Managing Your RMDs May Save You Significant Taxes in Retirement

There’s a four-prong attack in reducing your RMDs: IRA conversions to Roth IRAs, Stretch IRAs with spouse and children, Qualified Longevity Annuity Contracts (QLACs) and Charitable Giving.

IRA Conversions to Roth IRAs Converting IRAs to Roth IRAs after age 59½ is a tax-arbitrage strategy based on paying less in taxes today than during retirement by eliminating—or at least lowering—your RMDs at age 70½. When you consider converting taxable IRAs to tax-free Roth IRAs, you need to determine your present and future retirement tax bracket and let the math make the call. In a progressive marginal tax system, the goal of conversion is to pay taxes in your current tax bracket and not exceed it. That means you’re going to convert your IRAs over time and before age 70½ (between ages 59½ and 70½.) But that may not be enough to significantly reduce your RMDs. In that case, here are some additional strategies that you may want to consider.

Stretch IRAs with your Spouse and Children Many IRA owners have benevolent plans for their assets, generally targeting their spouse, children and/or grandchildren. Instead of cashing your IRA in and paying taxes and then giving the proceeds to family, you could split your IRA between you and/or your spouse or your children into two separate IRA accounts naming your spouse or child as sole beneficiary of one account. Because there are two separate accounts, each child receives RMDs based on their individual life expectancy and tax bracket. Another recent opportunity to manage RMDs is called QLACs.

Qualified Longevity Annuity Contracts A QLAC is a relatively new retirement strategy that allows you to defer 25 percent of your RMDs, not to exceed $125,000 ($250,000 for married couples), until age 85 using a lifetime deferred income annuity. This qualified plan strategy uses deferred income annuities to fund future guaranteed lifetime income. A huge opportunity if you don’t need the money now.

Annual Charitable Giving is an ordinary income tax deduction and can offset RMD income. Many Americans already have their favorite charity of choice; so making annual gifts part of your charitable giving could reduce your RMD exposure to taxes.

These four strategies integrated together can really really manage your taxes on your RMDs and may reduce your Social Security taxes and reportable income for Medicare purposes. For more information on how you can manage your required minimum distributions during retirement just write me …steve@onthemoneynews.com

Syndicated financial columnist and news anchor Steve Savant talks about money topics and tips for consumers in a weekly, 5-minute video broadcast entitled On the Money News. On the Money News is distributed to over 280 media outlets and social media networks. www.onthemoneynews.com https://youtu.be/st1qwnupHTM