Accumulating a large balance in a traditional retirement account is a great thing in theory — until the reality of required minimum distributions (RMDs) sets in. Suddenly, the freedom that comes with having a gigantic nest egg becomes a potential tax liability that could come with hidden consequences, like Medicare IRMAAs that drive your costs up substantially.

Let's take the example of a 63-year-old couple living in New York State (in a suburb of NYC) who are sitting on $4.2 million. They want to convert a good chunk of that sum to a Roth IRA. From there, they'll enjoy tax-deferred growth on that money, tax-free withdrawals, and importantly, no RMDs.

But New York is one of the least tax-friendly states to do a Roth conversion. With state tax rates ranging from 4% to 10.9%, converting even half of a $4.2 million retirement account balance could cost this couple a substantial amount.

The 'Florida Flip' — annual conversions in a no-tax state

The potential solution? The "Florida Flip." Move to Florida for about 12 years to avoid state taxes on the conversion.

For the couple in our example, converting a 4.2 million nest egg over 12 years could yield significant savings when done strategically. Over 12 years, they would convert $350,000 annually (though they may qualify for a New York tax break, more on that below). That extra taxable income could result in an annual state tax bill in the tens of thousands in New York.

The Florida plan could shave off about $250,000 in state taxes over 12 years, depending on the couple's tax tier. So it's certainly a good idea in theory. But proper execution is everything.

You need to truly make a clean break from your home state

There's a reason Florida tends to attract retirees beyond just the weather. It's one of the few U.S. states with no income tax. That makes it a good place to do a Roth conversion. But you need to do it carefully, since New York is likely to pursue conversion taxes it thinks it's owed.

"Aggressive state tax pursuit is concentrated in high-tax states, because the flow of lost revenue each year is so massive," explains John Moran, CFP at Domain Money. "New York runs one of the most active residency auditing programs in the country, both because of the high taxes departing residents take with them and the sheer quantity of retirees leaving in pursuit of lower tax rates."

For this reason, Moran says, if you're going to pursue this strategy, you must make a truly clean break.

"The risk for this couple is New York questioning their departure, not Florida questioning their arrival," he says.

Leaving New York isn't enough

You might assume that all you need to do to initiate a "clean" Roth conversion in Florida is pack your bags. But Moran says there's a lot more to it.

"Simply moving to another state and updating their license does not automatically close the door on New York coming for their [tax money]," Moran says. "If they keep a home in New York and spend enough days in the state, New York can treat them as statutory residents and tax the conversion anyway, so both the number of days spent in the state and the use of any retained property matter."

Steven McGowan, Managing Director and Wealth Advisor at Rothschild Wealth Partners, further explains, "The standard defense is a clean factual record you are responsible for tracking — fewer than 184 days in New York [per year], updated driver's license, voter registration, bank and brokerage addresses, and a detailed day-by-day location log backed by receipts and travel records. Seriously."

Moran says the key is to show that you've really cut ties with New York. In addition to spending the majority of your time in Florida, you need to show that you're actively establishing a life there. That means finding doctors based in Florida, joining a gym, and doing other such things that send the message that this is truly your new home.

Moran also says that if New York questions your residency, "The burden of proof in a residency audit falls on the taxpayer, which makes recordkeeping vital." So make sure to document how much time you're spending in New York versus Florida, at least for the first year or two following your move.

Another important point McGowan raises is that you should establish residency in Florida before moving any money into a Roth IRA.

"Relocate first, document everything, establish Florida domicile clearly, check your models again, and then and only then convert," he says. McGowan also suggests having a tax attorney and a financial planner review everything together before a single dollar moves.

Make sure a Roth conversion actually fits into your plans

Relocating to Florida could be a good way to save money on Roth conversion taxes. But McGowan says that before you uproot your life, you should run the numbers carefully.

"A conversion this size creates a significant ordinary income spike that can affect Medicare premiums, Social Security taxation, and other income-based phaseouts. That math needs to be modeled carefully," he cautions.

McGowan says it's also important to ensure you're pursuing a Roth conversion for the right reasons.

"Are you trying to create more tax flexibility in retirement, reduce future RMDs, simplify estate planning, or pass wealth more efficiently to heirs? Because the federal tax cost is still very real, no matter where you live," he says.

Since you're dealing with a very large nest egg, converting just $200,000 to $300,000 a year could place you in a higher tax bracket.

Granted, if you let a $4.2 million nest egg grow another 12 years, your RMDs plus other retirement income could place you in a high enough bracket that it's worth converting now. But it pays to work with a tax professional or financial adviser to run the numbers.

And also, don't be surprised if your 12-year conversion leaves you paying more for Medicare. Depending on your total income, IRMAAs may be unavoidable for at least some of those years. (Note that Medicare uses a two-year lookback period to calculate IRMAAs.)

Finally, to make your Roth conversion as efficient as possible, it's best to plan to pay the taxes from a taxable brokerage account or savings/checking account. That way, you can leave the entire converted balance inside your Roth IRA to grow tax-free.

Understand the costs of moving to Florida

Giving yourself 12 years in Florida to convert some or all of a $4.2 million portfolio is a great strategy for minimizing the federal tax burden, since you'll conceivably only be moving a portion of your total balance over each year. But one final thing you'll need to do is make sure you understand the costs associated with moving to Florida.

With a median property tax bill of $6,542, New York is one of the most expensive states for homeowners. Our imaginary couple living just outside New York City would no doubt pay much higher state and local taxes. Florida, on the other hand, is one of the most expensive states for homeowners' insurance. Plus, in Florida, you could face hefty HOA fees that add to your monthly costs.

Granted, if you own a home in or near New York City and you're planning to sell it ahead of your Florida move, you may be able to pocket enough proceeds to cover the cost of a new place with money left over to pay for insurance, HOA fees, and other expenses that come with living in Florida. But do the math before making that move. You don't want to end up in a situation where what you save in taxes on your conversion, you lose to other expenses.

Another thing to think about is the 12-year Florida plan. If you're buying and selling various homes within a relatively short stretch of time, you're looking at real estate agent fees, moving costs, and other expenses. Some retirees reduce their final home purchase costs using the "half-back" approach: they move to Florida for several years, then settle halfway back to New York or New England to be closer to family while enjoying lower real estate prices.

Also note that if you're 59½ or older, you may qualify for New York State's $20,000 per-person retirement income exclusion. As a couple, you could potentially exempt $40,000 of income per year. In our scenario, the 63-year-old couple would pay state taxes on $310,000 of their annual Roth conversion rather than $350,000.

Granted, Florida's lack of an income tax may result in significantly greater net tax savings overall. But you should know what benefits you're giving up by leaving New York.

And some of those benefits may not be financial. If your family and social network are based in New York, there's an emotional cost to giving those up. So really take a look at the big picture before gearing up to pack your bags.

All told, you can potentially save money on a large conversion by moving to a no-income-tax state if you run the numbers and they work in your favor. But that's a big "if." And if you're going to make the move, make certain it's a truly clean break so your home state doesn't try to come after you for extra money

Read More

• 3 Questions to Ask Before Deciding if a Roth Conversion Is Right for You
• The Rise of the 'Half-Back' Retiree: Why a Perfect Florida Condo Isn't Enough
• How to Dodge the 'Medicare Tax' Before You Retire
• Why Do People Retire to Florida? 9 Things You Must Know

If you've been saving in a traditional 401(k) or IRA, you've probably heard of required minimum distributions or RMDs. These are withdrawals you're required to take every year after you turn 73. It's a way for the Internal Revenue Service to get paid back for all that tax-free income you've saved over the years.

While there are strategies to avoid and reduce RMDs, for many retirees, it's just a part of life once you hit 73. But that doesn't mean it's one of those things you shouldn't give too much thought to. Your RMDs are treated as ordinary income, which means you must pay taxes on your withdrawals.

It's important to withdraw the correct amount each year. If you take out too little or forget to take RMDs altogether, you could face a penalty of as much as 25%.

If you go overboard and withdraw too much, you could face a shortfall later in your retirement, especially if the withdrawals happened during a downturn in the stock market. That's known as a sequence of return risk, and it's something retirees should try to avoid.

Calculating your RMDs

It's important to know how much your annual RMDs should be. The good news is it's easy to calculate. RMDs are determined by a straightforward formula that takes into account your account balance and life expectancy factor. Your life expectancy factor is obtained from the IRS's Uniform Life Table (PDF), which is the go-to chart that the majority of retirees are required to use, regardless of their actual health status.

The life expectancy factor takes into account actuarial data that re-estimates your remaining lifespan with every birthday you celebrate. The older you get, the lower your life expectancy is and the more you face in RMDs. The IRS doesn't want you to die without paying them back.

The formula is the following:

Account Balance/Life Expectancy Factor = RMD

A $1 million retirement balance is common among retirees in America. As of the end of 2024, Fidelity Investments found that 41% of all 401 (k) millionaires were baby boomers. Generation X — or those ages 45 to 60 — accounted for 57% of all 401(k) millionaires. If you're among them, here's how much you need to withdraw in RMDs across different ages:

Be aware of taxes

For savers, RMDs can prove particularly problematic because of the tax treatment. If you're required to withdraw $40,000 in one year because you have a $1 million IRA, that extra income could trigger a sizable tax bill.

While you can't avoid the taxes altogether, you can employ strategies to lower the burden. For instance, you can convert some of the money into a Roth IRA in low tax years. With a Roth IRA, you aren't required to take RMDs.

You can also begin taking withdrawals before age 73 to lower your total balance and prevent a bump up in your income tax bracket. A financial adviser can help you devise a strategy in which your higher growth assets are in a Roth IRA, and your conservative investments are in a traditional retirement account.

If you're charitably inclined, you can use a qualified charitable distribution to direct up to $111,000 (in 2026) of your IRA RMDs to a charity of your choice.

Planning is the best protection

You can't completely avoid RMDs, but they don't have to catch you off guard.

By projecting what your mandatory distributions will look like on a $1 million nest egg, you can make moves now to lower your overall tax hit. RMDs are a fact of life, but the amount you hand to the IRS doesn't have to be.

Editor's note: This article is part of a series that looks at RMDs by age and retirement balance. The previous story is: Got $5 Million Saved for Retirement? Here Are the Huge RMDs the IRS Makes You Take at Ages 73, 75, 80 and 85.

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For retirees and those closing in on retirement, understanding how to manage required minimum distributions (RMDs) is essential.

These government-mandated withdrawals must be taken from tax-deferred retirement accounts, such as traditional IRAs and 401(k)s, starting at age 73. Yet, as a longtime financial adviser, I've learned that many investors nearing that age aren't familiar with how RMDs work or prepared to deal with the extra taxes they can trigger.

Even those who know something about RMDs aren't always aware of recent rule changes or useful strategies that might help reduce their RMD tax burden. That means they could easily make costly missteps that impact their retirement savings.

What are RMDs?

The IRS doesn't allow retirement savers to keep money stashed in their tax-deferred accounts indefinitely. Once you turn 73, you must begin withdrawing a minimum amount annually (based on an IRS formula) and pay ordinary income taxes on that amount.

These mandated withdrawals are called required minimum distributions. And failing to take the appropriate distribution at the correct time can result in a hefty penalty.

The RMD rules apply to all tax-advantaged plans except Roth IRAs because those account owners have already paid taxes on their contributions.

Common mistakes with RMDs

1. Taking RMDs without advance tax planning

RMDs start at age 73 for most people born between 1951 and 1959. And those born in 1960 or later will start at age 75. But I recommend planning for these complicated withdrawals long before you're required to take them.

When you hear retirees complain about paying much more in taxes than they expected in any given year, it's often because they weren't ready for how RMDs would affect their taxable income.

For example, your RMD could push your income past the IRS threshold that determines whether your Social Security benefit will become taxable and at what percentage it could be taxed.

Your withdrawal could also trigger the income-related monthly adjustment amount (IRMAA), a surcharge on your Medicare premiums. Planning ahead could help you avoid these and other RMD-related tax traps.

2. Waiting until the last minute to take your first RMD

RMDs generally must be completed by December 31 of the current calendar year. In the year you turn 73, however, you'll have the option to delay taking your RMD until April 1 of the following year. (For example, if you're turning 73 in 2027, you'll have until April 1, 2028, to take your first RMD.)

But there can be consequences for postponing. If you decide to make two withdrawals in one year, your taxable income will likely be higher for that year, which could mean facing a steeper tax bill. Before you decide to double up, you may want to run the numbers to be sure it makes sense.

In fact, waiting until the last minute in any year could cause problems if you suddenly get busy, can't afford or simply forget to take your RMD.

If you haven't withdrawn the full RMD amount by the deadline, you could face a 25% penalty on the amount you haven't withdrawn. (That drops to 10% if the RMD is corrected within two years.)

If you decide to wait until the RMD deadline, you also may have to sell investments in a down market. Spreading out your withdrawals could help reduce market risk.

3. Forgetting inherited IRA rules

Planning to leave what's left in your accounts to your beneficiaries? They, too, will have to take distributions based on IRS rules. And they, too, could face a penalty if they don't correctly calculate and take their required withdrawals at the proper time.

The rules for when account beneficiaries must take RMDs vary based on the inheritor's relationship to the original account holder. A spouse who inherits a retirement account usually has more flexibility, for instance, when it comes to determining how soon RMDs will begin and how they'll be calculated.

But most non-spouse beneficiaries are required to empty their inherited account and pay taxes on this income within 10 years of the original account holder's death. Which means adult children often end up having to take RMDs from an inherited account during their highest-earning years.

If you expect to leave money in a 401(k) or similar account to your loved ones, it's important that they have a chance to do their own tax planning. Your financial adviser should be able to suggest strategies to help them maximize your generous gift.

4. Missing out on qualified charitable distribution opportunities

It may be difficult to predict exactly how much your RMDs will be from year to year — or how much they might impact your taxes. But just knowing they're coming will give you an opportunity to prepare.

If charitable giving is part of your financial plan, a qualified charitable distribution (QCD) can help you further your philanthropic goals and reduce the tax hit from your RMDs.

QCDs allow individuals age 70½ and older to make tax-free donations directly from an IRA to a qualified charity, potentially satisfying all or part of the annual RMD amount due from their eligible accounts.

A QCD doesn't offer a tax deduction, but the amount of your QCD won't be included in your taxable income. And you can make a QCD from several different types of tax-deferred retirement accounts — although there are rules regarding using a SIMPLE or SEP IRA, and you can't make a charitable contribution from a workplace retirement plan, such as a 401(k).

5. Ignoring Roth conversion strategies before RMD age

Converting a traditional IRA to a Roth IRA can help you avoid RMDs altogether — or at least lower the amount you'll have to withdraw each year.

Unlike traditional IRAs, Roth IRAs don't require that you take RMDs during your lifetime. This means you can keep your money invested for as long as you want, allowing it to grow tax-free. And if you pass on a Roth IRA to your heirs, they can take their RMDs tax-free.

Of course, you'll have to pay taxes on the amount you convert, so timing — and planning well in advance of your RMD age — is important. Minimizing your income sources in the year you plan to do the conversion can help keep your tax liability as low as possible.

Many retirees find the "sweet spot" for completing a conversion is after they've stopped working but before they begin receiving Social Security benefits or pension payments.

Your adviser can help you determine if and when a Roth conversion makes sense for your needs.

Don't put off RMD planning

If you expect to withdraw the IRS's required amount — or more — each year to cover your living expenses in retirement, RMDs may not be a concern for you. But if RMDs will impact your income, tax and estate planning, you may want to seek guidance.

The rules are complex, and making a mistake can be expensive.

The IRS website offers basic information regarding the overall RMD regulations. But if you want more specific advice and ongoing support, consider talking to a financial adviser ASAP.

Kim Franke-Folstad contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Related Content

• How to Calculate RMDs (Required Minimum Distributions) for IRAs
• New RMD Rules: Starting Age, Penalties, Roth 401(k)s, and More
• You're Stuck Taking RMDs: Now What?
• Inherited an IRA? Key Distribution Rules to Know
• 8 Factors to Consider When Considering a Roth Conversion

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you have a traditional IRA or 401(k), required minimum distributions or RMDs are a fact of life.

They kick in when you turn 73, requiring you to withdraw a certain amount of money from your account each year.

After all, the Internal Revenue Service wants to get paid for all that tax-deferred income you benefited from during your working years, and RMDs are how they do it.

While the IRS is a fan of RMDs, many retirees are not. RMDs are treated as ordinary income and may push you into a higher income bracket. Plus, if you withdraw them during a down market, it can impact your retirement savings later on.

RMDs also force retirees to spend a portion of their income, something many tend to resist. And if you forget to take RMDs, you could face a penalty of as much as 25%.

As a result, it's important to withdraw the correct amount each year. Take out too little, and you could be in trouble with the IRS. Withdraw too much, and it can drain your retirement account prematurely.

The stakes only get higher as your nest egg gets larger. Here's how much you need to withdraw if you have $5 million saved across different ages.

Calculating your RMDs

When calculating your RMDs, the formula takes into account your account balance and life expectancy factor. You obtain the latter from the IRS's Uniform Life Table, which is the go-to chart that the vast majority of retirees are required to use, regardless of their actual health status.

The life expectancy factor takes into account actuarial data that re-estimates your remaining lifespan with every birthday you celebrate

The formula is the following:

Account Balance/Life Expectancy Factor = RMD

Your RMDs aren't static and will change as you age. The older you get, the lower your life expectancy factor is and the more you have to pay in RMDs.

Because the government assumes you have less time left to spend your wealth, they force you to withdraw a larger percentage of your remaining savings with each passing year. Remember, the IRS wants to get paid!

The tax impact

For savers with big nest eggs, RMDs can prove particularly problematic because of the tax treatment. If you are required to withdraw $203,252 in one year because you have a $5 million IRA, it could trigger a sizable tax bill.

While you can't avoid the taxes altogether, you can employ strategies to lower the burden. For instance, you can convert some of the money into a Roth IRA in low tax years. With a Roth IRA, you aren't required to take RMDs.

Or you can begin taking withdrawals prior to age 73 to lower your total balance and prevent a bump up in your income tax bracket. A financial adviser can help you devise a strategy in which your higher growth assets are in a Roth IRA, and your conservative investments are in a traditional retirement account.

If you are charitably inclined, you can use a Qualified Charitable Distribution to direct up to $111,000 (in 2026) of your IRA RMDs to a charity of your choice.

You can't avoid RMDs, but you can plan ahead

You can't avoid RMDs, but you can mitigate the potential hit. But to do that, you have to know what you will be on tap for ahead of time.

If you are a saver with a big nest egg, planning and preparation are key to navigating the world of RMDs.

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As we near retirement, we're often told that we'll pay less in taxes once we've retired. But is that always the case?

For some, yes, but for many, I would contend that you'll pay just as much, if not more, in taxes in retirement than you did in your pre-retirement years.

Some people have misconceptions about taxes and retirement. They believe their income will drop significantly but ignore that taxable withdrawals from retirement accounts and other income sources could put them in a higher tax bracket.

Others fail to seek tax advice as they near retirement and don't plan proactively, resulting in the lack of a tax-efficient, long-term distribution strategy.

The complexity of tax laws and how they differ for various accounts and investments is another contributing factor to unforeseen tax liabilities.

Here are some financial aspects of retirement that can lead to a tax trap.

Your lifestyle

Most experts recommend planning to replace 75% to 85% of your pre-retirement annual income to maintain your current lifestyle. While expenses such as commuting or saving for retirement might drop, others, such as healthcare and leisure (travel, entertainment, hobbies, social activities, etc.), often increase.

Without a significant reduction in expenses, you'll need to have an income similar to your later working years, likely keeping you in the same tax bracket.

Social Security

Up to 85% of your Social Security benefits can be taxable, depending on your combined or provisional income, a specific IRS formula used to determine whether Social Security benefits are taxable.

It's calculated by adding your adjusted gross income (wages, interest, dividends, pensions, capital gains and retirement account withdrawals), nontaxable interest (typically, interest from tax-exempt bonds, such as municipal or government bonds) and half the total gross Social Security benefits received during the year.

That combination could create a "tax domino effect" if you withdraw money for living expenses and unintentionally trigger higher taxes on your Social Security.

Here are the income thresholds at which Social Security benefits become taxable:

Medicare

Medicare premiums can increase due to the income-related monthly adjustment amount (IRMAA). That's an extra, income-based surcharge added to Medicare Part B (medical) and Part D (prescription drug) premiums for individuals with higher incomes.

For 2026, single tax filers with a modified adjusted gross income (MAGI) above $109,000 and joint filers above $218,000 are subject to IRMAA. The Social Security Administration uses tax returns from two years prior to determine if the additional fee applies.

Required minimum distributions (RMDs)

RMDs, which for most people begin at age 73 (it's age 75 for those born 1960 or later), could push you into a higher tax bracket. At those ages, the federal government requires people to make withdrawals from tax-deferred, pretax retirement accounts that they built over decades of their working life.

Those accounts include 401(k)s, 403(b)s, 457(b) plans, traditional IRAs, SEP IRAs, SIMPLE IRAs and Thrift Savings Plans (TSPs). The money you withdraw from those funds is considered taxable income.

The potential downside tax impacts of RMDs:

• They could potentially bump you into the next higher tax bracket
• They could increase your taxes on Social Security
• They could also increase your Medicare premiums due to IRMAA

Ways to help reduce the tax trap in retirement

How can you avoid paying unnecessary taxes in retirement? Here are a few strategies to consider.

1. Make Roth conversions (if appropriate).

A Roth IRA might be able to insulate you from future unknown taxes. Roth conversions are moving money from a pre-tax retirement account (such as a 401(k) or traditional IRA) into a Roth IRA.

You pay taxes on the amount you convert in the year you convert; the tradeoff is that you get tax-free growth and in retirement, withdrawals are tax-free. There's no limit on how much you can convert.

A Roth conversion is a popular strategy to help reduce future tax burdens, especially for those expecting higher tax brackets later or wanting tax-free inheritance for their beneficiaries. There are no RMDs for the original owner of the account.

Because Roth withdrawals are tax-free, using funds in your Roth account in retirement can help prevent you from a higher tax bracket.

2. Consider using the low tax window before your RMDs start.

Some people will experience a drop in income when they retire. A prime time to begin withdrawing or converting assets is when you're in a lower tax bracket.

Also consider that the next administration might increase taxes and make it more difficult from a yearly tax-rate perspective for some people to do such withdrawals or conversions.

Along with Roth conversions, here are other strategies to potentially take advantage of the low tax window:

• Consider early voluntary withdrawals. Start taking money out of IRA accounts after age of 59½ to lower the account balance and spread the tax liability over more years, rather than waiting for large, taxable RMDs.
• Balance tax brackets and IRMAA. Target a specific tax bracket in the years between retirement and RMDs to stay below higher tax brackets and avoid Medicare IRMAA surcharges.
• Consider qualified charitable distributions (QCDs). For those age 70½ and older, direct transfers from an IRA to a qualified charity can satisfy upcoming RMD requirements while reducing taxable income, even if you do not itemize deductions.
• "Fill" tax brackets. Purposefully take just enough income from tax-deferred accounts to reach the top of your current, lower tax bracket. You could end up paying less in taxes compared with the higher rates you might face when combined with future Social Security and RMDs.

3. Organize withdrawals by bucket.

In my experience, retirees often pull money from accounts in the wrong order, incurring tax consequences they could have otherwise avoided.

Taking too little from your tax-deferred accounts can lead to huge RMDs later in life. Taking too much early can increase your taxes and, potentially, your tax bracket.

It would be ideal to have a strategy that balances withdrawals from your taxable accounts, IRA (tax-deferred accounts) and Roth, while considering the income from Social Security and pensions.

The order in which you take withdrawals isn't a hard-and-fast rule. A sensible approach is to have three buckets of money:

• Taxable (brokerage accounts)
• Tax-deferred (IRA/401(k), etc.)
• Tax-free (Roth)

Deciding which bucket to withdraw from depends on what's going on in your life at that time.

Let's say you're married and filing jointly in the 12% tax bracket, which tops out at $100,800 of income for the 2026 tax year. Your taxable income for the year was close to that limit. You want to go on a cruise, and it's going to cost $5,000. Should you pull that amount from your tax-deferred bucket? No.

In this example, it may be better to pull it from your Roth because it's not taxable, and that $5,000 is not going to bump you into the next tax bracket.

Portfolio structure matters, especially in retirement.

• Consider placing tax-inefficient investments (e.g., taxable bonds, high-turnover funds) in tax-advantaged accounts, such as IRAs or 401(k)s
• Put tax-efficient investments (e.g., ETFs, index funds, municipal bonds) into taxable brokerage accounts
• Potentially avoid unnecessary capital gains, manage your dividends and distributions, and use tax-loss harvesting to offset capital gains and reduce tax burden

Review periodically and coordinate your plan

A retirement portfolio is not "set it and forget it." Too many things can change year to year, so make sure to review your plan periodically and adjust it as needed.

Keep these priorities in mind when reviewing:

• Income changes
• Market shifts that can affect your portfolio
• New tax laws that can affect your lifestyle, taxation and withdrawals
• Health care cost adjustments
• RMDs and Social Security

Retirement tax planning should be geared toward reducing taxes and avoiding ugly surprises, helping ensure you keep more of what you've worked hard to build and save.

If you're nearing retirement or already retired, it's important to ask yourself: Am I heading toward a possible tax trap in my retirement?

The earlier you spot the tax trap, the easier it may be to avoid and ensure you can retire relaxed and happy.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Question: Our grandson just graduated from college with $45,000 in debt. I want to pay off his student loans, but my husband says we can't afford it. We're 73-year-old retirees with $2.1 million and $4,000 a month in Social Security that covers most of our bills. Who's right?

Answer: You'll often hear that college graduates are drowning in debt. That might not be true for everyone, but the average student loan debt, including private loans, could be as high as $42,673 today, reports the Education Data Initiative.

A balance that large could be difficult to shake for recent grads who aren't diving into instantly lucrative careers. If you're a retired couple who's financially comfortable and have a grandson who just walked away with a $45,000 pile of student loan debt after wrapping up his studies, you might be inclined to help.

If you're sitting on a $2.1 million nest and your $4,000 monthly Social Security check mostly covers your bills, it's clear that you have some wiggle room in your budget. But your husband might not be as convinced.

Here's how to figure out how to lend a hand in a manner that doesn't compromise your financial security or convey the wrong message.

Paying off the loan probably won't change your lifestyle

A $2.1 million nest egg is not the same thing as unlimited financial resources. But if you're mostly able to live on Social Security and that $2.1 million is just your "extra" cash, a $45,000 withdrawal might have a minimal impact, says Deon Strickland, Ph.D. financial adviser at Scholar Advising.

"If you’re looking at the couple, 73 years old, about $2 million in retirement assets, and $4,000 a month in Social Security, you’re probably talking about somewhere around $100,000 a year, give or take, available to spend after tax," he says. "They’re in a position where this decision is not going to dramatically change their lifestyle."

That doesn't mean you should just write a check without thinking things through, though.

As Strickland says, "This really comes down more to the relationship with the grandson and what they’re trying to accomplish. If the grandson has been responsible, appreciates the opportunities he’s had, then maybe there’s a way to help. But it doesn't necessarily have to be just writing a check."

Strickland says you shouldn't feel obligated to pay your grandson's debt in its entirety.

"It could be structured," he explains. "It could be something like, 'If you pay the first $5,000, we’ll match it.' Something that reinforces good behavior rather than replaces it."

Consider your goals carefully

A $45,000 gift to repay student loans might be a small chunk of a $2.1 million pool of money. But for your grandson, it's huge.

Strickland says that if you're looking to make that gift, it's important to tell the right story.

"It’s more about what they want to pass on, not just financially, but in terms of values," he says. "While $45,000 is not going to be a huge shock to their overall financial picture, it is an opportunity to demonstrate how to make good financial decisions."

