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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19483  
Subject: Re: RMD, Wrap Fees, and Taxes Date: 5/5/2013 12:46 AM
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At age 70 when RMD starts, the withdrawals will double my retirement income. I will move back to my pre-retirement tax rates.

So, is that a bad thing or a good thing? On the surface it's terrific news. I'd love for my income to double when I turn 70. We don't have anything close to a 100% tax rate, so the more income you have, the more taxes you pay, but you still have more in your pocket than you would have had without the additional income. In short, stop obsessing about taxes and a deduction for investment expenses.

That said, there can be situations in which RMD's have an effect other than simply more income equals more taxes. Percentages can sometimes be useful comparisons, but in this case "double" doesn't mean much without knowing the starting point.

I'm not clear from your posts whether you are already receiving Social Security benefits or are already enrolled in Medicare Part B. RMD's may (or may not) increase the portion of your SS benefit that is taxed and your Medicare Part B premium. You can figure that out fairly easily. There's a worksheet for line 20 of the 1040 that calculates the taxable portion of SS. It can be anywhere from 0% to 85%. If you're taxed on 85% without the RMD, the RMD has no effect here.

On the Medicare front, at www.medicare.gov you can find the income levels at which your Part B premium goes up. Again, if you're already at the max, your RMD will have no effect here.

So let's say after you do your analysis you find that there will be a significant impact from your RMD's. Other than making bad investments, the only thing you can do is some conversions to Roth, which reduce the base computation amount for future RMD's. But again do the same analysis as above to see whether you're just shooting yourself in a different foot.

Phil
Rule Your Retirement Home Fool
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