Everyone’s retirement situation is unique. This means the amount of money you’ll need for income in retirement can be a lot more, or a lot less, than that needed by others your age. However, it’s still a good idea to come up with a personal estimate—one that will put you somewhere in the ballpark of where you may need to be.
Do you want to know how to make your life a bit simpler, more organized, and easier for your family to deal with once you’re no longer around? Here’s an idea: start ditching some of those unnecessary financial documents taking up space.
During the year you turn 70 ½, you have to begin paying taxes on a certain portion of your tax-deferred retirement accounts, your Required Minimum Distributions (RMDs). The penalty for not distributing at least the minimum is a big one: 50% of the shortfall. Since you’re obliged by tax law to remove this money from its pre-tax status and move it to the post-tax world, when should you consider taking it?
The new tax law passed last year created some generally lower tax rates that are set to expire at the end of 2025. Now may be a good time to take advantage of this window to do Roth conversions before tax rates potentially go back up to 2017 levels or higher.
You’ve heard of this whole four percent rule which says you shouldn’t take more than four percent of your portfolio. And in some cases, some people have narrowed it down to somewhere in between two and three percent. However, there may be a circumstance where you can take not just a little more than four percent but a lot more than four percent, and coordinate this with your Social Security strategy. So let’s go over this hypothetical scenario.
Here’s a little known piece of advice: Qualified Charitable Contributions allow you to make charitable contributions directly from your IRA to qualified public charities, where the amount is excluded from your income. They can also satisfy an upcoming RMD.
As the end of the year slowly approaches, remember you still have time to make sure that your 2017 Required Minimum Distribution is satisfied. If you don’t take out the required minimum on time, you’ll pay an extra penalty tax of 50 percent of the amount that you missed. If you don’t need the money from your IRA or other retirement accounts, there’s nothing you can do about having to take your minimum distributions. But if your concern is that you don’t want to sell the securities in those accounts to meet the RMDs because you believe it’s a bad time to sell them, I’m going to let you in on a little-known secret: you can take what’s called an “in-kind distribution” from your retirement plan.
Roth IRAs have certain stipulations associated with them to make sure their tax-favored status isn’t abused. In particular, there are two different five-year rules that are attached to Roth accounts that you need to be aware of.