Financial PlanningRetirementTax Planning

A fresh look at RMDs

Background

Required Minimum Distributions (RMDs) are a common topic of focus in personal financial planning. This is nothing new. I first published this blog post titled “IRAs and the Retirement Income Myth” based on 2005 and 2006 data. The underlying big picture issue is the split in needs between the “haves” and “have-nots”:

  1. Relatively few people have large retirement accounts. Yet most people who do have significant retirement plan assets don’t need to withdraw from these accounts for living costs. For these people, RMDs are primarily a tax planning, estate planning and investment management issue.
  2. The majority of people have relatively little in retirement plans and the money is needed to meet minimum living costs, so planning is not an issue. For these people the issues are primarily ease of operation and minimizing costs.

Changes proposed

Of course we have one set of tax laws that must account for everyone. These rules say that everyone, beginning at age 70 1/2, should begin taking withdrawals from their retirement accounts regardless of which of the classes above you may be in.

This year the Trump administration instructed the Treasury Department to re-examine RMD rules. Changes are anticipated.

Democrats in Congress are likely to propose eliminating RMD rules for people with less than $250,000 in the accounts.

Financial planning issues

The remaining and more interesting issue, from my perspective, is what to do with the RMDs. Under ideal circumstances, an owner would have the option to:

  1. Take the distribution without taxes
  2. Continue to invest
  3. use the distribution opportunity to re-examine their investment strategy, charity and legacy goals, balancing asset classes, and consider their involvement in impact investing, aka “doing well by doing good”.

This post is intended to be part of a series that will address the planning issues above.

Open for discussion

What are your priorities in managing retirement plan accounts?

  • Re-balancing assets
  • Improving investment performance
  • Socially responsible investing
  • Impact investing
  • Local/sustainable investing
  • Minimizing taxes
  • Calculating taxes correctly
  • Managing investment costs
  • Charitable giving
  • Legacy planning
  • Asset protection from creditors
  • Care of a spouse/child
  • Estate distribution to heirs

I welcome a conversation on the options that are available in each of these categories. Use any of the contact options above to schedule a call.

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