Let me say that I have a high-class problem and that I have some idea where to turn for advice.
The Problem or Goal: How to Tweak (or revamp) a Portfolio to Be Tax-Efficient
Due to some favorable circumstances, we may need to take action to ensure that our income does not exceed the Medicare limit (170,000 last time I looked) as well as the various upper limits for couples who want to take full advantage of the tax credits afforded to our 18 yo college student dependent. My wife and I are both past 70 and retired, so we can't divert any more money into our retirement accounts. She has a retired teacher's pension and I have RMDs from TIAA, both of which can't be tweaked. We also draw SS. Our good fortune is that we will soon receive a stream of taxable income from a generation skipping trust that, I assume, we have to take. FWIIW, for the first time in my life I understood the lure of the "Caymen Islands, but that thought definitely be qualified by the idiotic, "just saying."
Generally speaking, the money outside our retirement accounts and our two Roths, is invested more for growth, but we do own many MFs and ETFs and a big slice of PTIAX, all of which produce income that we reinvest. We own no municipal bonds or funds that throw off tax free income. As a matter, of fact, we pay an embarrassingly small percentage of our income on taxes because we do have mortgage interest, state income tax, capital gains losses, and medical expense deductions that put us over the limits and result in tax savings. I mentioned the tuition credit; it was 2500 this year.
Enough about us. To whom would you turn for advice? Here are the people I use now, in limited ways:
My TIAA Wealth Management advisor who is very good on my retirement portfolio construction but who can't offer legal advice.
Our lawyer who is a tax specialist but not a financial planner.
Our Charles Schwab account exec whom I've never met
Our TD Ameritrade account exec who cold calls occasionally and whom I have never met.
Jean-Paul Sartre said that when we seek the counsel of another person we influence greatly the answer we receive by the choice of that person (priest, lawyer, confidante, etc.). Please let me know your best thinking. There are some great minds on this board!
Comments
I agree with your implicit observation that none of these people, individually, seems to meet your needs.
A few other thoughts: moving bonds from taxable to tax-exempt (hopefully with same after tax income) will reduce your income taxes. But that muni income will still be counted toward IRMAA (Medicare surcharges). Still, in pre-tax numbers it will be lower that the taxable bond income, so moving to munis will help somewhat.
The IRMAA surcharge that starts at $170K is 40%. That sounds like a lot and would be good to avoid. But if you can't, at least take solace in the thought that the really big surcharges kick in at $214K and higher. At $214K you'd pay 100% extra on Part B (as well as a much higher Part D surcharge).
Finally, if you're pushing $170K MAGI and are taking lots of deductions, especially state tax and medical deductions, you may need to watch out for AMT as well.
Regards,
Ted
Vanguard: 5 Ways To Make Your Portfolio More Tax-Efficient
https://personal.vanguard.com/us/insights/article/youssef-portfolio-tax-efficient-092016
Derf
I'd suggest checking the terms of the trust because the trusts I've been exposed to don't have any requirement to distribute anything. I'm sure the grantor(s) can write most terms of the trust however they'd prefer but my kids have trusts set up by my parents and there's no requirement to distribute anything at any time. The trusts also have terms that define a line of beneficiaries, so if they never take anything then eventually the trust would transfer to their children.
If distributions are required then another possibility, which would have to be checked by your tax guy, is that it may be possible for the trust to pay the tax first so whatever distributions you're required or want to take don't influence your own income. I don't have any right to income from my kids' trusts but the trusts file their own tax returns every year. Clearly you'd have to evaluate the cost of paying taxes in the trust, which would almost certainly be a higher rate than you'd pay, compared to the benefits you get from having a lower income, but it might be worth asking the question.
Finally, if you don't need or want the income from the trust but you're required to take it then it might be possible to change the terms of the trust. Presumably the trust has a trustee and while in most cases it should in theory be difficult or impossible for a trustee to change the terms, it would seem if a beneficiary requests a change to reduce their benefits then there's no harm.
Congratulations for having the kind of problems that most people would love to have!!
See if you can catch the radio talk, esp the Q&A part. The only reason it occurred to me to chime in to you after so much savvier advice, since I do not use them myself but have some issues distantly related to yours, is that a couple of call-in questions the last couple Sundays have been a little bit along the lines of what you describe.
I also like Edelman's own thinking myself since he is the only CFP type on the face of the earth who advocates having a mortgage, or at least not automatically ditching one, in retirement. It is solely, solely a sleep-at-night variable for him, nothing else, since it almost invariably helps cashflow and lifestyle.
Any good fiduciary planner should be able to help you do this sort of thing, or indeed a CPA, and I am a little surprised your TIAA person does not have ready access to such a person or to tools of theirs. (PM me for my semi-informed two cents on any specifics, if you like.)
findanadvisor.napfa.org/Home.aspx
Congratulations! You and your wife are in a very advantaged financial position. I'm sure it was earned through hard work and persistent savings. Given your stated concern over a $170,000. threshold trigger point, I assume your annual income may be in that close neighborhood.
If that's the case, you are in the top 9% of family.income earners in the USA. Not too shabby! I uncovered that percentage from a fun graphic available on CNN money. Here is a Link to their income curve:
http://money.cnn.com/calculator/pf/income-rank/
I hope MFOers use this curve to measure their national ranking.
While our absolute annual income is critical, because of our competitive nature, a relative national comparison ranking contributes to our comfort level. It appears that you are firmly entrenched in a healthy comfort zone. Again, congratulations.
Earlier posts have provided some excellent advice and resource references. I can not add to them.
Instead, I will observe that whatever pathway you select will not likely have a major impact on your future lifestyle. You seem to have taxes under control, and many financial gurus believe that tax circumstances should not be a dominant player when making investment decisions.
You have gathered information and pulsed recommendations from numerous sources. So make a decision and relax. There are pros and cons to every decision, and that plus and minus listing changes over the unpredictable future. Good luck!!
Best Wishes
I have an appointment with our lawyer later this month. I probably was not clear about what TIAA Wealth Management might be able to do. At present, I'm happy with the portfolio construction and growth of my retirement accumulation. They use Ibbotson to provide "what if" scenarios and can construct a portfolio of in-house and outside funds to suit about any target. What TIAA cannot do is advise me on my Roths and money held in taxable accounts, unless of course I rolled over the modest amounts to TIAA or bought their MFs. I have an annual portfolio review in May with my advisor. Thanks for the link, @LewisBraham. My next step is to look for just such a fee-based advisor. Does anyone think there's a Lone Ranger-type person who could blow into my town, identify the bad guys, mete out justice, and then ride off into the sunset never to call again to offer more services? At the least, I'd write a check, but I don't want the bum's rush.
Regarding bringing assets into TIAA - I believe there is someone on this board who has a DIY account with TIAA (don't remember who) that might be able to share some experience with that.
I know someone (yeah, I know someone who knows someone who ...) who started with a significant TIAA 403(b). Perhaps like you, this person was interested in getting consolidated portfolio management including outside assets. Asked me to meet with TIAA advisor for second opinion of advisor. Then brought the outside money into TIAA discretionary accounts (taxable, brokerage IRA, and annuity IRA) and is quite satisfied with the help (that has gone well beyond just picking investments). Works for some, depends on the situation, and clearly depends upon the particular advisor.