RMD Management

RMD stands for "Required Minimum Distribution" from traditional IRAs,  401Ks and other retirement plans (except Roth IRAs) after one turns 70-1/2.

The typical advice is to spend taxable account funds and let retirement accounts continue to grow tax free.  I've been told by several post 70 -1/2 retirees that they should have withdrawn retirement funds earlier to reduce their RMD, contrary to their financial advisors' recommendation.   In their case, they do not need the funds from their retirement accounts, but are forced to make withdrawals, which results in a greater tax burden.

One option we are considering to reduce our RMD is to do Roth conversions in the years prior to receiving Social Security.   During this time, we can keep the marginal tax rate at 15% or less.   Since we still have itemized deductions and non-refundable tax credits, we can further minimize the tax consequences of a conversion.

A second option is to do a Net Unrealized Appreciation (NUA) withdrawal from my company retirement plan after I turn 59 -1/2,  This will also help significantly reduce my RMD requirements.

I plan to use both options over the next few years.

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This is not financial, retirement or tax advice. Please consult a professional advisor.

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