Investments

RMD Strategies for Before & After Retirement

By Dean Barber

January 7, 2021

RMD Strategies for Before & After Retirement


Key Points – RMD Strategies for Before & After Retirement:

  • Getting an early start to RMDs
  • Tax strategies for RMDs
  • Impact of the SECURE Act on RMDs
  • Other RMD strategies and changes
  • 24 minute read | 39 minute listen

Dean and Bud discuss required minimum distributions this week. You may be asking, “Why are you talking about RMDs so early in the year?” There are major RMD strategies for both before and after retirement. You don’t want to miss a moment of this episode.

White Paper: Understanding RMDs  Complimentary Consultation


RMD Strategies for Before & After Retirement

Dean Barber: Thanks so much for joining us here on America’s wealth Management Show. I’m your host Dean Barber, along with Bud Kasper. Bud, how you doing?

Bud Kasper: I’m doing fine, but it’s been one heck of a week, hasn’t it, Dean?

Dean Barber: Absolutely, it has. We are officially now in 2021, though. We’ve got a little bit of time behind us; markets are going wild. A lot of uncertainty, I think ahead on the political front and what’s going to happen out there. And we’ve had no shortage of changes in the tax code over the last four years, and I would imagine here over the next couple of years, we’re going to have even more changes.

Getting an Early Start on RMD Strategies

We’ve dedicated this show to help people get an early start on something that they usually don’t think about until the end of each year, and that is the required minimum distribution. And there have been some rule changes around the required minimum distribution, Bud, and we want to make sure we talk about that. But we also want to talk about things that you can do before retirement to prepare for the required minimum distributions, things you can do after retirement for the required minimum distributions, and then just all the rules surrounding that.

Now, before we get into all that, let’s define the required minimum distribution. Bud, I like to say it’s that age that you’ve achieved when Uncle Sam says, “Hey, I’m getting tired of waiting on you to die, to get my part of that money. You have to start taking some money out of that IRA or 401(k) so that I can get my share.” And I know you’re laughing, Bud, but think about the theme song here for America’s Wealth Management Show, if I had a million dollars. I can see Uncle Sam sitting up there saying, “Yeah, if you had $1 million in a 401(k) buddy, you don’t have $1 million because a big part of that will be mine.” And how much is the government’s all depends on how and when we take that money out.

Retirement Savings Time Bomb

Bud, that’s why you and I started studying years ago with our good friend Ed Slott, he wrote a book called The Retirement Savings Time Bomb and How to Defuse it, and he’s got an updated version of that coming out here very shortly. But that’s where you and I got immersed in understanding the complexities of the rules surrounding IRAs and how the IRA or the 401(k) can be a tax time bomb if you don’t understand it and don’t know how to diffuse it.

Bud Kasper: Yeah. That’s almost an understatement. It is such a serious business from a financial planning perspective to control the taxes in retirement. And you’re right; we used to make a kind of a funny story about, yeah, somebody came in and says I’ve got $1 million in my 401(k). And my reply would be, “Want to bet?” Because you know Uncle Sam is right there with his hand out because he’s going to force you to take those monies out when you have to do required minimum distributions. Now at the age of 72 as the new rule came about just in the prior year.

These Are Planning Opportunities

But these are planning opportunities that create tax savings opportunities, and that’s what our clients are expecting from us. As a firm that prides itself on doing comprehensive financial planning and utilizing our guided retirement system to maximize results for our clients, we have opportunities from a planning perspective, and this is one of them, Dean.

Understanding RMDs

Dean Barber: I want to make everybody aware that we have a white paper written on required minimum distributions. The title of the white paper is Understanding RMDs. And of course, you got to call them an RMD, so when we say RMD from this point forward, understand we’re just using one of the many government acronyms standing for required minimum distributions.

