Required minimum distribution

It's going to be a big number.

Imagine the RMD on that.

Big number.

Yeah, $500,000.

Yeah, they could take down to the top of the 12 or something.

Even though it says six years, I think you can retire sooner, but if you get to 55, that's great, because you can pull money out of the 401k, no penalty, and you'll probably be in a much lower bracket, so it'll be relatively tax efficient, and you can still probably do Roth conversions.

Yeah, because the RMD on the retirement account is going to be in the 24% tax bracket or higher.

Or higher, if they don't do anything.

I know, I know, I know.

One that I think most people that are close to retirement anyway that are pretty familiar with is RMDs, Required Minimum Distributions.

And how it applies to our pre-tax savings.

We have to start taking those out when we hit certain birthday years.

You're getting good at this.

I know.

Thinking about RMDs because they've become more of a conversation as folks have become more concerned about tax obligations and the money that we have not yet been taxed on.

However, the question that we want to pose here is how much is the problem really? Or is it just becoming more of a headline for folks? RMDs, they sound like they're a monster just ready to attack our retirement savings.

So think of how strong that is.

You're actually not paying any taxes on that money at all, okay? You know that possibly down the road, and we'll talk RMDs, requirement of distributions, but you might have to take money that was required to be taken out of your 401k, your IRA at a later point down the road, usually 73, 75.

But the thing is, is now you can actually start to take some of the money out to knock the balance down to less than a future possible problem you might have.

Okay.

So that's how strong this thing is.

And people just don't know about it because our – Our tax code's a mess.

They don't think they could do these QCDs until they're taking RMDs.

All these letters I'm throwing at you.

They have not elected pensions yet if they have those.

There's usually going to be a few years in there before they start having to take what's called their RMDs as well, so Requirement and Distributions, where that's a great planning opportunity to start recognizing some of this income.

And the benefit not only is you're getting more assets into the tax-free bucket, but you're also lowering that RMD amount when you do get to RMDH.

So it's double benefit to it, if not more than double benefit as well.

Because what I see most frequently is that it's not the home run to do a major, like a big Roth conversion in any one year.

It's usually... okay, you're 65 years old.

You're not going to take your RMDs till 73 or 75.

And then you didn't start, you're not getting your social security yet.

And so we'd be looking at the tax deferred account.

And yeah, planning ahead, RMDs are relevant.

So tax-deferred accounts have required minimum distributions.

They begin at age 73 if you were born in 1959 or earlier and not already.

But then the potential huge benefits, especially with a very long investing horizon, future withdrawals are not taxed.

You get tax deferred growth and tax exempt distributions.

There's no RMDs, no mandatory distributions for Roths.

Now, if you ultimately pass away with a Roth and then you leave that to a beneficiary, They'll have RMDs.

Three letter words right there.

QCD, RMDs, always thinking about the IRS, thinking about your IRA.

But I want to go back to the RMDs right now, the required minimum distribution, because and correct me if I'm wrong.

That's when the government when you hit a certain age, Uncle Sam goes in the IRS.

They go, all right, now it's time for me to get mine.

By the way, Ryan Moore lives here, works here, plays here, loves living in the great state of Texas, loves supporting the community of Dallas.

What's on the mind of the people right now? We were talking a couple of minutes ago about the end of the year.

We're thinking about our RMDs.

It's never too early to start the tax planning just because a lot of clients don't understand how the vehicles are going to be taxed.

And when you turn on these other pieces, whether it's pension, if you work to the government, or social security, and when you have to take RMDs, this all has to be taken into account based on what you're doing today.

Because what you're doing today is really going to have an impact on how that's going to look later.

Right.

But also one of the top things is the changing RMD age.

Currently it's age 73, but by 2035 it's going to go to 75.

So again, in some cases that's good, especially if you have these large qualified companies 401ks and IRA plans because it now gives you a little bit more runway before you have to take RMDs and then you can do some of these Roth conversions.

Sure.

So tax gain harvesting can be especially useful during years when taxable income is unusually low.

So early retirement years before Social Security benefits and your RMDs begin is a potential window for recognizing gains at a more favorable tax rate.

Yeah, I think everybody thinks, well, when I retire, I'm going to go into a lower tax bracket.

Right, they

do.

Maybe for a short period of time, but then RMDs rear their ugly head and you're all of a sudden paying this thing called IRMA and it's there for the rest of your life and it could have been avoided if you just did a little planning.

And Houston, what does RMD stand for? Because we get that question a lot.

That's your required minimum distribution, and it recently changed.

So something you do on your tax return this year could affect what you pay for Medicare two years from now.

And once you're old enough to have those RMDs, required minimum distributions, a QCD can also count towards satisfying those requirements, as I just referenced.

But I want to emphasize one important rule.

The money generally needs to go directly from the IRA custodian to the qualified charity.