Is it too late to have a SSA tax free scenario?

Submitted by Orrin Kohon on Thu, 2016-01-14 21:10

The question is: What does a 67 yr old do to avoid taxes or as The Power of Zero says, get to a zero tax bracket?

I have a substantial brokerage account at 2.3 mil and a combined IRA’s with wife at 1.6 mil?

Is it too late?

Roth conversion with huge taxes?

HELP



Submitted by Alan - IRA critic on Thu, 2016-01-14 22:46

There is no way to avoid taxes starting at age 70.5 when RMDs begin. In the year both spouses are taking RMDs, the RMD income will be around 60k. The brokerage account probably produces dividend income and even in a bad year, the max cap loss that can be written off against the RMD income is 3k. You might work with a tax planner to determine what incremental conversions you could do to equalize your taxes starting now, and what you should do about long term care exposure. Conversions would result in more taxes before RMDs start in order to reduce the RMDs and stay out of the highest brackets after they do start. But it would not be wise to convert so much that you would pay more taxes on the conversion than you would save in the subsequent years by reduced RMDs. Be careful about suggestions that you put the brokerage balance into a deferred annuity. That would reduce your taxable income until about age 85, but then you would have to take annuity distributions in addition to your RMD. Remember that while taxes are unpleasant, it is what you keep after taxes that is most important. Finally, if there is a child or someone who will inherit your IRAs after you both are gone, what tax bracket will that person be in?  If they appear to be accumulating assets like you have, they will be much better of with an inherited Roth IRA than an inherited TIRA.



Submitted by Orrin Kohon on Fri, 2016-01-15 15:00

I am looking at some kind of insurance product that might allow borrowing in lieu of income from brokerage balance? It looks like we may be too late to get money out of taxable bucket into tax free bucket.  What about putting brokerage money say 2 million into real tax free vehicles like muni bonds in the state where I live if they are amt free? So it looks like there is no way to collect tax ssa by wife and I at age 70.5 since we already have hufe TIRA’s and large brokerage monies?



Submitted by Alan - IRA critic on Fri, 2016-01-15 20:28

It is probably wise to delay SS benefits to 70 as your benefits will be increased by 8% per year and 15% of your SS benefits will be non taxable. You will also get a COLA in most years. This will provide a couple more lower income years in which you can convert higher amounts than later on. Some munis may be all right but I certainly would not put a huge amount into single state munis unless all the entities in the state have sound financial ratings. Cannot comment on insurance products, because many of them are very complex and may have opportunity costs of tying up large amounts of money. You really need to consult a good financial planner to piece together a plan incorporating different options.



Submitted by Orrin Kohon on Sat, 2016-01-16 04:17

I have already sisn the file and suspend thing to grandfather it so we both get the max at age 70 = $7k a month.  Just trying to get income down to 32k to get ssa tax free but that is looking impossible now.  Roth conversion of 1.6 mil still a mystery however.



Submitted by Thomas MacDonnell on Sat, 2016-01-16 00:11

Your LIG!  Suggest you retain a good financial planner and tax advisor.Based on your profile, you should be able to locate and engage a based advise with more and more disclosure coming soon.Make sure the advisor has either a CFP or ChFC.And encourage account reviews on the sailboat! 



Submitted by Orrin Kohon on Sun, 2016-01-17 23:02

Does LIG mean Like a Goy?  



Submitted by Richard Rea on Mon, 2016-01-18 19:51

 IMO  the “opportunity” to get creative and minimize your lifetime taxes on “tax deferred money” is between the ages of 59 1/2 i.e. after the 10% early withdrawal penality goes away and BEFORE 70 1/2 when  Required Minimun Distributions start.  In that 11 year window you should be “metering out” you tax deferred funds into Roth IRA conversion.  The tax deferred $1.6M would be converted at an estimated $150,000 year.  When you get to 70 1/2 there would be no RMD “Tax Cliff”.Full 10 page article about the RMD Tax Cliff many are facing.https://www.jpmorganfunds.com/blobcontent/111/431/1323407059259_RI-TAXCLIFF.pdf



Submitted by Orrin Kohon on Tue, 2016-01-19 03:23

I am 67 with 800k in TIRA wife is 63 with 625k in 403b and she will work until Sep 2018.  So I should move my 800k over the next 3 yeras?  Then start moving hers after she retires in2018?  Should I take a large part of the 2.25 mil brokrage and try and find solid Muni Bonds that are totally tax and AMT free?  I am also drawing a salary from a small business which just keeps going for some reason.  Let’s pretend it will end in 3 years.  If I did that, would I not be tax free?  I made about 190k in 2015 stock investing but doen a bit now.  Thinking Muni tax frees to limit stress and get to low nor now tax.



Submitted by Richard Rea on Mon, 2016-01-18 19:56

Is it too late to have a SSA tax free scenario?If your SSA isn’t being tax your living in poverity IMO!  Rejoyce in having your SS benefit being taxed at 85%.  My big fear is that SS will be declared a “needs based program” and they will just take it all away.



Submitted by Richard Rea on Mon, 2016-01-18 22:46

 I said, “Rejoyce in having your SS benefit being taxed at 85%.” ……..  But just to avoid any confusion, “Rejoyce in having 85% of your SS benefit taxed at your ordinary income rate, what every that is.”   Is a better way to put it.



Submitted by Orrin Kohon on Tue, 2016-01-19 06:14

I am 67 with 800k in TIRA wife is 63 with 625k in 403b and she will work until Sep 2018.  So I should move my 800k over the next 3 yeras?  Then start moving hers after she retires in 2018?  Should I take a large part of the 2.25 mil brokrage and try and find solid Muni Bonds that are totally tax and AMT free?  I am also drawing a salary from a small business which just keeps going for some reason.  Let’s pretend it will end in 3 years.  If I did that, would I not be tax free?  I made about 190k in 2015 stock investing but down a bit now.  Thinking Muni tax frees to limit stress and get to low nor now tax.



Submitted by William Tuttle on Wed, 2016-01-20 21:30

It won’t help the OP, because his income will clearly be too high to escape his SS benefits being taxed. However, for others considering some of the ways mentioned, beware that tax free bond income is added back in to the income used for determining what percentage of your SS benefits are taxable



Submitted by Orrin Kohon on Fri, 2016-01-22 06:11

I just learned that.  Would it pay to use any type of insurance product or just draw SSA, IRA’s and make money on brokerage account and pay taxes?



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