Financial Stewardship Newsletter

The eNewsletter articles on this page provide valuable information on timely and interesting financial issues across a variety of subject areas, including retirement, investments, personal finance, annuities, insurance, taxes, college, and government benefits.

Easing the Tax Hit from Those RMDs
The Drive to Drafta New NAFTA
Social Security's Long-tailed Reform
The Dynamics of Crisis, a Decade Out
Investment Performance Review
Fretting Over a Flatter Yield Curve
Prioritizing Your Tax-advantaged Savings
Advice You Could Have Figured Out
Of Scattered Clouds and Silver Linings
New Credit Legislation

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Easing the Tax Hit from Those RMDs

If this topic is of interest to you, congratulations are in order, as it means you are in or nearing your 70s with: 1) substantial balances in your IRA; 2) little or no need to draw current income from those accounts; and 3) enough other taxable income that IRA withdrawals would be subject to a meaningful tax rate.

      The withdrawal requirement is largely immutable once you reach 70½.  Failing to withdraw at least the minimum incurs a penalty equal to 50% of the withdrawal shortfall, plus the regular tax due.  However, there are strategic steps that can help mitigate taxes and/or use those RMDs to better advantage.


      A Spouse of a Different Age?  A basic tenet of tax and investment planning is to keep as much as possible invested as long as possible.  If you will reach 70½ several years sooner than your spouse, you might consider maximizing contributions first to his or her traditional IRA or 401(k) accounts.   That simply can help forestall the minimum withdrawal requirement being applied to those tax-deferred assets.


      Working Past 70½?  Those who remain employed do not have to take distributions from a workplace retirement plan until they actually retire.  If you are approaching 70 and planning to stay on the job, consider rolling your IRA balances into your employer’s plan.  That should be done before the year you turn 70½, and the strategy may not be available if you are a contract worker or you own 5% or more of your employer.


      Strategic Annuity Planning?  A few years ago, the Quarterly covered the new flexibility for using qualified longevity annuity contracts (QLACs) in an IRA.  These deferred annuities essentially purchase a stream of payments that won’t commence for 10 or 15 years.  IRA assets used to purchase the QLAC do not count in calculating subsequent RMDs for that IRA owner. 



Strategic Roth Conversion?  Under certain circumstances, it may pay to convert assets from a traditional IRA to a Roth before the year you turn 70½.  For instance, if your other taxable income is low, and you are holding off on taking Social Security benefits, converting some assets might not trigger much tax while reducing future RMD amounts.  However, if a Roth conversion would trigger meaningful taxes, it probably doesn’t make much sense.  After all, for the first several years, the RMD is less than 5% of your IRA balance.


      The Charitable Route?  Once you reach 70½, you can distribute up to $100,000 a year from your IRA directly to qualified charities.  Such distributions do not count as taxable income, but they do count toward satisfying the RMD.   This is most useful if you do not itemize deductions, a likelier prospect in view of the new tax law’s near doubling of the standard deduction.


            All of the above call for consultation with your tax and investment professionals. But you’re probably used to that, given the financial success you’ve already achieved

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