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Making RMDs Work for You

Each year, retirees of a certain age will be required to meet a specific withdrawal amount across their tax-deferred accounts. Based on account value and current age, Required Minimum Distributions (RMDs) begin (for those who were not 72 by the end of 2022) the year in which the account owner turns 73.

Many retirees seek out ways to reduce their RMDs now and in the future with the goal of more money actively invested for a longer period of time and potentially reducing yearly tax bills. Below are a few common strategies:

Roth Conversions

Roth IRAs are individual retirement accounts where contributions are taxed upfront, allowing all future growth and withdrawals to be tax-free. Moving all or part of a tax-deferred account to a Roth, where RMDs are not required, is one method for reducing future RMDs and tax bills.

The conversion will be a taxable event in itself, as taxes are paid upfront on the converted amount, so it may be wise to consult a financial professional to determine the best time to make the switch.

Reinvesting RMDs

For those who do not need their RMDs to supplement their income, another option is to transfer yearly RMDs into non-retirement accounts that are invested similarly to existing retirement accounts. This allows you to stay invested, continue building your retirement funds, and maintain flexibility in investment choices outside of retirement account restrictions.

Reinvested RMDs are still subject to income tax and non-retirement accounts do not offer the same tax advantages as do retirement accounts.

Tax Rates

If you are actively working and adding funds to a pre-tax account like a 401(k), it may be beneficial to consider your tax bracket and begin contributing to a Roth account or converting an existing account into a Roth. This can be especially advantageous if you can do so without moving into a higher tax bracket.

Balancing contributions between pre-tax and post-tax accounts helps manage tax liability and Roth accounts offer potential for tax-free growth and withdrawals. Contributions to Roth accounts do reduce current take-home pay due to their upfront taxation of contributions.

Incremental conversions from tax-deferred accounts into Roth accounts can mitigate tax impact by maintaining a consistent tax rate year over year. Careful planning will be required to avoid unintended tax consequences. Once retired, amounts that equal the previous year’s income can be converted. This allows for a similar, pre-retirement, tax bill while living off savings.

These strategies can smooth out your tax liability and tax rate over the course of several years, especially during retirement.

Optimizing the usage of your RMDs can be done in a myriad of ways but requires careful planning and proper timing of conversions and withdrawals to optimize tax efficiency. An experienced financial professional can help look at the full picture of your retirement circumstances and offer recommendations and a plan for your RMDs.

To schedule a complimentary financial review with Moore’s Wealth Management, click here or call our office at 770-535-5000, where a staff member is awaiting your call Monday through Friday, 9AM to 5PM.





This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.  All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.

This article may contain links to articles or other information that may be on a third-party website. Advisory Services Network, LLC is not responsible for and does not control, adopt, or endorse any content contained on any third-party website.

Advisory Services Network, LLC does not provide tax advice.  The tax information contained herein is general and is not exhaustive by nature.  Federal and state laws are complex and constantly changing.  You should always consult your own legal or tax professional for information concerning your individual situation.

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