66 • RUBY, WILDING & SWANSBURG This anal ysis uncovered a n upsett ing fact : Nearly two- thirds of everyt hing I’ve saved to this point—forty-plus years of sa ving a nd all t he associat ed growth—ha s just b een t o pa y off my futu re tax bill. Now , if I had used my RMDs as income rather than reinvesting them, my tax bi ll would be lower , but sti ll incredibl y high rel at ive to the size of my account. IRA Value: $700,000 Assumed Tax Liability 25% Pre-Tax Growth Rate 5% Receive RMDs from Age 72 to Age 90, Per IRS Rules
Total Taxes Paid on RMDs
$230,390 $160,589
Taxes Paid by Heirs on Remaining IRA Value at Death (Age 90)
TOTAL TAXES PAID
$390,979
Example shown for illustrative purposes only and is not guaranteed. Actual results may vary. If I spent my RMDs instead , I would sti ll ow e t he IRS $390,000 in t axes—more than half of my current IR A value. The Cost of Conversion The other thing I evaluated was the tax cost of converting my $700,000 IR A to a Roth IRA. For this calculation, I didn’t need an Excel s preadshee t. If I withdr ew $700,000 and paid 25 per cent in taxes on the withdrawals , I would pay $175,000 i n taxes . Then I would be done . So, through age ninety , I would owe $175,000 in taxes .
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