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Tax-Efficient Required Minimum Distributions

By Sidney Kess, James R. Grimaldi, and James A.J. Revels
CPA Journal
January 2018 Issue

Individual retirement accounts are a popular and effective method of saving for retirement. For some individuals, however, there is a catch: starting at age 70½, account holders must make required minimum distributions, whether the money is needed or not. The authors provide several strategies to reduce the potential tax impact of these distributions, including conversion to Roth IRAs and the use of qualified charitable deductions.

For decades, seniors have been able to enroll in Medicare at age 65. Full retirement age for Social Security benefits has increased from 65 to 66 and is now on its way to 67. For many retirees, yet another age represents a financial milestone: 70½, when required minimum distributions (RMD) from pretax retirement accounts generally begin. Account owners can withdraw more, but not less, each year, whether the cash is needed or not, and withdrawals of pretax funds generally trigger income tax. Any shortfall is subject to a 50% penalty.

In practice, many individuals are reluctant to take RMDs and pay tax on money they don’t need. Savvy planning, however, can help reduce RMDs, and thus the resulting tax bill.


Published with permission from the CPA Journal.

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