RMD advice

Lanny

Lanny

New Member
Location
Southeast U.S.
Hello, new member here. I'm Lanny, in my mid-sixties and I'd like to say hello to everyone at Senior Forums.

I have a modest 401K account of around 70,000 dollars and plan to begin taking distributions of 5000 dollars a year when I retire at age 68.

Question: Will I be required to pay taxes on my 5000 dollar distribution if my wife and I have taxable income that's less than the standard deduction?

From what I gather, the standard deduction is $25,900 plus an additional $1350 for those over 65.

Thanks in advance.
 

Lanny said:
Question: Will I be required to pay taxes on my 5000 dollar distribution if my wife and I have taxable income that's less than the standard deduction?
Click to expand...

I find this online tool useful for trying out different strategies and seeing what the taxes would be:

https://www.dinkytown.net/java/1040-tax-calculator.html

And there is this online tool for getting a general idea depending on the state you live in, I'm not sure if it handles local taxes tho:

https://smartasset.com/retirement/retirement-taxes
 
Lanny said:
Question: Will I be required to pay taxes on my 5000 dollar distribution if my wife and I have taxable income that's less than the standard deduction?
Click to expand...
Just go online and search on topics such as " income tax calculator", or "income tax brackets". Add up your incomes, then check on the amount of taxes due on that amount, and you should have a fairly good estimate.
 
Many thanks to everyone for welcoming me. A lot of fine folks here at Senior Forums.

And thanks for the advice Don M. and Lethe200.

My wife and I predict that our taxable income when I retire will probably be around 15,000 dollars a year which includes my 401K distribution. Far below the standard deduction.

It just seems a bit surprising that a person can accumulate money in a 401K without any of it being taxed on the front end, then withdraw a little at a time at retirement and pay no taxes on it then either. Is that right?
 
full
 
Lanny said:
Many thanks to everyone for welcoming me. A lot of fine folks here at Senior Forums.

And thanks for the advice Don M. and Lethe200.

My wife and I predict that our taxable income when I retire will probably be around 15,000 dollars a year which includes my 401K distribution. Far below the standard deduction.

It just seems a bit surprising that a person can accumulate money in a 401K without any of it being taxed on the front end, then withdraw a little at a time at retirement and pay no taxes on it then either. Is that right?
Click to expand...
This link should explain it to you:

https://www.investopedia.com/articl...61915/how-your-401k-taxed-when-you-retire.asp
 
Lanny said:
It just seems a bit surprising that a person can accumulate money in a 401K without any of it being taxed on the front end, then withdraw a little at a time at retirement and pay no taxes on it then either. Is that right?
Click to expand...
Yes, I think that is correct, it is one of the selling points for contributing to 401k's that most people are in lower tax brackets after they retire so they pay less (or no) tax on the deferred income.

Though now that I've retired and have been looking at discussions of it, turns out a lot of people put so much in their 401k's that when they reach 72 yrs and are forced to take the required minimum distributions, they are in a higher tax bracket.

Are you remembering to include your Social Security payments as income? They are sometimes taxable too, though they have a bizarre calculation, which luckily the dinkytown 1040 online calculator does automatically.

Here are the IRS instructions to determine if your social security payments are taxable:
Are Any of Your Benefits Taxable?
To find out whether any of your benefits shown on Forms SSA-1099 and RRB-1099 may be taxable, compare the base amount (explained later) for your filing status with the total of:
1. One-half of your benefits; plus
2. All your other income, including tax-exempt interest.
Exclusions. When making this comparison, don’t reduce
your other income by any exclusions
...
Figuring total income. To figure the total of one-half of your benefits plus your other income, use Worksheet A, discussed later. If the total is more than your base amount, part of your benefits may be taxable.
If you are married and file a joint return for 2021, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Even if your spouse didn’t receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable.

Base amount. Your base amount is:
• $25,000 if you are single, head of household, or qualifying widow(er);
• $25,000 if you are married filing separately and lived apart from your spouse for all of 2021;
• $32,000 if you are married filing jointly; or
• $0 if you are married filing separately and lived with your spouse at any time during 2021.
 
https://gifimage.net/wp-content/uploads/2018/11/welcome-to-the-group-gif-5.gif


I believe there is a cap on how much income is made before you have to pay taxes on it. If you make more than that amount you have to pay taxes.
 
Many thanks again to everyone for the warm welcome. Really appreciate the information and links everyone has provided too.

The vast majority of information I'd found before coming to Senior Forums was focused on high income earners with large 401Ks.

Excellent Investopedia link. The information contained therein was exactly what I was looking for. Thank you Liberty.

From Investopedia --
"When you take 401(k) distributions and have the money sent directly to you,
the service provider is required to withhold 20% for federal income tax.
If this is too much—if you effectively only owe, say, 15% at tax time—
this means you'll have to wait until you file your taxes to get that 5% back.

Instead, "roll over the 401(k) balance to an IRA account and take your cash
out of the IRA," suggests Peter Messina, Vice President at Salt Lake City's
ABG Consultants, which specializes in retirement plans. "There is no
mandatory 20% federal income tax withholding on the IRA, and you can
choose to pay your taxes when you file rather than upon distribution."
 
HoneyNut said:
Yes, I think that is correct, it is one of the selling points for contributing to 401k's that most people are in lower tax brackets after they retire so they pay less (or no) tax on the deferred income.