By the way, while you’re here on the site, it’s effortless for you to schedule a complimentary consultation with one of a CERTIFIED FINANCIAL PLANNER™ or CPA. In that consultation, you can get a chance to visit with us, let us know what’s on your mind, what it is that you’re trying to achieve, get to know us a little bit. And see if there aren’t some things that we can do to help you have a better financial life, especially when it comes to the complexity of tax planning and looking into the future.

Know the Rules

I want to focus on something here early in our conversation, Bud. When we talk about the required minimum distributions, we believe you shouldn’t put money into any investment until you know what you plan to use the money for when it comes out and the rules for when it comes out. So you have to be crystal clear on if you’re going to put money into a 401(k) or if you’re going to choose the Roth 401(k), and we’ll get into the differences on those here in a few minutes. But if you’re going to put money into those or IRAs or whatever, understand what the rules are when it comes to taking that money out.

Roth it Up

Of course, Bud, your favorite is the Roth 401(k) or the Roth IRA. That legislation was introduced by Senator Roth back in the nineties. The Roth IRA is probably the best piece of legislation ever written because it allows people to put money into a retirement account, whether an IRA or a 401(k) and had paid taxes on the contribution before it went in. Still, all of the earnings and all the distributions, as long as they’re qualified when they come out, are tax-free forever, which is fantastic.

Bud Kasper: Yeah, no doubt about it. The taxman is out there, and of course, we want to be able to hold them at bay as long as we can. And in the process, it becomes a challenge for us to understand how we take out these required minimum distributions. I mean, it all has to come out within one year’s timeframe; most people know that.

But the reality is, is there are other options that we do have to mitigate that, and that’s through the use of things called QCDs, which are qualified charitable distributions. Which can come out to support what you’re required to take out when you’re 72 or older but when you take those out, and it goes to a charity, that amount is not taxed to you. Therefore, there’s a benefit associated with that, actually a dual benefit: saving taxes and providing money to a charitable organization.

Planning RMD Strategies Ahead of Retirement

Dean Barber: Right. We’ll get into some more detail on that. Let’s take this time, Bud; we got about a minute left in this opening segment to talk about the pre-planning for the required minimum distributions. In other words, this is before you retire. And it’s all going to come back to one thing, and that is tax diversification. 

You’ve heard of diversification when it comes to your investments. But when we say tax diversification, that means that you have basically three buckets of money that you can put into taxable, tax-deferred, and tax-free. Part of putting together a good financial plan is understanding how much should go into each one of those buckets. And obviously, we’d put everything into tax-free if we could. Unfortunately, that’s not possible. All right.

The key here is keeping more of the money you have saved in your retirement accounts and keeping it out of Uncle Sam’s pocket. That’s the name of the game.

The RMD Tax Problem

I had an instance several years ago with an RMD. The couple had worked and worked and saved and saved, but you know what they forgot to do?

Bud Kasper: What?

Dean Barber: They forgot to apply tax diversification. By the time they retired, the husband, in this case, was almost 70, the wife was in her early 60s, and they had so much money in their retirement accounts that their required minimum distributions were causing them to pay more in taxes than what they were using to live. 

The wife looks at the husband and says, “Why the hell did we save so much into these plans? Why did we work for so long?”

Bud Kasper: Yeah, absolutely. I mean, this comes back to the idea, “You can either be taxed on the seed or taxed on the harvest.” And I rail on this all the time when we have meetings with client’s families. 

We’re doing all the planning, and the parents say, “I want to bring my children in here to get an understanding of how this is going to go when we pass away.” So, we look at these 401(k) plans. You have to understand that if you have everything in a taxable 401(k) and it transfers over to your IRA, every dollar that comes out of that, of course, is going to be taxed. If you put it in a 401(k) Roth, then that money is never taxed.

Building a Tax-Free Bucket

Dean Barber: Yeah. You know, that’s the deal. You get to avoid, you get to pay taxes on the money before it goes in, and then after, as the money is coming out, that’s when it’s tax-free. So that’s one of the things as you’re trying to get that tax diversification, but that’s a real key right there, because if you put money into the Roth 401(k), now you’re building a tax-free bucket. 

