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Started By
Message
Seeking steer on tax exempt municipal bonds for lowering RMD strategy
Posted on 1/15/26 at 7:11 pm
Posted on 1/15/26 at 7:11 pm
Context:
Will soon be retired.
To park lump sum money to live on for next 3-5 years in tax exempt municipal bonds while concurrently reducing tax deferred RMDs via Roth conversions over next years.
The goal is to keep taxable income “room” for Roth conversions
We are years away from Medicare so not concerned about IRMAA MAGI calculations and brackets
Initial thinking:
VWSUX - money needed in next 2 yrs
VTEB (ETF) - needed 3+ yrs
Nil experience here so welcome MT wisdom in general but specifically:
- Duration - key things to think about
- Managed fund (returns for cost) vs passive
Vanguard and Fidelity funds would be 1st choice.
After tax return is always the objective (vs simply lower taxes).
Appreciate pointers!
Will soon be retired.
To park lump sum money to live on for next 3-5 years in tax exempt municipal bonds while concurrently reducing tax deferred RMDs via Roth conversions over next years.
The goal is to keep taxable income “room” for Roth conversions
We are years away from Medicare so not concerned about IRMAA MAGI calculations and brackets
Initial thinking:
VWSUX - money needed in next 2 yrs
VTEB (ETF) - needed 3+ yrs
Nil experience here so welcome MT wisdom in general but specifically:
- Duration - key things to think about
- Managed fund (returns for cost) vs passive
Vanguard and Fidelity funds would be 1st choice.
After tax return is always the objective (vs simply lower taxes).
Appreciate pointers!
2
Posted on 1/15/26 at 7:53 pm to Everyday Is Saturday
Current age?
Posted on 1/16/26 at 12:21 am to Everyday Is Saturday
Pretty simple math here - what tax bracket are you willing to exhaust doing the conversions?
If it’s 12% or lower, definitely use taxable investments over munis. If it’s 22-24%, irs debatable, and if it’s 32% (which frankly is a psychotic bracket to consider conversions outside of exceptional examples) use munis only.
If it’s 12% or lower, definitely use taxable investments over munis. If it’s 22-24%, irs debatable, and if it’s 32% (which frankly is a psychotic bracket to consider conversions outside of exceptional examples) use munis only.
Posted on 1/16/26 at 6:17 pm to slackster
quote:
Pretty simple math
Thanks! Did the math. RMD reduction is right thing to do.
Retiring at 55yo (20yrs to RMD year 1). Retirement lump sum provides multiple years of living expenses. Seeking to fill bracket at 22-24% (target number TBD). Roth conversions starting 2027.
Seeking steer on do’s and dont’s, watch outs. Also best munis and strategy to park retirement lump sum, munis duration, active vs passive mgmt, etc.
Appreciate it!!
This post was edited on 1/16/26 at 7:43 pm
Posted on 1/16/26 at 10:40 pm to Everyday Is Saturday
quote:“steer” is a verb not a noun
Seeking steer on do’s and dont’s
Posted on 1/16/26 at 11:52 pm to Everyday Is Saturday
quote:
55
You will need to pay the tax on conversion with non-Ira funds.
Otherwise the withholding amount is subject to 10 percent early withdrawal.
Posted on 1/17/26 at 10:03 am to cgrand
quote:
“steer” is a verb not a noun
I live in TX!
cgrand steering the MT on English grammar.
Thanks!
Municipal bonds are nouns. Any advice?
Posted on 1/17/26 at 11:44 am to Everyday Is Saturday
quote:then if you are “seeking steer” I suggest you look into a livestock auction. Probably better investment these days than munis also.
I live in TX!
You’re welcome
Posted on 1/17/26 at 6:12 pm to Everyday Is Saturday
You said parking retirement lump sum in muni’s. Are you meaning parking your qualified pension lump sum into tax-free muni’s? If that’s the case then you wouldn’t invest a qualified account in tax-free muni’s. But I’m thinking you know this and maybe I just misunderstood.
The sweet spot on the muni yield curve is at 12+ years right now. And while I wouldn’t always recommend active for equities, you can benefit with an active manager in the fixed income sectors. Also, don’t get stuck on Vanguard for fixed income.
Fidelity has some good bond ETFs along with PIMCO. Also, Eaton Vance does a good job with international fixed income.
Just remember there are just 2 types of risk with fixed income: interest rate risk (duration) and credit risk (credit rating of issuers).
And it’s good you’re aware of IRMAA and you’re in the sweet spot for Roth conversions. Just don’t forget about the 2 year look back for IRMAA.
The sweet spot on the muni yield curve is at 12+ years right now. And while I wouldn’t always recommend active for equities, you can benefit with an active manager in the fixed income sectors. Also, don’t get stuck on Vanguard for fixed income.
Fidelity has some good bond ETFs along with PIMCO. Also, Eaton Vance does a good job with international fixed income.
Just remember there are just 2 types of risk with fixed income: interest rate risk (duration) and credit risk (credit rating of issuers).
And it’s good you’re aware of IRMAA and you’re in the sweet spot for Roth conversions. Just don’t forget about the 2 year look back for IRMAA.
Posted on 1/17/26 at 7:05 pm to TX_Tiger23
quote:
Are you meaning parking your qualified pension lump sum into tax-free muni’s?
NQ only
Thanks so much for your input. Appreciated!
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