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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.