The Company Match and the Tax-Deferred Bucket

Now, remember, if you’re contributing to a Roth 401(k), the company match will go into the traditional part of your 401(k). So, you’re automatically going to have some money that’s tax-deferred coming out of that 401(k) and some money that’s tax-free coming out of that 401(k).

Don’t Forget About the Taxable Account

But let’s not forget, Bud, about the normal taxable account, the account that’s like a joint or a trust account. One that is taxed each and every year on the money that’s going in there. And you and I both know that one of the keys to getting money out of that IRA or that 401(k) with the least amount of tax possible is to have a good amount of money saved in a taxable account. 

Plan Far Enough Ahead to Address the Impact of RMDs

So if we’re going to talk about pre-retirement planning for the required minimum distributions, one of the things that you have to do is you have to look forward far enough into your plan to see the effects of the required minimum distribution.

Then that will help shape which accounts you should be saving into, whether it should be more into your taxable account, more into the tax-free account, or more into the tax-deferred account. In the story that I told right at the beginning of this segment, Bud, they didn’t do that. They didn’t come to us until after they had decided to retire.

So, they didn’t have any idea that the requirement of distributions on their retirement accounts would be so large and cause 85% of their Social Security to become taxable, their Medicare premiums to be higher, and it was just one thing after another. And it is one of those head-scratching moments. And that’s when the wife turns to the husband says, “Why did we work so long? We could have retired five years ago, probably six years ago.”

Don’t Get Caught Up in Save, Save, Save Without a Plan

Bud, you and I see that all the time. People are so caught up in save, save, save, save, save, and they forget that you need to understand how the money is going to be taxed when it comes out because they think they have to have a certain number. 

That’s part of planning for the required minimum distributions. If you’re doing the planning right, you’re already projecting what the distributions will be and at what ages, and what accounts are those distributions will come from so that you can pay as little tax as possible through your retirement years. That’s when you have the control to reduce that tax burden.

Make Sure You’re Looking Forward

We want to make sure you’re looking forward, that your plan is set up so that if you’re not retired yet, you know which accounts you should be taking from when. You can then see the tax impact and the tax savings by taking the distributions from the right accounts and the benefits of creating the tax diversification like we just talked about.

Schedule a complimentary consultation by clicking here. And let’s make sure that you can get some real clarity in there and get you to that point in your life where you can have that financial independence that most of us want to have. I said most of us because some people say, “Well, I’m going to work forever.”

The 401(k) Tax Trap

Bud Kasper: Yeah. This is what I call the 401(k) tax trap, and what I mean by that is that we are all told that we should put money into 401(k). No doubt about that, but the trap was, “Hey, guess what? You get to put this in with pretax. Your contributions won’t be taxed, so therefore, you’re going to get the compounded benefit.” 

That’s true. However, you’re also going to get the compounded tax negative benefit. It won’t be of benefit; it will be a problem because every dollar that comes out of that will be taxable. So a friend of ours for many years, Dean, was telling us, “You’ve got a choice here. You can pay the tax on the seed or pay the tax on the harvest.”

Of course, when you look at that over time, with the unknown of our tax brackets and the tremendous amount of debt our country has right now, I don’t think taxes will be going down. So, if that’s the case, that’s only making it more onerous on the financial plan because of this darn thing called required minimum distributions, which is increasing your taxes.

Paying Tax on the Seed, Not the Harvest

That’s precisely what we’re talking about. What’s interesting, Bud, you know you talk about paying tax on the seed versus the harvest. Of course, the theory there is that if you’re a farmer and you pay tax on the seed before you plant it, and then your harvest grows, you could get that harvest tax free. That’s like the Roth 401(k). The way that it works, though, is that the farmer receives a tax deduction for the cost of the seed and then pays tax on the entire harvest, so that’s like your traditional 401(k) or your traditional IRA.