In other words, if you're going to give your grandson the money, set some expectations and help him realize what that gift represents. It could be the thing that allows him to build savings early on or get a head start on accumulating his own retirement nest egg so that he might one day be in a position to help a grandchild pay off their student debt.

Figure out the path that's best for your cash flow

Even though you can probably afford to pay off your grandson's $45,000 debt without blinking, that doesn't mean you shouldn't try to do so strategically. Brandon Agamennone, CRPC and wealth management adviser at Victory Private Wealth, says you have several options for handling that bill.

"It depends on what you need for your income," he says. But one option is to use dividends or interest from your portfolio to pay off the loan over a few years. Another option is for each of you to give your grandson a $19,000 gift this year, for a total of $38,000, to stay within the gift tax limit. You can then tackle the remaining loan balance the year after.

Another option? "If you have RMDs on a portion of your investment portfolio," Agamennone says, "you could take those and then gift some or all of that amount to your grandson to pay off the student loan."

Make sure your grandson knows what repayment options he has

A $45,000 student loan bill might seem overwhelming to a new college graduate. But before you rush to come to the rescue, you could want to walk your grandson through his options for repaying that debt, either on his own or with assistance.

"I would have the grandson understand college loan consolidation options," says Brian Safdari, founder of College Planning Experts. "Maybe the [grandson] can get some student loan interest deductions while working."

Safdari thinks it's important that borrowers realize that there are different ways to tackle college loans. With federal loans, for example, there are income-based repayment plans that can be more affordable.

"Start with a strategy and a plan first," he says. "Then execute the best plan that provides the family the best outcome."

That plan could involve having you foot some or all the bill, but it's important to dole out that money in the context of a broad plan everyone involved is on board with.

Next Steps to Help Your Grandchild Afford College

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  • We're 75 With $3.2 Million. Our Grandchild Needs Help Paying for College.
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• Balance your retirement security with supporting grandchildren
  • We Retired at 70 With $4.3 Million. My Wife Won't Spend 'Our Grandkids' Inheritance,' but I Want to Travel.
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Vanguard just answered a question I've long had — and it's a question only someone who lives and breathes retirement income planning, like me, would have: What percentage of people miss their required minimum distributions (RMDs) entirely or take less than the minimum amount?

The answer, according to Vanguard, is that about 7% of people who are required to take RMDs take less than the legally required amount. The Employee Benefit Research Institute (EBRI) miss rate was about three times that.

The penalty for the missed amount is 25%. Lowered from a truly punitive 50% as part of the SECURE 2.0 Act passed in 2022, the price for missing RMDs is still a mystery for most taxpayers.

Let me help. If you had $1 million in one of your retirement accounts as of December 31 and failed to take the RMD this year of $40,000, the penalty would be $10,000.

Here's my best advice on how you can keep yourself out of the IRS penalty box.

1. Learn the rules

In 2016, Social Security rules changed in an attempt to close unintended loopholes. The result was several rule sets, based on marital status and birth year. The system, which was already quite complex, became even more so.

The same thing has happened with RMDs with the advent of SECURE 1.0 and SECURE 2.0. There is now an if-this-then-that-style decision tree to figure out whether you need to take an RMD and, if so, how much.

For example, I've got a retired client whose situation is fairly straightforward. He's married and has some self-employment income. He's got three RMDs every year. Two are IRAs, which can be aggregated for RMD purposes (more on that later), and the third is from a solo 401(k) which has contributions.

While the IRAs can be aggregated, one is an annuity with an income rider, which has a different calculation for how much must be taken. He also makes qualified charitable distributions (QCDs), which reduce the aggregate IRA RMD dollar-for-dollar.

Every year as I'm doing these calculations, I wonder how many people are getting this right — and even how many advisers are ill-equipped to do this work.

Many custodians now have good resources that can tell you whether you need to take an RMD from your own account. Most of that answer is just based on your date of birth (DOB).

However, many of the same custodians will hedge on whether you need to take an RMD from your inherited IRA. As of 2025, most people with inherited IRAs do need to take an annual RMD, but that depends largely on the decedent's DOB and date of death (DOD).

Don't worry — the next three aren't nearly as complicated.

2. Consolidate

The Vanguard research also highlights that most missed RMDs are from small accounts. My guess is that this is occurring for two reasons: Either the account owners don't have access to professional resources and don't know they need to take RMDs, or they forgot about the account entirely.

One of the first things we do when we are considering bringing on a new client is build out a financial plan. First, we build a balance sheet. The software we use makes it clear when there are too many retirement accounts, which is probably the leading cause of missing RMDs. (There's a free version of that software if you want to try it.)

As noted above, the IRS allows you to aggregate RMDs for IRAs but not for employer plans. If you have six 401(k)s and one IRA, you have to take seven separate RMDs. If you have six IRAs and one 401(k), you have to take only two.

The first situation leaves a lot more room for error. I am a fan of simplicity when it comes to accounts and institutions. I will almost always recommend having as few accounts as is necessary to reach your goals (and to avoid these pesky distributions).

While I am mostly highlighting the benefits of consolidating old employer plans into IRAs, it doesn't always make sense. Here's a situation we run into where the opposite may be best.

Let's say you're still working as an employee past your RMD age. The IRS does not require you to take an RMD from your current employer plan. You may be able to roll your other retirement plans into your current plan to avoid those RMDs, too.

3. Automate

Almost all of the major custodians I have worked with have a way to automate RMDs. While we do not use this option for any of our clients for the accounts we manage, we do often recommend it for those outside of our purview.

Automating can almost guarantee you won't miss the distribution but also requires giving up some element of control.

In an IRA, you'll have to make sure there is cash in the account to make the distribution. That's cash that cannot be invested.

If it's an employer plan, it's likely that it will create cash by selling the funds on a pro-rated basis. In other words, if you have 60% in a stock fund and 40% in a bond fund and you need $10,000, your plan will sell $6,000 from the stock fund and $4,000 from the bond fund.

On the surface that looks like a good idea, but in negative years in the market, you'd probably want to sell it all from the bond fund. In positive years, just the opposite.

In conclusion, I like the idea of automating these distributions from small, old accounts. I'd rather retain control in more consequential buckets.

4. Beg for forgiveness

Let's say you fall into the group who missed the RMD. Now what? Like most things, the IRS has a form for that. My experience is that the IRS has been very forgiving with taxpayers. The most important thing is that you correct it.

If you missed the RMD, take it now. You'll have to file Form 5329 with your return, with a brief explanation of why you missed it. Like most things with the IRS, no news is good news. Take your RMD, file the form and hope you never have to discuss it again.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Question: We're 78, retired, and want to use our 2026 RMD to treat our two children, spouses and six grandkids to a weeklong vacation. We're mobile but don't have the same energy as the younger folks (no matter how much coffee we drink). How should we approach this?

Answer: For people with money in a traditional retirement savings plan, required minimum distributions (RMDs) can be a blessing and a curse. While RMDs can inevitably produce a sizable tax bill, they can also serve as an opportunity to splurge on experiences about which you otherwise wouldn't dream.

If you're 78 with a mandatory RMD coming your way this year, you have a choice. You could grumble about having to take that withdrawal and pay the IRS its share, or you could use the money to treat your grown children, their spouses and your grandchildren to a week-long family vacation.

At 78, the return on investment of an experience such as a family vacation is likely higher than any "thing" you could treat yourself to with those RMD funds.

Planning a trip like that, however, might be easier said than done. Even if you don't have mobility issues at 78, you might not have the same energy level as the younger generations with whom you plan to travel. Since you might shell out some serious cash for a vacation, look into travel insurance. If you're traveling abroad, you should also consider travel health insurance.

Here are some tips for pulling off a memorable vacation that everyone enjoys.

Focus on activities that don't split the family

If your goal is to bond and enjoy new experiences together, it's important to make sure you plan activities that you can all do together. Paul Whitten, founder, CEO, and historian at Nashville Adventures, says you need to be honest with yourself about what activities you can handle, and focus on those that offer family time that feels unified.

"Grandparents want to be involved, not sitting on a bench watching the younger folks have all the fun," Whitten explains. "That usually means leaning toward slower, guided experiences."

Whitten suggests focusing on activities such as walking tours, museum visits, boat rides, scenic neighborhoods and slower-paced outings.

"Amusement parks and high-energy attractions often split the group fast and alienate older people," Whitten says. "Older folks love watching the grandchildren smile, but they do not want to be alienated from the group."

Carve out time for everyone to have their own space

While you don't want your main activities to force your family to split up, Whitten says it's also a good idea to give yourself and your family members a little space here and there during your travels.

"The best trips intentionally build in a bit of separation," he says. After a day of sightseeing, your grown kids may want a night out on the town, while you may prefer a jazz club or a quiet dinner. There's no reason not to allow for that.

Give yourselves easy access to different activities

Since it's a good idea to build in some solo activities during a family trip, another strategy for making things go smoothly is to choose the right lodging setup, says Casey Halloran, CEO and co-founder at Costa Rican Vacations.

"Private villa rentals, small resorts and destination properties that bundle on-site activities work really well here," Halloran explains. "They give families shared gathering space but still allow guests to branch off and do their own thing."

A setup like this could, for example, allow the grandkids to splash in the pool for an hour before dinner while the adults relax or get a massage.

Build in some downtime

You might be eager to explore a new destination with your kids and grandkids. But Halloran says it's also important to build some downtime into your itinerary.

"Older travelers often underestimate how exhausting constant packing, transfers and early excursions can be," he says.

In Halloran's experience, multigenerational trips often work best when they're designed around big, shared moments coupled with sufficient unstructured downtime, whether it's lounging by the pool or taking longer lunches.

Set clear financial expectations

You might be looking to foot the bill for a multi-generational family trip. Your RMD might be enough to cover all of it, or you might only be in a position to pay for the big-ticket items, such as airfare and lodging, but you expect your grown kids to pay for meals and certain activities.

It's important to communicate this to your family up front, says Halloran. Setting the tone early can prevent awkwardness later.

Whitten says that if you're on a budget, it pays to take advantage of local resources.

"Almost every tourist city has a visitors bureau or tourism chamber with discounts posted online," he says. "Use walking tours instead of expensive trolley tours. Book museums with senior discounts ahead of time. And, my favorite thing, don’t overlook parks."

Start your planning early

Multigenerational trips can, in many cases, require significant planning. The sooner you get the ball rolling, says Halloran, the smoother things might run.

"My number one tip is to start planning early," he says. "It takes time to plan a wonderful, thoughtful multigenerational trip, but it's worth it."

Planning early also helps ensure that everyone involved can get away without too much hassle.

Your grown kids might have busy periods at work. Your grandkids might have limited school breaks. Providing plenty of notice could allow your kids and grandchildren to get away with clear heads, while giving you time to map out a memorable experience.

Better yet, delegate. Identify your most "type A" adult child and ask him or her to be the principal planner. You can lean on this person for logistics wh,ile you provide an overall vision for the vacation.

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• I Want to Help Pay for My Grandkids' College. Should I Make a Lump-Sum 529 Plan Contribution or Spread Funds out Through the Years?

Planning for a secure retirement isn't just about saving and investing; it's also about anticipating how changes in Washington might affect your nest egg. Two major threats to retirees' finances are tax risk and legislative risk.

Tax risk is the chance that you'll face higher taxes in retirement than you expected, leaving less money in your pocket.

Legislative risk is the possibility that Congress could change the rules on retirement accounts, altering what can be taxed, when it's taxed or how it's taxed in ways that undermine your carefully laid plans.

These risks are real.

In recent years, new laws have changed how inherited IRAs are taxed. Given the current legislative environment, retirees and pre-retirees need to be prepared.

Here are four ways Washington could impact your retirement, along with steps to help protect yourself.

1. Changing the tax brackets

Congress could take a bigger bite out of retirees' income by changing tax brackets.

Throughout modern history, lawmakers have adjusted federal income tax brackets, altering both the range of income in each bracket and the tax rates applied.

The Tax Cuts and Jobs Act of 2017, for instance, temporarily lowered tax rates for most Americans, but these lower rates were set to sunset at the end of 2025 before Congress passed the One Big Beautiful Bill (OBBB) this year.

Similarly, future legislation could raise tax rates or compress brackets. The impact on retirees is clear: If you're planning your retirement income using today's tax rates, be aware that you might owe more tax on the same income in the near future.

2. Limiting tax deductions

Another legislative risk to watch for is the reduction or elimination of tax deductions. Congress could change which deductions or credits taxpayers can claim, effectively increasing taxable income.

We saw this in 2017, when certain deductions were scaled back. For example, the state and local tax (SALT) deduction was capped, and personal exemptions were eliminated.

Changes to deductions directly affect how much of your retirement income is subject to tax. Imagine a retiree who normally deducts medical expenses or charitable contributions. If new laws limit those deductions, more of their income could become taxable.

Although a higher standard deduction for older people, currently in effect, has helped many retirees, it is also subject to legislative change.

The bottom line is that the deductions you rely on today might not be there tomorrow, potentially raising your tax bill in retirement.

3. Adjusting which assets are taxed

Congress also has the power to change which types of income or assets are taxable, altering long-standing rules.

A historical example is Social Security benefits, which were tax-free before 1984. Legislative changes in 1983 and 1993 introduced taxes on Social Security benefits for many retirees.

Similarly, in 2019, the SECURE Act changed the rules for inherited retirement accounts, forcing most beneficiaries to withdraw (and pay taxes on) the entire account within 10 years instead of stretching distributions over a lifetime.

This kind of legislative change can upend the plans that retirees made under the old rules. We might see future laws that make currently tax-free or tax-deferred assets taxable.

For instance, proposals to tax portions of high-value retirement accounts or further limit tax advantages on inherited assets have surfaced.

If the government changes which assets are taxed or how they're taxed, some retirees could find they have higher tax obligations and less spendable income than they anticipated.

4. 'Changing the rules' on retirement accounts

Perhaps the most unsettling way Washington could affect your retirement would be by changing how and when you must withdraw your own money, effectively "changing the rules" of retirement accounts.

We've already seen legislation increase the age for required minimum distributions (RMDs), and there are further debates. A recent House bill proposal (part of the initially debated Build Back Better legislation) sought to impose a new type of RMD on very large IRAs and 401(k)s, regardless of the owner's age.

In this proposal, if an account exceeded a certain balance, the owner would have been forced to withdraw 50% of the excess each year and pay taxes on it, even if they didn't need the money.

Although this particular provision didn't become law, it signals the kinds of ideas lawmakers consider to raise revenue. They could require you to withdraw funds under new rules or timeframes that didn't exist when you were saving.

In short, if Congress changes the structural rules for retirement accounts, you might end up accessing your savings under a different set of conditions than you planned for.

How to prepare for tax and legislative uncertainty

You can't control what lawmakers do, but you can protect your retirement from tax and legislative risks:

Diversify your tax buckets. Spread your savings across tax-deferred, taxable and tax-free accounts. Roth IRAs and Roth 401(k)s provide tax-free withdrawals, while vehicles such as municipal bonds or cash-value life insurance can add income with little or no tax.

Relying only on tax-deferred accounts leaves you more exposed if tax rates rise.

Plan withdrawals strategically. Use a savvy withdrawal strategy to help minimize taxes over time. Partial Roth conversions in lower-tax years let you pre-pay taxes on your terms.

Coordinate distributions across taxable, tax-deferred and Roth accounts to keep your taxable income steady and avoid surprises such as higher Medicare premiums.

Stay flexible. Laws will change. Revisit your plan when new rules, such as RMD age changes or Social Security adjustments, take effect.

Keep liquidity and backup strategies in place so you can adapt. A good adviser can help you interpret changes and adjust quickly.

In short, expect continuous tax and legislative changes. With a proactive, flexible plan, you can safeguard your retirement income against decisions made in Washington.

Ezra Byer contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Death and taxes are life's two certainties, but what if you could have more control of the latter in retirement? That’s the goal of the "Take That, Uncle Sam" rule of retirement spending.

With this approach, money is withdrawn strategically to limit your tax exposure. The less you pay Uncle Sam, the more you have to spend or leave to your heirs.

It’s a strategy any retiree can use, but timing is everything. Those who spend more early in retirement must structure their plans differently from those who wait until later.

Either way, the goal remains the same: Keep as much of your hard-earned savings as possible without running afoul of the law.

"It makes a big difference if you've got all these taxes like IRMAA and RMDs hitting you at different times," said Steve Parrish, professor of Practice, Retirement Planning at The American College of Financial Services.

What taxes are the 'Take That, Uncle Sam' rule worried about?

When it comes to the taxes that the "Take That, Uncle Sam" strategy aims to limit, they include the following:

Ordinary income: Most withdrawals from traditional IRAs and 401(k)s in retirement are taxed as ordinary income, just like a paycheck.

IRMAA surcharge: If your annual income exceeded $109,000 (for single filers) or $218,000 (for joint filers) in 2024, you're on the hook for an IRMAA surcharge on your Medicare premiums in 2026. (There is a two-year look-back period for determining whether you must pay the surcharge.)

Required minimum distributions (RMDs): Once you reach age 73 (or age 75 if you were born after 1959), you're required to take annual withdrawals from your traditional IRA. These RMDs can easily push you into a higher income tax bracket.

Keep in mind that tax planning and retirement spending can get complicated quickly, depending on your assets, account types, income streams and how you want to spend your money.

That's why it might be in your best interest to work with a tax professional or a financial adviser — or at least, a trusted friend, family member or an online financial planning tool.

"I don't recommend anyone DIY this unless they know taxes," said Julie Williams, wealth adviser at Wealthspire. "Taxes layer on themselves."

Breaking down the 'Take That, Uncle Sam' rule

Now that you understand some of the tax levers at work, here's the "Take That, Uncle Sam" rule in action, whether you want to spend money in the go-go or slow-go years.

Spending during the go-go years

If you plan to spend a lot in the early years of retirement and your withdrawals will push you into a higher income bracket that creates a big tax event, the "Take That, Uncle Sam" approach could be for you.

Parrish says in that case, you withdraw from your Roth IRA first to avoid paying taxes. After that, you tap your brokerage account and IRA. Once your spending slows down, you stop withdrawing from your Roth.

The reason to tap your Roth IRA? Withdrawals are tax-free. The downside: You're giving up future tax-free growth. It means heirs won't receive as big a tax-free inheritance. Nonetheless, Parrish said it could be worth it if you faced a big tax bill.

Keep in mind that this approach won't reduce your RMD exposure, since you aren't touching your traditional IRA. Your RMDs could be larger if your balance continues to grow.

To get around that, try a hybrid approach in which you wi,thdraw just enough from your traditional IRA to stay in your existing tax bracket and take the rest from your Roth. You can lower your RMDs, but you'll have to pay some income tax.

Spending during the slow-go years

If you expect to withdraw more money later in retirement and want to avoid a big tax hit, do the reverse: Withdraw from your traditional IRA up to the top of your tax bracket, and if you need more, take it from your brokerage account, said Parrish.

The reason to tap your traditional IRA first? Typically, you're in a lower tax bracket in retirement, so the tax hit is minimal. It also gives you a chance to reduce your RMDs. The downside: You must pay some taxes on withdrawals.

Do that year after year, then move to your Roth. When it comes time to make large withdrawals later, the money will be tax-free.

"The nice part is you burn up some of your IRA when it comes time to take your RMDs," said Parrish.

It isn't an exact science

At the end of the day, tax planning for retirees isn't about avoidance; it's about minimizing the amount you owe. It's about making those tax-smart moves, particularly when you begin withdrawing the money you worked so hard to save.

"It’s about what you can do today to keep more money in your pocket for your entire family, the next generation and your lifetime," said Williams.

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The start of retirement is an exciting time.

For years, you worked and perhaps raised a family while always keeping an eye on the future.

You consistently set aside money, with the express purpose of funding your lifestyle during your golden years.

Now, with retirement near, or if it's already begun, you're ready to put those investments to use for both necessities and cherished bucket list items.

But all investments carry some degree of risk. They can lose value, sometimes significantly, when markets fluctuate.

When you're young, with years of investing ahead of you, it can be easier to take those losses in stride. You know you'll likely recover them over time.

But when the market experiences a substantial decline, the outcome can be quite different for those nearing or just beginning retirement. Once you stop contributing to investment accounts and start taking distributions, it can be harder to recover from a big loss.

A portfolio that was supposed to help provide income for a long retirement could come up short.

The possibility that ill-timed market declines could affect the longevity of your nest egg is known as sequence of returns risk, which can pose a serious threat to retirement success.

What is sequence of returns risk?

Sequence of returns risk is the danger that poor investment returns early in retirement, combined with regular withdrawals, can deplete your portfolio much faster than anticipated.

Even if your long-term average return reflects a solid performance, early losses could mean you'll have to sell assets at a lower value, reducing the size of your portfolio and limiting your ability to recover when the market rebounds.

No one can predict what the market will do from one week to the next, much less in the years ahead. This means that two retirees with identical portfolios and withdrawal strategies could experience substantially different outcomes based solely on the sequence of returns they encounter at the time they choose to retire.

The chart shows how the sequence of returns could affect two hypothetical retirees with the same $1 million portfolio (fully invested in the S&P 500 index) and a $75,000 annual withdrawal rate. The striking difference in their balances after 10 years illustrates the challenge that sequence of returns risk presents.

Note: These hypothetical examples are provided for illustrative purposes only. Source: finance.yahoo.com

How can you avoid this?

The worst way to deal with sequence of returns risk is to cross your fingers and hope that the market will stay strong, or at least stable, at the start of your retirement.

Winging it is not the way to go, and it could make matters worse if you make decisions based not on sound planning but on emotions, such as denial, fear or despair.

Preparing for the possibility that the market could decline at just the wrong time is critical. That means building plenty of flexibility into your plan so you don't become locked into taking portfolio withdrawals that require selling at a loss. Some strategies that can give you that flexibility include:

Drawing from safety assets

Pulling from cash reserves, short-term bonds or other safety assets can give your riskier assets time to recover from a loss.

The tricky part is deciding what portion of your investment should be parked in safety vehicles.

During employment, the general rule is to keep three to six months of income in liquid investments, but in retirement, that might not be a sustainable strategy.

If the markets were to rebound fairly quickly, as they did after the 2020 COVID-19-related crash, you'd be OK. But your money likely wouldn't last through a longer slump, such as the 2008 financial crisis.

You might want to look at a "bucket" strategy that allocates funds for use during specific (short-, mid- and long-term) phases of your retirement. A knowledgeable financial adviser can help you determine what your income plan requires and how to invest with both safety and growth in mind.

Implementing an efficient withdrawal strategy

When multiple accounts are available, tax-savvy retirees typically draw from their taxable assets first, then tax-deferred accounts (401(k), 403(b), traditional IRA, etc.) and finally, their Roth accounts. But diverging from this strategy during a market downturn could help you prevent losses from affecting your overall retirement outlook.

Accessing funds from a tax-free Roth account during a downturn might help you manage tax bracket creep, reduce tax exposure and avoid triggering the Medicare IRMAA surcharge and potential taxes on a portion of your Social Security benefits, keeping more money in your pocket.

This strategy can also allow your tax-deferred assets to recover and preserve your traditional IRA for future growth.

Coordinating withdrawals with Social Security

The market has no impact on Social Security benefits, making these a reliable income source. When you choose to claim those benefits is an essential part of retirement planning.

If the market is strong, and you can get the income you need from your investment gains, you might decide to delay filing for Social Security. But claiming your benefits sooner might make sense during a down year if it helps you reduce withdrawals from your investments.

It's definitely worth running the numbers for various scenarios so you understand your options.

Proactively managing RMDs

A required minimum distribution (RMD) is a government-mandated amount that retirees must withdraw each year from certain tax-deferred retirement accounts, generally starting at age 73.

These required withdrawals can force retirees to sell assets during a market downturn, potentially locking in losses.

Proactively allocating a portion of your tax-deferred accounts to safety assets is one way to prepare for this potential pitfall.

Another is to take your distributions during market highs instead of on a predetermined, inflexible schedule.

You might want to consider the benefits of completing a Roth conversion before you reach the age at which RMDs become a factor.

Better prepared than scared

Experiencing a market downturn early in retirement can be damaging, but it doesn't have to ruin your future. If you've recently retired or are close to retirement, there are steps you can take to preserve the longevity of your nest egg.

The sooner you make the necessary adjustments, the better off you'll be. Don't hesitate to ask for professional guidance if you need help evaluating the various strategies that can protect you and your family.

Kim Franke-Folstad contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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• Top Four Retirement Withdrawal Strategies to Maximize Your Savings
• 7 Tax Blunders to Avoid in Your First Year of Retirement, From a Seasoned Financial Planner

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Question: I'm retiring later this year at 67 with $2.6 million, most of which is in a traditional IRA. I'm worried about RMDs and taxes. What should I do?

Answer: As of 2022, the last year for which there's data available, the average 67-year-old retiree had about $609,000 in retirement savings, according to the Federal Reserve.

Moreover, retirement savers in their 60s only averaged $257,000 in their IRAs. If you're retiring later this year at age 67 with a $2.6 million IRA, you're clearly ahead of the game.

If that money is in a traditional IRA, though, you'll have to start taking required minimum distributions (RMDs) once you turn 73. While RMDs aren't guaranteed to be a problem, they could be if you find yourself in a situation in which you don't need the money.

Why does the IRS impose RMDs on traditional retirement plans? As Mark Steber, chief tax officer at Jackson Hewitt Tax Services, explains, "They want you to enjoy some of that money, but more importantly, they want the taxes from that money."

If you don't like the idea of facing RMDs in the future, there might be a way to largely get out of them. But it's important to proceed with caution.

Consider a Roth conversion carefully

If you don't want to deal with RMDs in retirement, the Roth conversion is a legitimate strategy, Steber says. The coming years might be an optimal time to do that conversion.

"If you're in that retirement income valley, and your income and tax rate go down substantially, that gives you the opportunity to take some of that retirement money and dump it into a Roth," he explains.

But, Steber says, you have to know what your total tax bracket is before rushing into Roth conversions. At age 67, you might be receiving Social Security or working a side hustle, both of which could affect your tax bracket. It's important to look at the big picture.

Robin Lovely, founder at The Women's Advisory Group, agrees that a Roth conversion could be a smart move in this situation. But she cautions against rushing into a major conversion at once.

"A series of smaller strategic conversions over the next few years could make more sense," she says. "The idea is to fill up your current tax bracket without spilling into the next one. That way, you reduce the size of your future RMDs and give yourself some tax-free income later on."

One drawback of doing a Roth conversion, whether in one fell swoop or over several years, is the potential to get hit with Medicare surcharges known as income-related monthly adjustment amounts, or IRMAAs. Because Roth conversions count as income, they could propel you into the IRMAA category in two years' time.

But Cody Garrett, owner and financial planner at Measure Twice Financial, says, "Some retirees worry about IRMAA when planning Roth conversions, but I don't let it rule the decision making. At any bracket, the IRMAA does not exceed 3% of household income based on modified adjusted gross income two years prior. It may be worth paying higher Medicare premiums for a few years to avoid higher tax rates and IRMAA for decades."

Don't put all of your money into a Roth

Timing Roth conversions strategically could let you off the hook from RMDs and associated taxes later in life while minimizing the tax blow in the near term. But Steber cautions not to move all your money into a Roth account.

"It is truly a best practice to have multiple types of retirement buckets," says Steber. That means maintaining a mix of traditional and Roth accounts.

"When you have multiple buckets, you have a lot more latitude for planning," he explains.

Steber points out that we don't know what tax breaks could come down the pike. There could be future tariff rebates or tax credits you can only qualify for if you have taxable income to report. As such, Steber says diversifying your retirement income is "a smart play."

Don't assume the worst if you're stuck with RMDs

A lot of people view RMDs as a negative in the context of retirement. But Garrett says, "With $2.6 million in a traditional IRA, RMDs may be meaningful, but they're not automatically catastrophic."

One thing to realize about RMDs is that they could serve as a green light to treat yourself to luxuries or a travel splurge you wouldn't otherwise spend money on. If you're charity-oriented, RMDs give you an opportunity to make qualified charitable distributions (QCDs) and support organizations that mean a lot to you.

