Q. I know it's required to take money out of retirement accounts once reaching 70.5, how to minimize the tax bite?
A. The prospect of taking Required Minimum Distributions (RMD) and facing the tax bill can be daunting, here are 10 strategies you can use to minimize taxes, make the most of your investment and avoid costly mistakes.
1. Calculate the amount of your withdrawals
RMD is based on the balance of your accounts as of December 31 of the previous year, divided by a life expectancy factor based on your age. Most people use the Uniform Lifetime Table (Table III) in Appendix B of IRS Publication 590-B. Your IRA or 401(k) administrator can usually help with the calculations.
2. Time it right
You usually have to take your annual RMD by December 31, but you have until April 1 of the year after you turn 70.5 to take your first required withdrawal. However, delaying that first withdrawal means you will have to take 2 RMDs in the second year which could push you into a higher tax bracket, making you subject to the Medicare high-income surcharge or cause more of your Social Security benefits to be taxable.
3. Pick the best accounts for RMD
You have to calculate the RMD from each of your traditional IRAs (not Roths), including rollover IRAs and any SEP or SIMPLE IRAs. But you can add the total required withdrawals from all of those IRAs and take the money from any one or more of the IRAs.
IRAs are owned individually, even if you are married and file a joint tax return, you and your spouse have to take your RMDs from your own accounts.
Please keep reading the next 4 strategies.
A. The prospect of taking Required Minimum Distributions (RMD) and facing the tax bill can be daunting, here are 10 strategies you can use to minimize taxes, make the most of your investment and avoid costly mistakes.
1. Calculate the amount of your withdrawals
RMD is based on the balance of your accounts as of December 31 of the previous year, divided by a life expectancy factor based on your age. Most people use the Uniform Lifetime Table (Table III) in Appendix B of IRS Publication 590-B. Your IRA or 401(k) administrator can usually help with the calculations.
2. Time it right
You usually have to take your annual RMD by December 31, but you have until April 1 of the year after you turn 70.5 to take your first required withdrawal. However, delaying that first withdrawal means you will have to take 2 RMDs in the second year which could push you into a higher tax bracket, making you subject to the Medicare high-income surcharge or cause more of your Social Security benefits to be taxable.
3. Pick the best accounts for RMD
You have to calculate the RMD from each of your traditional IRAs (not Roths), including rollover IRAs and any SEP or SIMPLE IRAs. But you can add the total required withdrawals from all of those IRAs and take the money from any one or more of the IRAs.
IRAs are owned individually, even if you are married and file a joint tax return, you and your spouse have to take your RMDs from your own accounts.
Please keep reading the next 4 strategies.
RSS Feed