Ask an Advisor: With $218k in My IRA at 67, Should I Start Withdrawals to Avoid Bigger RMDs?
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I’m turning 68 shortly and plan to wait to claim my Social Security at age 70 to maximize the monthly benefit. I also plan to retire at the end of the year, if not sooner (so in three months or less). Does withdrawing from my traditional IRAs (current balance is $215,000) to reduce the income tax on my RMDs outweigh the benefit of keeping those withdrawals invested and growing tax-deferred? My understanding is that if I withdraw amounts up to my standard deduction, then those amounts would be tax-free.
– Austen
Retirement withdrawals, Social Security benefits, required minimum distribution (RMDs), taxes … there are a lot of moving parts when it comes to making decisions about your retirement income. Reducing the amount of money that’s subject to RMDs can help minimize your taxes once they kick in. This may also help avoid taxes on your Social Security benefits.
If you don’t need the money now, but want to reduce RMDs later, one of the best moves might be converting a portion of your IRA to a Roth IRA each year. That can help reduce future required withdrawals and allow your money to grow tax-free, though there can be tax consequences for certain withdrawals. (A financial advisor can help guide you through the Roth conversion process and potentially avoid unwanted tax consequences.)
Delaying Social Security benefits until age 70 makes sense for certain people. That’s when you can receive the largest possible monthly payment. You can start collecting Social Security retirement benefits at age 62, but the monthly amount will be reduced by 30%.
For example, if your full retirement benefit would be $2,000, your payment at age 62 would be only $1,400. However, waiting until age 70 would give you a maximum monthly benefit of $2,480.
Still, there are some circumstances in which starting sooner can be more beneficial, such as:
• You need the money to make ends meet
• You’re in poor health or have a shorter life expectancy
• You’re completely done working
• Your spouse has been a higher earner and will delay their benefits
Remember, there’s no right answer that works for everyone, and you should do what makes the most sense for your family. (And if you need help planning for Social Security, consider working with a financial advisor.)
Once you turn age 73, you have to start taking required minimum distributions – known as “RMDs” – from all of your traditional retirement accounts, including IRAs and 401(k)s. Your RMD is calculated based on your age, life expectancy and account balance according to IRS Uniform Lifetime Table. If you have multiple IRAs, you’ll need to figure out the RMDs for each separately.
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