Minimizing RMDs: How to Save on Taxes and Extend the Life of Your Assets
As people approach retirement age, they often find themselves navigating a complex financial landscape filled with decisions that impact their savings, tax liabilities, and overall wealth management. One significant aspect to consider is Required Minimum Distributions (RMDs), a crucial component of retirement planning that can significantly affect your financial landscape in retirement. Understanding how to minimize RMDs can pave the way for tax savings and help preserve your hard-earned assets for longer.
Understanding RMDs
Required Minimum Distributions are the minimum amounts that retirees must withdraw annually from certain types of retirement accounts once they reach a specific age—currently, 72 years old (as of 2023). This rule applies to traditional IRAs, 401(k)s, and other tax-deferred retirement accounts. The idea behind RMDs is to ensure that the tax advantages these accounts provide are eventually recouped by the government, as taxes are not paid on contributions or earnings while the funds remain in the account.
However, for many retirees, RMDs can be a source of unwanted tax liabilities, as the withdrawals are considered taxable income. This can push some retirees into higher tax brackets, adversely affecting their overall financial situation.
Strategies to Minimize RMDs
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Roth IRA Conversion:
One effective strategy for minimizing RMDs is converting traditional IRAs or 401(k)s to Roth IRAs. While this conversion may require paying taxes on the converted amount upfront, Roth IRAs do not have RMDs during the account holder’s lifetime. This allows your assets to grow tax-free, and you can let your investments compound without the pressure of mandatory withdrawals. Keep in mind, though, that the timing of the conversion is crucial; doing this in a low-income year can minimize the tax impact. -
Delay Retirement:
If you can afford to do so, delaying your retirement can help. By continuing to work, you can maintain contributions to your retirement accounts without triggering RMDs. If you’re still employed, you may also be able to delay distributions from your 401(k), depending on your plan’s rules, until you retire. -
Strategies for Withdrawal Timing:
Consider managing your withdrawals strategically during retirement. By minimizing income in years leading up to your RMD age and utilizing other income sources (like Social Security), you can keep your tax bracket lower and reduce the taxable amount when RMDs finally kick in. -
Use Qualified Charitable Distributions (QCDs):
If you’re charitably inclined, consider making Qualified Charitable Distributions (QCDs) directly from your IRA. QCDs allow individuals to donate up to $100,000 per year to charitable organizations directly from their IRAs without incurring income tax on that amount. This can satisfy your RMD requirement while simultaneously reducing your taxable income. -
Invest for Growth:
Maintain a diversified investment strategy focused on growth, particularly for the accounts subject to RMDs. A retirement portfolio that emphasizes growth can yield higher returns, helping your funds last longer before you must begin withdrawing at age 72. - Review Your Beneficiary Designations:
Consider your estate planning strategy and how it interacts with your RMDs. Selecting appropriate beneficiaries can impact the tax implications of your distributions and how long your assets last. In a manner of estate planning, leaving retirement accounts to younger beneficiaries can allow for longer deferral of taxes due to their potentially longer life expectancy.
Final Thoughts
Minimizing Required Minimum Distributions involves thoughtful planning and strategic decision-making to minimize tax liabilities and extend the life of your retirement savings. As laws and personal circumstances can change, it’s prudent to consult with a financial advisor or tax professional who can tailor strategies specific to your financial situation and goals. By taking proactive steps now, you can help improve your financial security and enjoy a more comfortable retirement.
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So grateful that you share your knowledge at all and especially that you make a complex subject matter pretty easy to understand. Sometimes I have to listen several times to same video. Thank you.
The government can crack down on Uber wealthy people who aren't paying their fair share of taxes to close the debt/ tax gap. Republicans are trying to defund the IRS to help tax cheats get away with it. The rest of the working people then have to pick up the tab.
RMD minimization; please contact
Great minimuze RMD video. I just turned 72 in 2022 and am still working contributing to my 401k plan. Question i have to clarify i have 2 401k plans with 2 different employers. If i rolled over my 401k from previou emplyer plan to current employer plan will i be required to still do a RMD for the 401 k that i rolled over or not? 2nd question I want to confirm the 401k savings from my current employer i will not be subject to or required for RMD since I am still working is that correct? Please confirm I really appreciate and may need to set some time for ith tou since i think I may get now with my first RmD and Ss earnings and regular job throwing my money please adive and apprecite your response thanks so much!!!
Can you take your RMDs and put it into an existing CRUT to avoid the taxes on the RMDs? I understand the CRUT will have taxes that need to be paid when the money comes out of the CRUT and that there will be some minimal tax benefit to putting the money into THE CRUT.
I'm single, plan to retire 12/15/22 at age 59 1/2 (I do not need to finish the year) so I can do my first Roth conversion (up to 24% bracket) before the end of the year and then do a conversion each year for a few years before I take SS. What do you think?
I think using QLAC with step 2 above could considerably reduce RMD amounts. Anyone, please throw more light on this strategy.
I need to know if I am doing correctly. Does std ded and 32000 from ss come off of all income to get amt taxable?
I need advise on RMD and setting up a forward looking tax plan.
paying minimum tax should not be the sole goal. Maximizing income should be the goal for the calculation. If your money growth at 100 times the rate, paying more taxes is batter than no revanue to pay taxes.
