Vanguard has a free online calculator to estimate a required minimum distribution (RMD) from an inherited IRA based upon current law provisions including the provisions that were changed by the Secure Acts.
The link to the calculator is in the body of the Vanguard article.
IRS Pub 590-B, noted in the Vanguard article, is updated annually on the topic of required RMDs and and the various criteria for determining your RMD amount for a particular year.
I would expect your plan custodian would ask for the same data as Vanguard and if Vanguard and the amount determined by the plan custodian varies I would want to try to find out why.
“A Roth IRA can be accessed anytime for any reason and is tax- and penalty-free” is the primary reason my spouse and I funded Roth IRAs. However, there are some IRS rules about Roth withdrawals. The article also states that “A traditional IRA may be the best option if you’re planning on donating your IRA to charity.” I agree because it is possible to gift directly out of the traditional IRA with no penalty and such gifting to charity does not count toward RMDs.
Here is my experience. I saved via a Roth because of the flexibility it offers. I used social security income to continue to fund a Roth into retirement. I had decided to go into a gradual retirement and continued to work for another 10 years, well beyond normal retirement age. As I reduced my work and income dwindled, I took social security. I was able to continue to fund the Roth because of my earnings. I realize there were tax consequences, and one does need to be mindful of SSA’s approach to excess earnings.
I was lucky because the stock market was a favorable place to invest.
I took advantage of the Roth tax rules in 2023. I had been diagnosed with a serious illness in 2022 which resulted in unexpected, large medical bills, lifestyle changes and permanent relocation. With a high level of financial uncertainty and significant expenses, I took a withdrawal from the Roth in 2023.
My annual withdrawal rate had been about 3.5% from traditional accounts. However, this increased to the equivalent of 8.5% because of the sizeable Roth withdrawal. There was no federal tax consequence, and so I remained in the lowest tax bracket of 12%.
It wasn’t necessary to spend all of those funds. With the return to normal interest rates on savings we were able to purchase CDs with a portion of the excess, as well as some I-Bonds. I do also attribute this to luck as I was able to get what I consider to be a reasonable return without investing in the stock market and deal with that uncertainty and possible volatility.
Yes, it would have been better to withdraw from the Roth in small increments, but I was so sick I really didn’t have the capacity to deal with it.
That is our plan. We took SS at our full retirement age and are using it SS income to funds our Roth accounts, and keep filling our spending, checking, and car ” buckets”
We, actually I as my wife has no interest (despite my efforts) in investing, are using money we inherited from my parents to fund our living expenses, and then our retirement assets if necessary to essentially buy larger inflation adjusted monthly annuity (ie Social Security) payments. Once we claim at 70 we will be receiving 84k per year which right now is enough to cover all of our living expenses. Then our retirement assets will all be fun money. Also by using my parents money to fund retirement until those funds run out will allow me to close out accounts at three different fund companies. All of our funds will then be at Vanguard which will be easier for our executor.
Believe me when I say that those who propose condensing your funds into one company are right. I have been dealing with three fund companies and traditional and Roth accounts which can be difficult keep straight. Don’t get me wrong it’s a nice problem to have but difficult to get my head around.
If this administration develops a new tax system that eliminates taxes on Social Security and exempts annual incomes under $150,000 from taxation, then paying taxes now to convert to a Roth could be a disadvantage. If taxation on purchases later increases, I would effectively be taxed twice—once on the Roth conversion and again through higher taxes on goods and services. There are too many ‘ifs’ in the equation to pull the trigger on completing a conversion at this time.
If the tax changes you mention occur without huge increases in taxes on the rich and businesses, which will never happen, the the country will quickly become bankrupt, and nothing we do financially will matter.
