For most retirees, Required Minimum Distributions (RMDs) are just another item on the year-end checklist.
Take the money out. Pay the taxes. Move on.
But what if I told you there is a little more to it than that?
One of the biggest mistakes I see in retirement planning is looking at financial decisions individually. Your investments are over here. Your taxes are over there. Social Security and Medicare are somewhere else. But that's not how retirement works.
Every financial decision you make has the potential to affect something else.
And your RMD is a perfect example.
First, What Exactly Is an RMD?
Simply put, the IRS eventually requires you to start taking money out of certain retirement accounts. For most people, that begins at age 73 or 75, depending on when you were born.
And whether you need the money or not, Uncle Sam wants his share.
For most retirees, the deadline is December 31 each year.
Miss it, and you could face a penalty of 25% of the amount you failed to withdraw.
But meeting the deadline is only part of the conversation.
The bigger question is whether you're taking that money out in the smartest way possible.
Your RMD Can Create a Domino Effect
Here's where things get interesting.
Let's say you have a pension and Social Security coming in. You're comfortable. You don't really need the extra income from your RMD.
But you have to take it anyway.
Now that additional income could:
- Increase how much of your Social Security is taxable.
- Push you into a higher tax bracket.
- Increase your Medicare premiums two years down the road.
- Create additional taxes on investment income.
See what happened? One required withdrawal just affected several other areas of your retirement. This is exactly why we focus on holistic wealth management at Evergreen Wealth Advisors.
It's not just about how much money you have. It's about how all the pieces of your retirement work together.
Three Things Worth Considering Before December 31
1. Are you giving money to charity?
If you're 70½ or older, a Qualified Charitable Distribution (QCD) could be worth exploring.
Instead of taking money from your IRA, paying taxes, and then donating what's left, you may be able to send money directly to a qualified charity.
That distribution can count toward your RMD without adding to your taxable income.
If charitable giving is already part of your plan, why not explore doing it in a more tax-efficient way?
2. Is a Roth conversion part of your strategy?
We talk a lot about Roth conversions because taxes don't stop when you retire.
Sometimes, paying taxes today can help reduce your tax burden down the road.
But timing matters.
You must satisfy your RMD before converting additional eligible retirement funds to a Roth IRA. And your RMD itself cannot be converted.
The key is understanding how both decisions affect your overall tax picture.
3. What if you don't need the money?
Just because the IRS requires you to withdraw money doesn't mean you have to spend it.
You might reinvest it in a taxable account. You might use it to help your grandchildren with college. Or maybe gifting to your family is part of your legacy plan.
Your RMD should have a purpose beyond satisfying the IRS.
This Is Where Having a Plan Matters
At Evergreen Wealth Advisors, we use The Bucket Plan to help give every dollar a purpose.
Some money is meant for today. Some is meant for the years ahead. And some is positioned for longer-term growth and legacy goals.
Your RMD strategy should fit into that bigger picture.
We want to know where your retirement income is coming from, how your withdrawals affect your taxes, and whether there are opportunities to make your money work more efficiently.
Because retirement planning isn't about making one good decision. It's about making sure all your decisions work together.
Before the Year Ends, Let's Have a Conversation
December 31 will be here before we know it.
And once the year is over, many of these planning opportunities are gone. So before you simply check your RMD off the list, let's make sure you're looking at the whole picture.
You worked too hard building your retirement savings to overlook the importance of how you take that money out.
At Evergreen Wealth Advisors, that's exactly what we help people navigate.
Let's make sure your retirement dollars are working as hard for you as you worked for them.
Darrin's Calendar