Craig Wear, CFP® explains why individuals with very large traditional IRAs ("IRA millionaires") face a future tax "tsunami" once required minimum distributions (RMDs) begin. He contrasts the relatively low-tax early-retirement years with the sharp increase in taxable income from RMDs (examples: $60k–$100k+), notes consequential increases in Medicare Part B/D premiums (Medicare looks back two years) and Social Security taxation (up to ~85% taxable), and recommends accelerated/Roth conversions done strategically to mitigate lifetime taxes and heirs' tax burdens; he offers complimentary consultations.
Questions this video answers
Age 72.
Two years.
As much as about 85%.
Within 10 years.
Chapters
Hey there, this is Craig Weir. Hey, look, you know, if you're an IRA millionaire, you're among a very elite group of folks. At least from my perspective, you're going to be one of the best customers for the IRS for the rest of your life. So congratulations on that. You know, over the last three or four decades of helping people get the most out of their savings, I've really noticed a few things relative to people that have these large IRAs. So the first would be, you know, immediately after you retire, a lot of Americans pay a lot less in total dollars of tax than they have for the past few years. You know, you were probably at your peak earning years and now you have little to no income. And a lot of people after they just retire are waiting to take Social Security for a while or they're waiting for a pension to kick in for a few years. So they're just kind of living off of their savings. And a lot of people have some other funds outside of their IRAs. And so most of what they're living on is really just not taxable income. But most people aren't usually in a lower tax bracket. They do have less income, but not normally so much less that they're in a lower tax bracket. And this period of time in your life when you just retire feels really good at tax time because. Because you're paying a lot less dollars in taxes. In fact, so good that a lot of people really forget this tsunami that really waits for you. So the tsunami that I am talking about really becomes a reality within just a couple years after most people begin their required minimum distributions from those large million dollar plus IRAs. You know, your RMDs are going to add, you know, 60,000 to 80 to 100,000 or more to your annual taxable income when you get to age 72. And as you probably know by now, each year that you live, your required minimum distribution also increases. And these RMDs are really what cause your monthly Medicare premiums, at least part B and D, to increase by as much as 40% or more. You know, Medicare looks back two years on your tax returns in assessing what their premiums are. And you know, for some people, these RMDs are really cause as much as maybe 85% of your Social Security to be taxable as well. So if you're an IRA millionaire, here's a few reasons why you're going to be the IRS customer, best customer for the rest of your life. Number one, your large IRA is going to create a constant stream of taxes for the US treasury for your lifetime and for your spouse's lifetime through those required minimum distributions. And the large IRA is also going to create a tax to your heirs. Now, they don't. They maybe won't have an estate tax, but when they receive that IRA, they've got to start taking it, making distributions within 10 years. So the longer they wait to take the distributions, the higher the tax, the higher the balance is, and so the higher the tax is going to go. Also, look, unless you really do something about the problem now, you're not going to be able to do much to mitigate it later. You're going to be stuck, and the IRS gets your check every year. So the solution is really simple. You have to find a way to convert your IRA to a Roth IRA very strategically and with math and tools that prove that your tax and your Medicare savings over your lifetime. And the other thing I'll say is you're going to probably have to convert it at a higher tax bracket than you're comfortable with today. And that's usually what it takes to escape this big tax trap that you're in. Just because you did the right thing and saved for so long, you're also going to have to convert a whole lot more than you're probably already converting. So you'll simply have to do it if you want to optimize your tax brackets. You know, if you're not sure about how to implement this or just want to know whether you're a good candidate for what I call accelerated Roth conversions, you can click on one of the links below. We offer complimentary consult to folks that really want to figure out if they really should be doing Roth conversions or not. So I hope some of this was a little bit helpful to you and look forward to having you back here on the channel as well. So take care. Have a great day.