I agree about the “ifs”. I continue to think that savings consisting of traditional IRAs, Roths and taxable accounts is the best approach for me. I do want to keep my federal taxes within the 12% bracket and I’m able to do that. I suspect SS benefits will continue to be taxed and in order to deal with the dwindling trust fund the government may find it necessary to increase taxes and reduce benefits. Savings achieved via reduced waste, fraud and corruption may be helpful. However, the entrenched will do everything possible to prevent such adjustments to spending. I think that potential savings won’t be fully realized and that will have an impact on budgets.
For my wife and me we have typically stayed in the current 10% or low 12% tax brackets since my retirement from full time work. Currently each additional dollar of ordinary income turns $0.85 of our social security taxable. The 10% tax bracket rate becomes a 18.5% (10% x 1.85) marginal rate for us and the 12% tax bracket rate becomes a 22.2% (12% x 1.85) marginal rate for us. I waited until age 70 to claim my SS benefit, worked full time till age 72 and our living expenses are generally modest. Our current income sources meets ours needs and our reasonable wants.
If the equity market has a major correction, which for me is a 25% or more drop, I am thinking about being opportunistic about then making an appropriate direct Roth conversion for us to fill up our entire 12% bracket which will cost us 22.2% of the conversion amount (which I would include my additional taxable social security benefit income) in current federal taxes. I live in a state without a state income tax so state taxes are not a consideration for us.
My expectation is that in the long run my world broad based index equity fund in my traditional IRA that I would make the Roth conversions from would continue to follow a long term (over 10 years) upward trend, thus I could choose to convert at an opportune time with a much lower cost on a per share basis to convert. If no market correction occurs in my remaining lifetime my wife and/or children will inherit more traditional IRA and less Roth. Time for future compounding is on my beneficiaries side so I think in terms of my long term investing being for them and not for me. If no major correction occurs I plan to simply take traditional IRA distributions of at least our RMD amounts unless needs requires us to take more.
As I am still working at age 74 on a seasonal part time basis in a profession and with people that I like I have a lot of flexibility to spend my current earnings on wants, make additional traditional or Roth contributions as limited by my earned income and by IRA contribution limits to generally hit the tax brackets and tax expenditures I target, to gift or to save or spend for the unknowns I have not planned for. I have tried to do some of each and also have had a few unexpected expenses. It is nice to pay for some relatively small unexpected expenses out of current earnings and not draw down the money from our reserve. One negative outcome in my decisions is that my additional traditional IRA contributions I have made since reaching age 70 1/2 have limited my ability to make QCD’s that I can exclude from taxable distributions.
I also agree about the “ifs” that William Housley is appropriately concerned about but favor the planning and action diversification that Norman Retzke follows as he describes in his post. My planning will change as tax law and life circumstances change.
I was ready to pull the trigger on moving forward three months of conversions when the Morningstar US Market Index hit the correction level (which it did for a day). But then it occurred to me to look at how much my wife’s Vanguard Target Retirement 2030 fund had dropped (the fund that is the source of the conversions) and it had dropped no where near 10%. Now that is my trigger for moving up the conversions. Does that seem sensible?
For us, I am am inclined to want to pull the Roth conversion trigger when the stock market hits the 20% drop to a bear market level which seems to historically occur ever 6 years on average. I may be being greedy. I seem to recall an article by Jonathan around the early part of the pandemic where he made such a conversion and wrote about why he did not consider doing so to be market timing. That article resonated with me. I need to see if I can find the article.
Deciding on a conversion at a market correction 10% level seems sensible to me especially if you have a large dollar amount of traditional IRA assets you want to convert to Roth and also expect a lot of years to do so.
Also I’m trying to convert all of my wife’s traditional before we both turn 70 and claim Social Security in just under three years, and thus may have higher taxable income. Also that way when we turn 73 we only have to take RMDs from one account. To quote my favorite early American literature author HD Thoreau, “simplicity, simplicity, simplicity.”
