From the Wall Street Journal we learn the way that wealthy people who live in New York’s rent controlled apartments keep them.
He was a married professor in his late 60s who lived in a four-bedroom place in downtown Manhattan high-rise. His rent was set at just $2,000 a month; a comparable apartment at a market rental rate would run about $10,000 monthly.
The problem: The rules governing rent-stabilized apartments in New York disqualify tenants who make more than $200,000 a year in adjusted gross income for two years in a row. And required distributions from the client’s retirement accounts were going to push him above that threshold.
The professor’s AGI was $170,000. But thanks to diligent saving during a long corporate career before he started teaching, the professor had managed to accumulate $3 million in a handful of IRA and 401(k) accounts.
He had another $1 million in a 430(b), giving him a net worth of over $4 million. The problem? He didn’t want to pay market rates for his apartment and …
As soon as he hit age 70 1/2, he’d have to start taking required minimum distributions on those accounts…. at about $100,000 a year–immediately putting the [him] well over the rent-stabilization income limit.
… transfer $1.5 million from his old tax-deferred accounts into his current employer’s 403(b) plan, which would shield them from RMDs as long as the professor stayed with his employer
use the rest of the funds in [his] IRAs and 401(k)s to fund a Roth IRA conversion.
Suddenly the professor is too poor and can keep his rent controlled apartment.
Homework assignment: discuss the ethics of rent control.