What should you know about RMDs?
Edward Jones - Chad Choate, AAMS
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Nov 02, 2023
Florida - Sarasota, Bradenton & Charlotte Counties
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You may
spend decades contributing to various retirement accounts. But for some accounts,
such as a traditional IRA and 401(k), you must start withdrawing funds at a
certain point. What should you know about this requirement?
To
begin with, the rules governing these withdrawals — technically called required
minimum distributions, or RMDs — have changed recently. For many years,
individuals had to begin taking their RMDs (which are based on the account
balance and the IRS’ life expectancy factor) when they turned 70½. The original
SECURE Act of 2019 raised this age to 72, and SECURE 2.0, passed in 2022,
raised it again, to 73. (If you turned 73 in 2023, and you were 72 in 2022 when
the RMD limit was still 72, you should have taken your first RMD for 2022 by
April 1 of this year. You will then need to take your 2023 RMD by Dec. 31. And
going forward, you’ll also need to take your RMDs by the end of every year.)
Not
all retirement accounts are subject to RMDs. They aren’t required for a Roth
IRA, and, starting in 2024, won’t be required for a Roth 401(k) or 403(b) plan.
But if your account does call for RMDs, you do need to take them, because if you
don’t, you could face tax penalties. Previously, this penalty was 50% of the amount
you were supposed to have taken, but SECURE 2.0 reduced it to 25%.
When
you take your RMDs, you need to be aware of a key issue: taxes. RMDs are
taxed as ordinary income, and, as such, they could potentially bump you into a
higher tax bracket and possibly even increase your Medicare premiums, which are
determined by your modified adjusted gross income. Are there any ways you could
possibly reduce an RMD-related tax hike?
You
might have some options. Here are two to consider:
•
Convert tax-deferred accounts to Roth IRA. You could convert
some, or maybe all, of your tax-deferred retirement accounts to a Roth IRA. By
doing so, you could lower your RMDs in the future — while adding funds to an
account you’re never required to touch. So, if you don’t really need all the
money to live on, you could include the remainder of the Roth IRA in your
estate plans, providing an initially tax-free inheritance to your loved ones. However,
converting a tax-deferred account to a Roth IRA will generate taxes in the year
of conversion, so you’d need the money available to pay this tax bill.
•
Donate RMDs to charity. In what’s known as a qualified charitable
distribution, you can move up to $100,000 of your RMDs directly from a
traditional IRA to a qualified charity, avoiding the taxes that might otherwise
result if you took the RMDs yourself. After 2023, the $100,000 limit will be
indexed to inflation.
Of
course, before you start either a Roth IRA conversion or a qualified charitable
distribution, you will need to consult with your tax advisor, as both these
moves have issues you must consider and may not be appropriate for your situation.
But
it’s always a good idea to know as much as you can about the various aspects of
RMDs — they could play a big part in your retirement income strategy.
Chad
Choate III, AAMS
828 3rd Avenue West
Bradenton, FL 34205
941-462-2445
chad.chaote@edwardjones.com
This article was written by Edward Jones for use by your local Edward
Jones Financial Advisor.
Edward Jones, Member SIPC
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Financial Advisor 828 3rd Ave. W., Bradenton, Florida, 34205Hello, I'm Chad Choate a dedicated financial advisor in Bradenton, FL, I began my career with Edward Jones in 2017. As a financial advisor, I want to find out what's important to you and help you build personalized strategies to achieve your goals. As a lifelong Manatee County resident, I graduated from the University of South Florida and was a teacher in Manatee County before joining Edward Jones. My driving force is to change people's lives in a positive way, and what better place than my home to do that. Whether you're planning for retirement, saving for college for children or grandchildren or just trying to protect the financial future of the ones you care for the most, we can work together to develop specific strategies to help you achieve your goals. We will also monitor your progress to help make sure you stay on track or determine if any adjustments need to be made. Throughout it all, we're dedicated to providing you with top-notch client service. But we're not alone. Thousands of people and advanced technology support from our office can help ensure you receive the most current and comprehensive guidance. In addition, we welcome the opportunity to work with your attorney, accountant and other trusted professionals to deliver a comprehensive strategy that leverages everyone's expertise. Working together, we can help you develop a complete, tailored strategy to help you achieve your financial goals. I currently volunteer with the Manatee Hurricane football Broadcast and Booster Club, serve on my church's trustees council and have previously served as a leader in Young Life. I am a member of the Manatee Chamber of Commerce and an alumnus of their Leadership Manatee program. I have been married to my childhood sweetheart, Ashley, for 15 years and we have a son, Wesley, and daughter, Camryn. We enjoy watching our children play their sports and traveling as a family.
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