Are You Making this RMD Mistake? 84% Of Retirees Are!

Hi Erin. My wife and I are both 70 this year and planning for the RMD phase of our life three years from now. Our current plan is to take the minimum required amount. We have two reasons for this: 1. You did not mention (and few RMD discussions do) the "Income Related Medicare Adjustment Amount" or IRMAA. While this is not technically a tax, it is deducted from social Security payments of higher income retirees. Taxable RMD's are part of adjusted gross income on our IRS 1040 form and hence become subject to IRMAA assessments by Social Security. As the time gets closer I MAY (or may not) look at taking a larger distribution but staying within the same IRMAA bracket. 2. You make the point that saving a nestegg for some future event in retirement may not be necessary. What you don't talk about is late in life assisted living needs. Depending on the level of care required the monthly cost can be very substantial. Our thought is keeping the IRA accounts in reserve in the event we need to fund such expenses. Additionally, if that were to be the case, our tax bill may be substantially lower if the assisted living expenses qualified as medical deductions. Thanks for the video, these are just my thoughts on the subject. We are fortunate to live the standard of living we like with our pension and social security income and I understand others are in different situartions.

I think for many people, taking the minimum distributions from their tax-deferred retirement accounts is intended to preserve a large tax-deferred balance for the event of large, late-in-life tax-deductible long term care expenses.

Good morning Erin. This was another good video with a balanced discussion of the issues and aspects involved in this area. For me, I have been retired for 13 years now and since starting with RMDs I have always done the minimum amount. I generally use these funds for the purposes of gifting within the family. As part of my legacy planning, I have been doing Roth conversions to lessen the tax burden on my heirs. So far, I have only taken a witdrawal above the RMD amount once, to build a large 1500 sq ft shop for my son at his house 3 years ago. In a month or so, I may be doing a second distribution, and take an IRMAA hit, to help my daughter purchase a home. Have a good week Erin and I'll see you on the next one. Larry, Central Valley, Ca.

I am not yet at the age where RMDs apply but we have already started taking withdrawals from my IRA to put them into my Roth. It is all based upon our family income and the gap to the next tax bracket. We also watch the stock market and try to time the withdrawals to drops in the market so we can move as many shares as possible when we do the withdrawals. Fortunately as I am about 30% into TSLA and it goes down on a regular if unpredictable basis this has worked out for us. 😉

My wife and I have 500K😮 in IRA accounts. All of the dividend stocks. Because if pensions and Social Security we do not need the money we have in our IRA accounts. So my strategy to satisfy the RMD is to transfer stock from the IRA to a regular brokerage account. Accumulated dividends will take care of the taxes. It may seem like we're trying too hard to hang on to our money. However we want for nothing and we still have money left over each month from the pensions and Social Security.

I am a super saver, so I find spending to be difficult. But I am leaning more and more towards gifting my kids while I am living, so taking more than the RMD makes sense. And I get to see them enjoy it while I'm still around 🙂

Thanks. You’ve inspired me to stop saving (I am 66 and retired) and to start enjoying some of the money I squirreled away. It’s hard to get put of the save for a rainy day mindset.

Retiree couple here a few years before the RMD age kicks in. We are thinking of taking more than the RMD and maybe doing so before the RMD age to fill in the tax bracket we find ourselves in. The excess money can then be used as more cash equivalent buffer for bad investment years or/and added to our investments. This should reduce the portion of our long term money that is in a retirement account and subject to the whims of Congress.

Qualified Charitable Distributions are worth considering as an option to avoid RMD taxation.

We are retirees in our late and early 60s. Our strategy is to convert from tax deferred to exempt as much as possible before reaching RMD age 🙄 for legacy purposes. Our return on the convertion will be realized before us passing. If these monies are going to grow, they might as well be in a tax-exempt condition. Our tax deffered monies are only 25% of our net worth. So, they won't be a problem even if we don't convert.

Stop calling my inferior investment strategy into question. I'm avoiding tax deferred vehicles (above and beyond employer match) partially to avoid RMDs, but also to give me tools to work with as I approach retirement to reduce my tax burden. It's a long ways off for me, so I don't know the ins and outs, but I do know that if I just dump everything into a 401k, my retirement will be very simple and very expensive once I hit those RMD ages. If I have post tax and tax free accounts with decent balances, I can figure out or hire someone to strategically use the money to minimize my tax liability. Per your advice, though, it seems like I should think more critically about using RMDs as a trigger to start spending my money rather than dying with it.

Philanthropically minded people often opt to donate their RMD to a qualified charity. The donor gets to support the mission they value and avoid paying taxes on their RMD. The limit is $105,000 annually and the gift must come directly from the donor's IRA administrator to the charity.

My wife and I are in our mid-70s and most years are able to live comfortably on Social Security and my RMD. We also both have Roth's, we converted all my wife's retirement accounts to a Roth years ago. I transfer a chunk of my IRA every year into my Roth. I size the transfer to minimize the impact of overly increasing the portion of Social Security subject to taxation. My goal is to spend what we need in retirement and limit the retirement tax shock and loss of income when one of us dies.

I'm retired and actually look forward to taking RMDs. I plan to donate them to charity and avoid the taxation altogether. This strategy will also free up some monthly cash flow as I'll no longer be donating cash to my charity.

We’ll be starting RMDs in five years. Our Roth conversions have greatly reduced our traditional IRA accounts, but they will still be substantial. We plan to use Qualified Charitable Distributions (QCDs) in lieu of RMDs for our IRAs. We can live off of dividends, interest, social security, a small pension, and capital gains if needed. Our Roth accounts will go to the boys. QCDs are a wonderful option!

Having retired last year at 62, I still have time until RMD's kick in. Our plan is to use my IRA to live on until SS kicks in at 67, FRA, and then take the rest out, up to max 12%tax rate, and do roth conversions. I want to hit 75, my RMD age, with an IRA balance where the withdrawl would be well within that 12% tax rate.

Erin: Thank you for your channel. I’m retired and started taking RMDs when I turned 69 1/2 years old (the limit back then). I am now 78. When I began my RMD I shifted all of my charitable giving to QCD’s to reduce the tax bite and shifted to the Standard Deduction (which greatly simplified tax preparation). I currently limit my annual IRA withdrawal to the net of RMD, less the QCD and income taxes. I can and will withdraw more, but only if I need it because you never know what the future holds. I’m not denying myself of anything (that money can buy) in retirement. Retirement is more about pursuing passions (you couldn’t pursue as fully because you were working), relationships, experiences and legacy. Hope you find this feedback useful.

Thanks for the overview and insights Erin; hope all is well. Two recent articles related to this topic: 1) Charles Schwab-Tax-Efficient Withdrawal Strategies and 2) T. Rowe Price Insights - How to Make Retirement Account Withdrawals Work Best for You. Perhaps a follow-up video based on these alternative strategies of drawing on taxable and tax-deferred accounts in retirement? Take care!

You are correct Erin. There are many reasons why taking the minimum RMD is intentional and a good move. In my case, I plan to leave a sizable legacy to my son and prefer to let the compounding machine to keep compounding as long as possible.

👍🏾wow, Well researched video. I got a lot of research to do. Thanks.