There's nothing wrong with planning for RMDs and taking steps to reduce them in the future if you have a lot of money in a traditional retirement account, says Garrett.

At the same time, he says, "Please don't make Roth conversion decisions based on fear. There's often a temptation with large traditional retirement account balances to rush into aggressive Roth conversions. Slow down, take a breath, and unpack the comprehensive planning situation."

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• I Have to Take a $22,000 RMD by the End of the Year, and I Don't Need the Money. What Should I Do With It?

Most people think their tax burden will shrink in retirement. But for many, the opposite is true.

Like a snowball rolling down a mountain, taxes that start small can gather speed, grow larger and eventually threaten to bury your income, your retirement quality and your legacy.

Even though the One Big Beautiful Bill (OBBB) preserved much of today's lower-rate environment, that doesn't mean retirees are in the clear.

The U.S. still faces record debt levels, growing entitlement obligations and a complex web of hidden taxes that quietly chip away at retirement income. The avalanche risk hasn't disappeared; it's just less obvious.

Where the avalanche starts

The "tax avalanche" doesn't begin with a sudden policy change. It begins with success: A career of disciplined saving in tax-deferred accounts such as 401(k)s and IRAs. Every dollar that grows in those accounts is a future tax liability.

Once you begin required minimum distributions (RMDs), those withdrawals are taxed as ordinary income, and that can push you into higher brackets just when you thought life would slow down.

It's not just income taxes that take a bite. RMDs can cause up to 85% of your Social Security benefits to become taxable and can trigger higher Medicare premiums through IRMAA surcharges. Those extra costs can quietly add thousands to your annual tax bill.

Then comes spousal tax risk, a tax hazard few couples anticipate. When one spouse passes away, the surviving partner's filing status changes from "married, filing jointly" to "single," effectively cutting the standard deduction in half and accelerating bracket creep.

The widow's penalty can raise taxes just as household income drops.

Why the danger is growing

Even without the looming "sunset" that once defined tax headlines, rates are unlikely to stay this low forever. The government's long-term obligations, such as Social Security, Medicare and rising interest on the national debt, will eventually demand higher revenue.

Future tax increases might not come from higher brackets alone; they can emerge through stealthier channels such as deduction limits, surtaxes or benefit phaseouts.

Meanwhile, demographic shifts mean more retirees are drawing income from the same tax-deferred sources. The system itself is built to collect more as people live longer and rely more heavily on retirement accounts.

That's why proactive planning remains just as crucial today as it was before the OBBB.

How to slow (or stop) the slide

You can't stop snow from falling, but you can build barriers that keep it from becoming destructive. Here are practical ways to control the slope before small issues turn into a tax avalanche.

Diversify your tax buckets. Balance savings among taxable, tax-deferred and tax-free accounts. This flexibility lets you draw from the most efficient source each year to manage your tax bracket and control how much income appears on your return.

Use strategic Roth conversions. With today's rates still historically low, small, controlled Roth conversions can move money from taxable territory to tax-free growth. Spreading conversions over several years helps you manage brackets and avoid Medicare or Social Security taxation surprises.

Monitor RMD exposure. Project future RMDs early (ideally before you turn 73) and look for opportunities to reduce account balances through partial withdrawals, Roth conversions or qualified charitable distributions (QCDs). A little foresight can prevent forced distributions later.

Plan for the surviving spouse. Model what your taxes would look like if one spouse passes away. Consider converting more while both spouses are alive, reviewing beneficiary designations and maintaining enough liquid assets for flexibility during life transitions.

Manage your income thresholds. Watch the breakpoints for Social Security taxation and IRMAA brackets. Staying below those levels can reduce your total tax drag without changing your lifestyle.

Review annually. Tax rules, health care costs and personal circumstances shift constantly. An annual review with your financial professional helps you stay nimble and ahead of potential changes.

Avoiding the 'do nothing' trap

Many retirees assume that because the OBBB extended the current tax framework, they have time to relax. But procrastination can quietly narrow your options.

Once RMDs start or a spouse passes, it's harder to melt the snowball. Taxes can compound just as investments do, only in reverse.

Think of each dollar you move strategically as a shovel of snow cleared from the slope. It might not seem like much now, but over time, it can mean the difference between staying above the surface and being buried by unintended consequences.

The bottom line

A tax avalanche isn't triggered by one bad decision; it's caused by inertia. The risk comes from doing nothing and assuming that today's lower rates will last forever.

Even in a post-OBBB world, retirees face growing hidden liabilities: RMDs, spousal penalties and income-based surcharges that add complexity to every withdrawal.

The goal isn't to avoid taxes altogether, but to pay them smartly, over time, in ways that protect your income and your family's future.

Don't wait for the snowball to gain speed. With proactive planning, diversification, and steady guidance, you can keep the avalanche in check and enjoy a retirement that feels stable, predictable and secure.

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• Retirement Income Tax and the IRS: What Retirees Need to Know for 2025

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you're an American in your mid-70s, your retirement accounts are both a comfort and a challenge.

After decades of work, diligent saving and consistent investing, your balance might climb into the millions. Yet, since you turned 72 or 73 (depending on the year you were born), you've had to take required minimum distributions (RMDs) from your IRA.

Say you're now 75 with about $4.5 million in traditional IRA funds, and you receive a notice that your RMD will be just under $183,000. The withdrawal is mandatory. More unsettling is that every dollar is taxable as ordinary income.

That kind of bill sends many retirees searching for alternatives. Around golf courses, dinner tables and online forums, one suggestion rises above the rest: Just convert to a Roth.

The idea sounds simple. Move the money, pay taxes now, then enjoy tax-free growth and withdrawals forever.

At age 75, though, the financial math often tells a different story.

The appeal of the Roth

The Roth IRA is a favorite in financial planning because it offers:

• No RMDs
• Tax-free compounding for as long as the account exists
• Tax-free inheritance for your beneficiaries

Placed beside a looming six-figure tax obligation, those benefits feel irresistible. But the reality is that the promise of a Roth is highly dependent on timing, and timing is when older retirees run into problems.

Why? Because they have a shortened time horizon. The logic of converting to a Roth rests on pay now, save later, and that only works if you have enough years for tax-free growth to overcome the upfront tax.

At 75, your runway is shorter. Even with favorable markets, the break-even period to recoup the conversion tax can stretch beyond a decade. Here are several troubling factors:

RMDs do not disappear. Unless you convert the entire IRA, you still owe annual distributions on whatever remains. That $183,000 withdrawal cannot be skipped, and converting it in pieces does not erase it.

Heavy tax consequences. Converting $1 million might sound modest next to a $4.5 million account, but it can instantly create a tax bill of well over $350,000.

The added income can also trigger higher Medicare premiums, increase the portion of Social Security that is taxed and expose investment income to additional levies.

Estate planning contradictions. If charitable gifts are part of your legacy plan, paying upfront taxes to create Roth dollars is unnecessary, since charities can receive traditional IRA funds without tax.

For heirs, several coordinated strategies might outperform a costly conversion.

The cash drain. If you don't have large funds outside the IRA, you'll likely pay the conversion tax from the IRA itself. That reduces the account, cuts potential growth and weakens the very advantage that makes the Roth attractive.

Say an adviser suggests you convert $1 million to a Roth this year. You could be writing the IRS a check exceeding $350,000.

Instead, you might explore staged withdrawals across tax brackets, qualified charitable distributions that offset RMDs and coordinated updates to your estate documents. That approach can create significant tax relief without sacrificing long-term value.

Smarter alternatives

Professionals often point you toward strategies that balance flexibility and taxes. These include:

• RMD planning that spreads withdrawals to avoid big spikes
• Qualified charitable distributions that send funds directly to nonprofits, reducing taxable income while satisfying RMD rules
• Bracket management to time withdrawals and stay in lower tax bands
• Coordinated estate design to reduce your family's overall tax burden

The bigger picture

Roth conversions are promoted so aggressively that many retirees assume they're universally beneficial.

The truth is more nuanced, and conversions can make sense for younger workers or for people in their 50s and 60s. For wealthy retirees in their mid-70s, the cost often outweighs the benefit.

The real question is not whether you should convert, but whether a conversion truly reduces your lifetime tax burden. For many at age 75, the answer is no.

Ezra Byer contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Related Content

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The end of the year is a crucial time for charitable giving. Whether you are giving cash, stock, or using your IRA to make a qualified charitable distribution, meeting specific year-end deadlines is essential.

Donating to charities and nonprofits is more common during the holiday season. Half (51%) of U.S. adults report having donated or planning to donate money by the end of 2025, with a fifth of those donating exclusively in the final months of the year, according to Charities Aid Foundation America. For retirees, charitable giving is not merely an act of generosity — it is a sophisticated tax-management strategy, particularly when dealing with retirement accounts.

Once you reach age 73 (or 75 in 2033), you must begin taking Required Minimum Distributions (RMDs) from your traditional IRAs. These RMDs are added to your taxable income, which can lead to higher taxes on Social Security benefits or increase Medicare premiums by triggering the IRMAA. To counteract this, strategic charitable gifts can be used to meet your RMD requirement without adding a single dollar to your Adjusted Gross Income (AGI), thereby protecting you from the associated tax hikes.

Another way to reduce your taxable income is to gift appreciated assets, such as mutual funds and stock. This can help you avoid a spike in income from capital gains you'd have to report if you sold the assets.

Here are the deadlines and details for charitable giving that can help reduce your RMDs and capital gains.

IRA Qualified Charitable Distributions (QCDs)

The best way to satisfy your RMD requirement and avoid including it in your annual income is with the Qualified Charitable Distribution (QCD). If you are aged 70-1/2 or older, you are eligible to transfer up to a statutory limit, $108,000 for individuals and $218,000 for couples in 2025, directly from your IRA to an eligible charity. Because the money never touches your hands, it is excluded from your taxable income — a much more powerful benefit than taking the RMD and then claiming an itemized deduction for a charitable contribution. This direct transfer satisfies your RMD requirement while supporting your favorite causes and lowering your taxable income for the year.

To secure the tax benefits of a QCD, your donation must clear your IRA account by the December 31 deadline. Since processing can take time, it is essential to initiate the transfer early to ensure the funds leave your account before the end of the year.

If you are relying on a QCD to satisfy your RMD, waiting until the last week of the year is risky, as delays in processing by your custodian can nullify the tax benefit. Retirees should coordinate with their financial advisor and IRA administrator to ensure the distribution is fully executed and recorded by year-end, securing both the charitable gift and the tax savings.

Looming deadlines

The official deadline for many charitable gifts is December 31st, but the cut-off dates for transfers and processing can often be much earlier, depending on the method of giving, according to planninggiving.com.

Planning is essential to manage MAGI in retirement. For more robust explanations about the types of income that can trip up retirees, read 7 Ways to Plan Now to Save on Medicare IRMAA Surcharges Later.

Call the charity/nonprofit

Before sending any gift, especially a non-cash asset or a large year-end contribution, take a few minutes to call the nonprofit organization.

A quick call will allow you to:

• Confirm what types of assets they can accept
• Inform them of any upcoming large transfers, such as stock or wire transfers
• Confirm their internal processing cut-offs, as some organizations may have limited business hours over the holidays

Related Content

• 7 Ways to Plan Now to Save on Medicare IRMAA Surcharges Later
• How to Calculate Your RMDs (Required Minimum Distributions) for IRAs
• How Charitable Donations Can Reduce Your Taxes
• Required Minimum Distributions (RMDs): Rules, Deadlines, and SECURE 2.0 Changes
• 4 Smart Ways Retirees Can Give More to Charity, From a Financial Adviser

Question: I'm retired and comfortable and want to give each of my three grandkids $5,000 for Christmas, but their parents don't want them to blow it all. How should I handle this?

Answer: As rewarding as it can be to raise children of your own, take a survey of older Americans, and they'll probably agree that watching their grandchildren grow up is equally rewarding, if not more so. There's just something special about the relationship people have with their grandchildren.

If you're retired and financially comfortable, you might be inclined to shower your grandkids with gifts or treats from time to time. That could mean a trip to the ice cream store after dinner or slipping them the occasional $20 bill for extra spending money.

Such small gestures might not be too controversial, but you might need to tread cautiously if you're looking to give your grandchildren larger financial gifts.

With the holidays coming up, you might be considering a $5,000 gift to each of your three grandchildren. Maybe you have a required minimum distribution coming, and you don't have another use for the money, or maybe you've budgeted strategically to be able to write those checks.

While your grandchildren might truly appreciate such a generous gift, their parents may not be as thrilled. They could be concerned that their children will waste the money, or they might object to a gift that large.

Here's how to navigate the situation so your attempt at generosity doesn't turn into a holiday conflict.

Respect your own children's wishes above all else

The nice thing about being a grandparent is that you get the joy of spending time with your grandchildren without having to be responsible for their care and upbringing.

But because it's your own kids who are tasked with raising your grandchildren, it's important that you respect their wishes when it comes to important issues such as handing over a large sum of money, says Adam Spiegelman, founder and wealth adviser at Spiegelman Wealth Management.

"When a grandparent wants to gift money and the parents are hesitant, you absolutely have to defer to the parents," he says. "They’re the ones raising the kids, and it’s ultimately their decision."

However, Spiegelman says, if your own children understand that you have the best of intentions and that you're willing to be flexible, there might be a pretty easy way to reach an agreement.

He suggests listening to your children's concerns and figuring out if there's a way to work around them. That could, for example, involve giving the money to your children to manage.

"A custodial account, for example, allows the grandkids to be involved without having full control," Spiegelman explains. "It opens the door to conversations about investing, saving, taxes, compounding — all the financial basics that most kids aren’t getting in school. If the goal is to help them, that structure often goes a long way."

Present the money as an opportunity

Your children could be concerned about their kids blowing the $5,000 checks you present. But rather than look at that gift as a liability, help your children see it as an opportunity.

"Parents often feel their kids aren’t responsible enough, and sometimes, they’re right," says Mary Clements Evans, financial adviser and founder of Evans Wealth Strategies. "That’s why we focus on educating the next generation to become good stewards of the money they receive."

Evans suggests that instead of handing $5,000 to each grandchild, consider contributing the money to a 529 plan for their education.

"Funds can be used for K to 12 education, college, or trade schools," she explains. If they don't need all the money for education, leftover funds can later be rolled into a Roth IRA for retirement savings.

Spiegelman agrees and says that a $5,000 gift can be used to teach children about investing from a young age.

"If the kids love a certain brand … you can use that interest to teach them what owning a stock really means," he says. "Kids aren’t learning this stuff in school. A structured gift is a chance to teach investing, compounding, and real-world money skills."

Turn it into a lesson in money management

If you're willing to partner with your children to help your grandchildren make the most of a $5,000 gift, you have a prime opportunity to teach them about the importance of budgeting, says Scott G. Kyle, CEO/chief investment officer at Coastwise Capital Group.

"Parents and grandparents can help kids apply the 50/30/20 rule," Kyle explains. This popular strategy allocates 50% of earnings to needs, 30% to savings, and 20% to wants.

In this case, the 50% needs portion could, depending on the child's age, be a down payment on a first car or a laptop for school work. If the children are much younger, the 50% needs portion could go into a savings account that can be accessed upon high school graduation.

The 20% savings portion, Kyle explains, could go into a brokerage account so the grandchildren can invest for their future. The 30% wants portion can be for fun.

The key, either way, is to make sure your own kids are on board.

"Some families already have systems or philosophies they’re teaching," Spiegelman says. "Start with the parents’ philosophy. Once you have their buy-in, the gift becomes a tool, not a conflict."

Read More

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• My Adult Child Was Laid Off. Can We Discuss It Without Ruining the Holidays?
• I Want to Help Pay for My Grandkids' College. Should I Make a Lump-Sum 529 Plan Contribution or Spread Funds out Through the Years?

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week she's looking at eight questions on IRAs, 401(k)s and required minimum distributions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. First RMD

Question: I turned 73 earlier this year, and I am retired. I know I must start taking required minimum distributions (RMD) from my traditional IRA. Can you explain the rules to me?

Joy Taylor: You are correct that people 73 and older must take annual RMDs from their traditional IRAs. (Note that starting in 2033, the beginning RMD age rises to 75.) To arrive at the RMD amount for 2025, you would start with your IRA balances as of December 31, 2024, and divide each one by the factor for your age, which you find in the tables in IRS Publication 590-B. The sum of the required withdrawal amounts can be taken from any IRA that you choose.

Generally, IRA owners must take their annual RMD by the end of the year. However, since 2025 is your first RMD year, you have until April 1, 2026, to take your 2025 RMD.

If you opt to defer your first RMD to 2026, be sure you understand the consequences. You will be taxed in 2026 on two RMDs – the deferred one for 2025 and the RMD for 2026. This will end up increasing your adjusted gross income and taxable income in 2026. Note also that if you choose to defer your 2025 RMD, the deferred 2025 RMD amount will still be based on your total IRA balance as of December 31, 2024.

2. RMDs and traditional 401(k) accounts

Question: I am 73 years old and am still working. I don’t have an IRA, but I have two 401(k)s, one from a previous employer and one from my current employer. Do I have to take RMDs from these accounts for 2025?

Joy Taylor: Similar to owners of traditional IRAs, participants in traditional 401(k) workplace retirement plans must generally take RMDs, beginning at age 73. For people with multiple 401(k)s, the RMD must be taken from each 401(k) account. However, there is an exception in your case, since you are still working. You can generally delay taking an RMD from your current employer’s 401(k) until you retire, provided you don’t own more than 5% of the company that employs you. This exception doesn’t apply to 401(k) accounts with previous employers, so you will have to take your 2025 RMD from your 401(k) account with your previous employer.

Since 2025 is your first RMD year, you have until April 1, 2026, to take the RMD from your 401(k) account at your previous employer. If you opt to defer your first RMD to 2026, be sure you understand the tax consequences. You will be taxed in 2026 on two RMDs – the deferred one for 2025 and the RMD for 2026. This will end up increasing your adjusted gross income and taxable income in 2026.

3. Roth IRAs and 401(k)s

Question: Must RMDs be taken from Roth IRAs?

Joy Taylor: No, Roth IRA owners do not need to take RMDs. The same applies for owners of Roth 401(k) accounts. This is one of the benefits of investing in Roths.

4. RMDs for 2026

Question: I understand that I would use the balances in my traditional IRAs as of December 31, 2025, to figure my RMD amount for 2026. A significant portion of my IRA investments is in equities. What happens if the stock market tanks in 2026? Will the IRS eliminate RMDs for 2026 if this happens?

Joy Taylor: I can’t answer this question at this time. First, it is Congress, not the IRS, which must act to waive the RMD for any particular year. For example, Congress waived RMDs for 2020 soon after the COVID-19 pandemic started. Congress also waived RMDs for 2009 because of the economic recession. If the stock market falls precipitously next year and remains low for a while, then maybe there could be RMD relief, but this is just speculation.

5. RMDs and inherited traditional IRAs

Question: I just inherited a traditional IRA from my aunt, who died earlier this year at age 78. I know that I must clean out the IRA within 10 years, but do I also have to take an annual RMD from the IRA?

Joy Taylor: The answer is likely yes. For most nonspousal IRAs inherited after 2019, the IRA funds must be distributed to the beneficiary within 10 years of the owner’s death. Since your aunt died this year, you must clean out the IRA no later than December 31, 2035. There are exceptions for beneficiaries who are surviving spouses or minor children (until age 21) of the account owner, chronically ill or disabled, or not more than 10 years younger than the deceased IRA owner.

If the original IRA owner dies before his or her RMD date begins, and the beneficiary is subject to the 10-year clean-out rule, then the beneficiary needn’t take a minimum distribution each year. The beneficiary can immediately cash out, opt to wait until year 10 to get the money, get yearly distributions, or skip years, provided the IRA is fully depleted by the end of the 10-year period.

However, in your case, your aunt died after her RMD start date. Because of this, you must withdraw, at a minimum, annual RMDs from your inherited IRA during the 10-year period, generally beginning in 2026 (the year after your aunt’s death), and then fully deplete the IRA by year 10 at the latest. You would calculate your annual RMD based on your life expectancy and not that of your aunt.

6. RMDs and inherited Roth IRAs

Question: How does the 10-year clean-out rule apply to inherited Roth IRAs? Must RMDs be taken from inherited Roth IRAs?

Joy Taylor: Similar to the rules for traditional IRAs, many nonspousal beneficiaries of Roth IRAs inherited after 2019 must clean out the account by the end of the 10th year after the owner’s death. But the money is generally tax-free to them. Also, because Roth IRA owners are not required to take annual RMDs, beneficiaries of inherited Roths needn’t worry about whether the original Roth account owner died before or after the starting date for taking RMDs. These beneficiaries don't need to take annual RMDs. They can opt to clean out the account in year 1, wait until year 10 to take out all the Roth IRA funds, skip years or get annual distributions, provided they fully deplete the Roth IRA within the 10-year period.

7. RMDs and QCDs

Question: I have a traditional IRA, and I am currently taking annual RMDs. I am charitably inclined, and my financial advisor told me that if I make a qualified charitable distribution (QCD) from my IRA, then it will count against my taxable RMD. Is this true?

Joy Taylor: People age 70½ and older can transfer up to $108,000 in 2025 ($111,000 in 2026) from a traditional IRA directly to charity. A QCD can count as all or part of your RMD, provided you do it before taking your RMD for the year. QCDs are not taxable, and they are not added to your adjusted gross income or your modified adjusted gross income. Note that QCDs cannot be done from a 401(k) or other workplace retirement plan.

8. RMDs and Roth IRA conversions

Question: I am 74 years old, and I want to convert a portion of my traditional IRA to a Roth IRA next year. Must I take my full 2026 RMD from my traditional IRA before doing the conversion, even if I do the Roth conversion in early 2026?

Joy Taylor: Yes. Traditional IRA owners who are 73 and older must take annual RMDs. People of RMD age who are considering a Roth conversion must first take their full annual RMD for the year before doing the conversion. So if you plan to do a Roth conversion in 2026, you must first withdraw your full 2026 RMD from your traditional IRA before you do the conversion.

If you have multiple traditional IRAs, the rule that you must take your annual RMD before doing a Roth conversion for the year can be tricky. That’s because if a person has multiple traditional IRAs, the total aggregate RMD for the year must be withdrawn during the year before doing a Roth conversion from any of the traditional IRAs. For example, say you own three traditional IRAs, and your 2026 aggregate RMD from those three IRAs will be $73,612. If you want to do a Roth conversion from any of your traditional IRAs in 2026, you must first take your 2026 aggregate RMD of $73,612 from any of your traditional IRAs that you choose and then do the Roth conversion for the year.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor round-ups. So keep those questions coming!

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.

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• All Ask the Editor Q&As
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RMDs are like colon cancer screenings: You thought they were only for older folks, and ignoring them now could lead to bigger problems down the road.

When you get to the current RMD age of 73 (updated in the SECURE 2.0 Act) and you're forced to take money from your traditional accounts, you're not just paying taxes on that specific RMD dollar amount.

• Your RMD amount likely makes more of your Social Security taxable
• Your RMD amount could force you to pay extra for Medicare through the income-related monthly adjustment amount (IRMAA)
• Your RMD amount could make you lose out on deductions such as the enhanced deduction for older people and the medical expense deduction
• And you could pay an extra 25% tax penalty on RMDs you don't take out on time

Here are the five biggest mistakes I see retirees make with their RMDs. Learn from these mistakes so that you can plan your RMDs ahead of time and hopefully lower their tax bite.

Mistake No. 1: Waiting until age 73 to create a plan

One of the most consistent concerns I hear from retirees is, "How bad am I going to get killed on taxes when my RMDs start?"

They have projected out their future RMD amount of $10,000, $25,000, even $100,000 in future taxable income, and they're concerned about the tax cost.

But then they stop there. They see the problem, but they figure they can't do anything about it.

Thankfully, you can. Go beyond just projecting your RMD amount, but also project your future tax brackets. Then find the tax years between now and 73 when your taxes are likely to be lowest; this is often before you start Social Security.

Then, during those lower projected tax years, do a Roth conversion at that lower tax rate, so that your future RMD is lower and the Roth money can grow tax-free.

Mistake No. 2: Failing to make use of qualified charitable distributions (QCDs)

A retired pastor came to my office for a new client meeting. He brought in his investment statements, and tax return, and he explained that he had roughly a $12,000 RMD each year and that he gave it all away.

I reviewed his tax return and saw the RMD listed as taxable income, and I saw that he wasn't itemizing his deductions — he was paying more taxes than he should have!

I asked the pastor how he took out his RMD each year to give to charity, and he said, "I want to follow the rules, so I take out my RMD as soon as I can each year and put it in the bank. Then at the end of the year, I write out checks to my church and favorite charities."

I showed him that he could do a qualified charitable distribution (QCD) instead, sending the money from the IRA directly to the charities.

I calculated that using the QCD rules on the $12,000 QCD amount to be $2,263 in income tax savings.

And here's a next-level QCD move: You can start doing QCDs at age 70½, even though RMDs don't start until 73 currently. It just might lower this year's taxes, and it will definitely lower your future RMD amounts.

Mistake No. 3: Doing the wrong tax withholding

I just met a retiree who had his first RMD distribution last year. He and his wife make $36,000 from Social Security and $36,000 from his pension.

They don't need their IRA money, which is why they hadn't taken anything out until their first RMD, which came to $40,000.

His investment company sent him the $40,000 at the end of last year, doing the 10% mandatory federal withholding and no state tax withholding because it wasn't required.

It turned out the taxes on his RMD were $6,400 for federal, not the $4,000 that was withheld, and $2,000 for state — and there was nothing withheld for that.

He had to write out two big checks, and he owed even more because of underpayment penalties.

Before you take out your RMD, do a tax projection to get the withholding right — the standard 10% is almost never the right amount.

Mistake No. 4: Not realizing how your RMD income affects the rest of your tax return

You would think that paying taxes on your RMDs is simple. If you're in the 12% tax bracket, and you take out $10,000, then you just pay $1,200 in extra taxes, right? If only it were that simple.

When you take money from your traditional IRA, especially for the first time with your RMD, you're often surprised at how much it affects the rest of your tax return.

The amount of your Social Security that is taxable is based on how much other income you have. When you have more other income from your IRA, your taxable Social Security amount goes up.

That RMD amount could push you into the next tax bracket. The IRS doesn't hand you a card saying, "You're in the 12% tax bracket forever." When your RMDs start, your income goes up, and often your tax bracket goes higher.

Or perhaps that extra income means that you get less medical deductions or less of the enhanced deduction for older people.

I often see RMDs push retirees over the edge so that they are paying extra for Medicare because of the IRMAA. You can read about those IRMAA tax brackets in the Kiplinger article Medicare Premiums 2025: IRMAA Brackets and Surcharges for Parts B and D. And you can see the 2026 brackets in this Kiplinger article.

When it comes to the U.S. tax code, more RMD income often means more other income and fewer deductions, and then you pay more in taxes than you expected.

Before you take your first RMD, make sure you understand how the new taxable income affects the rest of your income and deductions.

Mistake No. 5: Forgetting that the M in RMD means 'minimum,' not 'maximum'

All these tax mistakes add up to a lot of big surprises when you hit RMD age. Perhaps you've resolved to reduce the tax pain by sticking to just the minimum amount for your RMD. But you don't have to restrict your distribution to the minimum.

Often, the solution to your future RMD tax problems is to bite the bullet this year and do a Roth conversion at a tax rate that you're comfortable with so that your future RMDs are lower.

Also, remember that just because you're required to do RMDs at age 73 doesn't mean you can't take out money earlier. The minimum age to withdraw from your IRA without a penalty is 59½, which means you could have 13-plus years to plan for the likely RMD tax pain.