Starting Your 401(k)

So I was sitting down with my middle son, who’s beginning his career in life now, and he was asking me, he said, “Dad, I’m eligible for the 401(k). What should I do?” And so I said, “Well, let’s sit down, let’s look at your options.” And, and he says, “Here’s the traditional, I can do this or I can do this thing called the Roth.”

So I explained to him the difference, and I showed him that if he did the traditional, how if he were putting in as an example, a hundred dollars a pay period, it would only reduce his pay by $80 because it’s a pretax contribution, it’s a deductible contribution. And he goes, “Oh, that’s cool.” And I said, “But keep in mind, when you go to take that money out in the future, all of it’s going to be taxable.”

Understanding the Tax Benefits of Roth

So they had a nice table on this 401(k)’s signup that would show him what that potential contribution over time would grow to, and I said, “Now think about when you’re taking that out, all that’s going to be taxable.” He goes, “Oh, that’s not cool.” And I said, “So for $20, you’re going to reduce your paycheck by another $20, but look, all this in the future is going to come out totally tax-free.” And he goes, “I like that one.” Because he got it, right?

But had he not thought about the longer-term benefits and the effects of taking that money out, Bud, and just got caught up in saying, “Well, I can get $100 in for only an $80 reduction in my pay.” And so many people do that. We live in this instant gratification type of society where we’re looking at, what’s it going to do for me today? And where financial planning, and especially long-term tax planning, is all about, what’s the long-term impact here? 

Taxes Are a Matter of Fact

Because we’ve said this many, many times here on America’s Wealth Management Show, that as long as you live in the United States and have money or make money, taxes are going to be a fact of life. And the reality is that if you understand that and if you know how to plan around it, you can win that game. You can pay far fewer taxes than you ever imagined.

Dean Barber: Find out how by scheduling a complimentary consultation by clicking here

We can do it through a virtual meeting, phone call, or a face-to-face meeting, whatever you like. Just get it done so that we can put you on the right path to paying less to Uncle Sam, controlling those required minimum distributions in the future, and giving you that financial freedom that you so desire.

Bud Kasper: You know the advice you gave your son, Dean, I think it pays dividends, and I mean dividends like he’s going to have a heck of a lot more money at the end. And if Uncle Sam gets his hands on that, why not eliminate it? Young people live for today!

Dean Barber: Many of us do.

Uncle Sam Wants Your Money

We’re talking today about required minimum distributions and Chicago’s song, “Does Anybody Really Know What Time It Is?” Uncle Sam is out there saying, “Yeah, it’s time for you to start taking some money out of that retirement account so that I can get my fair share.”

Bud Kasper: That’s right. He wants that money.

Dean Barber: Oh, they need it too.  

Bud Kasper: Yeah. 

Reviewing the Rules

Dean Barber: Well, okay, Bud, here it is. Let’s go over the rules, okay? We talked about why it’s so important to have tax diversification and to make sure that before you put your money into any type of retirement account that you know what the rules and the consequences are, and especially the tax consequences when it comes time to take that money out.

Let’s now talk about some of those rules, specifically Bud, some of the changes that took place late last year to the required minimum distributions. The first thing that happened was that they changed the age. Now there was a couple of changes last year, like COVID-19, that messed up all kinds of things out there.

Identify Opportunities 

So remember that last year you weren’t required to take that required minimum distribution. You got a reprieve. Now we stepped back, and we said, “Okay, is this an opportunity?” For many of our clients, we said we don’t have to take the RMD, but guess what? We could do a Roth conversion of what that RMD amount would be. It keeps us in the same tax bracket. It keeps our tax bill precisely what it was before. Does that make sense to do, or should we not take an RMD at all?

Now some people needed to pay their regular bills. So that wasn’t impacting them, but there were some planning opportunities around that. 

RMD Age Changed to 72

Then we changed the age, Bud. We changed the age of the required minimum distribution from 70-1/2 to 72, so let’s talk a little bit about that. You and I had a big yawn when that happened. Is this going to be a big deal?  

