Waiting for growth does not matter, the $ will be the same, the result of Multiplicative Equivalency.I would like to REinvest what’s in the IRA so it’s compounding over 10+ years vs taking the RMS annually. Does that sound like a better financial choice than just keeping the RMD?
A simplified example: $100K, 12% income tax, 63% growth (5% by 10yrs, compounded). The number chosen are for simplified display.
A -- at time 0, take $100K out of IRA, pay the 15% income tax, put it in taxable, let it growth for 10 years.
B -- wait until year 10, take the $163K (initial x growth), pay the 15% income tax.
The Multiplicative Equivalency is that A = B
The actual math:
$100K x (1-12%) x 163% = $100K X 163% X (1-12%)
.amount...tax.....growth...amount..growth...tax..........
......................$143K = $143K............................
Now if you wait until year 10, and that additional $163K of income pushes you into the 22% bracket for all $163K, the right side of that equation becomes: $163K x (1-.22%) = $127K, because the tax rate has changed.
The most important factor is what the tax rate is today, to what will it be.
Also, the goal is not about minimizing the tax cost, but about how much stays in your wallet.
The same applies today, while you mother is alive. If she can Roth Convert say $15K each year and stay in the 12% bracket but you are at 22% today, it would be highly advantageous for her to do so since the stated goal is to maximize what you get [to keep].
In real life, it can gets a lot more complicated/convoluted real quick because of how specific income items get taxed, but the above example gives you the concept.
BTW, 98% of people don't realize this equivalency until they actually work the math thru.
Statistics: Posted by RetiredAL — Mon Dec 08, 2025 2:02 am — Replies 14 — Views 973