Though now that I've retired and have been looking at discussions of it, turns out a lot of people put so much in their 401k's that when they reach 72 yrs and are forced to take the required minimum distributions, they are in a higher tax bracket.

Are you remembering to include your Social Security payments as income? They are sometimes taxable too, though they have a bizarre calculation, which luckily the dinkytown 1040 online calculator does automatically.

Here are the IRS instructions to determine if your social security payments are taxable:
Are Any of Your Benefits Taxable?
To find out whether any of your benefits shown on Forms SSA-1099 and RRB-1099 may be taxable, compare the base amount (explained later) for your filing status with the total of:
1. One-half of your benefits; plus
2. All your other income, including tax-exempt interest.
Exclusions. When making this comparison, don’t reduce
your other income by any exclusions
...
Figuring total income. To figure the total of one-half of your benefits plus your other income, use Worksheet A, discussed later. If the total is more than your base amount, part of your benefits may be taxable.
If you are married and file a joint return for 2021, you and your spouse must combine your incomes and your benefits to figure whether any of your combined benefits are taxable. Even if your spouse didn’t receive any benefits, you must add your spouse's income to yours to figure whether any of your benefits are taxable.

Base amount. Your base amount is:
• $25,000 if you are single, head of household, or qualifying widow(er);
• $25,000 if you are married filing separately and lived apart from your spouse for all of 2021;
• $32,000 if you are married filing jointly; or
• $0 if you are married filing separately and lived with your spouse at any time during 2021.
Click to expand...
Thanks :)
 
Here in Canada known as RRIF ( Registered Retirement Income Fund) and yes it is added to income and taxable
My withdrawals for living have always put me up in higher bracket so higher taxes are payable :confused:
I wish now the tax had been deducted when contributions were made during my working years making it tax free now.
Hope you have better luck


and......

welcome-aboard.jpg​
 
Mizmo said:
Here in Canada known as RRIF ( Registered Retirement Income Fund) and yes it is added to income and taxable
My withdrawals for living have always put me up in higher bracket so higher taxes are payable :confused:
I wish now the tax had been deducted when contributions were made during my working years making it tax free now.
Hope you have better luck


and......
Click to expand...
a very regal and distinguished looking kussy kat
 
@Liberty posted a very good link. Let me add this advice if you and your wife donate to any charities at all during the year or intend to. In case that $5,000 puts you into a higher tax bracket, when you ask your brokerage or whatever entity is managing your 401K funds to send the donation directly to the charity of your choice, the portion of your RMD that you designate will be not be taxable. I've done this for several years now with my traditional IRA. And...
Welcome Glad Ur Here.jpg
 
OneEyedDiva said:
@Liberty posted a very good link. Let me add this advice if you and your wife donate to any charities at all during the year or intend to. In case that $5,000 puts you into a higher tax bracket, when you ask your brokerage or whatever entity is managing your 401K funds to send the donation directly to the charity of your choice, the portion of your RMD that you designate will be not be taxable. I've done this for several years now with my traditional IRA. And...
Click to expand...
Oh, that's a good reminder, thank you! Spouse is still 4 yrs from his RMD but just for fun I looked up what he'd have to draw out and it was pretty staggering, since we don't need the funds and already are in a high tax bracket. I'll have to ask our CFP if we can direct the funds to our DAF or if it has to go directly to a charity (probably the latter, I'd guess).
 
Lanny said:
Many thanks again to everyone for the warm welcome. Really appreciate the information and links everyone has provided too.

The vast majority of information I'd found before coming to Senior Forums was focused on high income earners with large 401Ks.

Excellent Investopedia link. The information contained therein was exactly what I was looking for. Thank you Liberty.

From Investopedia --
"When you take 401(k) distributions and have the money sent directly to you,
the service provider is required to withhold 20% for federal income tax.
If this is too much—if you effectively only owe, say, 15% at tax time—
this means you'll have to wait until you file your taxes to get that 5% back.

Instead, "roll over the 401(k) balance to an IRA account and take your cash
out of the IRA," suggests Peter Messina, Vice President at Salt Lake City's
ABG Consultants, which specializes in retirement plans. "There is no
mandatory 20% federal income tax withholding on the IRA, and you can
choose to pay your taxes when you file rather than upon distribution."
Click to expand...
You are so welcome, Lanny. We're pretty good here on the forum at helping members.
Just let us know anything else you are possibly navigating in the senior retirement world...lol.
 
Lethe200 said:
Oh, that's a good reminder, thank you! Spouse is still 4 yrs from his RMD but just for fun I looked up what he'd have to draw out and it was pretty staggering, since we don't need the funds and already are in a high tax bracket. I'll have to ask our CFP if we can direct the funds to our DAF or if it has to go directly to a charity (probably the latter, I'd guess).
Click to expand...
You're welcome Lethe. Glad you found the info useful. I'm blessed in that a few decades ago I decided to convert to a Roth, even though "experts" were saying if you weren't in a certain income bracket it wouldn't be worth it. It made no sense to me...the lower your income bracket, the better it is not to have to deal with unnecessary taxes. I am so glad I converted most of my investments. Afterward I directed all my investing to my Roth, so my traditional IRA is only 7% of my investment portfolio and my RMDs aren't huge. That being the case, I'm happy to donate the full RMD amounts to St. Jude each year. Better they get it than Uncle Sam and like you and your husband, I don't need the money.
 

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