Full Article Link: MarketWatch – 9 Financial Pros Share Their Secrets to Successfully Taking RMDs
Quote from Stephan Shipe
“Required minimum distributions are one of the most nuanced areas of retirement planning—there’s no one-size-fits-all approach. The smartest way to take them starts with looking at your expected tax rate in the future. That means running projections to see what your tax rate will be after RMDs begin, and whether it makes sense to convert earlier to reduce them.
Your strategy should consider your early retirement tax rate, your later retirement tax rate, and the mix of tax-deferred versus taxable assets you already hold. RMDs and Roth conversions are highly personal decisions, and they also depend on your own beliefs about where tax rates are headed. Be very wary of anyone peddling a blanket RMD strategy—it should always be tailored to your situation.”
—Dr. Stephan Shipe, Founder of Scholar Financial Advising
Key Takeaways
- Start planning in your 60s. Early planning allows retirees to use tools like Roth conversions to reduce the size of tax-deferred accounts before RMDs kick in at age 73, minimizing future tax burdens.
- Don’t wait until December. Monthly or quarterly RMD withdrawals can help manage taxes and avoid cash flow crunches. Spreading distributions over the year also reduces market timing risk.
- Charitable strategies can lower taxes. Qualified charitable distributions (QCDs) allow individuals over 70½ to donate up to $108,000 directly from IRAs to charities, reducing taxable income.
- Consider taking more than the minimum. Distributing more than the RMD—especially in lower-income years—can reduce the size of taxable accounts passed on to heirs, potentially preserving more wealth.
- Use a hybrid strategy. Some advisors recommend delaying RMDs to maximize market growth or structuring retirement income to meet RMDs naturally over time through automated payments.
- Shipe emphasizes that RMDs must be personalized. There’s no universal answer. Your strategy should reflect your current and future tax picture, asset mix, and long-term financial goals.
- Avoid unintended tax consequences. Waiting too long on your first RMD can cause two distributions in one year, potentially bumping you into a higher tax bracket and increasing Medicare premiums.