Torvy
Super Member
^not really, for many of us. RMD wasn't a thing until 1986. The contract is simply that we pay taxes on those funds upon withdrawal. Forced withdrawals wasn't part of the deal.
How are your investments doing?
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LittleBittyBigJohn
Veteran Member
We only got the Roth option on 401K a few years ago at my place of employment. I changed all my contributions to go that way about as soon as it became available. But sadly, most of mine is in traditional.
CH4Ohio
Veteran Member
I agree that it can be a bit of a shock when you see the numbers. Has been for me. But, as you say, it's not the worst problem you could have to deal with.
CH4Ohio
Veteran Member
So you've been concerned about this for 40 years now?
Torvy
Super Member
I've been concerned about my retirement plan for at least that long.
To combat some of the overreach, we retired early and withdraw a smaller amount that keeps us in the lower tax brackets on those funds. That should help keep forced withdrawals to smaller amounts.
RMDs are a horrible policy in general.
To combat some of the overreach, we retired early and withdraw a smaller amount that keeps us in the lower tax brackets on those funds. That should help keep forced withdrawals to smaller amounts.
RMDs are a horrible policy in general.
CH4Ohio
Veteran Member
I'm no tax expert, but seems like the alternative would be to let it accumulate until death when your estate pays the highest possible tax rate on the entire balance (37% currently, I believe) in one final distribution. Painful as it is, I know I can do better than that.
MossRoad
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jmc
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Another thing about delaying income taxes until withdrawals in retirement is those delayed taxes are compounding for decades on your behalf instead of being syphoned off in real time.
Torvy
Super Member
Two bad policies don't equal one good one.
Leaving it up to the individual is better.
Also, up to 40%, but the exemption threshold is $13.99 Million.
Most of us don't have estates in that range. Either way, I oppose all estate taxes and the RMD.
jmc
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Saw one of these near my parents' grave. An engraving of a solitary cabin overlooking a lake. Guy in a boat has a large fish on, jumping out of the lake while a large buck nearby looks on.
Oaktree
Super Member
"Taxation punishment"????
Seems to me that anyone who makes $150k/yr can easily afford to pay a higher level of taxes than someone making $40-50k/yr.
Where are Medicare premiums "doubling, tripling or nearly quadrupling"? Maybe you ought to shop around a bit more. Ours went up a bit, but nowhere even near 50%, let alone the levels you mention.
Yeah, paying taxes sucks but that's the price of living in some sort of society. To me, an income tax is the least objectionable form of taxation...the more you earn the more you pay.
MossRoad
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My in-laws have a nice black stone with a great picture of them together etched into it. We recently bought two plots behind them, so I know where most of me will be eventually.
MossRoad
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Itemized deductions eliminated?
We've itemized every year for 40 years and never in those 40 years of marriage have we beat the standard deduction. We came within a couple hundred bucks ONCE.
MossRoad
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We converted our IRAs to ROTH as soon as we were able to. Unfortunately, both of our 401s/403s don't offer a ROTH option, so we'll be paying taxes on those.
Oaktree
Super Member
At which point IRAs had only been around for 10 years or so (and not really all that well known until the early 80s). If the government is going to give you a tax break on money you set aside for retirement, only seems right that you have to pay those taxes at some point. No free lunch.
When the Roth IRAs became available, my reaction was "why would anyone want to do this?". I, for one, appreciated the ability to deduct contributions during my working/earning years. I don't find having to pay taxes on withdrawals that big an imposition. It's only income tax, no SS or Medicare that's owed.
MossRoad
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Many if not most people can't manage their own money. Then they become a burden on the rest of society.
Oaktree
Super Member
I did for maybe the first 10 years or so of homeownership. Then again, I bought my first house in 1977 when mortgage rates were pushing 9%, so there was a fairly high interest component. Once that house was paid off (after 13 yr), never had enough deductions again.
DarkBlack
Elite Member
Again, RMD’s aren’t forced withdrawals, unless you choose that route. It’s forced tax time on the amount of your RMD.
Here’s an explanation of “In-kind” distribution “
Your money stays with them
Property taxes are forced taxes every year too
MossRoad
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Because at the time, the selling point on ROTHs was:
- Have you ever seen taxes go down?
- Do you think taxes in 40 years will be less than they are today?
- Do you think the tax you pay today on those ROTH contributions will add up to more than what you'll earn in the next 40 years with tax free investments in mutual funds?
The answers to those three questions are NO, NO and NO.
MossRoad
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Even with 12.5% interest rate on our first house, we never beat the standard deduction. It was a small starter home and the mortgage payments were $256 per month.
We also were very fortunate to never have large medical expenses, or any of the other things that qualified as deductions.