Lower your retirement taxes by creating your RMD strategy today

RMDs might seem like an annoying part of the tax code, but when it comes to retirement taxes, RMDs affect the rest of your retirement:

• Your tax bracket
• Your Social Security taxation
• Your Medicare premiums
• Your investment strategy
• Your charitable giving

The time to start planning for your RMDs is not the year you turn 73, but even before you retire. In your retirement planning, focus not just on your investment growth, but on how that growth will affect your future tax situation.

That's why I put tax planning as step three in my book, Retire Today: Create Your Retirement Master Plan in 5 Simple Steps, even before your investment planning (step four).

A tax-smart retirement gets you ready for your RMDs well ahead of time and works to minimize their tax impact even when you get to RMD age.

Related Content

• How to Calculate RMDs (Required Minimum Distributions) for IRAs
• I'm a Financial Planner: This Is How You Can Get Started With RMDs
• Required Minimum Distributions (RMDs): Rules, Deadlines, and Important Changes to Know
• Stressing About RMDs? Two Ways to Reduce or Even Eliminate Them
• New Year's Eve RMD Deadline: What to Know and What to Do

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For retirees and beneficiaries, understanding Required Minimum Distributions (RMDs) is not just a tax-planning necessity — it’s a financial imperative.

Changes under the SECURE 2.0 Act have (among other things) shifted the starting age, introduced new rules for inherited accounts, and changed rules for Roth 401(k)s.

Then there are common RMD mistakes, like missing the deadline for your first RMD or miscalculating the withdrawal from an inherited IRA, which can trigger a penalty.

Can you confidently navigate the RMD rules that govern your retirement nest egg?

Take our quiz to identify your knowledge gaps and protect your tax-deferred savings.

Read More About RMDs

• Common RMD Mistakes to Avoid This Year
• Required Minimum Distributions: What Every Retiree Should Know
• Retirement Taxes Quiz: Test Your Knowledge

I'm always concerned, but never surprised, when I meet a new or soon-to-be retiree who doesn't know much about required minimum distributions (RMDs).

The rules that govern these mandatory retirement account withdrawals have always been confusing.

And because RMDs don't start until you're in your 70s, it can be tempting to put off worrying about their impact until other, more pressing planning decisions are made.

Most people are far more anxious about getting their Social Security and Medicare benefits squared away than preparing for RMDs.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

But putting RMD planning on the back burner can have significant consequences — especially if, like most Americans, you've stashed all or a large portion of your savings into one or more tax-deferred retirement accounts, such as a 401(k), 403(b) or traditional IRA.

Every saver should know the basics of how RMDs work. Here's a quick Q&A to help you get your planning started.

What is an RMD?

The IRS doesn't allow savers to keep the money in their tax-deferred retirement accounts indefinitely.

Once you reach the age when RMDs start (currently 73), you must begin withdrawing at least a minimum amount annually and pay income taxes on that money.

The amount you're required to withdraw each year will be based on your age and the balance of your account (or accounts) at the end of the previous year.

What accounts require minimum distributions?

The RMD rules apply to all employer-sponsored retirement plans, such as 401(k), 403(b) and 457(b) plans, as well as profit-sharing plans.

Owners of traditional IRAs and IRA-based plans, including Simplified Employee Pension Plans (SEPs), Salary Reduction Simplified Employee Pension Plans (SARSEPs) and Savings Incentive Match Plan for Employees (SIMPLE IRAs), must also take RMDs.

The RMD rules don't apply to Roth IRAs or designated Roth accounts while the owner is alive, because Roth owners have already paid taxes on their contributions. But beneficiaries of these accounts do have to abide by RMD rules.

When is my first RMD due?

For most people, their first RMD is due on April 1 of the year following the calendar year in which they turn 73.

For example, if you're turning 73 in 2026, your first RMD — based on your account balance at the end of 2025 — won't be due until April 1, 2027.

But here's where things can get tricky.

After that first withdrawal, the due date for all future RMDs switches to December 31. That means if you wait until the April 1, 2027, due date to make the first withdrawal and then make your second withdrawal by December 31, 2027, you'll pay taxes on two RMDs in the same year.

If that works for you, great. But you may find that it makes more sense to take those disbursements in two separate tax years. For this example, that would mean taking the first RMD by December 31, 2026, and the second by December 31, 2027.

Your financial adviser or tax professional can help you run the numbers to determine which is the better strategy for you, but do that planning well in advance of your first RMD.

If you don't take your RMDs at the appropriate time, or you withdraw the wrong amount, you may face a hefty penalty.

What if I'm still working?

If you're turning 73 but you're still employed, and you own less than 5% of the company you work for, the IRS will let you delay taking RMDs from your workplace retirement plan — as long as your plan allows it.

However, if you own retirement accounts outside your current workplace (a traditional IRA with your bank, for example, or a 401(k) with a former employer), you'll have to calculate RMDs for those accounts.

How do I calculate my RMDs?

Your retirement account custodian will determine your RMD amount automatically each year and provide you with that information. But it's your responsibility as the account owner to make sure the amount is correct and the distribution is made.

You can calculate your RMDs using this guide or the Required Minimum Distribution Calculator at Investor.gov.

Or you can do the math yourself and divide your previous year-end account balance by the life expectancy distribution factor next to your age on the IRS Uniform Lifetime Table.

As you age, the distribution factor will decrease, which means your RMDs may grow as you get older, depending on the size of your account balance.

Planning for that potential impact now, by converting some funds to a Roth account or employing other strategies, could help you minimize future taxes.

What if I have more than one tax-advantaged account?

As mentioned previously, you may need to calculate multiple RMD amounts each year if you have more than one account. But, depending on the types of accounts, you can be strategic with your withdrawals.

For example, after calculating the RMD separately for each traditional IRA you own, you can add up the amounts and withdraw the total from just one of your IRAs.

However, RMDs for some types of retirement plans, such as 401(k) and 457(b) plans, must be calculated and withdrawn separately from each of those accounts.

What if I don't want or need the money?

Although you're required to take RMDs every year once you turn 73, you aren't obligated to spend the money. You can always choose to reinvest those funds elsewhere.

That might mean opening or adding to a brokerage account, buying an investment property, paying down high-interest credit card debt, or contributing to a 529 plan for a child or grandchild.

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Or you could consider the tax benefits of an RMD-reduction strategy, such as a qualified charitable distribution (QCD) or a qualified longevity annuity contract (QLAC).

Again, your adviser or tax professional can help you understand each strategy's implications for your situation.

RMD rules keep evolving

Even if you think RMDs won't be an issue for you, keep them on your retirement planning radar.

The rules that govern the timing of RMDs — including the age when they begin and how they might affect those who inherit your accounts — have gone through significant changes in recent years.

These and other regulations will likely continue to evolve, so the information you rely on should be well-sourced and up to date.

You don't have to (and shouldn't) wait until you're in your 70s to familiarize yourself with the RMD rules, which can be found on the IRS website.

And if you have questions, don't hesitate to contact a financial professional, preferably a retirement specialist, for guidance.

Insurance and Advisory services are offered through Heckman Financial & Insurance Services, Inc. HFIS, Inc., an SEC Registered Investment Adviser. Heckman Financial & Insurance Services is not affiliated with or endorsed by the Social Security Administration or any government agency. CA Insurance License #OE89971

Kim Franke-Folstad contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Related Content

• Required Minimum Distributions (RMDs): Rules, Deadlines, and Important Changes to Know
• Stressing About RMDs? Two Ways to Reduce or Even Eliminate Them
• Lower Your Retirement Taxes: Seven Common RMD Mistakes to Avoid
• New Year's Eve RMD Deadline: What to Know and What to Do
• Avoid Estimated Tax Payments in Retirement With RMD Withholding

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For many affluent families, the end of the year brings more than holiday traditions and travel. It's also one of the most critical windows for financial planning.

When done right, year-end planning can reduce taxes, align finances with family goals and set the stage for greater confidence heading into the new year.

Year-end planning shouldn't be seen as a scramble for last-minute tax breaks. Instead, planning is most effective when it's proactive, tax-aware and rooted in long-term values.

Families are best served when strategies are connected to their most important goals, whether they're maximizing charitable impact, preparing for the next generation or simply confirming lifestyle stability in uncertain times.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Here are seven moves high-net-worth families should consider before December 31.

1. Charitable giving with a donor-advised fund

A donor-advised fund (DAF) is a charitable account that lets you contribute cash or appreciated assets, take an immediate tax deduction and invest the funds to grow tax-free until you decide which charities to support.

It provides flexibility to separate the timing of your tax deduction from your actual giving, allowing for more strategic philanthropy over time.

A DAF can appeal to families focused on long-term charitable planning, particularly those facing a high-income year or a liquidity event.

In 2025, deduction limits were adjusted by the OBBBA, which means contribution plans should be reviewed carefully to ensure every dollar counts.

For those over age 70½, a qualified charitable distribution (QCD) from an IRA may be an even more efficient way to give, as it can reduce taxes on required withdrawals.

Choosing between a DAF and a QCD depends on age, income and philanthropic intent.

2. Use Roth conversions to unlock tax-free growth

A Roth conversion moves assets from a traditional IRA into a Roth IRA, creating a tax bill now in exchange for tax-free growth and withdrawals later.

This strategy is most beneficial during years of lower income, such as the period after retirement but before Social Security benefits and required minimum distributions (RMDs) begin.

The key is weighing the near-term tax hit against the long-term flexibility it provides.

Converting gradually over multiple years can help avoid large spikes in taxable income while building more predictable tax-free income streams for the future.

3. Harvest losses to manage taxes

Tax-loss harvesting may help reduce overall tax liability while keeping a portfolio aligned with long-term investment goals.

When markets have performed strongly, reviewing portfolios for losses that can be used to offset taxable gains is a prudent step.

This approach is particularly relevant after a business sale or other liquidity event that triggers significant capital gains.

In some cases, it may also make sense to spread sales across two calendar years. The goal is to manage the tax impact and take advantage of the opportunity to rebalance holdings with an eye toward future needs.

4. Do not miss retirement contribution and RMD deadlines

December 31 is the firm deadline for RMDs if you are age 73 or older and for beneficiaries with inherited IRAs. Missing this date can result in significant penalties.

It is also important to understand the different deadlines for retirement account contributions. Contributions to employer-sponsored plans such as 401(k)s must be made by December 31, 2025, to count for the 2025 tax year.

By contrast, contributions to IRAs (traditional or Roth) can be made up until the tax filing deadline of April 15, 2026.

Regardless of the deadline, year-end is the time to make sure contributions are on track. At a minimum, families should contribute enough to capture any employer match, but higher contributions may make sense depending on cash flow and tax planning goals.

Acting early and setting reminders helps avoid the year-end rush and ensures opportunities are not missed.

5. Revisit estate and gifting strategies

The OBBBA permanently made estate exemptions higher, which will be set at $15 million per person beginning in 2026. Even with these higher thresholds, year-end remains an important time to consider gifting strategies.

Families may want to take advantage of the annual gift tax exclusion, which allows $19,000 per person in 2025, enabling wealth transfer to children, grandchildren or other loved ones without dipping into lifetime exemption amounts.

While not every family will face estate taxes, intentional gifting helps reinforce family values and encourages multigenerational stewardship.

6. Review liquidity and cash flow for 2026

Looking ahead to next year's goals and expenses is an essential year-end step. Identifying upcoming needs, such as tuition payments, philanthropy or large purchases, provides the opportunity to align cash flow with tax planning.

For example, it may make sense to realize gains or take distributions in 2025 to fund 2026 expenses, especially if doing so fits within current tax brackets.

This forward-looking exercise eases stress and provides clarity, ensuring families enter the new year with a solid financial foundation.

7. Business owners and executives should plan ahead

Business owners and executives often face unique year-end decisions. Concentrated stock positions, restricted stock units (RSUs) and deferred compensation all require careful evaluation.

For executives, managing the timing of RSU sales after vesting events can help reduce tax burdens while also diversifying holdings.

Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel (formerly known as Building Wealth), our free, twice-weekly newsletter.

Business owners nearing retirement may want to gradually reduce exposure to their own company stock to better align assets with long-term investment goals.

Those with options to defer income must weigh the pros and cons of recognizing income now vs later. Each choice should be made in the context of long-term financial security and broader life goals.

The bigger picture

Year-end planning is not just about wrapping up 2025. It's about entering 2026 with clarity and confidence.

By taking time now to align tax strategies, gifting, savings and cash flow with long-term goals, families create the flexibility to handle both expected milestones and unexpected surprises.

Closing out the year with intention lays the groundwork for financial decisions that feel less reactive and more purposeful. A thoughtful December can make the year ahead less stressful, more strategic and ultimately more successful.

Related Content

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• Claiming the Standard Deduction? Here Are 10 Tax Breaks For Middle-Class Families in 2025
• Energy Efficient Home Improvement Tax Credits — Get 'Em While You Can
• 12 Education Tax Credits and Deductions to Know
• Best States for Middle-Class Families Who Hate Paying Taxes

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Question: I have to take a $22,000 RMD by the end of the year, and I don't need the money. What should I do with it?

Answer: The nice thing about saving for retirement in a traditional IRA or 401(k) is getting to enjoy an immediate tax break on your contributions. If you found yourself in a higher tax bracket during your career, a traditional retirement account probably made more sense for you than a Roth.

But what if you're older and are now regretting that decision because you’re on the hook for a $22,000 required minimum distribution (RMD) you don’t need?

If you don’t take that distribution by year-end, you could be looking at a 25% penalty for a missed RMD that amounts to $5,500. That’s a lot of money to throw away.

A better idea? Find a good use for that money — even if it requires you to get creative. Here are some options.

Wipe out or reduce your tax liability with charitable contributions

RMDs can sting when you don’t need the money, since you’re increasing your tax burden for what might seem like no good reason. One way to potentially cancel that tax bill is to donate funds directly from your retirement account to charity in the form of a qualified charitable distribution (QCD).

As James Hutchens, national practice lead for Wealth Advisory at Northern Trust, explains, “If you’re 70½ or older, you can make a qualified charitable distribution directly from your IRA — up to $108,000 in 2025 — to a qualified nonprofit. This satisfies your RMD and avoids adding the withdrawal to your taxable income.”

You should also know that from a tax perspective, QCDs can be beneficial because they're not itemized, but simply excluded from your taxable income. This means you can still take the standard deduction, which might be your preferred route if you’re no longer paying off a mortgage and don’t have many deductions to itemize.

To be clear, a QCD must go directly from your IRA to a registered charity, and you can't make a QCD directly from a 401(k). However, you can roll funds from a 401(k) into an IRA, then make your QCD from that account to satisfy your RMD.

Along these lines, Mark Gelbman, financial adviser and owner at Strategic Wealth Solutions, says that if you’re forced to take an RMD and are looking to donate the money, it could pay to think outside the box.

“Look at organizations that you’re passionate about and figure out if you can do some good while also minimizing your tax burden,” he says. “Maybe it’s a high school or college that you attended or a community theater that you’re passionate about. Think about those under-funded institutions that are consistently looking for resources but don’t necessarily have deep-pocketed donors.”

Gelbman also says you can look at setting up a family foundation. This generally won’t allow you to do a QCD. However, as he explains, “That could be a great opportunity to get younger generations into a more charitable mindset so they’re more likely to be charitable in their legacy planning.”

Create a living inheritance

A living inheritance allows you to transfer assets to your loved ones while you’re alive rather than bequeath them upon your death. As Hutchens explains, “Many families earmark RMDs for meaningful experiences, from multigenerational vacations to home upgrades, or use the annual gift tax exclusion to pass wealth directly to their heirs.”

If you don’t need to spend your RMD on yourself, it might bring you great joy to see that your money is being used to better a loved one’s financial situation.

Hutchens also suggests using the money to pay for a loved one's education.

"Some clients use RMDs to contribute to 529 plans for grandchildren, which can grow tax-free when used for education and may provide a state tax deduction."

Earmark the money for special experiences

If you don’t need your RMD, you might be inclined to take it as late in the year as possible. But Robert Jeter, a certified financial planner and founder at Back Bay Financial Planning & Investments, says you might want to adopt a different approach — namely, quarterly withdrawals.

“If done quarterly, it represents a special sort of income that can be spent on a really nice dinner with a spouse or a vacation every three months,” he explains.

Jeter says that while you could take the money out monthly, in that situation, “it just becomes more income to spend or re-allocate elsewhere.”

If you have a spouse or partner, you might want to sit down together once every three months to make a list of fun activities you could do with the money. If you have events or trips to look forward to, you might not resent having to take that money out of your retirement account.

Jeter also suggests talking with retired friends to see what new activities they’ve taken up since they stopped working.

“Neighbors or others in your community or retirement groups are great places to brainstorm these types of ideas or activities,” he says.

Read More

• New RMD Rules: Starting Age, Penalties, Roth 401(k)s, and More
• Year-End RMDs: Should You Invest, Spend or Donate Them?
• I'm 60 with $4 Million — Can I Have a Luxury Retirement?
• I'm 58 and Just Sold Some Stock to Lock in Gains. I Made a Killing, But I'll Have a Big Tax Bill. What's My Next Move?

Each week, in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter Editor, answers questions on topics submitted by readers. This week, she’s looking at five questions on qualified charitable distributions. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1: QCDs and 401(k)

Reader Question: Can I make a qualified charitable distribution (QCD) from my 401(k) this year?

Joy Taylor, Editor, The Kiplinger Tax Letter
No, QCDs cannot be done from a 401(k) or other workplace retirement plan. A QCD can only be done from an IRA.
People age 70½ and older can transfer up to $108,000 in 2025 from a traditional IRA directly to charity. QCDs can count as all or part of your required minimum distribution (RMD), but they are not taxable, and they are not added to your adjusted gross income. The QCD strategy is a good way to get tax savings from charitable gifts for taxpayers not itemizing because of higher standard deductions.

2: How to do a QCD

Reader Question: Someone told me that the only way I can do a QCD is for my IRA custodian to directly transfer the money from the IRA account to the charity. Is this true?

Joy Taylor, Editor, The Kiplinger Tax Letter
It depends on the IRA custodian. It is true that only transfers from your IRA directly to charity are considered QCDs, but different IRA custodians have their own procedures for complying with this. Some will require that the check go directly from the custodian to the charity. Others will, at the account owner’s request, have the check written from the IRA account and send the check to the IRA owner to forward to the charity. Vanguard, for example, allows this second approach. Both procedures work for QCDs. What is not acceptable is for the custodian to write the check to the IRA owner, who then deposits the money and writes a check from his or her own account to the charity.

3: Charitable Gift Annuity

Reader Question: I’ve been receiving requests from my alma mater about doing a QCD through a charitable gift annuity. I thought QCDs could only go to a section 501(c)(3) charity. Have the rules changed?

Joy Taylor, Editor, The Kiplinger Tax Letter
As a general rule, in a QCD, the money must generally go to a section 501(c)(3) organization. The 2022 SECURE 2.0 legislation provided an easing to this. It allows IRA owners to do a one-time (not annual) QCD of up to $55,000 for 2025 through a charitable gift annuity, charitable remainder unitrust or a charitable remainder annuity trust. Many private colleges with charitable gift annuity programs are touting the QCD option. If you already did this in 2023 or 2024, you can’t do it again.

4: Deductible IRA Contributions

Reader Question: I am working and made a tax-deductible contribution of $3,500 to my traditional IRA in 2024. I also did a QCD that year. My accountant told me that I don’t get the full advantage of the QCD because I also contributed to my IRA. Is that true?

Joy Taylor, Editor, The Kiplinger Tax Letter
Yes. There’s a special rule if you do a QCD and you make tax-deductible contributions to a traditional IRA after 70½. Essentially, these post-70½ contributions reduce your allowable tax-free QCD amount until used up. Post-70½ deductible contributions to a SEP or SIMPLE IRA aren’t affected.
Let’s take a simple example:
A 75-year-old working man is planning to do a QCD for the first time in 2025. For 2021, 2022, 2023 and 2024, he made tax-deductible contributions to his traditional IRA totaling $23,000. In 2025, the man does a QCD and transfers $20,000 from his IRA directly to charity. He would owe income tax on the full $20,000 because it is less than the $23,000 of post-70½ tax-deductible IRA contributions. Let’s say that in 2026, he then transfers another $15,000 to charity directly from his IRA. $12,000 will be a nontaxable QCD, and $3,000 will be treated as a normal distribution.

5: What's the maximum QCD for spouses?

Reader Question: My wife and I want to max out donations from our IRAs to charity this year. What is the maximum QCD we can make for 2025?

Joy Taylor, Editor, The Kiplinger Tax Letter
$108,000 per IRA owner. Since you are married, you and your spouse can each potentially give up to $108,000 in QCDs from your separate IRAs, making the maximum QCD $216,000, provided each of you has substantial amounts in your IRAs. But let’s say you have a $70,000 balance in your IRA, and your wife has an IRA worth $1.2 million. In this situation, your QCD cap is limited to $70,000, and your wife’s QCD cap is limited to $108,000. Your wife won’t be able to make a QCD of $146,000 to make up for the deficit.

About Ask the Editor, Taxes

Subscribers of The Kiplinger Tax Letter and The Kiplinger Letter can ask Joy questions about tax topics. You'll find full details of how to submit questions in The Kiplinger Tax Letter and The Kiplinger Letter. (Subscribe to The Kiplinger Tax Letter or The Kiplinger Letter.)

We have already received many questions from readers on topics related to charitable contributions, gifts and more. We’ll answer some of these in a future Ask the Editor round-up. So keep those questions coming!

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More Reader Questions Answered

• Ask the Editor, April 25, 2025: 529 plans.
• Ask the Editor, April 18, 2025: Amended returns.
• Ask the Editor, April 11, 2025: IRAs, RMDs and PTPs.
• Ask the Editor, April 4, 2025: The new tax bill, estate tax, and muni bonds.

April 1 isn’t just April Fool’s Day. It’s also the latest date to take your first RMD from tax-deferred retirement accounts like IRAs and 401(k)s if you turned 73 last year.

Missing this deadline can result in steep penalties — up to 25% of the distribution shortfall — making it essential to understand the rules and plan strategically. (Though the penalty can be reduced to 10% if corrected through a proper filing within two years.)

Here’s more of what you need to know, beginning with a quick review of required minimum distributions.

What are RMDs?

Required minimum distributions (RMDs) are mandatory withdrawals from specific retirement accounts once you reach a certain age.

• The SECURE Act of 2019 raised the RMD age from 70½ to 72
• SECURE 2.0 increased it further to 73 for those born after December 31, 1950
• For individuals born in 1960 or later, the RMD age will rise to 75 starting in 2033

While most RMDs must be taken by December 31 each year, the first RMD can be delayed until April 1 of the year following your RMD-triggering age.

However, delaying means you’ll need to take two distributions in the same year: one by April 1 and another by December 31.

Both will be taxable on your 2025 return (typically filed in early 2026), potentially increasing your overall tax liability.

Accounts subject to RMD rules

RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer-sponsored plans like 401(k)s, 403(b)s, and 457(b)s.

Roth IRAs are exempt during the owner’s lifetime, and as of 2024, Roth accounts in employer-sponsored plans are also free from RMD requirements.

Tax strategies to manage RMD income

RMDs increase taxable income, which can push retirees into higher tax brackets, affect Social Security taxation, and even raise Medicare premiums.

Part B and D premiums are subject to an Income-Related Monthly Adjustment Amount (IRMAA), which is determined based on your modified adjusted gross income (MAGI) from the previous two years. (For 2025, the IRMAA brackets are based on 2023 MAGI.)

To minimize these and other income impacts, consider the following tax strategies.

Note: These are just a few possible strategies for managing RMD income and tax burden. Consult a trusted professional who can help you determine your best approach.

1. Withdraw strategically at age 59½

If you don’t need immediate income from your retirement accounts, you might want to consider withdrawing funds strategically starting at 59½.

Taking smaller distributions early can reduce the balance that will later be subject to RMD calculations.

For example, imagine a retiree with $600,000 in a traditional IRA at age 59½. By withdrawing $25,000 annually over the next decade (assuming modest growth), they could reduce their account balance by $325,000 before age 73.

This approach can help lower future RMD amounts and spread taxable income across more years to avoid higher income tax brackets later.

2. Use Qualified Charitable Distributions (QCDs) to reduce taxes

Individuals aged 70½ or older can use QCDs to satisfy their RMD requirements while reducing taxable income. (A QCD is basically a distribution from your individual retirement account (IRA) to a qualified charity of your choice.)

A QCD allows you to donate up to $108,000 annually directly from your IRA to a qualified charity without including the amount in your taxable income.

For instance, if your annual RMD is $15,000, but you don’t need it for personal expenses, donating it through a QCD fulfills your RMD obligation without increasing your tax liability.

3. Consider benefits of Roth conversion RMD rules

A Roth conversion involves transferring funds from a tax-deferred account, like a traditional IRA, into a Roth IRA. Roth accounts are not subject to RMDs during the owner’s lifetime and grow tax-free.

Converting funds triggers taxes on the converted amount upfront, but it can reduce future RMDs and provide long-term benefits like tax-free withdrawals for heirs.

4. Delay RMDs if still working

If you’re still working past age 73 and participating in an employer-sponsored plan, like a 401(k), you may be able to delay RMDs until retirement, provided you own less than 5% of the company.

The “still working exception” doesn’t apply to IRAs but can help defer taxable income if your plan allows it.

5. Aggregate your accounts

While each account’s RMD must be calculated separately, certain types of accounts allow aggregation for distribution purposes.

Example: If you have multiple traditional IRAs with combined annual RMD requirements totaling $20,000, you could withdraw that amount from just one account rather than taking separate withdrawals from each account.

Avoiding common RMD mistakes

In addition to not missing RMD deadlines, it’s important to avoid other common RMD mistakes.

For example, one mistake involves miscalculating the RMD amount, which can lead to penalties if too little is withdrawn.

To calculate your RMD, you need to use the balance of your retirement account as of December 31 of the previous year and divide it by a life expectancy factor from IRS tables. These tables, like the Uniform Lifetime Table or Joint Life Expectancy Table, provide factors based on your age and circumstances.

For instance, if you are 73 years old, the IRS assigns a specific factor for your age, which you use to divide your account balance and determine the RMD amount.

If you have multiple accounts, the RMD is calculated separately for each account, but you can withdraw the total amount from one or more accounts.

Note: Special rules apply if your spouse is significantly younger and is the sole beneficiary, which may result in a lower RMD calculation using different IRS tables.

Another common oversight is forgetting to adjust RMDs when inheriting an IRA. Beneficiaries often have different RMD rules and deadlines than the original account owner.

Being mindful of these and other distribution potential pitfalls can help ensure you manage your RMDs correctly and avoid unnecessary penalties or complications.

For more information, see: Seven Common RMD Mistakes to Avoid.

RMD April deadline: Bottom line

The April 1 deadline for first-year RMDs is a key milestone for retirees who turned 73 last year, but it’s also an opportunity to evaluate strategies that minimize taxes and optimize retirement savings.

Proper planning can help ease the financial burden of mandatory distributions.

Consulting a financial advisor or tax professional is essential for tailoring these or other strategies to your unique circumstances while ensuring compliance with IRS rules.

Related

• Required Minimum Distributions: What Every Retiree Should Know
• Protect Your Retiremnets; Seven RMD Mistakes to Avoid
• Your Retirement Income and the IRS

A common concern I hear from people five to 10 years away from retirement is the uncertainty of tax rates in the future.

Many people who have tax-deferred retirement accounts don’t know what percentage of their nest egg they will need to allocate for taxes. And required minimum distributions (RMDs), which begin at age 73, magnify their worry.

An effective way to reduce taxes in retirement is to do a series of Roth conversions over a span of several years while you’re still working. There’s no immediate gratification from it, but the long-term benefits can be worth the effort.

With a Roth conversion, you transfer retirement funds from a traditional IRA or 401(k) into a Roth IRA.

Though you must pay taxes upfront on the money converted to a Roth — it is taxed as ordinary income — the advantage is you will be able to make tax-free withdrawals in the future (as long as you're 59½ and have held the account for at least five years).