Bud Kasper: Yeah. But, you know, we live by the rules. So we have to understand them. And you’re right. I don’t think we did more Roth conversions than we did in 2020 because it was the right thing. It was the smart thing to do to be able to get more money where? In that one box that remains tax-free, so it doesn’t impact our Social Security taxation, our Medicare premiums, et cetera, et cetera.  

So 72 is the new deal. There’s an obscure rule that a lot of people know because most people aren’t still working at the age of 72, but if you’re still working beyond age 72 and you don’t own 5% of the company that has the 401(k), you can avoid taking RMDs even though you’re past the age of 72, and there’s an advantage of course with that. 

RMD Strategy for Those Working Past 72

Let’s say that person I just described doesn’t have to take an RMDs until he leaves the employment. But if he had old 401(k)s, he still has to do the required minimum distributions, but here’s another opportunity, Dean. 

You can take those, as long as your current employer can transfer old 401(k)s in. You can move that old 401(k) money into the existing 401(k) where he’s working now and therefore postpone those RMDs as well. A little obscure. We don’t have many people working past 72, but they are out there. Again, what’s our job as planners? Let’s maximize the results.

Eliminating the Stretch IRA

Dean Barber: Right. And let’s determine whether or not that’s the right course of action, right? Because one of the things that happened in the not too distant past is eliminating the stretch IRA. So that would then beg the question; If I fall into that position that Bud’s just talking about, should I take advantage of that? Should I delay those RMDs by rolling those old 401(k)s into my new 401(k) if I’m working past the age of 72?

Here’s why you may not want to do that. Under the old provisions, if you pass away, your beneficiaries, your children or grandchildren, can inherit that IRA, and they can stretch those minimum distributions out over their life expectancy. 

The Ten Year Rule

Now what’s happening is any money that passes to someone that’s not your spouse, what they call a qualified beneficiary, that money has to come out of the IRA or 401(k) in its entirety within ten years. It has to be by the end of the year of the 10th anniversary of death. So in some cases, Bud, ballooning that 401(k) balance and delaying those RMDs may make the ultimate tax in the future to the beneficiaries even worse.  

So, again, no rule book’s been written here that says this is the best path for every single person to do this. The real key here is understanding your situation, what you want to happen, and then applying the correct rules. That’s what we call long term forward-looking tax planning. 

Understanding RMD Strategies

We do have a whitepaper that we’ve written on required minimum distributions. It’s called Understanding RMDs, and you can find that on our website in our insights section

I encourage you to click on the button that says complimentary consultation. You can schedule it right here with a CFP® or CPA. We can talk about your situation and what it is that you’re trying to accomplish.  

We can show you how our Guided Retirement System™ can help you accomplish those as we integrate tax planning along with investment management, financial planning, and estate planning. 

Age Wasn’t the Only Recent Change

Now, Bud, the age 72 deal didn’t just delay the age to 72. It also changed the advisor or the percentage that you have to take out at age 72. It’s as if somebody woke up in Congress and says, “Wow, people are living longer than what they were before. We should adjust these required minimum distributions to reflect that new life expectancy.”

For example, under the old rule at age 72, the percentage that you would be required to take out would be 3.906%. Under the new RMD rules at age 72, the portion you’re required to take now is 3.663, so it’s about the same as the 3.649% at age 70-1/2. Even though you’re not required to take it until 72, it’s closer to the age 70-1/2 amount you were required to take before. 

Those new rules are pretty cool. Now, remember your Roth IRA that we talked about, that Bud’s so hot on, and I love it too. This is the best tax code ever written. The Roth IRA does not have an RMD, no requirement of distributions from a Roth IRA. 

Inherited IRAs 

Now on an inherited Roth IRA, you’re still going to have the requirement of distributions. What that requirement of distribution on the inherited Roth IRA is, it all has to come out over ten years, but guess what? No taxes are due on any of those distributions out to your beneficiaries—what a beautiful thing.  