Vanguard has a free online calculator to estimate a required minimum distribution (RMD) from an inherited IRA based upon current law provisions including the provisions that were changed by the Secure Acts.
https://investor.vanguard.com/investor-resources-education/retirement/rmd-rules-for-inherited-iras
The link to the calculator is in the body of the Vanguard article.
IRS Pub 590-B, noted in the Vanguard article, is updated annually on the topic of required RMDs and and the various criteria for determining your RMD amount for a particular year.
I would expect your plan custodian would ask for the same data as Vanguard and if Vanguard and the amount determined by the plan custodian varies I would want to try to find out why.
I hope this helps.
Best, Bill
“A Roth IRA can be accessed anytime for any reason and is tax- and penalty-free” is the primary reason my spouse and I funded Roth IRAs. However, there are some IRS rules about Roth withdrawals. The article also states that “A traditional IRA may be the best option if you’re planning on donating your IRA to charity.” I agree because it is possible to gift directly out of the traditional IRA with no penalty and such gifting to charity does not count toward RMDs.
Here is my experience. I saved via a Roth because of the flexibility it offers. I used social security income to continue to fund a Roth into retirement. I had decided to go into a gradual retirement and continued to work for another 10 years, well beyond normal retirement age. As I reduced my work and income dwindled, I took social security. I was able to continue to fund the Roth because of my earnings. I realize there were tax consequences, and one does need to be mindful of SSA’s approach to excess earnings.
I was lucky because the stock market was a favorable place to invest.
I took advantage of the Roth tax rules in 2023. I had been diagnosed with a serious illness in 2022 which resulted in unexpected, large medical bills, lifestyle changes and permanent relocation. With a high level of financial uncertainty and significant expenses, I took a withdrawal from the Roth in 2023.
My annual withdrawal rate had been about 3.5% from traditional accounts. However, this increased to the equivalent of 8.5% because of the sizeable Roth withdrawal. There was no federal tax consequence, and so I remained in the lowest tax bracket of 12%.
It wasn’t necessary to spend all of those funds. With the return to normal interest rates on savings we were able to purchase CDs with a portion of the excess, as well as some I-Bonds. I do also attribute this to luck as I was able to get what I consider to be a reasonable return without investing in the stock market and deal with that uncertainty and possible volatility.
Yes, it would have been better to withdraw from the Roth in small increments, but I was so sick I really didn’t have the capacity to deal with it.
That is our plan. We took SS at our full retirement age and are using it SS income to funds our Roth accounts, and keep filling our spending, checking, and car ” buckets”
We, actually I as my wife has no interest (despite my efforts) in investing, are using money we inherited from my parents to fund our living expenses, and then our retirement assets if necessary to essentially buy larger inflation adjusted monthly annuity (ie Social Security) payments. Once we claim at 70 we will be receiving 84k per year which right now is enough to cover all of our living expenses. Then our retirement assets will all be fun money. Also by using my parents money to fund retirement until those funds run out will allow me to close out accounts at three different fund companies. All of our funds will then be at Vanguard which will be easier for our executor.
Believe me when I say that those who propose condensing your funds into one company are right. I have been dealing with three fund companies and traditional and Roth accounts which can be difficult keep straight. Don’t get me wrong it’s a nice problem to have but difficult to get my head around.
If this administration develops a new tax system that eliminates taxes on Social Security and exempts annual incomes under $150,000 from taxation, then paying taxes now to convert to a Roth could be a disadvantage. If taxation on purchases later increases, I would effectively be taxed twice—once on the Roth conversion and again through higher taxes on goods and services. There are too many ‘ifs’ in the equation to pull the trigger on completing a conversion at this time.
If the tax changes you mention occur without huge increases in taxes on the rich and businesses, which will never happen, the the country will quickly become bankrupt, and nothing we do financially will matter.