Removing the tax burden of RMDs

A Roth conversion makes sense for investors who think they’ll be in a higher marginal tax bracket in retirement, which can happen if one has a substantial amount of money in traditional IRAs.

In such a case, RMDs can boost reportable income significantly. But whereas the IRS requires people to take RMDs from tax-deferred accounts, the IRS doesn’t require you to take RMDs from Roth accounts, because you’ve already paid taxes on the money in them.

Without RMDs to worry about and because Roth IRA distributions aren’t included in your taxable income in retirement, more money in a Roth account means a better chance of staying in a lower tax bracket.

A lower tax bracket also potentially reduces your Social Security taxes and Medicare premiums, which increase at higher income levels.

Roth rules for 2025

There are limits to the amount you can contribute to a Roth IRA: $7,000 for the 2025 tax year (those 50 and older can contribute another $1,000 as a catch-up contribution, for a total of $8,000).

It’s important to note that the Roth IRA contribution limits include the sum of all your IRA contributions in a given year.

If you put money into both a Roth IRA and a traditional IRA in the same year, the total combination can’t be over the annual limit.

How much you can contribute to a Roth IRA is determined by your tax-filing status and modified adjusted gross income (MAGI). Roth IRA income limits for the 2025 tax year are:

• If you are a single filer or someone who is married filing separately (if you didn’t live with your spouse at any point during the year) or filing as head of household and your MAGI is under $150,000, you can contribute the full amount.
• If your MAGI in one of those filing categories is $150,000 or more but less than $165,000, your contribution is reduced. A MAGI of $165,000 or more means you’re not eligible to contribute.
• For 2025, those married filing jointly or as a surviving spouse with a MAGI of less than $236,000 can make the full Roth IRA contribution.
• Those married filing jointly or as a surviving spouse with a MAGI of $236,000 or more but less than $246,000 get a reduced contribution. A MAGI of $246,000 or more means no contribution is allowed.

Estate planning: Protecting beneficiaries from the tax bomb

Contributions to Roth accounts provide long-term, tax-free growth and income, which benefits both the account holder and their beneficiaries. This approach also helps avoid passing significant tax burdens to heirs.

Spouses who are beneficiaries of a Roth account don’t have to take RMDs, while children who are beneficiaries will eventually have to take distributions — but they usually don’t have to pay any taxes on them.

Known as the 10-year rule, under the 2019 SECURE Act, most non-spousal beneficiaries must empty any inherited retirement account, including Roth IRAs, by the 10th anniversary of the original owner’s death.

Non-spousal heirs of traditional IRAs or 401(k)s must also pay income taxes on those withdrawals. But withdrawals from inherited Roth IRAs are generally tax-free.

So, one way to look at the legacy planning aspect of a Roth IRA is that the original owner is basically prepaying the taxes for their beneficiaries.

With looming uncertainties around future tax rates, starting Roth conversions well before retirement is prudent — ideally by the time someone is in their early 50s. Talk with a professional.

And make sure you know your tax rate before you start funding a Roth; if you're not careful, the amount you convert can throw you into a higher bracket.

Like many aspects of retirement planning, Roth conversions are about educating yourself and, at the same time, learning about tax implications in retirement.

For many people, funding a Roth account turns out to be the right move, allowing them to keep more of their hard-earned money in retirement.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Insurance products are offered through the insurance business Hanna Wealth Advisors.

Hanna Wealth Advisors is also an investment advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a registered investment adviser. AEWM does not offer insurance products. The insurance products offered by Hanna Wealth Advisors are not subject to investment adviser requirements. 02884275-03/25

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• How to Structure Retirement Income to Tamp Down Taxes

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Did you know you can save too much money in your tax-deferred accounts, such as IRAs and 401(k)s? It’s true. I have witnessed this scenario firsthand more times than I care to count — and I count for a living.

A newly retired couple walks into my office intrigued by my holistic approach to retirement. They have been working and saving for 30-plus years for a hopeful 20-plus-year retirement.

They have sacrificed. They have skipped vacations to save. They have even missed grandkids’ baseball games in order to work overtime.

The plan was to grind it out and provide for their family. They were intentional about saving to ensure they could spend more time with family and enjoy the freedom to travel throughout retirement.

Yet, they find themselves distraught and losing sleep as their looming tax burden becomes a reality in April. They are filled with regret, feeling they have traded memories for uncertainty.

And when I ask them, “What is your biggest expense?” they will tell me it’s their mortgage. Or their travel budget. Or their health care. And then I ask, “What about taxes?”

Sound familiar?

A costly piece of the planning puzzle

People come to me overwhelmed by the burdensome thought or circumstance of outflowing tax dollars invariably crushing the spirit of what was intended to be a “happily ever after retirement.”

Have you ever considered that how much you have saved could be a cause of sleepless nights? It absolutely is. I see it almost every day.

I’m here to tell you it is never too late to kick Uncle Sam to the curb, or at least make him the low man on the totem pole. Many retirees can often do this in their lifetime, and they can most certainly help their heirs do so in theirs.

You see, the root of the problem is planning, or the lack of planning. It is journeying from “hope” as a plan to the certainty of a tax-efficient plan — an often-ignored piece of the robust retirement planning puzzle.

All of us have been sold a “bill of goods,” and it goes something like this: “Put as much money away into your 401(k)/IRA as you can, because when you retire you will be in a lower tax bracket.” If you haven’t saved any money for retirement, that is true.

If you have saved, especially in tax-deferred accounts, it is a lie. Every penny you take out of your tax-deferred accounts is taxable. And, of course, there is also the risk of taxes going up and changing tax brackets.

Do not mishear me. I am not against saving money. If I were, then my list of people seeking financial advice could be written on the back of a matchbook. You simply need a plan so that your savings are taxed at the lowest possible rate. My preferred rate is zero. And, yes, you can do that, too.

So, start effective tax planning today. It’s not too late, I promise.

Shifting from a micro to a macro mindset

There is one significant problem when delving into the issue of “lifetime taxation.” Nobody talks about it. When meeting with accountants, the focus is almost always looking to last year, talking about this year and maybe planning for the next.

It is what we call a “micro” look at tax planning. It is all about what can be done in the near term.

The focus needs to be widened. Taking a “macro” look at taxes over a lifetime will help in planning for the future. Why is it so important to plan for in the future? How about taxation on Social Security?

Up to 85% of your Social Security benefit can be taxed if your income is above a certain threshold. Believe me, those thresholds affect nearly everyone.

The snowball effect of RMDs

What about required minimum distributions? Yes, the infamous RMD. Currently, RMDs begin at age 73, rising to age 75 in 2033.

The percentage you have to withdraw starts at about 3.8% and continues to increase every year — until you die, or your money runs out. For people who have saved, RMDs are probably the biggest concern when it comes to lifetime taxation.

These distributions are required from any deferred account, including traditional IRAs, 401(k)s and 403(b)s. A deferred account is an account in which the funds have been added without paying any tax on them. The tax has been “deferred” until distribution. So, when distributions happen, they become taxable as ordinary income.

Yikes. You can begin to imagine the snowball effect this can have if you have significant savings. It can place you in a higher tax bracket and keep you there and/or climbing for the rest of your life. That stings.

Luckily, for now, the marginal income tax brackets are near an all-time low. However, that could very well change with the sunset of the current income tax laws set to occur at the end of 2025.

Given our national debt, spending and other economic factors, I am persuaded to believe in a high likelihood that taxes will increase in the near future.

Even more, there is a strong possibility that our heirs will be significantly affected.

Speaking of heirs, what about legacy planning for tax purposes? Though it may not be our focus here, it can cause a significant and costly burden.

Roth IRAs to the rescue

A good tax-efficiency plan takes all of this and much more into consideration. There are several tools that can be used to reduce lifetime taxation. The one we will focus on is the Roth IRA.

Others could be varying forms of life insurance and trusts created for a similar goal. The Roth IRA is an account where funds are added after tax has been paid. The funds in the account can grow tax-free. The gains made in the account are tax-free. The distributions in retirement are tax-free.

It is easy to see why these accounts can be a significant advantage to retirees. Yet, there are a couple of hindrances when trying to save for retirement in a Roth IRA.

They have low contribution limits and income phaseouts. You are only allowed to contribute $7,000 ($8,000, if you are 50 or older) per year in 2025. Unless you start very early in life, $7,000 per year is not going to solve most needs in retirement.

Also, if your income is too high, then the amount you can contribute is reduced or even eliminated if you make over a certain threshold. However, some tax-free money is better than no tax-free money.

That does not sound like a good tool, does it? But wait, there is more. You can convert a traditional IRA to a Roth IRA by simply paying the taxes at the time of conversion.

This is the Roth conversion you have probably heard so much about. Conversions can be done at any time, as many times as you want, and any amount that you want.

In my experience, the earlier the better. However, these strategies can take advantage of maximizing certain tax bracket thresholds over a few years. There is a real art to crafting the perfect strategy.

You don't have to be a tax expert

As you are probably beginning to realize, there are a lot of factors in play when doing tax planning. Many we have not even spoken about. Honestly, there are too many to list. But, deciding to plan is the key.

Using a fiduciary financial adviser with a comprehensive approach to planning to help you make decisions in your best interest will unlock a wealth of informed decisions about retirement and tax planning.

You will know the cost of each decision you make, both now and in the future. Knowing how these decisions will affect you now and over your lifetime is critical. This is the case, especially with Roth conversions.

Your goal from the beginning has been clear. You have worked so long and hard to save for a joyful retirement. Sacrifice has happened. Reap the rewards of your labor. It is not too late to enjoy the retired life. Now, let’s get to planning.

Related Content

• Backdoor Roth IRAs: Retirees, Make the Most of a Roth's Back Door
• Six Custom Tax Planning Tips for High-Income Individuals and Families
• Roth Conversions: Convert Everything at Once or as You Go?
• What’s the Difference Between a CPA and a Tax Planner?
• A Roth Conversion Alternative That Addresses Long-Term Care

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Retirement can bring many changes to your life. But, unfortunately, one thing doesn’t change: You will still pay taxes.

The good news: The better understanding you have of what to expect with taxes in retirement, the better your chances of reducing your tax bill. I am not a CPA, so I don’t give tax advice.

But I can share with you some tax topics that you should ask about the next time you meet with your tax planner or CPA, so that the two of you can discuss strategies for keeping what you owe Uncle Sam to a minimum.

Here are the top 10 tax topics retirees should know about:

1. RMDs

If the money you’ve saved for retirement is in tax-deferred accounts, you eventually will be subject to required minimum distributions (RMDs). An RMD is an amount you must withdraw from your account each year, whether you want to or not. Keep in mind: You pay taxes on that amount.

If you fail to meet the RMD, you can face a 25% penalty, so it’s important to know when your RMD kicks in. The age used to be 72, but now for those born between 1951 and 1959, the RMD starting age is 73. For those born in 1960 and later, the age is 75.

2. Social Security benefits

Sometimes people look surprised when I tell them that, depending on their income, Social Security can be taxed. The Social Security Administration reports that about 40% of people who get Social Security must pay taxes on their benefits.

A married couple filing jointly could pay income tax on up to 50% of their benefits if their income is between $32,000 and $44,000. If their income is more than $44,000, up to 85% of their benefits may be taxable.

3. Healthcare costs

One of the largest expenses retirees incur is healthcare. In some cases, those expenses are tax deductible, so be sure you understand the rules for which medical expenses can be deducted.

4. Tax strategies for retirement income

When you have multiple retirement accounts, it’s important to have a tax-efficient plan for making withdrawals. Typically, you want to draw from taxable accounts first, then tax-deferred accounts (such as a traditional IRA or 401(k)), then, finally, tax-free accounts, such as a Roth IRA.

5. State income taxes

If you plan to move in retirement, one factor to consider when choosing your new home is state income taxes. Most states have an income tax, but a few don’t.

For example, California’s tax has nine brackets ranging from 1% to 12.3%. Florida, in contrast, has no state income tax.

6. Tax credits and deductions

Make sure you take advantage of any tax credits or deductions coming to you. When you are over 65, the standard deduction is increased on your income taxes, so be sure to check the correct box.

Additionally, there is a tax credit for older people or the disabled, which is available to those aged 65 and older or who are permanently disabled. There are income limits on that credit, though.

7. Estate taxes

Understand the tax implications related to passing on wealth to your heirs. You want to do this in the most tax-efficient way.

Most people aren’t affected by estate taxes because in 2025 the first $13.99 million is exempt. But that amount could be drastically reduced if the 2017 tax cuts, set to expire at the end of 2025, are not extended.

8. Changing tax laws

You may have noticed by now that tax laws aren’t static. Lawmakers often change them. The potential big change coming soon is the previously mentioned sunset of the 2017 Tax Cuts and Jobs Act.

Be sure to work with your CPA to make sure you are aware of any changes that affect you.

9. Taxation on investments

Not all investments are taxed the same. If you make a withdrawal from an IRA, that money is taxed as ordinary income. If you sell stock or real estate, your profit is taxed based on the lower capital gains tax rates.

Roth IRA withdrawals aren’t taxed at all (as long as you are 59½ or older and have had the account for at least five years).

It’s important to be aware of all this when you are deciding where to withdraw money.

10. 529 plans for education

Many retirees want to help pay for their grandchildren’s education costs and do so by contributing to a 529 plan specifically earmarked for education. There are limits on how much you can contribute, though, so be aware of that.

Otherwise, you could be subject to the gift tax if you go over the limit. Worth noting: One recent rule change allows the beneficiary of the 529 to roll over unused funds into a Roth IRA without penalty.

As you can see, the more you know about taxes, the better you can plan for how to get the most out of your money in retirement.

But always check with your CPA or other tax professional to make sure you are paying the least amount possible while still staying within the rules.

The more you can keep in your pocket, the better your retirement will be.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Insurance products are offered through the insurance business Endependence Financial. Endependence Financial is also an Investment Advisory practice that offers products and services through AE Wealth Management LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Endependence Financial are not subject to Investment Adviser requirements.

Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 2802562 12/24

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• Calculating Taxes on Social Security Benefits
• Three Steps to Simplify Paying Your Taxes in Retirement

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Retirement is a phase of our lives that many look forward to. It’s a time to relax and enjoy all the hard work it’s taken to get there. However, there is a lot of retirement misinformation out there and it’s important to make sure you’ve got all the facts. Here are a few myths I have encountered while helping clients plan for their golden years.

Myth No. 1: You can’t retire until you reach age 65

One of the biggest retirement misconceptions I have seen is that you have to wait until age 65 to retire. For many years, 65 was the traditional retirement goal. But today, retirement can happen at any age, as long as you plan for it the right way. Many people may choose to work until 65, either because they need to continue building their savings or simply because they enjoy their career.

Try not to focus on your age when thinking about retirement. Focus instead on your income and whether you can fully rely on it for the rest of your life. Finding the right savings strategy for you and your family and creating a solid financial plan can help you reach your dream retirement.

Myth No. 2: I should plan for a 10-year retirement

If you’re lucky, your retirement will last many years and be filled with relaxing days and time with family and friends. But how do you plan for retirement when you’re unsure how long it will last? Americans are living much longer than they were decades ago. According to the Social Security Administration, the average life expectancy for a man reaching age 65 on April 1, 2024, is 84.2. For women, it’s 86.8. Many people could live past those ages, into their 90s or even 100s. This means that if you retire at age 60 and live to 100, you could have a 40-year retirement. That could be as long as your career was!

While it would be much easier to plan if we knew exactly how long we were going to live, it doesn’t work like that. When planning for your retirement, it is always good to plan for too much rather than too little. You don’t want to get toward the end of your retirement and have to start working again because you ran out of funds. This is why I tell my clients that the sooner you can start saving for retirement, the better.

Myth No. 3: Medicare will cover all of my health care needs

Despite what many people think, Medicare doesn’t always cover all of your medical needs. While it can provide valuable health insurance for retirees, it wasn’t designed to cover everything. It does not cover all medications or forms of care, such as nursing homes and long-term care. It also does not cover vision or dental, an essential part of most retirees' medical needs.

As retirees age, their medical costs will get more expensive. The 2024 Fidelity Retiree Health Care Cost Estimate found that a 65-year-old will spend an average of $165,000 on health care expenses in retirement. To help prevent yourself from having to tap into your savings for medical costs during retirement, there are a few options you can utilize. Start contributing to a health savings account (HSA). You can use these funds for many insurance premiums in retirement. Planning for long-term care and other medical expenses not covered by Medicare is an important part of a comprehensive retirement plan. Consider purchasing long-term care insurance. For many retirees and their families, having a long-term care plan can help with some of the financial, emotional and physical burden of providing and paying for care.

Myth No. 4: Expenses will decrease in retirement

While many expenses, like gas or work clothes, may decrease in retirement, some expenses will actually increase. Are you planning on traveling during retirement? Those expenses could easily go up because you have more flexibility and time to travel. As I mentioned above, your medical costs may increase as well since Medicare will not cover everything. Health care could become one of your highest expenses in retirement if you don’t plan for it. Also, when you plan for retirement, make sure you factor inflation into your expenses. A good rule of thumb is to overestimate your expenses wherever you can, so you can put aside more than you think you need. Having extra is always better than not having enough.

Myth No. 5: I’ll be in a lower tax bracket when I retire

Your income may decline when you enter retirement, resulting in a lower tax bracket. However, if you have a lot of money in tax-deferred retirement plans subject to required minimum distributions (RMDs), then you could actually see your income increase. This could result in higher income taxes, which you need to plan for. Most retirees will stay in the same tax bracket when they retire, and if they do move to a lower tax bracket it’s usually only by a few percentage points.

Retirement planning doesn’t have to be confusing or hard. Believing these retirement myths could set you down the wrong path. By taking the time to separate fact from fiction, you can approach your retirement with confidence. It’s important to sit down with a financial adviser who will be able to answer any questions you may have.

Drake & Associates is an independent investment advisory firm registered with the U.S. Securities & Exchange Commission. This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may view this report. Neither the information nor any opinion expressed it so be construed as solicitation to buy or sell a security of personalized investment, tax, or legal advice. The information cited is believed to be from reliable sources, Drake & Associates assumes no obligation to update this information, or to advise on further development relating to it. Past performance is not indicative of future results. Registration as an investment adviser does not imply a certain level of skill or training.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Tax season is here. Employers had until January 31 to distribute W-2 forms to employees. It’s a pretty routine system for working Americans, but how does the process change once you enter retirement?

Unlike your working years, your income streams are a bit different in retirement. In this phase of life, you’re likely going to be living off of a combination of Social Security benefits, retirement account savings such as a 401(k) or IRA, and maybe even an annuity or pension. Regardless of where your income is coming from, managing taxes on those funds is crucial to preserving your savings while maximizing your funds. Fortunately, there are several different strategies to help you reduce or eliminate taxes in your golden years.

Utilizing tax-advantaged accounts is one of the most efficient ways to manage taxes in retirement. If you have a Roth IRA, any withdrawals made after age 59½ and a five-year holding period, are tax-free. In other words, any growth in your investments can be taken out without incurring taxes, potentially reducing your taxable income significantly.

Traditional IRAs work a bit differently. Although distributions from these accounts can be taxed as part of your annual income, you can manage when and how much you withdraw to minimize the tax bill. One example is to consider taking out less from these accounts during the years you’re expecting to fall into a lower tax bracket. It’s important to note, though, that required minimum distributions (RMDs) must be taken from these accounts once you reach age 73, and those are considered taxable income.

Consider delaying Social Security

Delaying Social Security benefits is another option. If you wait until age 70 to claim your benefits, you can increase your monthly check significantly. Waiting until this age to claim Social Security may also help you avoid higher taxation on those benefits during your go-go years when you might be reliant on other sources of income.

If you have investments outside of your retirement accounts, you’re no stranger to the capital gains tax. This tax is due after an investment is sold. For the 2025 tax year, long-term capital gains tax rates can vary from 0%, 15% to 20% of the profit depending on your individual income.

However, holding investments for more than a year will allow you to benefit from lower, long-term capital gains rates when compared to short-term rates.

If you have investments that are underperforming, you may even want to consider tax-loss harvesting. This method allows you to sell investments that have lost value to offset gains made from other investments, therefore reducing your taxable income.

What if you're nearing or just entering retirement?

While these strategies are helpful for folks entering or nearing retirement, you don’t have to wait that long to figure out how you’re going to manage taxes once you retire.

As you are planning for retirement, it might be a good idea to invest in a tax-free plan such as a Roth IRA. Funds in this account are made from post-tax contributions, which are contributions that are paid from an employee’s paycheck after it’s been taxed. Funds in a Roth IRA grow tax-free, but it’s important to note that the contributions made to these accounts are not tax-deductible. This carries several different advantages.

For example, these plans have no RMDs, and your withdrawals will be tax-free as long as certain requirements are met. And since you pay taxes upfront on the money you contribute, there’s no penalty if you withdraw those earnings.

This kind of plan may be a good option for people who expect their retirement tax bracket to be the same or higher than their current bracket. By paying taxes on those contributions upfront, you get the benefit of being taxed at a lower rate, which puts more money in your pocket in the long run.

Taking a tax-advantaged approach when planning for retirement is key if you want to keep more of your money in your pocket. And with proper planning, you can implement some of these strategies even if you’re decades away from retirement. With the new year well underway, this is a great opportunity to invest in your future — especially if you’re planning on retiring later this year.

The views and opinions expressed herein are those of Joel Russo and do not necessarily reflect the views of CoreCap Investments, LLC or CoreCap Advisor, LLC, its affiliates, or its employees. The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation. Investing involves risk and you may incur a profit or loss regardless of the strategy selected.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As of the second quarter of 2024, Americans had $40 trillion in pre-tax retirement accounts, such as 401(k) plans, 403(b) plans and IRAs, according to the Investment Company Institute. These accounts are fully taxable at ordinary income tax rates to either the owner or the inheritor of these accounts.

Under current law, once a pre-tax account owner is age 73, they’re required to begin taking required minimum distributions (RMDs) for life or until the account is depleted. As a financial adviser since 1996, I’ve typically seen one of two scenarios unfold: Some individuals withdraw funds, pay their taxes and spend the money. Others invest the withdrawn funds in another tax-deferred or taxable account, which either increases their own taxes or defers additional taxes for their heirs. I refer to this as The Tax-Deferred Disconnect.

For those who don’t need the income, there are strategies and techniques available to leverage the required minimum distribution to offset the tax burden on these accounts. Today, I’m writing about one such strategy.

Become informed

Let’s review a hypothetical example:

George, age 65, has a $500,000 IRA and does not need to withdraw or spend these funds to support his family’s lifestyle. His wife, Gayle, is 64, and they have two children.

At age 73, George begins taking his RMDs and pays his taxes on those distributions each year. At age 80, George passes away, and Gayle, now 79, inherits the IRA. Assuming modest annual growth and continued minimum withdrawals, the account value should grow while Gayle owns it.

At age 90, Gayle passes away, and the children inherit the IRA, which has grown, hypothetically let’s say, to $600,000. Each of the two children inherits $300,000, which they could either take as a lump sum or withdraw over a maximum of 10 years, paying taxes on each withdrawal. If the children have had successful careers and are in higher tax brackets already, these distributions could push their taxable income higher and possibly make everything else on their tax return more expensive.

Think differently

If George and Gayle won’t need the income, they could consider alternative strategies that avoid passing a large tax burden to their children. For example, they could donate the IRA to a favorite charity at death and replace the taxable IRA with a tax-free life insurance policy of equal value for their children to inherit. 501(c)(3) non-profit corporations are tax-exempt and they would receive the IRA funds tax-free. Here’s how it could work: Withdraw a small amount annually from the IRA, pay the taxes, and use the after-tax funds to pay the premiums on a $600,000 life insurance policy. Life insurance benefits are typically tax-free, so the children inherit $600,000 tax-free, and your favorite charitable organization would inherit $600,000 tax-free.

The Tax-Deferred Disconnect happens when account holders fail to realize that they could be leaving their heirs with a substantial tax liability, significantly reducing the value of their inheritance, in lieu of discovering planning strategies to mitigate the future tax liability of qualified retirement accounts.

Possible next steps

Proactive planning helps ensure your wealth benefits your loved ones and your values while mitigating unnecessary tax costs.

• Review your beneficiary designations. Ensure your IRA and retirement accounts have up-to-date beneficiaries.
• Reevaluate your insurance options. Discuss the potential of leveraging life insurance to replace taxable dollars with tax-free dollars. A financial professional could help design a plan that aligns with your legacy goals.
• Implement a Roth conversion strategy. Consider gradually converting portions of your traditional IRA or 401(k) into a Roth IRA. Though this requires paying taxes on the converted amounts in the year of the Roth conversions, the funds grow tax-free and could be withdrawn tax-free by your heirs, reducing their future tax liability.

The bottom line

You don’t have to accept the Tax-Deferred Disconnect as inevitable. With proactive and thoughtful planning, you could maximize your legacy while reducing tax liability. By leveraging strategies like charitable donations and tax-efficient life insurance planning, you could turn potential tax dollars into meaningful contributions and tax-free inheritance for your loved ones.

Imagine leaving behind an efficient transfer of your qualified assets to your heirs and also a legacy that funds causes close to your heart — whether that’s supporting a cancer hospital, funding scholarships or simply reducing the tax burden to your heirs. It’s not just about managing taxes — it’s about taking control of your financial legacy.

Insurance products and services offered by Jim Sloan & Associates, LLC. Investment advisory services offered through MariPau Wealth Management, LLC an SEC Registered Investment Advisor. Please note that the use of the term “registered” to refer to our firm and/or our associated persons does not imply any particular level of skill or training. Melton & Company, LLC and MariPau Wealth Management, LLC are not affiliated entities. While the processes mentioned in this article have been designed with care, financial outcomes can never be guaranteed as investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. None of the information contained in this article shall constitute an offer to sell or solicit any offer to buy a security or any insurance product. Insurance may be subject to fees, surrender charges and holding periods which vary by insurance company. The information and opinions contained in this article are provided by the author and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. They are given for informational purposes only and are not a solicitation to buy or sell any of the products mentioned. This article is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. Jim Sloan and Jim Sloan & Associates, LLC do not give tax or legal advice. Tax laws are subject to change and can affect results. The firm is not affiliated with the U.S. government or any governmental agency. Hypothetical examples have been provided for illustrative purposes only and should not be construed as advice designed to meet the particular needs of an individual’s situation.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Paying taxes as an employee during your working years is fairly straightforward. You fill out a W-4 when you start your job and adjust it over time as your circumstances evolve.

As a business owner, it’s less straightforward, but tax professionals can help you develop a routine. Regardless of your path to retirement, paying taxes in retirement is sure to throw off your routine.

Some of your funds will have taxes withheld, as happened when you were working. Some will not and will have to be accounted for in the aggregate amount you pay.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

I believe that most retirees who come to us and have an accountant think they must pay quarterly taxes. But it depends.

Below is a three-step framework to simplify your tax life in retirement.

1. Withhold taxes where you can

Income from pensions, retirement plans, deferred compensation and Social Security can and should have taxes withheld. The mistake I see most people make with the first three income streams is that they stick with whatever the plan’s default is. If that matches your tax liability, it’s dumb luck.

When it comes to Social Security, withholding taxes seems to be the exception because it is not required when claiming. To withhold taxes from Social Security, you must fill out a W-4V. You may think you are withholding taxes based on the amounts that are deducted for Medicare premiums before the money hits your bank account. Unfortunately, that misconception may result in an unpleasant April surprise.

There are two advantages to withholding taxes: First, it’s easier. If you’ve ever written a quarterly estimated tax payment, you know that withholding is just an easier way to get your money to the IRS.

The second is important and less known. Taxes paid via withholding are considered to be pro-rated across the calendar year.

Therefore, you don’t need to worry about quarterly deadlines and the penalties associated with missing them.

2. Run a projection based on total liability

We rely on a suite of technology to project current and future tax rates for our clients. I am fully aware that running a tax projection, given the complexity of our tax code, is not simple.

