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My wife and I are 73 and 75 and in RMD territory. With pension, SS and RMD our marginal tax bracket is 24%.
80% of our assets are in tax sheltered IRAs. Other than QCDs to reduce tax liability are there any other strategies? We recognize that one of us will be facing the widow/widower’s tax situation. Also IRMAA will take a bigger chunk of our Medicare bill.
My feeling is that we continue with our current situation and pay the effective tax rate of maybe 18 – 20% going forward. But I can be persuaded to do otherwise. Your feedback is appreciated.
One solution may be to take a large chunk from the IRA in a given year, up to a bracket you are comfortable paying. Pay that year’s income tax and 2 years down the road pay the higher IRMAA. Doing this once or twice (rather than small amounts yearly that still exceed IRMAA limits) may eliminate or reduce the widow tax and yearly IRMAA increases also down the road. Take the hit in one year rather than exceeding IRMAA every year.
Don’t know your investment allocation, but something to consider is a TIPs bond ladder in your TIRA account for your RMDs. I have rebalanced my accounts to accommodate this move while maintaining my 60/40 overall allocation. Outcome is lower taxed dividends in my taxable brokerage and lower balances and RMDs in my TIRA. I am 69 and starting SS soon.
My feedback-
You may want to investigate the option of a Qualified Longevity Annuity Contract (QLAC) to defer a portion of your RMDs for one or both of you.
Here is a link to an archived AICPA 2014 article in The Tax Advisor when QLACs were first created which should give you an overview of how this type of annuity works.
Much has changed since 2014 when QLACs became available. The decision to buy QLACs are complex and best benefit a small subset of (typically affluent with a high tax rate in retirement) people primarily to help participants hedge the risk of drawing down their benefits too quickly and thereby outliving their retirement savings (2012 Preamble to REG-115809-11). A really long life is the problem a QLAC is trying to solve.
Note that in 2026 the maximum QLAC that each of you could purchase has increased to $210K. Prior premium purchase percentage limitations on QLAC purchases have been modified and I have no expertise on such matter.
I have made the decision to not buy a QLAC but it is an option in planning for some.
I hope this helps. I would be interested if anyone has experience with buying a QLAC or deciding not to.
Bill
Just be happy you have some choices, and remember if you pay more taxes, it is OK, as you are living the dream of being able to enjoy your retirement. Roth Conversions do not work for me either, pretty much the same for you, not worth it. I am paying higher IRMMA now that I am in my 80’s. Smile.
You should try Pralana, Boldin, or MaxFI to get a sense of how your tax brackets will look like in retirement and any benefit from Roth conversions at this stage of your lives.
This will sound extreme but let’s say for the sake of argument that someone has no heirs, is very tax averse, and has a such a large T-IRA balance that Roth conversions wouldn’t make a meaningful dent, and even after maxing out QCDs, RMDs put him/her into IRMAA territory. One way for this person to get the balance of the T-IRA down would be to invest in triple leveraged short ETFs. Realizing this is the epitome of the tax tail wagging the dog, it may be an option for some.
Your situation sounds similar to ours, but I’m afraid we’re in a higher bracket. We’ve made no Roth conversions. Basically we look at RMDs as money moving into our Pot of Gold. We try to order the RMDs when the fund values are high. There we invest it primarily in Funds that generate Capital Gains rather than Dividends to minimize the tax impact of growth outside of the retirement funds.
If I understand your situation, and I may not, I too have a lifetime of savings in IRAs and employer-sponsored plans – we likely differ in many ways, including nominal income, pension income, grandchildren and some other factors.
Four strategies I am investigating are:
(Disclaimer: There are likely many more I have not considered, or I already considered and rejected)
(1) Annual Roth conversions, at least up to the top of the 24% joint tax filer marginal bracket,
(2) Physical relocation, depending on state income tax and state estate taxes, as well as family structure (adult children, grandchildren) – perhaps now, perhaps after the first to die.
(3) Annual gifts to children, grandchildren, up to the annual exclusion, $19,000 from each spouse, and
(4) Estate, gift, tax planning.
Some background:
2026 Federal tax brackets:
Married, 24%, from $206,701 to $394,600
Single, 24%, from $103,351 to $197,300
Single, 32%, from $197,301 to $250,526
Single, 35%, from $250,526 to $626,350
2026 IRMAA brackets:
Single MAGI Married Filing Jointly
≤ $109,000 ≤ $218,000
$109,001 – $137,000 $218,001 – $274,000
$137,001 – $171,000 $274,001 – $342,000
$171,001 – $205,000 $342,001 – $410,000
$205,001 – $499,999 $410,001 – $749,999
$500,000+ $750,000+
So, sounds like your, married, federal taxable income, is currently between $206,701 and $394,600, so that the second to die, assuming household income continues at that level, may be in the 32% – 35% marginal rate.