I agree about the “ifs”. I continue to think that savings consisting of traditional IRAs, Roths and taxable accounts is the best approach for me. I do want to keep my federal taxes within the 12% bracket and I’m able to do that. I suspect SS benefits will continue to be taxed and in order to deal with the dwindling trust fund the government may find it necessary to increase taxes and reduce benefits. Savings achieved via reduced waste, fraud and corruption may be helpful. However, the entrenched will do everything possible to prevent such adjustments to spending. I think that potential savings won’t be fully realized and that will have an impact on budgets.
For my wife and me we have typically stayed in the current 10% or low 12% tax brackets since my retirement from full time work. Currently each additional dollar of ordinary income turns $0.85 of our social security taxable. The 10% tax bracket rate becomes a 18.5% (10% x 1.85) marginal rate for us and the 12% tax bracket rate becomes a 22.2% (12% x 1.85) marginal rate for us. I waited until age 70 to claim my SS benefit, worked full time till age 72 and our living expenses are generally modest. Our current income sources meets ours needs and our reasonable wants.
If the equity market has a major correction, which for me is a 25% or more drop, I am thinking about being opportunistic about then making an appropriate direct Roth conversion for us to fill up our entire 12% bracket which will cost us 22.2% of the conversion amount (which I would include my additional taxable social security benefit income) in current federal taxes. I live in a state without a state income tax so state taxes are not a consideration for us.
My expectation is that in the long run my world broad based index equity fund in my traditional IRA that I would make the Roth conversions from would continue to follow a long term (over 10 years) upward trend, thus I could choose to convert at an opportune time with a much lower cost on a per share basis to convert. If no market correction occurs in my remaining lifetime my wife and/or children will inherit more traditional IRA and less Roth. Time for future compounding is on my beneficiaries side so I think in terms of my long term investing being for them and not for me. If no major correction occurs I plan to simply take traditional IRA distributions of at least our RMD amounts unless needs requires us to take more.
As I am still working at age 74 on a seasonal part time basis in a profession and with people that I like I have a lot of flexibility to spend my current earnings on wants, make additional traditional or Roth contributions as limited by my earned income and by IRA contribution limits to generally hit the tax brackets and tax expenditures I target, to gift or to save or spend for the unknowns I have not planned for. I have tried to do some of each and also have had a few unexpected expenses. It is nice to pay for some relatively small unexpected expenses out of current earnings and not draw down the money from our reserve. One negative outcome in my decisions is that my additional traditional IRA contributions I have made since reaching age 70 1/2 have limited my ability to make QCD’s that I can exclude from taxable distributions.
I also agree about the “ifs” that William Housley is appropriately concerned about but favor the planning and action diversification that Norman Retzke follows as he describes in his post. My planning will change as tax law and life circumstances change.
Best, Bill
I was ready to pull the trigger on moving forward three months of conversions when the Morningstar US Market Index hit the correction level (which it did for a day). But then it occurred to me to look at how much my wife’s Vanguard Target Retirement 2030 fund had dropped (the fund that is the source of the conversions) and it had dropped no where near 10%. Now that is my trigger for moving up the conversions. Does that seem sensible?
For us, I am am inclined to want to pull the Roth conversion trigger when the stock market hits the 20% drop to a bear market level which seems to historically occur ever 6 years on average. I may be being greedy. I seem to recall an article by Jonathan around the early part of the pandemic where he made such a conversion and wrote about why he did not consider doing so to be market timing. That article resonated with me. I need to see if I can find the article.
Deciding on a conversion at a market correction 10% level seems sensible to me especially if you have a large dollar amount of traditional IRA assets you want to convert to Roth and also expect a lot of years to do so.
Also I’m trying to convert all of my wife’s traditional before we both turn 70 and claim Social Security in just under three years, and thus may have higher taxable income. Also that way when we turn 73 we only have to take RMDs from one account. To quote my favorite early American literature author HD Thoreau, “simplicity, simplicity, simplicity.”
Here’s a piece justifying my “over-rebalancing” during market declines:
https://humbledollar.com/2022/10/my-investment-sin/