That said, the IRS has a few tools, as does DIY tax software. If you use an accountant, they should be able to do this for you.

Most tax preparers will base your quarterly estimates on last year’s liability. They want to “penalty-proof” your payments. This is a way to avoid underpayment penalties assessed by the IRS. You can do this by paying:

However, making sure you don’t pay a penalty is not the same as running a tax projection. In an ideal world, you can make an estimate that says, “This year I expect to pay about (fill in the blank) in taxes.” With an emphasis on “about.”

If you want to access a free version of the planning software we use, which has a tax module, it’s available here.

3. Pay the difference in quarterlies

If you can say, “I think my total tax liability will be $45,000, and I’ve already withheld $25,000,” then you are going to pay the $20,000 gap via estimated payments.

However, taxes in the U.S. are on a “pay-as-you-go” system, so you may not be paying $5,000 per quarter. You would make the quarterly payment in the quarter that income was received. Each quarter has a due date for the associated tax liability.

Due dates for federal estimated payments:

It’s important to note that estimated payment due dates vary by state and will not always line up with the federal due date.

Most retirees are in the habit of paying by check, but the IRS has made the online process fairly straightforward.

Looking for expert tips to grow and preserve your wealth? Sign up for Adviser Intel (formerly known as Building Wealth), our free, twice-weekly newsletter.

All the information above is tactical in nature. It is simply a framework to make sure you aren’t writing a big check, unexpectedly, in April. None of it is strategic.

A strategic plan entails not only making sure that your bills are getting paid but also looking at current tax rates vs future tax rates to come up with a plan to minimize your lifetime tax bill. You can learn more about that in my article Three Keys to Keeping More of Your Money in Retirement.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As 2024 comes to a close, an important financial deadline is fast approaching for many retirees and older adults. December 31 is the annual cutoff date for required minimum distributions (RMDs) from certain retirement accounts.

This deadline shouldn't be overlooked by those who have reached the age at which the IRS requires them to begin withdrawing from their tax-deferred savings.

So, here’s what you need to know (and do) if you have an RMD due in the coming days.

RMD rules 2024

RMDs are mandatory withdrawals from tax-advantaged retirement accounts that individuals must take once they reach a specific age. These accounts typically include traditional IRAs, 401(k)s, and similar accounts that allow funds to grow tax-free over time.

Note: The rationale behind RMDs is that the government wants to ensure that retirement savings, which have benefited from tax deferrals, don't continue to grow indefinitely without being taxed.

Who’s impacted? Recent legislative changes have shifted the age at which RMDs start.

As of 2024, individuals who have turned 73 are generally subject to RMD rules. (It's worth noting that this age requirement is set to increase again to 75 in 2033.) Also, inherited IRAs have their own complicated RMD rules.

Year-end RMD deadline

While the first RMD can be postponed until April 1 of the year, following which you turn 73, subsequent annual RMDs must be taken by December 31 each year.

This end-of-year deadline is critical since failing to withdraw the correct amount by this date can result in substantial penalties.

• The amount you must withdraw is calculated based on your retirement account balance as of Dec. 31 of the previous year and your life expectancy factor, as determined by IRS tables.
• Failing to withdraw the required amount by the deadline can result in a penalty of 25% of the amount not taken.

While this penalty has been reduced from the previous 50% due to changes in the SECURE 2.0 Act, it is still a substantial hit that can significantly impact retirement savings.

RMD: What to do now

• Review your account: Identify all retirement accounts subject to RMDs.
• Calculate your RMD: Determine the total amount you need to withdraw across all applicable accounts.
• Plan your withdrawal: Decide which account(s) you'll use to satisfy your RMD.
• Consider taxes: Understand how your RMD will affect your overall tax situation for the year.
• Take the distribution: Ensure the funds are withdrawn from your account(s) before the December 31 deadline.
• Keep records: Document your withdrawals for tax reporting purposes.

Note: When planning which account(s) to withdraw from, Kelly Regan, vice president and Certified Financial Planner™ with wealth management and advisory firm Girard, offers some insight.

“You can aggregate RMD distributions, meaning if you have two IRAs, you can withdraw the total RMD from one of the accounts — as long as the total RMD is taken, it is satisfied,” Regan says.

Also, with RMDs, you'll want to remember the following special circumstances.

Still Working Exception: If you're still employed past age 73 and don't own more than 5% of the company you work for, you might be able to delay RMDs from your current employer's retirement plan until retirement.

However, this “still working exception” doesn't apply to IRAs or plans from previous employers.

First RMD: For those who turned 73 this year and are facing their first RMD, remember that you have until April 1, 2025, to take this initial distribution.

However, delaying until April means you'll need to take two distributions in 2025 — one for 2024 and one for 2025 — which could have significant tax implications.

December required minimum distribution: Bottom Line

The December 31 RMD deadline is a key date for many retirees. You can meet your obligations and avoid unnecessary tax penalties or common RMD mistakes by understanding the rules, planning, and taking timely action.

Consulting a tax professional or financial advisor can help navigate the complexities of RMDs and optimize your retirement income strategy.

Related

• Required Minimum Distributions Guide
• Seven Common RMD Mistakes to Avoid
• How Retirement Income is Taxed by the IRS

Have you made arrangements for your year-end RMDs? It's a key piece of retirement planning. And it’s not exactly mad money, but an influx of cash via a required minimum distribution (RMD) from your IRA or workplace retirement plan does give you options. The money is yours, of course. So, you can do with it as you please.

But, like all things related to money, there are ways to optimize the cash that makes its way back into your checking account after an RMD.

RMDs, of course, are mandated by the Internal Revenue Service (IRS). "You cannot keep retirement funds in your account indefinitely," the IRS says. You generally must start taking these mandatory withdrawals when you reach age 73 (unless you inherited an IRA). RMDs apply to retirement accounts, such as IRAs (excluding Roth IRAs, which don’t require RMDs) and employer-sponsored 401(k)s, 403(b)s and 457(b)s. The amount of your RMDs, due each year by Dec. 31, is calculated based on your account balance from the end of last year and your life expectancy. The RMD withdrawal amount gets taxed at your ordinary income tax rate. So, what are smart ways to make the best use of an RMD payout?

1. Use RMDs to make ends meet

If you need more money to pay the bills each month or need a lump sum to pay for a large expense, such as a car down payment or roof repair, RMD dollars can pay for these one-time or unexpected expenses. Remember, it’s better to pay bills from money that’s already been taxed, rather than, say, make another withdrawal from a taxable retirement account that results in a second taxable event.

2. Pay off expensive debt

High-interest credit card debt is the enemy of personal finance. So, if you have a high balance on plastic, use all or part of your RMD to put a dent in your debt. The average credit card rate is just under 24%, according to LendingTree. So, for every $1,000 you pay off, you can save yourself about $240 per year. If you knock out $4,000 in credit card debt, you can avoid almost $1,000 in interest.

3. Save for a rainy day

If you’re one of the 73% of Americans who told Bankrate.com that they lack the emergency savings to cover six months of expenses or more, then bulk up your rainy-day fund with a cash infusion from your RMD.

Even though the Federal Reserve cut its key borrowing rate to between 3.5% and 3.75% on December 10, the cash you can earn on your money in the best high-yield savings accounts and certificates of deposit (CDs) still outpaces consumer price inflation (CPI), which measured 2.7% in November. However, remember to account for taxes on income from CDs or savings accounts.

4. Reinvest the money

If you don’t need the cash to cover everyday expenses, pay off debt, or bolster your emergency fund, consider reinvesting the money. Why leave it in a checking account, earning less in interest than the rate of inflation? Instead, you can funnel the money back into a taxable brokerage account. You can also fund a Roth IRA if you have earned income equal to or greater than the RMD amount you contribute to the Roth IRA, according to American Century Investments. Once the dollars are invested in a Roth, you won’t have to distribute any more RMDs on the amount for the rest of your lifetime.

Another tax-saving tip is to invest the proceeds in a low-cost, tax-friendly ETF, which typically pays lower capital gains and dividends to shareholders than traditional mutual funds.

5. Reinvest RMD money to save on future taxes

Not every investment is tax-smart. "One of the biggest mistakes we see people make with RMDs is reinvesting them the wrong way," said Kris Whipple, president and financial advisor at Kristopher Curtis Financial.

Since you’re already paying taxes on your RMD, if you don’t need the money, it makes sense to invest the money in a way so that it’s not taxed again, advises Whipple. If you invest in a non-retirement account, you fall into the trap of paying taxes twice, as you will be taxed later on any gains. "You’re creating something nobody wants: more taxes," said Whipple.

A smarter approach is just to pay the tax once on your RMD money. "Reposition those funds where they’ll never be taxed again," said Whipple. One way to do that is to use RMD dollars to fund a life insurance policy. The upside to that strategy? “You can create a tax-free benefit for your heirs,” said Whipple. “You’re ensuring that the impact of taxes stops (when you pay Uncle Sam the taxes on your RMD).”

And while life insurance premiums are expensive for folks over 73, there’s a way for married couples to lower their premiums. You can invest in a Second-to-Die Guaranteed Universal Life policy. This policy only pays out after both parties have passed. “Because of this,” said Whipple, “the premiums are typically lower” than if you buy two single-life policies with the same combined death benefit.

6. Contribute to a college savings plan (529)

Even though you’ll get taxed on your RMD, you can shield the distribution from taxes going forward and help pay for your grandchildren’s educational expenses by using the funds to contribute to one of the best 529 college savings plans, said Addison Schubert, a financial consultant with American Century Investments. “A 529 allows your gift to grow tax-deferred, and withdrawals for qualifying educational expenses are tax-free,” Schubert explained.

Tip: The 529 grandparent loophole allows you to contribute to your grandchild's college fund without harming their chances for a scholarship. You could also benefit your grandchild's retirement; if they don't use all those funds on education, your grandchild could roll over funds from a 529 to a Roth IRA.

7. Gift RMD proceeds to heirs

Using RMDs to pass on wealth to heirs is a way to leave a legacy while you’re still alive.

"A frequent comment by retirees regarding RMDs is that they don’t need the money," said Rick Miller, financial planner and investment advisor at Miller Investment Management. "I advise many of them who have children that gifting them the RMD money up to the gifting limit is a way of passing on your estate sooner rather than later." The annual gift tax exclusion for 2025 is $19,000 and remains unchanged in 2026.

8. Donate proceeds to charity

If you don’t need the cash but need a tax deduction, consider giving your RMD to a charity, such as an arts foundation, volunteer fire department, or non-profit focused on fighting cancer. "Normally, distributions from a traditional IRA are taxable when received," the IRS said. "With a QCD, however, these distributions become tax-free as long as they're paid directly from the IRA to an eligible charitable organization." The maximum annual amount that can qualify for a QCD in 2025 is $108,000 per person, per calendar year.

9. Pay income taxes

If you expect to owe taxes to the IRS come April 15, your RMD might be a good source of capital to make the payment. So, don’t rule out using these freed-up funds to pay Uncle Sam at tax time.

10. Treat yourself!

If you don’t need the money to pay taxes, buy groceries or fix the car, there’s nothing wrong with using your RMD for an indulgence. You could fund a dream trip, buy a new couch you’ve been eyeing or finally spring for new stainless steel appliances to spruce up your kitchen. Or go on a shopping spree! The world's your oyster.

Read More

• I Have to Take a $22,000 RMD by the End of the Year, and I Don't Need the Money. What Should I Do With It?
• Protect Your Retirement: Seven RMD Mistakes to Avoid
• Will RMDs Ruin the 4% Rule for You?
• How to Calculate RMDs for IRAs

As we near mid-December, it’s natural to reflect on the past year. While there were many major headlines in 2024, such as wars, lower interest rates, the election of a new president and the U.S. market hitting all-time highs, it’s easy to get caught up in the latest news. However, fixating on the short term is not constructive. Instead, it’s worth focusing on practical strategies to consider before the end of the year.

Some of the following items may be applicable to you, while others may not be. The key is recognizing the opportunities that exist in this environment so you can make informed financial decisions and stay focused on what is important as you enter 2025.

Investing considerations

1. Overall allocation. Does your investment mix of stocks, bonds, alternative investments and cash still make sense based on your goals? If your situation has changed, it may impact your portfolio.

2. Rebalancing. Though the S&P 500 is up meaningfully this year, that return has been driven primarily by several large technology stocks. Meaning there are areas of the market, such as REITs, international stocks and investment-grade bonds, that have meaningfully underperformed the S&P 500. Many investors’ asset allocation is probably out of whack, and it may make sense to rebalance your portfolio to ensure your allocation is brought back to its appropriate risk tolerance.

3. Investment policy statement (IPS). One way to stick to a disciplined plan is by developing an IPS. An IPS helps define an investors’ goals, risk tolerance and other considerations to ensure they are on track to achieve their objectives. Most important, it will help investors ignore the noise and the slick salespeople trying to sell them something imprudent. Speaking to your financial adviser today to set up an IPS before the New Year is a great way to start 2025 on the right financial foot.

4. Review your cash position. In today’s world, cash doesn’t need to earn nothing. Money market yields are now paying around 4%-plus. Proactively moving cash from accounts paying 1& to 2% to those paying about 4% is prudent. On the other hand, yields are much lower than they were last year. This may impact how much cash you should have on hand.

Considerations for required minimum distributions (RMDs)

5. Don’t forget to take your RMDs from your retirement account. RMDs apply to folks who are 73 and older. If you are subject to RMDs and don’t take them before the end of the year, there will be a penalty.

Considerations for charitable giving

6. Qualified charitable distributions (QCDs). Individuals who are 70½ or older can donate all, or a portion, of their RMD directly to charity via a QCD. Regardless of the amount of your RMD for the year, you can give up to $105,000 to charities from your IRA as QCDs.

7. Deduction for cash contributions. Under the Tax Cuts and Jobs Act, the deduction for cash contributions directly to charity, including gifts to a donor-advised fund, increased from 50% of AGI to 60%. The limit will revert to 50% after the sunset of the TCJA at the end of 2025, so donors should consider maximizing their cash gifts today.

8. Donate appreciated stocks. Many investors may have long-held or concentrated stock positions with large imbedded unrealized capital gains. These folks should consider donating these highly appreciated securities directly to charity, which helps avoid capital gains tax that would otherwise need to be paid when selling the security. It also facilitates minimizing a large position, which helps derisk a portfolio.

9. Utilize a donor-advised fund (DAF). A DAF is an account where you can deposit assets for donation to charity over time. The donor gets an immediate tax deduction when making the contribution to the DAF and still has the ability to control how the funds are invested and distributed to charity. A DAF can be extremely useful if you hold a security with no cost basis, a highly appreciated stock or a concentrated position. In all these scenarios, the tax liability can be circumvented by moving that position to a DAF. A DAF may be particularly useful when “bunching” your charitable contributions, which involves donating several years’ worth of charitable contributions all at once, which is done for tax planning purposes.

Considerations for Roth IRA conversions

10. Roth IRA conversions. A Roth IRA conversion is the process of transferring retirement funds from a traditional IRA, SEP or 401(k) into a Roth account. There is no early withdrawal penalty on this conversion amount. Since a traditional IRA is tax-deferred, while a Roth is tax-exempt, the deferred income taxes due will need to be paid on the converted funds at the time of conversion. This is typically done to avoid a potentially more onerous tax liability later or for estate planning reasons.

Considerations for beneficiary designations

11. Beneficiary updates. Retirement accounts and insurance policies have beneficiary designations that pass outside of one’s will. Therefore, even if you did estate planning, it’s important to review your various beneficiary designations to ensure that your money is passing according to your wishes. It is not unheard of for assets to pass to the wrong party, such as an ex-spouse, because beneficiary designations were not updated.

Considerations for estate planning

12. Changing family dynamics. If a family member passed away this year, you may want to reach out to your estate planning attorney to review and update your planning/documents such as a will, power of attorney, health care proxy, etc.

13. Aligning your financial plan with your investments. If you update your estate plans or have a trust, make sure that your investment accounts reflect your estate plan (i.e., the trusts should be funded and accounts titled correctly).

14. Take advantage of the high federal unified estate and gift tax exemption. The federal unified estate and gift tax exemption for 2024 is at an all-time high of $13.61 million for individuals and $27.22 million for married couples. It’s going up next year (to $13.99 million for individuals and $27.98 million for married couples). However, while the incoming Trump administration may extend this high exemption amount, they are still scheduled to expire after December 31, 2025. At that point, the amounts are scheduled to revert to the pre-2017 level, which is about half of what they are today. Depending on a family’s assets, it may be a great opportunity for large lifetime gifts to capitalize on the historically high exclusion amount today to remove assets from their estate.

Considerations for 529 plan contributions

15. 529 plan contributions. A 529 plan is a tax-advantaged college savings account. It may provide an opportunity for immediate tax savings if you live in one of the 30 or more states offering a full or partial deduction for your contributions to the home-state 529 plan. This is a nice option for using the annual gift tax exclusion, if you haven’t already used it. You can gift up to $18,000 a year tax-free per person in 2024 (in 2025, it’s $19,000). The annual exclusion recycles on January 1, so make sure to use your 2024 gift allowance by then so you don’t lose it.

16. “Superfunding” 529 accounts. In this strategy, you can spread a tax-free gift to a 529 account over five years for gift tax purposes. So, a married couple not making any other gifts to the beneficiary during the five-year period can contribute up to $180,000 in 2024 to a 529 plan for each child and, with the election, not run into gift tax problems.

Considerations for tax loss harvesting

17. Tax-loss harvesting is the process of selling securities at a loss to offset a capital gains tax liability. In addition to offsetting any capital gains for the year, the loss can also be used to offset up to $3,000 of your ordinary income.

Considerations for company retirement accounts

18. Assess contributions to employer retirement plans. Review how much money you contributed to your 401(k) or 403(b) this year. If you are financially able, it’s worthwhile to max out those accounts every year. In 2024, maximum contribution limits are $23,000 before any company match or $30,500 if you are 50 or older.

19. Plan for next year’s 401(k)/403(b) contribution limits. For 2025, the contribution limit increased to $23,500. Catch-up contributions will remain the same at $7,500 for those 50 and over. Interestingly, in 2025 the IRS will now permit an additional catch-up for employees ages 60 to 63 of $11,250, instead of just $7,500. Don’t forget to make the required tweaks within your plan to ensure you are making the maximum contribution for the upcoming year.

20. Roth IRA vs traditional IRA. It’s important to decide whether to make Roth IRA or traditional IRA contributions. As a rule of thumb, if you think you may have a high-income year, then a traditional IRA makes more sense since you’ll get an immediate tax deduction. However, if you anticipate a low-income year, then a Roth IRA makes sense. In that scenario, you’ll pay a more modest amount in taxes now and not have to pay tax on the withdrawals years later.

21. Review your 401(k)/403(b) investment lineup and current portfolio. Determine if it is sensible to make any investment changes in your plan. This is especially applicable if your firm switched 401(k) providers recently, if you rolled over an old 401(k) or if you are approaching retirement. In any of these scenarios, tweaking your investments may make sense.

Considerations for other tax-advantaged accounts

22. Health savings account (HSA). Consider maxing out your HSA, which allows you to save and pay for qualified medical expenses with tax-free dollars. In order to contribute to an HSA, you have to be enrolled in an HSA-eligible health plan. You can only contribute a certain amount to your HSA each year, but all contributions roll over from year to year. In 2024, you can contribute up to $4,150 for yourself, or $8,300 if you have coverage for your family. In 2025, you will be able to contribute up to $4,300 for yourself or $8,550 if you have coverage for your family.

23. Flexible spending account (FSA). FSAs allow you to contribute pre-tax money, up to a certain amount, to an account that can be used to pay for eligible out-of-pocket health care expenses or eligible dependent care services, such as childcare. However, FSA funds typically are “use it or lose it,” meaning you generally can’t roll the full amount into the next calendar year. To avoid losing any unspent funds, make a plan to use the money before December 31.

Considerations for your budget

24. Sufficient emergency fund. Make sure you have adequate funds in your checking account. Three to six months’ worth of expense money is a good rule of thumb for those who are working. For retirees, this number should be sufficient to mitigate sequence of returns risk, which may require having a year’s worth of cash readily available.

25. Reflect on your expenses and plan ahead for next year. This is especially important for retirees who must evaluate how much cash they will need in the year ahead to ensure they are able to meet their cash flow needs. Since prices on many items skyrocketed this year, it’s imperative to ensure you have adequate cash on hand to meet these expenses.

Reviewing the aforementioned strategies with your loved ones and financial adviser can help ensure that your financial house is in order. It will also help lay the groundwork for a financially successful year ahead.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. ParkBridge Wealth Management is not affiliated with Kestra IS or Kestra AS. Investor Disclosures.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

With the end of the year fast approaching, now is a good time to review your financial situation and check in on how you’re tracking toward your goals. Thoughtful year-end planning can help you set yourself up for success in the coming year.

Here are seven strategies to consider as you think about optimizing your finances before the end of 2024.

1. Maximize retirement contributions

One of the most impactful steps you can take is to review and maximize your retirement contributions. For traditional IRAs and Roth IRAs, contributions for 2024 must be made by Tax Day, which is April 15, 2025. For business owners, you can create and fund most employer-sponsored retirement plans through your tax-filing deadline, which includes extensions.

The SECURE Act 2.0 introduced several changes to the contribution rules for IRAs and employer-sponsored retirement plans. You should consult your financial adviser and tax professional to determine how these changes might affect you and work with them to plan for your retirement contributions.

2. Take required minimum distributions (RMDs)

If you're 73 or older, you must take your RMDs from retirement accounts by December 31, 2024, to avoid penalties. You can defer your first RMD until April 1 of the year after you turn 73. Subsequent RMDs, however, must be taken by December 31 each year. So, if you turned 73 in 2024, you could defer your first RMD to as late as April 1, 2025—but then you’d have to take your 2025 RMD by December 31 of 2025, and there can be some downsides to taking two RMDs in one year.

Recent IRS regulations have also clarified RMD requirements for inherited IRAs. Starting in 2025, certain beneficiaries will need to take annual RMDs in addition to withdrawing the entire IRA by the end of the 10th year after the original owner’s death, so it’s important to discuss these complex rules with your adviser and tax professional.

3. Harvest your investment losses

Tax-loss harvesting can be a valuable strategy to offset capital gains taxes: By selling investments at a loss, you can reduce your taxable income. It’s important, however, to be mindful of the wash sale rule, which disallows the deduction if you repurchase the same or a “substantially identical” security within 30 days before or after the sale. Consulting a tax professional can help you navigate the nuances of these rules effectively.

4. Make year-end gifts

The annual use-it-or-lose-it gift tax exclusion for 2024 allows you to give up to $18,000 per recipient ($36,000 for married couples) without incurring gift taxes. If you exceed this amount, you can still make aggregate lifetime gifts up to $13.61 million ($27.22 million for married couples) without triggering gift or estate taxes, as of 2024. Note that under the terms of the Tax Cuts and Jobs Act of 2017, the unified credit for gift and estate tax will revert to pre-2018 levels at the end of 2025, so planning your gifts in advance can be advantageous.

5. Donate to charity

Charitable contributions can be a tax-efficient way to support causes you care about while reducing your taxable income. If you itemize deductions, you may be able to deduct charitable contributions up to a certain percentage of your adjusted gross income. Contributions of appreciated assets and securities can be particularly beneficial for some people, as you can deduct the fair market value and avoid capital gains taxes.

For those over 70½, making a qualified charitable distribution of up to $105,000 from an IRA can potentially be a tax-efficient way to meet RMD requirements while supporting charitable organizations (although note that you aren’t required to begin RMDs until you turn 73 if you were born between 1951 and 1959). These distributions are not income tax deductible, but the amount of your qualified charitable distributions (QCDs) that year is not included in your income.

6. Review your stock options

If your employer offers incentive stock options (ISOs) and you will not be subject to the alternative minimum tax (AMT) in 2024, consider exercising vested in-the-money options, which is when you purchase your company’s stock at a discounted rate, and therefore, are purchasing it at a profit. This can be a potentially tax-efficient move with little or no federal income tax consequences, depending on your specific situation. A tax adviser can help you determine the appropriate course of action.

7. Consult with advisers

Year-end planning can be complex, and the strategies that are right for you will depend on your individual circumstances. Consulting with a financial adviser or tax professional can help you navigate these decisions and set yourself up for success in the coming year.

The bottom line

The end of the year is an excellent time to review your financial situation and make strategic moves to check in with your goals. By considering these seven strategies and consulting with professionals, you can position yourself for financial success in 2025 and beyond.

JPMorgan Chase & Co., its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment advisor, member FINRA and SIPC.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The intricacies of tax planning are a critical component of your overall retirement strategy. Minimizing taxes in retirement isn’t just about reducing today’s tax bill — it’s about ensuring that your hard-earned money lasts longer and that you can draw from your assets efficiently.

By applying a logical, data-driven approach, you can create a retirement tax strategy that maximizes your income and minimizes unnecessary tax burdens.

Tax planning: Why it’s essential in retirement

The tax landscape changes as you transition from earning a salary to drawing income from different sources, such as Social Security, pensions, retirement accounts and investments. Without a solid plan, taxes can eat away at your retirement income, leaving less for your lifestyle and goals.

Here are the key elements of tax planning as you approach retirement:

• Managing tax brackets. As your income sources shift, it’s critical to understand how to stay within favorable tax brackets. Drawing too much from tax-deferred accounts, such as a 401(k) or traditional IRA, can push you into a higher tax bracket, leading to a larger tax bill. Strategic withdrawals can help you optimize your tax liability.
• Timing of withdrawals. Deciding when to tap into different accounts is a central component of tax minimization. For example, delaying withdrawals from tax-deferred accounts until later years could make sense if you expect your income to decrease in retirement, reducing your tax liability. Alternatively, you may want to start drawing on those accounts earlier to manage your taxable income.
• State taxes. State income tax laws vary widely. If you plan to move in retirement, consider the tax implications of your new location. Some states have no income tax, while others may tax retirement income at higher rates. Accounting for state taxes in your retirement plan could save thousands over time.

Tax minimization strategies for retirement

Several strategies can help minimize taxes in retirement. These techniques ensure that you’re not only reducing your tax burden today but also extending the longevity of your savings for years to come.

1. Roth conversions

One of the most effective tax-minimization strategies is converting a portion of your tax-deferred accounts, such as a traditional IRA or 401(k), into a Roth IRA. Unlike traditional retirement accounts, withdrawals from Roth IRAs in retirement are tax-free. The key is to strategically convert these funds during low-income years — such as right after retirement but before required minimum distributions (RMDs) begin at age 73.

• Why it works. Roth conversions allow you to pay taxes upfront while in a lower tax bracket. The funds then grow tax-free and can be withdrawn tax-free in retirement.
• Strategic timing. The years between retirement and age 73 (when RMDs kick in) often present a golden “tax window” where your income may be lower, making it an ideal time to convert funds without pushing yourself into a higher tax bracket.

2. Harvesting capital gains

As you approach retirement, managing investments in taxable accounts becomes crucial for tax minimization. One technique is tax-loss harvesting, which involves selling investments that have lost value to offset gains from other investments. Additionally, strategically selling appreciated assets during years when your taxable income is lower can help minimize the capital gains taxes you pay.

• Long-term gains. For individuals in lower tax brackets, long-term capital gains may be taxed at 0%. This is especially beneficial during retirement, when your income is likely lower than in your peak earning years.
• Capital losses. If you have investments that have declined in value, selling them to realize a loss can offset gains elsewhere in your portfolio. This reduces your overall tax liability.

3. Tax diversification

Tax diversification means having different types of accounts — tax-deferred (e.g., traditional 401(k) and IRA), taxable (e.g., brokerage) and tax-free (e.g., Roth IRA) — to draw from in retirement. By having a mix of accounts, you can strategically choose which to withdraw from each year based on your income needs and the tax implications of each type of account.

