In this series of videos we’re going to tackle what someone can do when they have $1 million in an IRA.
We’ll start with Karen and Ken, Married Filing Jointly. WE’ll have them take Social Security at 66, 70 and 62 and look at their taxes due, their income, expenditures and their ending net worth.
Then we’ll see what things look like when they start Roth conversions.
Finally, we’ll make Karen a single taxpayer right out the gate and see what that looks like.
So, buckle up, it’s gonna be a wild ride!
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LEARN MORE ABOUT: IRA Accounts
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Karen Has A $1 Million IRA – Now What? (Social Security at 66, 70)
Karen, a hard-working individual, has diligently saved throughout her career and now finds herself with a substantial nest egg in her Individual retirement account (IRA) – a cool $1 million! But what should she do next, especially considering her options with Social Security at ages 66 and 70?
First and foremost, Karen should be proud of her accomplishment. $1 million is no small feat and is a testament to her commitment to financial responsibility and planning. Now, the challenge lies in making the most of this hard-earned money to secure a comfortable retirement.
One important factor for Karen to consider is her age. At 66, she becomes eligible for full Social Security benefits, which means she can start receiving those benefits if she chooses to do so. However, it’s essential to understand that the longer Karen delays taking Social Security, the more her monthly benefit will increase.
If Karen waits until she turns 70 before collecting Social Security, her benefit will be significantly higher than if she starts at 66. This is because Social Security benefits increase by about 8% per year for every year they are delayed beyond full retirement age. While it may seem tempting to start receiving benefits earlier, Karen may want to weigh the potential for a higher monthly benefit against her financial needs and any other sources of income she may have.
Another crucial consideration for Karen is the tax implications of her IRA withdrawals. Traditional IRAs have tax-deferred growth, meaning that when Karen starts making withdrawals, she will have to pay taxes on those funds. Karen should consult with a financial professional or retirement planner to develop a withdrawal strategy that minimizes her tax burden while still providing her with sufficient income.
One option that Karen could explore is a Roth IRA conversion. By converting a portion of her traditional IRA into a Roth IRA, Karen can potentially create a stream of tax-free income during retirement. However, this decision should be made after careful analysis of her current and projected tax situation.
In addition to Social Security and IRA withdrawals, Karen should also consider other sources of income for her retirement. Does she have any pension plans, rental properties, or other investments that can supplement her funds? Diversifying her income sources can help protect against unexpected changes in the market or any reductions in her Social Security benefits.
Lastly, Karen must remember that retirement planning is an ongoing process. As she moves closer to retirement, it’s crucial for her to periodically review her financial goals, investment strategy, and risk tolerance. Life circumstances can change, and adaptive planning is necessary to ensure she remains on track to meet her retirement objectives.
In conclusion, Karen’s $1 million IRA is an impressive achievement, and with careful consideration of her options, she can maximize its potential. Decisions about when to start collecting Social Security and how to manage IRA withdrawals should be made after weighing the financial benefits and considering the tax implications. Through a thoughtful and comprehensive retirement plan, Karen can confidently navigate her way into a comfortable and financially secure retirement.
I'm a widow and I'm going to be 56 this year 2022 .my husband died in 2009 .Does it matter if I apply as a widow or single on my taxes?
My plan is to burn down my $1M 401k for 12 years ( travel ) and let our $1M brokerage account grow for the 12 years with it receiving tax-strategic 401k (converted to IRA) withdrawals contributing to brokerage account … sound approach??
Do you recommend having your retirement portfolio asset allocation with stocks as high as 50%?
Ken is a looser
Good luck living on 30,000 a year.
A nice garage would be $300k in a city in California, but it's a huge state with lots of people out in the sticks. Oh boy, love to be at 17% Federal tax! Hopefully my SS covers my health insurance–no existing issues. 10% MN state tax.
You killed Kenny!! Lol some will get it.
Karen Has A $1Million IRA
Only a $million. This is a BIG problem that needs immediate attention!
is it a Roth IRA? big difference
why would Ken Not start SS at 67 FRA?
That property value sounds too low. $300k in zip code 90001? That is not a very nice area of Los Angeles. But even with that consideration, it seems about $100k too low. I looked on Zillow that there are no homes (condo or house) for sale for $300k or less. Not that the value of their home matters much for this retirement planning.
Another commenter mentioned that they must have high property taxes. I highly doubt it. I'm sure that their taxes are unusually low. Given their age (60's), and the fact that they have paid off their home, I suspect that they purchased it a long time ago. That means that Prop 13 keep a tight cap on their taxes. I'd bet that they aren't paying more than $3k a year in property taxes.
They could chose to sell that home and move somewhere else in California and keep their low tax bases. As long as they don't pay more for the new home than they sell their old home. They could move to a safer and less polluted area, and probably find a nice condo for $350k. Because they no longer have to be within proximity of work, then they can go anywhere.
My computation is based on the assumption that they bought their home 20+ years ago for $180k. Their 2020 property tax would be $2674 plus bonds, so $3k. California caps property appreciation at 2% per year.
Josh, I know this an old video but see you do similar on some of your other videos. I wonder why you don’t pull as much out of 401k//Ira as you can under the 12% tax bracket on the front of retirement?Either transfer to after tax brokerage or a Roth conversion. That was my initial thought for myself but I am not a master at this stuff like you. I am in the 22/23% now. 46 and hoping to retire in 11 years. Would love to see some early planning to give a sample of what folks in their 40s need to save/plan in order to retire early rather than how to disburse what we have. I sometimes think I save too much and don’t spend enough now. If you ever need an example for a video, I would be happy to provide my details.
If she is a true "Karen", then it makes sense she could only find an older man with no money!
This guy is absolutely hilarious. Notice he's moved some of his presentations into his garage. I assume his wife forced the change of venue. I haven't laughed this much in a long time. Thank you so much !!!
Josh, I really like your videos, but they could be so much better if you would do some homework before recording instead of just spitballing live. Have an outline of what you want to teach. Thanks.
Where does the money in the taxable brokerage account come from if she starts from zero?
This is extremely optimistic as the quiet assumption is there are not going to be any changes to SS system and it will remain solvent for another 30 years. I do not think many people believe it.
How much you charge to do a retirement planning analysis with right capital for single at 60?
Me and my wife have a household income of 220k is there any way that we can contribute to an IRA?
It was a wash. But what if she died at 85 or 95?
Josh,
Looked like they had zero property taxes on home or was it included in monthly. Could be hefty amount in CA.
And try the Retirement calculator (next to map) on that tax page, think it provides the view you were looking for?
Also, I like HRBlock Tax calculator but just remember to hit the button “what you told us” gives breakdown.
Josh, really enjoy your videos. Just found out you grew up in Portland, Maine, where I still live near. Keep up the good work.
Poor Ken.
Great presentation. Thanks for sharing the information and your expertise, as always. This is why the Internet has been invented!!!