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  • Add to my Cash Balance Plan vs Taxable Account?

    This is my 1st post ever and thank you in advance for your feedback.
    I am 60 y/o solo urologist looking to transition to part time work in mid 2023. I have a 401k w/ ~ $1.5 M, a cash balance plan (defined benefit plan) w/ ~1.5 M and a taxable account w/ ~ $3 M.
    Whenever I close the cash balance plan, it will be rolled over to the 401k and ultimately to an IRA.
    I did a recent rough calculation of my future RMD using the assumption that my eventual IRA will hold at least $3.2M ( if lucky). The calculator showed that my RMD would be ~ $250k/year. This amount will put me squarely in the 24% Marginal Tax Rate (in 2021). When I add Social security plus dividends and interest from the taxable account, Ill run the risk of bumping up into the next tax bracket (32%).

    My question is this: Should I start to contribute less to the cash balance plan ( and ultimately into the future IRA) and start to increase my Taxable Account w/ Tax efficient Index ETFs as well as some National Municipal Bond ETFs.
    I believe I can live comfortably w/ a less than a $250k/ yr RMD. Thanks.

  • #2
    I suspect you already know this, but bumping into the next tax bracket won’t cause all of your income to be taxed at that higher rate. See today’s WCI blog post. https://www.whitecoatinvestor.com/ho...brackets-work/

    Comment


    • #3
      when you go part time what will be your marginal tax rate?

      one strategy would be to cut way back but keep CBP contribution high, to reduce taxable income as much as possible, and do Roth conversions

      or retire early, live on savings, and do Roth conversions

      Comment


      • #4
        Originally posted by veagudoc View Post
        I did a recent rough calculation of my future RMD using the assumption that my eventual IRA will hold at least $3.2M ( if lucky). The calculator showed that my RMD would be ~ $250k/year.
        sorry, RMD at 72 of 3.2MM is only 125K.
        please post your actual numbers to clarify.

        Comment


        • #5
          The RMD calculator I used is from http://www.schwab.com/ira/understand...alculators/rmd . When I re-ran the numbers w/ a present balance in the 401k of $3.3M , it calculated my 1st year's RMD at age 72 = $183,789.49. I was wrong on my initial projection. The calculator gives you a choice on what is the estimated rate of return, and i used 3% only to be conservative.

          The Marginal Tax Rate on $185k = 32% and the Effective Tax Rate=19.51%. When you add FICA and NC state taxes =30.6 % !!

          I've been reading a very insightful book( The Overtaxed Investor by Phil DeMuth) and in its discussion of asset locations it recommends that if you are interested in maxing out your bequest to say , your children it would be best to leave stocks and stock ETF in your TAXABLE ACCOUNT instead of in your IRA because the taxable account gets a step up basis and IRAs don't.

          It seems at this point that my best option is to continue to max out the Cash Balance Plan until I step down to part time work. At that time (2023), close out the CPB , roll it over into the 401k. The CBP is more expensive to run. With the lower salary, I would be in a lower tax bracket. I would cut back on my 401(k)/IRA funding and instead add a higher proportion to my taxable account in Index ETFs, ( not seeking high dividend and interest rates). Does not appear that trying to do Roth Conversions would make sense neither now , nor in the future.

          I think , I might have answered my original question.

          Any thoughts?

          Comment


          • #6
            Originally posted by veagudoc View Post
            The RMD calculator I used is from http://www.schwab.com/ira/understand...alculators/rmd . When I re-ran the numbers w/ a present balance in the 401k of $3.3M , it calculated my 1st year's RMD at age 72 = $183,789.49. I was wrong on my initial projection. The calculator gives you a choice on what is the estimated rate of return, and i used 3% only to be conservative.

            The Marginal Tax Rate on $185k = 32% and the Effective Tax Rate=19.51%. When you add FICA and NC state taxes =30.6 % !!

            I've been reading a very insightful book( The Overtaxed Investor by Phil DeMuth) and in its discussion of asset locations it recommends that if you are interested in maxing out your bequest to say , your children it would be best to leave stocks and stock ETF in your TAXABLE ACCOUNT instead of in your IRA because the taxable account gets a step up basis and IRAs don't.

            It seems at this point that my best option is to continue to max out the Cash Balance Plan until I step down to part time work. At that time (2023), close out the CPB , roll it over into the 401k. The CBP is more expensive to run. With the lower salary, I would be in a lower tax bracket. I would cut back on my 401(k)/IRA funding and instead add a higher proportion to my taxable account in Index ETFs, ( not seeking high dividend and interest rates). Does not appear that trying to do Roth Conversions would make sense neither now , nor in the future.

            I think , I might have answered my original question.

            Any thoughts?
            again, RMD at 72yo on 3.3MM is 1/25.6 * 3.3 = 129K
            https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf

            RMDs are not subject to FICA

            if you are single then yes, your tax rate will continue to be high.

            Taxable gets step up....for now.

            Roth conversions are great for when you stop working.

            Comment


            • #7
              Hi Peds.

              Thanks again for your wisdom.
              Was pleasantly surprised to learn that RMDs are not levied FICA taxes (good news, for a change).

              Can you think of anything else that I should be considering?
              Happy New Year

              Comment


              • #8
                practice exit plan?

                Comment


                • #9
                  Hi jacoavlu

                  Practice Exit Plan:

                  Would like to go to part time in the 1st half of 2023. I am a solo urologist w/ 2 PAs. I suspect that when I go part time, I will have to relinquish the OR as the other urologists will not want to cover my patients on call if I'm still doing surgeries.At that time I also want to drop off the Call schedule.
                  Right now I refer my patients needing big surgeries to another urologist in town employed by the hospital practice. The same guy who gives back-up to my PAs the rare time I'm out of town. In 2023 my clearest option could be:
                  • Send all my OR patients to the one group and I pull out of the call schedule. Work 2-3 days in the office where I can see clinic patients, do vasectomies, cystoscopies and biopsies. Earn about 30-34% of what I earn now but live on that, allow my retirement accounts to grow untouched for the next 3-5 years. Hopefully add to the retirement accounts some.
                  Traditionally I would try to find a recent graduate BC/BE urologist and transition out over a few years. Nowadays , most graduates seem to rather want to be employees of a network or hospital. I still owe the bank and the SBA about $150k each on my 3500sq ft office. I could dissolve the practice and try to sell the office (part of a larger building) but I would hate to close a practice w/ over 25k patients and employ 6 support staff and 2 PAs. Plus, I would be bored to death.
                  • I have spoken w/ another 2 docs ( 1 urologist and 1 general surgeon) soon to retire from full time practice and like the idea of working a few days a week out of an office. This could be an option. Unfortunately , it is too soon to cinch a plan yet. The monthly bank payments for the office are reasonable at about $3,800.00 . The practice manager would be happy to go part time and the person en charged of Billings and collections is a 1099 from home.
                  A lot moving parts but I think it is possible to pull off.

                  Comment


                  • #10
                    Originally posted by veagudoc View Post
                    Hi jacoavlu

                    Practice Exit Plan
                    Hm. The other urologist is employed by hospital? So you would sell to the hospital? Regardless, why would they “buy your OR patients” and then take all the call, when they could simply wait and get the same for free?

                    I would at least explore recruiting someone.

                    there is no pot of gold at the end of the rainbow of course. But you should be exploring all options.

                    Comment

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