Retirement Planning, Wealth Transfer

I Have to Take My RMD. Now What?

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The IRS stipulates that age seventy and a half is long enough for avoiding income tax on retirement savings.  Each year, those that have reached this age milestone will be required to withdrawal a minimum amount and pay taxes on that income, whether they like it or not.  This is called a required minimum distribution, or RMD. For some, you’ll need this money to live on in retirement.  For others, perhaps not.

If you fall into the latter camp of not needing the money, you might default to reinvesting the dollars in a savings or investment account where annual taxes may be required.  If you aren’t sure that’s where you want to park this money after taking your distribution and paying the income taxes, consider these other options:

Make a gift to family members.

  • You can make an outright gift up to $14,000/year to any individual without having to file a gift tax return with the IRS.
  • Open up a college savings plan for your grandchildren.  Some college savings plans such as 529 plans grow tax-deferred and can be withdrawn tax-free for qualified education expenses in the future.

Be charitable.

  • Income tax may bother you; so offset the tax by making a gift to charity.  Outright gifts to reduce liability dollar for dollar. If it’s a little more substantial, consider setting a legacy plan in place using a donor advised fund or charitable trust.

Think about using insurance for leverage.

  • We all go through an insurance curve of life.  It’s responsible to protect our survivors with life insurance to cover our earned income or debt or kid’s education.  But then we retire, have no debt, and the kids are on their own.  Life insurance can still be a part of the plan, because the death benefit is tax-free. It helps replace income taxes at death or helps create a legacy.  One must be healthy but certain policies might offer an attractive death benefit for planned premiums over time, making it a worthwhile place to move a portion of your required distribution amount.

I suggest being proactive with your distribution planning. Use an online calculator to see future RMD projections to help develop a strategy that fits your values, vision and wealth.  Finally, prior to making any irrevocable gifts, be sure you’re confident that your own needs can be met with your wealth and that you won’t need this money later in life.

If it all sounds like a lot to consider, that’s OK.  Give us a call and we’ll help you through the process of prioritizing your objectives and putting a plan together.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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