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6 Tax-Smart Ways to Lower Your RMDs in Retirement


Most of us invest in a 401(k) or similar savings plan because we want to enjoy a comfortable retirement. But there are short-term benefits, too. Contributions are excluded from taxable income—a lucrative break that helps make saving less painful (and doesn’t require the services of a Panamanian law firm).

But unlike dubious foreign tax shelters, this one has an expiration date. Once you turn 70½, Uncle Sam wants his share, so he requires you to take withdrawals from your traditional IRAs, 401(k)s and other tax-deferred plans—or face a penalty of 50% of the amount you should have withdrawn.

If you’ve built up a large balance in 401(k)s, rollover IRAs and other tax-deferred accounts and have another source of income, such as a pension, RMDs can create a host of tax tribulations. Because the withdrawals are taxed as regular income, RMDs could push you into a higher tax bracket. And the increase in your adjusted gross income could trigger other unpleasant consequences, such as higher taxes on your Social Security benefits, a surtax on your taxable investments and a Medicare high-income surcharge.

The key to avoiding a big tax bill is to start planning for RMDs well before your 70th birthday.

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