• Tax-deferred accounts. Traditional IRAs and 401(k)s provide a tax deduction when contributing, but withdrawals are taxed as ordinary income in retirement. These accounts are great for reducing taxable income while working, but without a strategy, you could face higher taxes when withdrawing in retirement.
• Taxable accounts. These are brokerage accounts that offer flexibility. Only the capital gains are taxed, and you can manage when to realize gains. This flexibility allows you to control your taxable income in a given year.
• Roth accounts. Roth IRAs and 401(k)s are powerful tools because they offer tax-free withdrawals in retirement. Contributing to Roth accounts during your working years (especially if you expect to be in a higher tax bracket in the future) can provide significant tax savings down the line.

4. Required minimum distributions (RMDs)

At age 73, the IRS mandates that you start withdrawing a certain amount from your tax-deferred accounts, known as RMDs. These withdrawals are taxed as ordinary income. Failing to plan for RMDs can lead to a sudden spike in taxable income, pushing you into higher tax brackets.

• Mitigate RMDs. To avoid being hit with a large tax bill, you can start taking strategic withdrawals before age 73, and you could perform Roth conversions. Both strategies would reduce the balance in your tax-deferred accounts before RMDs hit.
• Qualified charitable distributions (QCDs). If charitable giving is part of your retirement plan, consider using RMDs to make charitable donations. QCDs allow you to donate up to $100,000 per year directly from your IRA to a qualified charity, satisfying your RMD requirement while avoiding taxes on the distribution.

5. Health savings accounts (HSAs)

For those who have access to a health savings account (HSA) through a high-deductible health plan, this tool can play a key role in retirement planning. HSAs offer a triple tax advantage: Contributions are tax-deductible, growth is tax-free and withdrawals for qualified medical expenses are also tax-free.

• Saving for medical expenses. Medical expenses can be a significant cost in retirement. By building up an HSA balance during your working years, you can cover health care expenses in retirement without incurring taxes.
• Post-65 withdrawals. After age 65, HSA funds can be used for any purpose, though non-health care withdrawals are taxed as ordinary income (similar to an IRA).

The key to successful tax planning is understanding the variables and optimizing outcomes. By taking advantage of strategies like Roth conversions, tax diversification and tax-efficient withdrawal sequences, you can minimize your tax burden and make your savings last longer.

Dan Dunkin contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The 2024 presidential election is one of the most hotly contested and unusual political races in recent memory. A deeply divided nation has watched as one candidate has been the target of more than one assassination attempt, and the other dropped out to be replaced by his vice president. As with any series of turbulent events, stressful election seasons like this one can cause people to fear for the future.

When you feel the future is in doubt, it can be tempting to make financial decisions based on what you fear will happen. Particularly in close elections, as the 2024 race is predicted to be, investors can become extremely nervous about the outcome and the impact it will have on their finances.

If you believe one candidate will harm the economy and also think that candidate is likely to win, it’s hard to resist the urge to protect your finances by divesting yourself of assets you feel will be at risk when the new president takes office in January.

Conversely, if you’re confident your preferred candidate will win and will be a boon to the economy, you’d be tempted to shift your investments toward assets you think are likely to prosper under that candidate’s presidency.

Election-year stock market impacts

Historically, while the stock market often displays some volatility in the months leading up to an election, once that election is in the rearview mirror, market volatility tends to calm. Within a few months of the new president taking office, the market is usually right where it would be expected to land had the election never taken place.

In short, despite common assumptions that they will either rout or boost the markets, elections don’t tend to have much impact, regardless of which party’s candidate wins the Oval Office. This can be unfortunate for those who assume otherwise and make financial decisions based on that assumption.

Prudent financial moves during election season

Whether an election year or otherwise, it’s crucial to have a solid financial plan tailored to your individual situation and risk tolerance. A financial adviser can help you devise a plan designed to grow your money in a balanced portfolio that has appropriate levels of investment risk. If you have such a plan, the prudent move during an election is to stick to that plan.

A properly designed plan is already set up to take advantage of good times and weather bad times. History suggests that making major portfolio changes in response to election uncertainty can cause more harm than good.

Apolitical financial planning

One aspect you could consider, however, is taxation. Regardless of which party wins in November, it’s likely we are currently enjoying the most favorable tax environment we will see for years to come. To fund the government and service existing debts, at some point the country will likely have to increase its income, which means higher tax rates.

The Tax Cuts and Jobs Act set our current tax rates and brackets, but it is due to expire at the end of 2025, barring congressional action — an action that most electoral scenarios deem unlikely at this time. Once it expires, we will return to the higher tax environment the TCJA replaced. This means any action you can take to lower your future tax burden is likely to save you money in the long run.

One common way to accomplish this is to consider converting your tax-deferred retirement accounts to their Roth equivalents. You will pay taxes on them now, at current tax rates, but will not have to pay taxes on withdrawals or gains in the future. Plus, while tax-deferred accounts have required minimum distributions (RMDs) that you must take whether you need the money or not, Roth accounts do not.

Those RMDs are considered income when you take them, and if you have other sources of income in retirement that cannot be paused, such as pensions, Social Security or annuities, they could move you from a lower tax bracket to a higher one.

Roth conversions don’t make sense for everyone, and like investing, the wisdom of converting to Roth accounts depends on your individual circumstances. It’s important to sit down with a financial adviser to devise a financial plan that’s right for you.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

One of the biggest benefits of participating in a 401(k) or other defined-contribution plan is that contributions can be deducted from your paycheck on a pretax basis, which can lower your taxable income for the year.

If you've been able to make significant pretax contributions over many years, and you've received generous matching and/or profit-sharing contributions (in addition to the benefits of compounding growth), chances are you've built a sizable nest egg.

Now, many people say you can never save too much money for retirement. But is there a risk if your traditional IRA and pretax 401(k) accounts get too big?

Possibly. Especially if you won't need all of that money to live on.

That's because at age 73 or 75, depending on your birth year, you'll have to start taking required minimum distributions (RMDs).

RMDs for a given year are calculated as a percentage of the value of your account at the end of the previous year. This percentage gradually rises each year.

These distributions count as taxable income. If the value of your pretax account is very large, a single RMD, in combination with taxable income you receive from other sources — such as Social Security — could dramatically increase your yearly tax bill.

Let's look at a hypothetical example.

Jane could pay the price for her savings success

Jane, 72, is a senior executive with a large company. She started contributing to her 401(k) plan when she was 38. Every year, she made the maximum allowable contribution on a pretax basis, including additional catch-up contributions when she turned 50.

Over the years, her employer was very generous with matching and profit-sharing contributions.

Now Jane is about to retire. Because her account posted strong average annual returns over the years — much of it due to the exponential increase in the value of the company stock shares she purchased through her plan over time — her pretax 401(k) account was worth about $6 million at the end of 2025.

Since divorcing her husband 15 years ago, Jane has always lived frugally and doesn't plan on changing her ways once she retires.

She paid off the mortgage on her home several years ago. She has no debt and could live comfortably off her monthly Social Security checks, payments from her company's defined-benefit plan and dividend and interest income from her bank and taxable investment accounts.

She had always planned on using RMDs from her 401(k) to support her favorite charities and leave whatever was left in the account to her two adult children when she passed on.

A tax surprise

Jane didn't know exactly how much her annual RMD would be, so for planning purposes, she made a trial run at figuring it out. With one year left before she'd have to start taking RMDs, she calculated what her first RMD would be if she had to take it in 2026. She was shocked.

Using the IRS Uniform Lifetime Table to do the calculation, she learned her distribution would have been $188,679.

With her investments continuing to do well this year, her first real RMD will likely be even higher when she takes it at age 73 in 2027.

Not even counting Social Security, this amount alone could put her in the 24% federal tax bracket — the same tax bracket she's been in as an employee.

What's even more concerning is that once she retires, she'll receive at least $50,000 in additional yearly taxable income from her defined-benefit plan payments and bank and brokerage accounts.

If this combined amount pushes her adjusted gross income above $201,776, she could be elevated to the 32% federal tax bracket.

This higher income could have other unanticipated consequences. She was already paying taxes on 85% of her Social Security benefits, which she started taking at age 70.

And once she enrolls in Medicare Part B, which she delayed doing until now because she was covered by her employer's health plan, her Medicare income-related monthly adjustment (IRMAA) could raise her monthly Part B premium in 2026 to $649.20, compared with the baseline premium of $202.90.

Fortunately, Jane will have enough money to pay these higher tax bills and expenses. But it wasn't a burden she was expecting as a retiree.

A potential tax quagmire for her heirs

Even more worrisome, her 401(k) nest egg could become a huge tax liability for her two adult children, who are the beneficiaries of the account.

That's because they'll have to empty the account within 10 years of inheriting it. And the IRS will require them to take annual RMDs during that 10-year period. This could hypothetically result in $100,000 or more in additional taxable income for each of them every year.

What about a Roth IRA conversion?

Distributions from a Roth IRA are tax-free as long as the owner is over 59½ and has owned the account for at least five years.

If children inherit the account, they'll still have to empty the account within 10 years, but they won't have to pay taxes on these distributions. And they won't have to take annual RMDs during that period.

Because of her high income, Jane was not able to contribute to a Roth IRA when she was working.

However, once she retires, she could roll over some or all of her 401(k) money directly into a Roth IRA — but, of course, she'd have to pay the taxes she owes on the amount that she is converting.

These Roth IRA conversion amounts wouldn't count toward meeting her RMD. In fact, she would have to take the RMD from the 401(k) account before she could make one-time or annual Roth IRA conversions.

So, if she completed a partial Roth conversion every year, this amount, combined with her annual RMD, could create an even larger tax burden. She would essentially be taking a huge tax hit today to reduce her (and her children's) potential tax liability later on.

Now, there are certain steps Jane could take to lower her future tax bills.

She could donate the amount she receives as an RMD to a qualified charity and receive a charitable tax deduction.

And if she rolls over her 401(k) into a traditional IRA, she could use an annual qualified charitable distribution (QCD) to directly donate up to $111,000 (a 2026 limit that will probably rise in 2027) from the IRA to her favorite charities. The QCD amount would reduce, but not eliminate, her annual RMD.

What could 'future Janes' do?

Unfortunately, the size of Jane's 401(k) account makes it difficult to significantly reduce its value without creating substantial tax burdens for her now or for her children later.

But her situation at least offers a lesson for "future Janes": Defined-contribution plan participants of any age who make significant annual pretax contributions need to consider whether they're at risk of amassing a taxable nest egg that may be larger than they really need.

The solution? Take advantage of an option that wasn't available when Jane started contributing to her plan — the Roth 401(k).

Like Roth IRAs, Roth 401(k) contributions are made on an after-tax basis. So, while they won't lower your taxable income today, any distributions you take from your Roth 401(k) are tax-free if you're over 59½ and have owned the account for at least five years.

And, like a Roth IRA, you'll never have to take RMDs from a Roth 401(k). If your children inherit your account, they'll still need to empty it within 10 years, but they won't have to pay taxes on the distributions.

And your employer can deposit vested matching contributions into your Roth 401(k) account (before 2024, employers had to deposit all matching contributions into pretax accounts).

Keep in mind that matching contributions made to a Roth 401(k) are treated as taxable income, so you may owe taxes on them when you file your federal and state returns.

Making most or all of your own eligible contributions to your Roth 401(k) account may prevent pretax retirement assets from creating tax issues later on.

If you plan right, you could conceivably use RMDs from your pretax account to provide income during retirement, while tapping your Roth 401(k) only for special occasions. Or don't touch it all if you want to pass it on tax-free to your beneficiaries.

Look for other pretax opportunities

You may also want to see if you can take advantage of other benefits funded through pretax deductions.

For example, companies can take pretax deductions from your paycheck to pay for certain commuter expenses, such as subway passes and parking fees.

Premiums for group term life insurance and long-term disability insurance and vision plans can often be paid through pretax deductions as well.

And if your company offers a health savings account (HSA), you can make pretax contributions of up to $4,400 in 2026 if you're the only person covered by your health plan or $8,550 if your family is covered.

Pay more taxes now — or save them for later?

Figuring out whether it makes sense to reduce pretax contributions and increase Roth 401(k) contributions today to avoid possible future tax liabilities isn't a cut-and-dried process.

That's why you may want to speak with a tax professional or financial adviser before changing your contribution strategy.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

“He who dances must pay the piper.” It’s an idiom that’s especially appropriate to describe the deferred taxes you’ll eventually have to pay when you start taking money out of your retirement plans. If you’ve spent decades building up your retirement savings, and you’re within shooting distance of your 73rd birthday, rest assured that the IRS is waiting in the wings to claim its share through required minimum distributions (RMDs).

As with anything involving the IRS, the RMD rules are notoriously (and unnecessarily) complicated. You don’t need to become an expert on every nuance, but there are a few key things you must understand to avoid costly mistakes — and possibly even reduce the amount you owe.

So, let’s demystify RMDs by cutting straight to the essentials. Here’s what you need to know about the what, who, why, when and how of RMDs.

What are RMDs?

Think of RMDs as a rite of passage in retirement. It’s the amount you must start withdrawing from your retirement accounts annually once you hit age 73.

RMDs were introduced when IRAs were first established in the early 1970s, designed to ensure the government eventually collects income tax on your tax-deferred accounts. Thanks to the SECURE 2.0 Act, the age to begin taking RMDs was bumped up from 72 to 73 in 2023, with another increase to 75 scheduled for 2033.

Here’s the gist: You must withdraw your RMD by December 31 in the year you turn 73. However, you can delay your first withdrawal until April 1 of the following year. For instance, if you turn 73 on October 1, 2024, you have until April 1, 2025, to take your first RMD. Keep in mind, though, if you delay, you’ll need to take two distributions in 2025 (the second one by December 31, 2025).

RMDs apply to pretax employer-sponsored retirement accounts, such as 401(k), 403(b) and 457(b) plans, as well as traditional IRAs and IRA-based plans like SEPs, SARSEPs and SIMPLE IRAs. Roth IRAs and Roth 401(k)s do not have RMDs.

Now the math: Your RMD is determined by dividing the balance in your account at the end of the prior calendar year by your life expectancy, as determined by the IRS. While you need to calculate the RMD for each retirement account individually, you can choose to withdraw the total amount from one account or a combination of accounts.

Who’s impacted?

While RMDs are a big deal for some retirees, the reality is that many people withdraw more than the required minimum each year. For those who follow the common 4% withdrawal rule to make their savings last through retirement, the IRS’ RMD rules may not even be a concern. They’ll simply withdraw, pay the tax and move on.

However, for those who prefer to take out as little as possible, paying attention to RMD rules becomes crucial, and that’s where tax planning comes in.

If following the IRS Uniform Lifetime Table, RMDs start at a manageable 3.6% of your retirement account balance at age 73, but the percentage ramps up over time, reaching about 5% at age 80, 6.3% at age 85 and 11% by age 95. It’s important to note this applies to unmarried account owners, those whose spouse is not their sole beneficiary or those whose spouse is their sole beneficiary and not more than 10 years younger. Different tables may apply for those who do not fit into these categories.

Inheriting a retirement account adds another layer of complexity. If you’re a spouse inheriting an IRA, you generally have the same flexibility as the original account owner, including the ability to roll the account into your own IRA.

However, if you’re a non-spousal beneficiary, things are different. Non-spouse heirs must adhere to the 10-year rule. Under this rule, the account must be fully depleted within 10 years of the original owner’s death. RMDs are mandated for inherited traditional IRAs (and likely inherited pretax 401(k)s) if the account owner died after 2020 and had begun taking RMDs or reached the age when they should have started. But if the owner passed away before starting RMDs, the 10-year cleanout rule still applies, but RMDs are not required. Additionally, RMDs are not necessary for inherited Roth IRAs under any circumstances.

There are exceptions for eligible designated beneficiaries (EDBs), a special class that includes surviving spouses, minor children of the account owner, disabled or chronically ill individuals and beneficiaries who are less than 10 years younger than the deceased. These EDBs can still stretch distributions over their lifetime, keeping the old rules intact.

But, say you inherit an IRA or 401(k) from a parent or grandparent. You’ll want to be sure to review your own estate plan and consider the financial situations of your beneficiaries. Sometimes, it may make sense to pass on IRA dollars to a lower-earning beneficiary while leaving Roth or brokerage assets to a higher-earning one. This strategy that advisers often suggest can help minimize the tax impact for your heirs.

Why you need to know

The penalties for getting your RMDs wrong are steep. If you miss taking the required amount, the IRS imposes a hefty penalty — 25% of the amount you should have withdrawn, which could be reduced to 10% if you correct the RMD within a certain timeframe.

Each retirement account you own requires its own RMD calculation, but you have some flexibility in how you withdraw the total amount. While 401(k) plan sponsors will calculate and communicate the RMD for that account only, IRA custodians will calculate RMDs for each separate IRA held with them. If you own multiple IRAs, you can decide how much of the total IRA RMD to take from each account, allowing you to withdraw more from one and less from another. However, it’s important to note that RMDs taken from 401(k) accounts cannot offset RMDs required from IRAs — they must be calculated and taken separately.

Be aware, though, that if you don’t proactively manage your withdrawals, your financial institution may step in and do it for you. Some banks will automatically transfer the necessary percentage into your checking account if they don't hear from you by a certain date.

This level of oversight ensures you meet your obligations, but it’s much better to be in control and avoid any unwelcome surprises.

How to manage RMDs

Planning your RMDs effectively helps not only avoid penalties but also optimize your overall retirement plan. Here are some ways fee-only tax advisers say you can approach it:

The best advice for getting all the details right is to seek out tax planning guidance from a highly qualified, fee-only adviser. This ensures you’re making informed decisions tailored to your specific financial situation.

Keep track of year-end statements. Terry Savage, a nationally syndicated personal finance columnist and author of The Savage Truth on Money, advises: “Remember to keep your year-end statements from all your retirement accounts, the ones from last December. That total is the basis for your RMD. Calculate the amount in January and have it all in cash. Then you can take distributions from one or more IRAs throughout the year. And be sure to have at least 20% withheld from each distribution for income taxes.” (Note: 401(k) distributions must be taken separately from IRA accounts.)

Explore RMD-reduction strategies. One often overlooked strategy is a qualified charitable distribution (QCD), which is particularly valuable for those in higher tax brackets.

Kendrick Mattox, CFA, Senior Wealth Adviser with Edge Capital Group, says: “For many of our clients, they do not need the income from their RMD, so we often recommend they consider making charitable gifts from their IRA in lieu of taking their RMD. They do not have to pay taxes on QCDs, as they are not taking it as income. This is especially beneficial in years where a client is claiming the standard deduction because their income is lowered by not taking the RMD and by claiming the standard deduction. It’s a win-win situation.”

Just keep in mind that while QCDs can be a great option for reducing your taxable income, they can replace your RMD only up to the QCD limit of $105,000 in 2024. If your RMD exceeds this amount, you will still be required to take the difference as an RMD. Additionally, remember that QCDs cannot be treated as charitable deductions.

Strategically manage inherited IRA withdrawals. Skipping or delaying RMDs from an inherited IRA may lead to significant future tax issues, especially if the account is large. To minimize your tax burden, consider spreading withdrawals over the full 10-year period, which can help keep your income in lower tax brackets.

Depending on your financial situation, such as nearing retirement or moving to a lower-tax state, it might be beneficial to time larger withdrawals when your income is lower.

When it comes to RMDs, there’s no free lunch — unless you plan carefully. Whether you’re taking your first RMD or managing an inherited IRA, a well-thought-out strategy ensures that you stay in control of your financial future, serving yourself the best possible outcome at the retirement table.

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• Three Ways You Can Cut the Tax Stress of RMDs
• Five Things I Wish I’d Known Before I Retired
• How to Roll Over Your 401(k) Without Costly Regrets
• How to Get Your Money's Worth From Your Financial Adviser

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Physical mail has become a downer, outside of the occasional and appreciated postcard. There are only two types of mail: the kind that asks you to donate money and the kind that forces you to pay money, such as for a parking ticket or for a medical bill. When the latter type comes in the mail, there is usually a big, bold due date. For retirees, most of the tax planning you should be doing comes with a big, bold due date of December 31, not April 15. Here’s the catch: Most of the custodians have deadlines a few weeks or even a month earlier to ensure that the transactions are completed by December 31.

The end-of-year tax planning we do for our clients typically starts on October 1. Here are five of the December 31 deadlines we are evaluating.

1. Required minimum distributions (RMDs)

This is essentially Uncle Sam sticking his hand out, demanding you pay the tax bill you’ve been deferring for 50 years. RMD rules and ages have become very complicated since the SECURE and SECURE 2.0 Acts. Those acts shifted the starting age from 70½ to 72, 73 or 75, based on your year of birth. You must take your first RMD by December 31 of the year you hit that age and by December 31 of every subsequent year.

First-year exception: In that first year, you are allowed to delay your distribution until April 1 of the following year. For example, if I hit 73 this year, I could delay my distribution until April 1, 2025. Here’s the catch: I’d have to take another by December 31, 2025. Taking two RMDs in one year doesn’t make sense in most situations, unless you see a significant income drop in that year.

2. Roth conversions

The sweet spot for most retirees doing Roth conversions is between their retirement and when they start Social Security and RMDs. It’s like seeing a yellow sale tag on your tax bill. However, unlike Roth (and traditional) IRA “contributions,” Roth “conversions” have a December 31 deadline.

This can be quite a complicated calculation if done properly. You should be considering current vs future income tax brackets, capital gains brackets and Medicare IRMAA (income-related monthly adjustment amount). However, the actual conversion should be fairly easy if you have a traditional IRA and Roth IRA at the same custodian. If the accounts are with different institutions, it’s better to get an early start.

If you’re trying to figure out whether a conversion makes sense for you, you can use a free version of our planning software.

3. Realizing losses and gains

As of this writing, 2024 has been a very good year for the stock market. But for all you stock pickers out there, you likely have some losers. Maybe you bought Nike before it admitted that cutting out many of its retail partners was a bad idea. Or perhaps you bought Amazon before it announced the consumer economy was softening. The silver lining is that you can realize some of those losses. This will help to offset the gains from all those winners you picked.

For retirees, there can be significant opportunity if you are no longer earning an income. Those in the 10% and 12% income tax brackets pay a 0% capital gains rate. For our clients in this situation, we calculate how much they can sell to stay in this bracket.

4.  Charitable giving

With the doubling of the standard deduction under the Tax Cuts and Jobs Act (TCJA), also known as the “Trump tax cuts,” and the TCJA’s caps on state and local income taxes, very few retirees itemize deductions these days. However, that does not mean there isn’t any tax benefit to giving. If you’re 70½, you can realize a tax benefit by giving directly from your IRA. Regardless of age, you can give multiple years at once using a donor-advised fund, to get above the standard deduction. You can also give shares of appreciated stock to avoid capital gains taxes.

Regardless of the strategy you use to give, the deadline for all charitable giving is December 31.

5. Rollovers take advantage of IRA RMD aggregation and QCDs.

This one definitely doesn’t make most of the December 31st lists. However, it is important if you want to simplify your RMDs in retirement. IRAs generally allow for aggregation for RMD purposes. However, employer-sponsored plans do not.

Example: You have $2 million across three IRAs and one 401(k). You calculate your total RMD to be $80,000. You can take the IRA portion from any of the IRAs. However, the portion from the 401(k) must come separately from that account based on that balance. If your money was in four IRAs, you would be able to take just one RMD from any of the accounts. Not only does this simplify the process, but it allows you to defer distributions on accounts where the investments are down that year.

As mentioned in the charitable giving section, you can give money directly from your IRA to charity via a qualified charitable distribution (QCD). You cannot do this from an employer-sponsored plan. If you want to do this in 2025, the plan must be rolled into an IRA by December 31, 2024. You can learn more about QCDs in the article When RMDs Loom Large, QCDs Offer a Gratifying Tax Break.

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• Don't Wait: Make Your Year-End Money Moves Now
• Before Doing a Roth Conversion, Evaluate These Three Thresholds
• Donor-Advised Funds: A Tax-Savvy Way to Rebalance Your Portfolio
• How to Optimize Your RMDs in Retirement
• The Three Biggest Retirement Planning Gaps I See Among DIYers
• Five Thoughts About the Election From a Financial Planner

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Retirees keeping an attentive eye on their finances often concentrate, as you might expect, on how well their investments are doing. Return on investment is important, certainly, but something else can have an even bigger impact on retirement portfolios: income taxes, one of the biggest expenses for many retirees.

That surprises a lot of people, especially those who anticipate their tax bill will go down once they stop working. Unfortunately, Uncle Sam is just as interested in you in retirement as he was in your working years — in some ways even more so.

Often, a good chunk of retirement savings is in tax-deferred accounts, such as traditional IRAs or 401(k)s. The IRS allowed you to make contributions to those accounts over the years without paying taxes on that income.

Eventually, though, the “deferred” part of “tax-deferred” comes into play, and the IRS wants the money you postponed paying. When you retire and start withdrawing money from those accounts to live on, the withdrawals are taxed as income. Plus, when you hit age 73, required minimum distributions (RMDs) kick in, and the federal government requires you to withdraw a certain percentage each year, whether you want to or not. As you can see, there comes a point where the IRS loses patience with waiting for its money.

Why tax-efficient strategies are important

RMDs are just one of the many reasons tax-efficient strategies should be a significant part of your financial planning. Sadly, for many people, this doesn’t happen at all. Or, if it does happen, it may consist almost entirely of tax-loss harvesting, a strategy that consists of reviewing investments at the end of the year with an eye on the winners and losers. The idea is to sell stock that is worth less than when you paid for it. The loss you take can help offset gains you made with other investments, reducing your overall tax bill.

It’s a strategy that works well for some people, but one strategy put into action at the end of the year hardly constitutes a tax-efficient strategy. Ideally, this happens year-round as you and your financial adviser stay aware of the tax implications of all your financial moves and are always on the lookout for opportunities to pay less to Uncle Sam and keep more in your pocket.

What might such strategies include? Here are a few examples:

1. Setting up a qualified charitable distribution.

This strategy, commonly referred to as a QCD, goes hand-in-hand with RMDs. Here’s how it works: When you withdraw money from an IRA, instead of moving the money into a personal account, you can transfer the funds directly to a nonprofit or a church. In that case, the money is not taxed. You keep your tax bill lower, while at the same time contributing to a favorite cause. A bonus is: You don’t have to itemize deductions to take advantage of the QCD.

Even if you use the standard deduction, the option is there. QCDs do come with rules, including you must be at least 70½ years old, so it’s important to understand the details. A financial professional who has worked with QCDs can help you find your way around any difficulties.

2. Making Roth conversions.

Roth conversions have become one of the most popular ways to lower your future tax bills. The conversion involves moving your money from a tax-deferred account, such as a traditional IRA or 401(k), to a Roth IRA. The money is taxed when you make the conversion, but it then grows tax-free. When you make withdrawals in retirement, you pay no taxes.

One misconception people have is if they are in the highest tax bracket — 37% — then it doesn’t make sense to consider a Roth because the taxes on the transfer would be too high. But the conversion can still pay off, even in the higher tax bracket. Plus, for those who don’t anticipate that they will need to spend the money in the IRA, a Roth is a more tax-efficient way to leave a legacy to your beneficiaries than a traditional IRA.

3. Preparing for a potential tax increase in less than two years.

While some people hope their tax bill will drop in retirement, we all could be looking at higher taxes in less than two years. That is because the Tax Cuts and Jobs Act of 2017 expires at the end of 2025. Unless Congress passes legislation to change things, the tax brackets are scheduled to go up as of January 1, 2026, returning to where they were before the act was passed.

Right now, many people aren’t paying attention to that looming jolt to their tax bill, but they could be in for a rude awakening. The return of tax brackets to their pre-2017 level is one more important reason why tax-efficient strategies are needed. QCDs and Roth conversions can help, but there are other strategies to consider as you get ready for 2026.

The main thing, though, is to be aware of the pending increase and to have a plan in place to try to counteract it.

As you can see, planning for taxes can be even more important than the rate of return on your money. You don’t want to grow your money only to see Uncle Sam arrive with oversized pruning shears to snip that growth away.

