
Lou, I too am on the quest to simplify our finances, so depleting the HSA account would certainly serve that purpose. I am also the detail person in our family, so I keep and tally the receipts on an annual basis. I think I might just convert most of my accumulated HSA expenses at one time. Any excess that I don't need I will use to contribute to my Roth IRA since I am currently earning some income from consulting. I would be sure not to have so much excess that it exceeds my earned income (or the $8k annual limit). In effect, I will be moving some of my HSA funds into my Roth IRA (then use $ in that for SS "bridge" living expenses) while more quickly liquidating my HSA to meet the goal of more simplification. That's something I didn't think of until reading your post. Thanks!
Post: The Luxury of Choosing Tax-Free Cash from a Roth IRA or HSA….but Which One?
Link to comment from November 13, 2024