Bud Kasper: It sounds kind of silly, doesn’t it? You can take it out. You still have to have the requirement, but it’s tax-free, so it’s kind of a wash from that.

SECURE Act Money Grab

But going back to the point that you’re making, and I’m going to quote you on this, Dean, and that was when we found out about this new ten-year stretch rule, instead of taking out to life expectancy, your point was this is another big money grab from Congress, and most certainly it is that way.

Back to Working Past 72 

Going back quickly to that age 72 comment that we were talking about, a person is still working with that; again, the concept on that is that there’s a spouse who would be able to get the benefit of keeping those old 401(k)s into the new 401(k) and distributing from there. 

That is where planning is so critical in keeping more money in your pocket. If you don’t know the rules and understand how to manipulate, I mean that positively, not negatively, how we get money out of the buckets where we have money saved.

Remember what Dean said. You have a taxable bucket, tax-deferred and tax-free. How we access those buckets in the most tax-efficient way possible is where you’re going to have real success in retirement.

Dean Barber: You can create so much additional benefit to you by doing that. Please find out more by scheduling a complimentary consultation by clicking here. That consultation can be through a phone call, through a virtual meeting, or in person. 

Dean’s One Best Financial Life

Dean Barber: Bud, I’ll tell you how I could find and live my one best financial life.

Bud Kasper: Tell me.

Dean Barber: If I never had to pay another dollar in taxes.

Bud Kasper: You bet. I agree.

Tax Planning is Critical to Retirement Planning

Dean Barber: When it comes to taxes, and we’ve said this many, many times, that as long as we live in the United States and have money or make money, the taxes are going to be a fact of life. And that’s a true statement. 

But the fact of the matter is that if you take the time to create a financial plan so detailed that a CPA can sit down with your financial planner and look at that financial plan from a tax perspective, the amount of money that people can save in taxes is unbelievable, Bud. 

We’re talking about tens, if not hundreds of thousands of dollars over a retirement lifetime. You and I see it each and every week as we work side by side with our certified financial planners and our CPAs, sitting together with the client, crafting the plan to reduce that tax burden as much as legally possible by structuring the distributions properly.

Uncle Sam is Tired of Waiting for Your Money

We’re talking about that today as we discuss required minimum distributions. It’s that time in your life when you reach an age, now it’s age 72, and Uncle Sam taps you on the shoulder, and they say, “Hey, getting tired of waiting on you to die. Start taking some money out of that account so I can get my fair share.”

Bud Kasper: Yeah.

Dean Barber: I say that tongue in cheek, but that’s the way it feels. “Hey, this is … A part of that’s mine. I want my piece of it. And I don’t want to wait for you to die to get it.” They changed the rules on the stretch IRA, eliminating that, requiring beneficiaries of IRAs to get all the money out over ten years. And these rules are not going to change. The complexity is not going to get simpler. It’s so critical that you sit down with a certified financial planner, along with a CPA, to craft your plan.

QCDs as an RMD Strategy

Bud, something after a person’s RMDs that they can do to mitigate the effects of those RMD. It’s another government acronym called a QCD. Talk about that.

Bud Kasper: Well, QCDs is probably one of the most wonderful things that Congress has passed. They give people who have money in a taxable IRA account the ability to take out a distribution specific to a charity and not have any taxation on that.

Now, that is a tax planning tool and a charitable event. It’s been, I think in many cases, one of the best things I’ve seen. We have a lot of clients that are taking advantage of that. They like that they can give to the charity. They also like QCDs avoid the tax they would have had to pay if they took it out and then gave the money to the charity because they would have had to pay taxes on that first. So it’s a planning tool. QCDs have a great deal of satisfaction for people that are utilizing them.

The Snowball Effect of RMD Strategies

Dean Barber: Well, and it comes even more significant than that, Bud, because if you think about what the RMD does, if you take the RMD and that shows up on your tax return, and then you give the money to charity, and let’s say that you’re in a position where you can itemize, which a lot of people aren’t today with the new, higher standard deductions. 

