Posted this in Investments and was advised to post it as a case study, so here ya go.
My specific question is "How can I avoid paying taxes on tax deferred retirement accounts when I turn 70?"
I anticipate a pretty large tax bill if I wait to let my tax deferred accounts roll over to mandatory deductions (RMDs). I don't anticipate any scenario that would require me to withdraw these funds anytime before then (during the age 59-70 time frame) and really none that requires withdrawal after 70 except for RMD.
I don't foresee a time in the future when my marginal tax rate will be lower than it is today.
I have just under $400,000 in tax deferred retirement accounts - $401K, IRA, TSP and SEP. Another $100,000 in Roths. Still contributing max to 401K ($17K/year) and plan to put $6500 a year into IRA for backdoor Roth conversion.
Still working; annual income is ballpark $250000 so no more regular Roth contributions. Going to stay employed at this income level for the foreseeable future. I don't want to go into detail but trust me this is a sweet employment deal and not "work" like most people envision it.
Employer doesn't allow after tax contributions to 401K, so no Mega-Backdoor Roth.
Wife has the IRA and the SEP, so no backdoor Roth for her unless I want the conversion taxed (ballpark $80000 in those two accounts) based on the total account makeup.
I can (and will) do backdoor Roth for myself this year, but that only covers $6,500 (I'm 52).
I would like to place another $70000 or so per year into "savings" and to convert the tax deferred accounts into something that doesn't require RMDs or incur taxes on gains (so it can grow tax free).
I have a "whole life" insurance policy for each of us that allows after tax contributions but isn't taxed for gains until withdrawal (standard rates apply) or death payment (special tax rules). About $275000 in these accounts. Returns are poor - 4-6%. :(
I also have a tax exempt muni bond fund with about $13000. Also poor returns - 4%ish.
I don't like either of these assets as a long term strategy for large amounts, although the bond fund is part of the investment portfolio plan at a small overall percentage.
Thinking of strategies along the lines of starting a non-profit or something similar. Some income would go to charity (not a bad thing) and some to myself and spouse as officers, but I don't think non-profits get taxed? I don't know much about this at all, but if I "donated" all the retirement funds to the non-profit maybe a way to shelter there? This makes me think "tax evasion" not "tax avoidance"!
How do people shelter large amounts of money in the US?