Hi, this is Matt Porter with Cornerstone Advisory Group. Today, I wanted to talk a little bit about required minimum distributions, often called RMDs.
If you have money in pre-tax retirement accounts, such as a traditional IRA or 401(k), the IRS requires you to begin taking withdrawals once you reach a certain age. Right now, that age is 73. Depending on the size of your accounts, those required minimum distributions may start out relatively small, but over time they can increase and potentially become a larger tax burden during retirement.
That’s why proactive planning is so important. Ideally, you want to have a strategy in place before RMDs begin so you can better manage how they may impact your taxable income over time.
When working with clients, we often look ahead to estimate future RMD amounts and evaluate how those distributions may affect their overall tax situation. From there, we can explore strategies that may help reduce future tax burdens. That could include taking withdrawals earlier as part of a broader income strategy, completing Roth conversions, or using qualified charitable distributions for those who are charitably inclined and meet the age requirements.
The key is making sure these decisions are coordinated within a broader financial plan that includes investment management, tax planning, and retirement income planning working together.
If this is something you would like to discuss, we would be happy to sit down, review your situation, and help determine what strategies may make the most sense for you. Thanks for watching.
Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty.
Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.