But let’s say that you are there and you’re doing that. What happens is, “Okay. Yeah, I can still get the deduction for giving the money to charity, but what did I do? I caused my adjusted gross income to increase, therefore causing more of my Social Security to become taxable, possibly causing qualified dividends or capital gains that may have otherwise been tax-free to now become taxable.” So it creates a snowball effect.

So the qualified charitable distribution, or the QCD, allowing that money that you wanted to go to charity anyway, to go directly from the IRA, can have a ripple effect that is even larger than just the QCD itself. And because of the new tax code changes, which increased the standard deductions, we see many more people now using that QCD than ever before.

Congress Got QCDs Right

Bud Kasper: No doubt. And I think that will continue for years to come, as long as it’s still available to us. God knows what Congress is going to do next. But this was one that they got absolutely right, Dean.

Dean Barber: They certainly did. So that’s something that after your required minimum distributions have begun if you are charitably inclined and you’re giving money to charity, by all means, you should donate that money through the QCD. Now, there are some tricks to that. I encourage you to talk to your financial planner, your CPA, make sure that you’re getting all that done exactly right. And it can have some significant benefits.

Roth Conversion RMD Strategy

Bud, we talked earlier about doing Roth conversions to minimize the required minimum distribution in the future. You and I’s favorite time to do Roth conversions is the period between the time somebody retires and the time that their required minimum distributions go into effect. 

However, you can still do a Roth conversion after your required minimum distributions are in effect. And I’ve got several clients who are beyond the RMD age. And you know what? We’re still doing Roth conversions over and above the required minimum distribution amount.

Why? Because we know that coming down the road is the potential for higher taxes. We’ve got the sunset provision, and now, with the new administration, that sunset provision may come in much faster than possible. 

The Elimination of the Stretch IRA Makes RMD Strategies More Important

These couples have children who are already in very high tax brackets. Due to the elimination of the stretch IRA, they know that if they pass on and leave this IRA money to their kids, that it’s going to be taxed at a much higher rate than if they do a Roth conversion over and above the required minimum distribution in their current years.

So this was something that we look at every single year. It isn’t something that you step back and say, “I’m going to make a long-term plan for this.” It’s something to do year by year. And in fact, sometimes you need to discuss it with your CERTIFIED FINANCIAL PLANNER™, along with your CPA, two or three times throughout the year to make sure that your plan is on course and you’re doing it all exactly right, Bud.

Working With the Right Professionals

Bud Kasper: Yeah. Oh, you’re telling me that you don’t have a CPA you’re working with for this type of situation? Don’t you have a CFP® that’s constructing a plan who is coordinating with a tax professional? I would suggest you rethink what you’re doing so that you can maximize the results.

And going back to what you were saying a moment ago, Dean, everything from a distribution perspective has to be put through the filter, the lens, if you will, of tax brackets. So if we look at a married filing joint return, $19,751 to $80,250 of income has a 12% tax bracket. We need to maximize that out. And if that’s inclusive of doing Roth conversions, what an opportunity for us to maximize results.

Dean Barber: Right. And the deal is we know that it’s very rare that people can get money out of their retirement plans without paying any taxes. However, it is possible if structured the right way in the right situation. But getting the money out in the lowest possible tax bracket is the key. That’s all part of that long-term planning.

Start Planning Before You Retire

It goes back to what we talked about at the very beginning of the show today, Bud. You got to start this plan before you retire. Ideally, somebody is thinking about this in their mid-forties to early fifties. That’s when they should begin crafting a plan that not only looks at where you’re saving but crafting the distribution strategy around those savings. Where’s the money going to from in the future?

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Conversions are a Hedge Against Future Taxes

Bud Kasper: Just remember this: conversions are a hedge against future taxes.

Dean Barber: And that’s what we want, no taxes. Thanks for joining us on America’s Wealth Management Show. I’m Dean Barber, along with Bud Kasper, and we’ll be back with you next week, same time, same place.


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