Eric, thank you, thank you for giving concise, actionable, thought-provoking and comprehensive lecture – every time ! Yours is better than all the finance courses that I had ever taken in Graduate school. Recently called your office, although I cannot work with your outfit at this juncture (my loss!) I want you to know how much I have already benefited from listening to ALL of the talks from Safeguard Wealth Mgmt. You are sharing your blessing with the world. Thank you.
RMD minimimation Can you delay SSA after you already started collecting SSA
This is Norbert. How to minimize RMDs.
Can you talk about Gift to our children from IRA account to reduce RMD? Will that help lower the RMD also? I believed that we can do the Gift of $100,000 per year. But the child will have to pay tax on the $100,000 right?
my problem with the "tax torpedo" and "tax landmine" terminology is that you appear to ignore that that is just on the incremental dollar amount. You still pay 0 , 10 12 and 22 percent on the dollars prior to that level. Am i missing something here?
learned so much!!! one question with your example of being taxed 40% the next year you showed them being taxed at 22%. you spoke of SS as not being taxed any more. you didn't explain how that happened. my understanding is SS will be taxed the rest of our lives. thanks again for all you have done great video.
Nice review. Do you have a computerized program to analyze tax strategy for a retired couple with high net worth and high RMDs?
Lots of decisions and variables. Future tax rates, single vs married (if spouse dies), value of IRAs in stock market (could be down), Medicare costs, And most important how early distributions effect CURRENT state and fed taxes. Seems like there is a break-even point somewhere. In other words, at which age will I look back and say, "Man, I wish I would have reduced my RMAs".
Great video, thank you so much
39:50 large RMDs are a symptom of failure to plan
Question: If you perform an in kind RMD to a taxable brokerage account, is that RMD calculated in the combined income formula for social security benefits? Since no income was actually realized (but taxes were paid on the RMD), is that RMD no longer calculated in the combined income definition?
Great video, wish I seen this before I retired and took social security at 62. I am now 65 and just did my first Roth conversion.
Don’t understand. What is previous year’s ending balance?
Retired and turned 72 this year. Already arranged for 1st RMD for 2021. Is there still any help for me for 2022 and beyond?
Would tax deferred annuity a good thing to add in our retirement strategy aside from IRA, ROTH and 401K?
There seems to be no benefit to reducing your income from RMDs unless you can get your combined income lower than $44,000? In other words, there is really no tax benefit from reducing your combined income from $100 k to $60 k via Roth conversions?
How do you calculate the amount to convert each year to Roth IRA?
GREAT Information, thank you!
Add your RMD to your pension (s), social security and non-tax advantaged funds and not only are you driving yourself into a higher tax bracket, but your Medicare costs will be another significant cost.
Low taxes lol the difference between net and gross is way too much we don’t have a tax problem we have spending problem. Waste waste waste.
Reduce my RMD
That was great insight! 63 yo, retiring in 2 weeks, will certainly modify my retirement strategy, thanks so much.
“The only way the government has to make $ is to tax the public”… I’m calling BS on that. The reason we are in such debt is because CORPORATE taxes have been practically cut in half, and corporations pay proportionally way less tax than ‘the public’. Get the $ from them… not us. Govt needs $ .. it does NOT have to be from the public.
This is super helpful. Great info and ideas for strategizing.
So now what are you going to do when Senator Wyden et el are now trying to tax ROTH IRA to pay for Biden massive stimulus plan only 200 bil that actually goes to ifrastructure…to pay for health care for our new citzens (i can see them cross the border daily in the valley Texas and clog up the hospital while we put them on planes to distribute Covid throughout the country where in 20 years they will become the new AOC.Biden voters.. while we pay to forgive student loans, pay for people not to work, and tax the living snot out of people who have worked all their lives….Senator Wyden is worth over 38 mil and will recieve a 6 figure gov pension on our tax payer dime….Pelosi Bush Clinton Inc are worth 10 of 100 s of millions of dollars through inside trading info and cotributions to their foundations….this bill will also decrease medicare to the elderly which might be good because then we can pay for more medical care to our new citizens. And when we go to the store and gas station our dollar pays for less but dont worry you can buy that 40K Tesla… Bingo I have it we can all buy Hunters Bidens art as it is worth hundreds of thousands of dollars and will no doubt continue to grow in value as the Big Guy says Hunter is the smartest person he has met in his life…And we can tell the IRS his art is worthless and so we dont have to pay taxes on it…..Hunters are the key as a hedge against inflation and avoiding taxes…
Great video, very helpful. Haven't heard this stuff elsewhere.
A lot of great information here. Worth watching!!!
Great video! You explain it very well and the use of graphs and charts was Outstanding!
This analysis fails to consider the Investment Income Surtax (currently 3.8%, but you know it will likely rise over time). RMDs and Roth conversions can easily trigger IIS on realized gains in your taxable accounts, especially since the IIS threshold isn't inflation-adjusted and will become a bigger and bigger problem over time.
Nobody ever paid that 96% tax rate. Most everything was deductible back then, including credit card and auto loan interest.