And, looks like you are already paying IRMAA, and the second to die may likely get to a higher bracket.
It isn’t the average tax rate, but the marginal rate to consider, the brackets.
Roth conversions up to top of the 24% bracket subjects income to the current bracket.
Physical relocation depends on many, many factors, family circumstances, including the state income taxes on your RMD (if any), state estate taxes on the first to die (typically qualifies for an exclusion, special rules for surviving spouse). Keep in mind potential use of home equity to pay taxes on conversions and to make gifts, as well as the tax deductibility of mortgage interest after relocation.
The last two depend on legacy preferences.
Annual, inter vivos gifts is a strategy some use to reduce future income from investment gains on assets in taxable accounts – including, as you and your children might discuss, funding a grandchild’s 529 and/or 530A account.
Some have children and grandchildren who are in the same or higher marginal tax brackets. Others are in lower tax brackets. So, while the stretch IRA has been eliminated, some engage in estate and tax planning on how to pass assets, including strategies for passing assets after the first to die.
And, of course, some have charitable objectives that might also be a consideration upon the passing of the first to die.
Get thee to financial, tax and estate planners, make decisions (including, perhaps, a decision that you are already properly positioned), then annually update.
Keep in mind that you may have other issues to consider, which might be surfaced in discussions.
So, even if you still end up paying more taxes and IRMAA surcharges, even the negatives you’ve identified are not avoidable, at least you’ll be more confident that you are optimizing results of your retirement and survivor strategies.
Topping off the 24% tax bracket does not take a meaningful bite; under $200K for several years Is it worth the effort for even a million dollar balance?
Just a note regarding:
3) Annual gifts to children, grandchildren, up to the annual exclusion, $19,000 from each spouse
That is the amount of annual gift that does not have to be reported to the IRS. We have given larger gifts to assist with house purchases and it just requires filing IRS Form 709 and reduces our $30 million (for married couple) lifetime exemption – which we are of course no way near!
There are some situations and events when a IRS form 709 is required even when gifts are less than the annual exclusion amount.
See the IRS 2025 709 instructions–
Who Must File-
In general. If you are a citizen or resident of the United States,
you must file a gift tax return (whether or not any tax is ultimately
due) in the following situations.
• If you gave gifts to someone in 2025 totaling more than
$19,000 (other than to your spouse), you must generally file
Form 709. But see Transfers Not Subject to the Gift Tax and
Gifts to Your Spouse, later, for more information on specific
gifts that are not taxable.
• Certain gifts, called future interests, are not subject to the
$19,000 annual exclusion and you must file Form 709 even if
the gift was under $19,000. See Annual Exclusion, later.
• Spouses may not file a joint gift tax return. Each individual is
responsible to file a Form 709.
• You must file a gift tax return to split gifts with your spouse
(regardless of their amount) as described in Part III Spouse’s
Consent on Gifts to Third Parties, later.
• If a gift is of community property, it is considered made
one-half by each spouse. For example, a gift of $100,000 of
community property is considered a gift of $50,000 made by
each spouse, and each spouse must file a gift tax return.
• Likewise, each spouse must file a gift tax return if they have
made a gift of property held by them as joint tenants or
tenants by the entirety.
• Only individuals are required to file gift tax returns. If a trust,
estate, partnership, or corporation makes a gift, the
individual beneficiaries, partners, or stockholders are
considered donors and may be liable for the gift and GST
taxes.
• The donor is responsible for paying the gift tax. However, if
the donor does not pay the tax, the person receiving the gift
may have to pay the tax.
• If a donor dies before filing a return, the donor’s executor
must file the return.
Who does not need to file.
If you meet all of the following requirements, you are not required to file Form 709.
• You made no gifts during the year to your spouse.
• You did not give more than $19,000 to any one donee.
• All the gifts you made were of present interests.
I would also note a few administrative headaches and considerations related to gifts and gift tax returns-
To avoid these issues most people strive to never make a taxable gift during life of a present interest gift above the annual gift exclusion amount that would require a filing of a federal gift tax return. Depending on where your domicile is you may also have state gift tax reporting obligations. If you as a surviving spouse expect your estate to be close to or above the current ($15M) exclusion then you may want to seek professional advice from someone with appropriate knowledge and experience in this area that will still be around when you are not.
I hope this helps,
Bill
Gee Jack, who would guess you are a lawyer?😁
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