Between the two you can quickly make plan decisions. RMD is progressive. Starting at age 70 they take a little more every year up to age 93
If you start with 1M in the IRA at age 70 and are receiving 6% growth you are forced to remove the value of your TIRA x the RMD% from the IRA and that amount is taxed as ordinary income based on your filing status. So a $1M and 3.65% yields a $36,500 RMD on year 1. If your SS is 50K you are taxed at .85% of that or 42.5K. If you have no other income your income is 79K. If you are married filing jointly and both spouses are over 65 your tax bill will be $5,907 (in the 12% bracket) using standard deduction. If single you would owe $10,328 (in the 22% bracket) on that $79K income. Your gross income would be $86,500 excluding the SS tax break and the 7K difference just about pays your taxes. At 6% growth at age 75 and 2% inflation your 1M will be worth 1.126M even with the yearly 5 years of RMD withdrawal and the RMD at in this case is 49206 and SS has grown to 55,240 of which 46954 is taxable so your taxable income is 96160 and married tax is 7966 and single tax is 14104. Gross income is 104,446
In a table the first 15 years of 1M RMD 6% growth
So you can see taxes go up by the RMD% and the progressive tax bracket and by year 10 the single player is already at the 24% bracket. Who might the “single” be? Could be your widow if you kick at 79.
Here is gross income at 70 80 and 85 and the net after tax
Here is the 1M portfolio in Schwab and the distribution schedule
and you can download a printable chart and table to fill in a spread sheet
I set about once to write a tax calculator in EXCEL but it was more time than I wanted to spend to write it and test it. There are plenty of tax sheets out there but nothing that fit my specific need so I spent an afternoon and did it by hand
Here is a shot of Tax Plan Calc’s output
I generally test about 20 years in 5 year increments to test tax scenarios so the calculations aren’t ridiculous and you get a good idea of the trend
Here is a 600K TIRA RMD for 20 years at 6% and a 50K SS inflated at 2%/yr in 5 year snapshots. The top level of the married filing jointly 12% bracket is 104K taxable income. So a married filing jointly with a 600K TIRA @ 6% stays in the 12% bracket for 20 years if you live on just SS and RMD This is good to know. It means if you have 1.5M in the TIRA, Roth convert 900K before age 70 and you will minimize 20 years of taxes. If you have taxable money as well you can sell stocks at 0% cap gains tax up to a taxable income of 104K You be optimized baby! This is your late in retirement WR money, post age 70. I would call it the post age 70 WR epoch. What you live on pre age 70 needs to be developed separately.
Goal: convert 900K of 1.5M TIRA to a Roth leaving 600K in the TIRA cost 124K in taxes