The good news is you don’t have to do your planning alone. A financial professional with a good understanding of taxes can help you plot a course of action that will work best for your needs — and keep your tax bill as low as possible in the process.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 2446435 07/24

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Have you thought about your New Year’s plans yet? The holidays are probably far from your mind, but time has a funny way of sneaking up on us. December 31 will be here before we know it.

The end of the year marks an important time for retirees: 401(k) contributions are due, required minimum distributions (RMDs) must be taken and tax strategies like charitable donations or Roth conversions must be submitted.

Unfortunately, many retirees wait until the last minute to get their finances in order, which can lead to costly mistakes as the end of the year approaches. Thinking proactively about your tax strategy and other year-end financial moves gives you enough time to make the right decisions, rather than rushed decisions.

Why plan ahead?

Everyone’s financial goals and needs are unique, which means the strategies that might work for one person may not be the best fit for another. Thinking about year-end money moves now, instead of late November or December, gives you time to research strategies and go through various scenarios. For example, a financial planner can run models to confirm if doing a Roth conversion this year will save you money in the long run or if it makes more sense to wait until you’re in a lower tax bracket.

Thinking proactively about year-end financial planning helps you meet deadlines, as well. The processing times for RMD requests and Roth conversions have increased post-pandemic. Even if you get your request in by December 1, some companies operate on a “best effort” to have the request completed before the end of the year, but that isn’t guaranteed. Why wait and put yourself through the stress of potentially missing the year-end deadline?

It’s especially important to think proactively this year because of the upcoming election and the potential for federal interest rate reductions. When will the Fed cut rates? Many are predicting as soon as September, which could have a major impact on investors and savers who have been benefiting from higher-than-normal interest rates.

Elections also bring the possibility of policy changes, from taxes and trade regulations to fiscal spending. For instance, taxes are expected to increase in 2026 unless Congress extends the current tax cuts. If taxes go up, you may benefit from leveraging certain tax-saving strategies in 2024 and 2025, and you’ll want to give yourself enough time to determine the right moves for your unique situation.

Year-end money moves to consider:

1. Tax strategies

Roth conversions are a common way to lower your long-term tax liability by converting money in a 401(k) or traditional IRA into a Roth IRA. You’ll pay taxes on the converted funds at your current tax rate, but those dollars can then grow tax-free and be withdrawn tax-free in retirement. Run the numbers now to see whether you’ll save money in the long run by paying taxes today. A CPA might be able to help you with this, but they are commonly concerned with lowering your tax liability for the current year. Instead, consider meeting with a tax planner who thinks about long-term strategy. Our firm has a tax attorney on retainer to ensure we offer the highest level of expertise as our clients consider the pros and cons of a Roth conversion.

Another common tax-saving strategy is to give to charity, which allows you to help the causes you care about and lower your taxable income. If donating to charity is a priority for you, consider opening a donor-advised fund (DAF). Most people don’t think about giving to charity until the holidays roll around, but it can take several weeks to set up a DAF, so it’s best to start the process sooner rather than later.

2. RMDs

Retirees who have reached age 72 or 73, depending on the year they were born, must take their RMDs by December 31. Some financial advisers might tell you to wait until later in the year to claim your RMDs to give your account as much time to grow as possible. However, waiting until the last minute can lead to delays and mistakes. Millions of retirees will be submitting their RMD requests in November and December, and you don’t want to be competing with them for attention.

Claiming your RMDs earlier in the fall can help you strategize your tax situation. Withdrawing a large sum of money at the end of the year could unintentionally put you into a higher tax bracket, but you can plan for the extra income if you work proactively. It’s also important to avoid taking withdrawals when your accounts are down, and the election could lead to a wake of volatility at the end of the year. Thinking proactively about your RMDs will help you find a more optimal time to withdraw.

3. Investment changes

With the Federal Reserve expected to lower interest rates this fall, many investors are facing renewal rate risk. If you’ve been benefiting from the current high-interest-rate environment, those same returns may not be available to you toward the end of the year, but there are ways to decrease renewal rate risk. For example, you may have bought a one- or two-year CD that’s been performing well, but it’s maturing this fall. If you work proactively, a financial planner may be able to help you lock in your current rate of return for another 18-36 months.

You also may want to consider rebalancing your portfolio if you’re taking on more risk than necessary. While Wall Street tends to perform well in the long term following election years, investors may experience some volatility in the short term leading up to November. Now is a great time to look at your portfolio and make sure you have a long-term strategy designed to withstand market fluctuations.

Good financial planning is all about being proactive instead of reactive. Instead of having a set-it-and-forget-it approach, consider reviewing your plan now, again at the end of the year and again in another six months, at minimum. This will help you avoid the end-of-year rush and help you create a comprehensive plan designed to protect you from the inevitable ups and downs of the economy.

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• How to Optimize Your RMDs in Retirement
• Six Custom Tax Planning Tips for High-Income Individuals and Families

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The federal government loves its acronyms — EPA, FBI, CIA, IRS. But for retirees, among the most important acronyms to understand is this: RMD.

RMD stands for required minimum distribution, three seemingly simple words that are fraught with financial implications. What is their significance? Simply this: Once you reach a certain age, the IRS will require that you begin withdrawals from your tax-deferred retirement accounts, such as traditional IRAs or 401(k)s. You will have to make those withdrawals annually even if you keep working, don’t need the money and even if the markets are down and you prefer to wait for a recovery to regain losses. Failure to take your RMD will result in a stiff excise tax penalty.

The reason for these forced withdrawals? Very simple. You haven’t paid ordinary income tax on these accounts — and Uncle Sam is tired of waiting around. For years, even decades in many cases, you’ve been allowed to defer the tax on these accounts, resulting in compounding interest. That was advantageous for you, but at the same time that you were constructing a nice nest egg for retirement, you were also building up an IOU to the IRS. After all, the tax bill on that money was deferred, not eliminated. Once you retire, any money you withdraw from these accounts is taxed at current ordinary income tax rates.

Once you are of RMD age, you are required to take annual distributions. Failure to complete your mandated annual distribution will result in a 25% excise tax penalty. And all this time, you thought these accounts belonged 100% to you. You forgot that you have a “silent partner” in these accounts with you. Although, your “silent partner” doesn’t remain silent forever.

Like it or not, if any of your retirement savings are in a tax-deferred account, then the RMD will affect you at some point. That’s why it’s important to understand RMDs, how they work, what to expect from them and what you can do to soften the blow to your wallet.

Three key pieces of information you should be aware of are:

1. The age when your RMDs begin to apply.

The magic age for RMDs is fully dependent on when you were born. The RMD age is 70½ for those born before July 1, 1949; 72 for those born between July 2, 1949, and Dec. 31, 1950; 73 for those born between Jan. 1, 1951, and Dec. 31, 1959; and 75 for those born on or after Jan. 1, 1960.

Understanding and being prepared for when you are required to begin your RMDs is a crucial component of a successful retirement. Unfortunately, many are caught off guard and, consequently, suffer large and unnecessary tax burdens.

2. The withdrawal percentage rises with each passing year.

Many people, even when they know about RMDs, are surprised to learn that the percentage amount you must withdraw is not static. It increases each year through age 90.

Just a few examples: At age 72, the withdrawal percentage is 3.65%; at age 75, it is 4.07%; at age 80, it is 5.16%; and at age 90, it is 8.77%. This becomes especially frustrating when you are watching the balance in the account go down while the percentage you must withdraw increases each year.

3. Lack of an RMD strategy could prove costly.

As with nearly everything in retirement, it’s important to have a plan for your RMDs. We see many folks who take their RMDs and don’t need the income. So, in their attempt to be savvy, they reinvest the net proceeds into a taxable vehicle to continue on the path of growth.

The problem with this? As that money grows inside of that taxable vehicle, it is taxed again at capital gains tax rates, thus unknowingly giving Uncle Sam a second bite. This is where it comes in handy to have a tax-efficient financial professional in your corner who understands tax planning and can help you come up with strong solutions.

What are strategies you can use to help limit the amount you pay Uncle Sam?

One unique strategy is to break up the IRA into two IRAs, with IRA No. 1 invested in the market and IRA No. 2 kept out of the market. This way, if the market is down, you can withdraw the full RMD amount from IRA No. 2. If the market is doing well, you can withdraw the RMD from IRA No. 1.

Another strategy is to consider a Roth conversion. This can be a more sophisticated strategy, so be sure that your adviser is knowledgeable and experienced in helping their clients complete this. The idea here is to break off a specific amount of your IRA and convert or reposition that amount to a Roth IRA. Be advised that whatever amount that you do convert will be subject to your specific ordinary income tax rates, for that calendar year. For many, this can be an effective long-term strategy.

Ideally, you don’t want to wait until you are already in retirement before you start planning how you will handle the RMDs — and the other aspects of your retirement. It’s a good idea to seek guidance from a financial professional, so you get everything organized well in advance.

It’s about planning and being proactive, not being reactive.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Investing involves risk, including the potential loss of principal. Any references to protection, safety or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Divecha Financial.

Insurance products are offered through the insurance business Divecha Financial. Divecha Financial is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Divecha Financial are not subject to Investment Adviser requirements. AEWM and Divecha Financial are not affiliated companies.

Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. 2425983 07/24

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• Stressing About RMDs? Two Ways to Reduce or Even Eliminate Them
• Three Ways You Can Cut the Tax Stress of RMDs
• What You Need to Know About Calculating RMDs for 2024
• The Best Way to Defer RMDs (and Their Tax Bills): QLACs

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The income from required minimum distributions (RMDs) is your reward for having diligently funded your retirement accounts. But the no-free-lunch principle applies: RMDs are taxable. In addition, because they reduce the value of your retirement accounts, you’ll have less to draw on in future years, especially if you have a long lifespan.

You must start taking RMDs from your IRA, 401(k) plan or other qualified retirement plan when you reach age 73. The only good way to defer some of them is to transfer a portion of your retirement plan assets to a qualified longevity annuity contract (QLAC). The money in a QLAC is excluded from plan assets on which RMDs are calculated.

A type of deferred lifetime income annuity that meets IRS requirements, a QLAC lets you keep more of your retirement plan intact and tax-deferred longer. Under the SECURE 2.0 Act, an individual can place up to $200,000 in a QLAC. You must start taking income payments from a QLAC at 85 but may begin sooner.

To purchase a QLAC, you’ll transfer funds from your IRA, 401(k) or other eligible retirement plan to an annuity with a life insurer. This single premium funds the QLAC. Because the transfer is from one plan custodian to another, it’s tax-free.

Lifetime guaranteed income reduces financial risk

Many people run the risk of running out of money if they live to a ripe old age. A QLAC reduces that risk because its payments, just like pension-plan income, are guaranteed to continue at the same level no matter how long you live, even if it’s past 100.

QLACs have an accumulation phase where interest earnings are held and reinvested by the insurance company, and a payout phase, also called annuitization. Future income is guaranteed. You’ll know what the guaranteed payout will be before depositing your funds.

You choose when to start receiving a stream of monthly lifetime income, but it must be by age 85 at the latest. Like other retirement plan distributions, the income will be fully taxable then. But you’ll have gained a number of years of valuable deferral of income taxes.

You don’t have to invest $200,000 all at once. You could start with, say, $75,000 in one QLAC and place $125,000 in a second QLAC later on. You could stagger the income start dates, with the first QLAC paying out when you reach 80 and the second one staring at 85, for example.

The QLAC limit of $200,000 is the current lifetime limit. The amount will be adjusted for inflation in future years.

Delaying RMDs isn’t the only benefit. More important, you’ll create a larger stream of income you can’t outlive. You can buy a QLAC at any age. The earlier you buy a QLAC, the longer you get to build up principal and the bigger payout you’ll ultimately receive.

Because you’ll have a new source of future guaranteed income, you may be comfortable taking more market risk with other assets in your plans and potentially getting higher returns.

A look at your payout options

As with any deferred income annuity, you’re no longer in control of the principal with a QLAC. You’ve deposited it with an insurer in exchange for a contract for future income.

You can choose an individual or a joint lifetime payout, with the latter paying out income until the second spouse dies. The joint payee must be a spouse under IRS death-transfer rules. Most married individuals choose the joint option so that their spouse will still get lifetime payments if they predecease him or her.

With the cash-refund option, beneficiaries will get a lump-sum payout for any of the initial deposit premium not yet paid out at the death of the annuitant(s). Most insurers reduce future monthly payments if you choose this option.

Shop around for the best deal on QLACs

QLACs are offered by many life insurers. The market is competitive, and payouts and contract provisions vary considerably.

If you consider products from only one or two insurers, it’s unlikely you’ll get the best deal. An annuity agency that offers products from many insurance companies should give you expert advice and help you make apple-to-apple comparisons.

The agency earns a commission, but it’s paid by the insurance company, not the buyer. All of your deposit goes to work for you immediately.

Review the insurer’s financial strength, as judged by AM Best and other credit rating agencies, because you’ll need a company that can deliver on its promise for many years.

QLACs aren’t for everyone. If you need all of your RMDs for living expenses, you won’t be able to afford to defer some. But many retirees can benefit from this product that’s designed to give you a bigger future stream of income for your life or the life of your spouse.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356.

Related Content

• How Are Annuities Taxed?
• For Longevity Protection, Consider a QLAC
• How Annuities Can Help You Retire Early and Delay Social Security
• Stressing About RMDs? Two Ways to Reduce or Even Eliminate Them
• Who Should Consider an Annuity (and Who Shouldn’t)

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When you’re preparing to retire, you’re most likely looking forward to relaxing. But instead of the relaxing interlude you were imagining, retirement plunges you into making possibly some of the most complex decisions you’ve ever made in your life.

Think about it — during what I call the Dynamic Decade+, the period between ages 62 and 75 — there are consequential decisions associated with retirement that should be made. That includes deciding when to stop working, choosing when to claim Social Security, starting Medicare, planning for required minimum distributions (RMDs), considering when to start withdrawing money from your retirement accounts — and more.

What’s more, these decisions are intimately connected, with one decision affecting the next like a row of dominos falling. These decisions are also closely correlated to your tax situation. Essentially, the decisions you make before and during retirement about these issues will likely set your taxes at a certain level for the rest of your retirement, barring major changes in federal tax laws.

These are not decisions that you want to make without a good deal of thought, because they can be so consequential and complex. While complexity can be annoying, it also creates opportunity. If you’re like many pre-retirees or retirees, you may have little idea about how complicated these matters are until you start investigating them.

In this article, you’ll gain an appreciation for the opportunity that retirement creates to control your financial destiny and tax situation through the decisions I’m going to walk you through — some that are irrevocable. These are all decisions that you’ll need to make between ages 62 and 75.

The Dynamic Decade+

Briefly, here are some of the major milestones you’ll hit in the Dynamic Decade+ and their financial implications:

Quitting employment. At some point, you — and your spouse if you have one — will stop working. The average retirement age in the U.S. is 62. When you stop working, you’ll need to either begin Social Security, draw on your retirement savings or both, unless you have an alternative method to generate income.

Enrolling in Medicare. Initial Medicare enrollment begins three months before you turn 65 and ends three months after the month in which you turn 65. Medicare Part B costs $174.70 each month in 2024 — costs will increase if your income reaches certain levels. From there, you can select a Medicare Advantage plan or a Medicare supplemental plan, each with their own specific premiums, copays and deductibles. Medicare Part D, which is prescription drug coverage, also has costs, which can also vary based on income. You can change Medicare Advantage, supplemental and Part D providers once a year during open enrollment, which occurs yearly October 15 through December 7.

Claiming Social Security. The earliest age to claim Social Security is 62, and the latest is 70. If you claim at 62 in 2024, your benefit will be about 30% less than if you waited to claim until your full retirement age of 67. In contrast, if you delay claiming past full retirement age, you will receive 8% in additional income for each year you wait. Up to 85% of your Social Security may be taxable if your individual income is above $34,000 a year. If your income is between $25,000 and $34,000, up to 50% may be taxable.

Receiving a defined benefit pension. When you stop working, you will need to decide when and how to take your defined benefit pension, if you have one. Most entities offering a defined benefit pension will allow you to take it either as a lump sum that you can roll over into an IRA, or you can receive monthly income instead. If you are married, you will have to decide whether to take a joint or single payout; the joint payout is less, but the single payout would mean your pension dies when you do. Defined benefit pensions are taxable at your household marginal tax rate.

Taking retirement distributions. The SECURE 2.0 Act further delayed the point at which you must take distributions from your traditional retirement accounts. If you turn 73 after Jan. 1, 2023, you will be required to take RMDs at age 73. However, if you turn 75 after Jan. 1, 2033, you must take RMDs by age 75. Traditional retirement benefits are taxable at your individual marginal tax rate.

Deciding how to invest retirement savings. At some point during this journey, you must decide how to invest your retirement savings to meet your retirement-specific needs. You can, of course, continue to invest the same way you did when you were working. However, considering that you need to replace the income that you no longer have from working, it’s worthwhile to consider a different approach. Many individuals find their risk tolerance is reduced in retirement, which is another consideration.

Determine distribution strategies

Embedded in all of these decisions is the challenge of creating a sustainable income that will cover your expenses for the rest of your retirement, regardless of how long that lasts. You must take into account your projected expenses and income, which will flow from all of the decisions you’ll make between ages 62 and 75. If you’re like many people, you’ll want to make sure that you can maintain your standard of living throughout retirement.

You’ve also spent decades saving for this moment in time — the moment you retire. You likely have assets in a variety of different accounts. Additionally, they may be subject to different types of taxation. You and your spouse may have traditional IRAs, taxable brokerage accounts and a Roth IRA. You’ll draw monthly income from Social Security, but odds are that Social Security won’t be enough to pay all your bills and give you the standard of living that you want to maintain in retirement.

How taxes fit in

In the absence of an intentional plan, taxes can take a big bite out of your distribution strategy. As I mentioned above, Social Security is taxed for most people, as are defined benefit pensions and distributions from traditional IRAs. You must take those distributions when you turn 73 or 75, regardless of whether you need that money on or not. While delaying RMDs from 70½ to 72, 73 and ultimately 75 can seem like a gift, there’s also a downside. That’s because RMDs are calculated based on life expectancy, and when you are older, your life expectancy is shorter, which means higher RMDs. Higher RMDs mean more taxes.

Then there is the expense side. If your taxable income increases past a certain level, your Medicare Part B premiums can increase. For example, if you and your spouse have modified adjusted gross income greater than $206,000 and less than or equal to $258,000, your premiums would rise by $69.90 a month per person. That’s not unimaginable for many affluent individuals preparing to retire. If you have a joint Social Security benefit of $6,500 a month, bond income of $3,000 a month from a taxable brokerage account and a $2.5 million IRA with distributions of about $100,000 a year, you could easily hit that level. 

But what if, instead, you engaged in intentional tax minimization planning so that you converted at least some of your traditional IRA to a Roth IRA before you turned 75 so that your RMDs were significantly reduced? This might involve retiring but waiting to claim Social Security so that you can have reduced income one year and convert funds from your traditional IRA at a lower tax rate. This is possible if you have money saved in a taxable brokerage account or cash in the bank that you could live on without tapping other sources of income.

This is just one potential strategy you could avail yourself through learning enough about the tax laws and potential distribution strategies or by partnering with a knowledgeable and tax-savvy retirement income financial planner.

However you do it, don’t wait. Many of the decisions you’ll make during the Dynamic Decade+ are irrevocable and time-sensitive. Before you get to the point of making a mistake that might create tax headaches for you later in retirement, investigate your options so that you can, to the greatest possible extent, optimize your retirement for taxes and sustainable income.

Related Content

• The Five Stages of Retirement (and How to Skip Three of Them)
• Six Financial Actions to Take the Year Before Retirement
• Five Things I Wish I’d Known Before I Retired
• Retirees’ Anti-Bucket List: 10 Experiences You Don’t Want
• Nervously Nearing Retirement? Four Do’s, Four Don’ts and One Never

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Required minimum distributions (RMDs), or the minimum amount you must withdraw from your pre-tax retirement accounts each year, are a key consideration for retirement planning. That said, the rules and ways you can, and should, leverage them have changed.

The old rule was you had to begin RMDs at 70½ years old. The SECURE Act updated the age for RMDs to 72. The SECURE 2.0 Act updated the age to 73. The raise in RMD age lets retirement assets build longer, but there are still many paths you can take with current RMDs and future RMD planning. It all depends on where you are in your financial journey.

Let’s say you are in your 20s or 30s and have a 401(k) at work. You are contributing to a pre-tax vehicle, taking full advantage of the employer match and plan on working there for decades. When you retire, you will have accumulated a large pre-tax retirement nest egg. Would you rather have six figures in a pre-tax retirement account or six figures in a Roth? Most would prefer the latter.

A potential way to reduce the RMD requirement later in life is to switch your deferral from pre-tax to Roth now, as Roth IRAs do not have the RMD requirement. While employer matching contributions still need to be invested pre-tax, maxing out your Roth contributions will minimize your RMDs.

You might consider a Roth conversion

As it is uncommon to stick with the same employer for decades, one strategy clients can utilize when switching jobs is a conversion. A Roth conversion is when you take a pre-tax account, such as a traditional IRA, and move all, or a partial amount, to a Roth. This creates a taxable event (federal and sometimes state), which may increase or decrease your tax bill or refund.

For readers who are 73 and older — I work with a client who is self-employed and is adding to her Simplified Employee Pension (SEP) plan IRA while being paid out RMDs. She consistently adds hundreds of dollars each month to her IRA and has her RMD scheduled to pay out at the end of the year. Because of her age and high balance, the RMD is significant, making it difficult for her to build her retirement savings.

That said, it still made financial sense for her to continue to add to her SEP. We just needed to figure out a way to stay invested.

Ultimately, we set up a non-retirement account at the SEP-IRA custodian. Each year, her SEP RMD is automatically calculated and paid to her non-retirement account. She utilizes the same mutual fund in her non-retirement account and SEP account, so when the RMD occurs, it satisfies her RMD requirement and keeps her invested. I utilize this same strategy for people who have an RMD requirement but do not need the RMD to supplement retirement income.

Even if you are RMD age, it is not too late to do Roth conversions. They’re a great way to reduce future RMDs, since Roth IRAs do not have an RMD. The year you do the conversion, you must take your RMD first, and then you can convert any amount to a Roth. While there will be taxes owed on the RMD amount and also on the conversion amount, if we can keep someone in the same tax bracket, that is a win. If the conversion sends some of their income into the next tax bracket, they did too much.

Look at your tax rates

Most people between ages 40 and 70 have already accumulated wealth in a pre-tax 401(k) or traditional IRA. If you only have a 401(k) and are adding to the pre-tax position, I recommend looking closer at your tax rates. You may find it beneficial to reduce the pre-tax 401(k) addition and increase the Roth 401(k) contribution. Maybe there is an old 401(k) from a previous employer or a traditional IRA you could convert, if it doesn’t send you into the next tax bracket. Or you could do partial amounts over time to stay in the same tax bracket.

I work with a married couple — one of them is still working, and the other is retired. For the retired one, we convert the same amount of their former W-2 wages to a Roth. The household income for the year is the same, even though only one spouse works. They remain in the 12% federal tax bracket. This strategy works great if the couple can live off the W-2 wages, or they have extra cash in savings to supplement income.

I worked with a single client who was also in the 12% tax bracket. She strategically retired a few months into the year and wanted to convert most of her traditional IRA in the first year of retirement. Her conversion amount plus her partial year earned income equaled her previous year’s income, so taxes were similar for her. She lived off her savings account and completed another conversion the year after.

The best course of action for all is to team up with a savvy tax preparer and a financial adviser. There are many options, but I would recommend someone you trust and enjoy working with. Feeling educated and informed on the choices around RMDs will help you make the best decisions for you and your finances.

Case studies may not be representative of the results of all clients and are not indicative of future performance or success.

The opinions expressed are those of the author and do not necessarily represent those of the employing firm. Case studies may not be representative of the results of all clients and are not indicative of future performance or success.

*These examples provided are hypothetical situations based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your financial advisor prior to investing. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply. CBSI-6487050.1-0324-0426

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• Stressing About RMDs? Two Ways to Reduce or Even Eliminate Them
• New RMD Rules: Starting Age, Penalties, Roth 401(k)s, and More
• Three Ways You Can Cut the Tax Stress of RMDs
• How to Ride the Waves of Interest Rates and Inflation

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Less than 20% of people have a pension nowadays. If you are fortunate enough to have one, there's special planning that you need to consider. The problem is that many financial planners do not talk about planning with pensions because most planners do not specialize in this area. The good news is, through this article, you're going to learn how to maximize your pension and see as much of it in your pockets as possible.

We do this with smart tax planning to help ensure you do not have to pay more taxes than absolutely necessary. Do you ever feel like you are overpaying in taxes each year? Our goal is to change that.

The reason tax planning with pensions can be difficult, and why most people with pensions pay more in taxes than others, is because pensions push your income higher — and that’s without factoring in Social Security income and required minimum distributions (RMDs). RMDs are when you are forced to take out money from your tax-deferred investments at either the age of 73 or 75.

When you combine all these items, you will quickly find yourself in what's called the Social Security tax torpedo, which will decrease the amount you receive from Social Security and force you to pay more in taxes.

What is the Social Security tax torpedo?

The Social Security tax torpedo occurs when your income is high enough that it starts to force your Social Security to be nearly fully taxable. Our goal is to keep our clients out of that torpedo by reducing their RMDs in the future so they can potentially receive more of their Social Security tax-free. Unfortunately, for those who have larger pensions, this may not be possible, and your Social Security may automatically be fully taxable.

Medicare premiums could go up

With a larger pension and RMDs, you also risk forcing yourself into higher Medicare premium tiers, which means you have to pay more for the same Medicare coverage as the person down the street who doesn’t have as much retirement income as you do. It's important to plan so that you pay your fair share of Medicare premiums and nothing more. (Read more about this Medicare surcharge in the article Four Things to Know if Medicare’s IRMAA Kicks In.)

With tax rates expected to increase due to our debt crisis, increased spending, and struggles with Social Security and Medicare funding, this has become a timely and important topic. So if you have a pension, the time to start planning is now to ensure you can pay lower taxes and allow yourself to be in a lower income tax bracket in the future.

Now, I’m not here to tell you to live on a lower income in the future. I'm telling you to be tax-smart and be able to pull from tax-free investments so that you can still live on the amount you want but show a lower income when reporting your income for taxes. I’m suggesting that you implement tax strategies today, to avoid paying more than your share in the future.

How do we fix this?

Fixing this requires tax-smart planning, which involves strategies such as a Roth conversion, where you pay taxes on those tax-deferred investments now and move them to a Roth IRA. This is a very popular strategy right now to take advantage of current low tax rates — especially considering most people will not likely be in a lower tax bracket in the future.

For many people, learning that they may be in a higher or the same tax bracket in the future may be a shock, because all your life you've been told that you'll be in a lower tax bracket in the future. That is true for some people, but when you have a pension and you've been a diligent saver and have the majority of your savings in tax-deferred investments, that's likely to mean that your income is going to be higher in the future than most.

Which, again, is why it's important for you to have tax-smart strategies now. This is also why we recommend you work with financial planners who understand pensions and the ramifications for them down the road. If you work with a planner who does not work with pensions, then your strategy could be lacking.

On the other hand, congrats

To end this article on a positive note, I do want to make it very clear that because you have a pension, you are in a better place than most. In one of the videos on our YouTube channel, I discuss how valuable a $5,000-a-month pension is over time. Under specific calculations, it could mean the same as having nearly $1 million right now if you live for around 20 years or longer.

You can also learn more about tax planning with pensions by reading my book The 2% Club.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

It seems that every few months or so, another new survey or study warns that Americans aren’t saving enough for retirement. And of course that’s worrisome. Many of us need to do better.

But what I’m seeing almost as much these days are people who have been preparing for retirement for years and yet have no idea how they’ll turn their nest egg into the income they will need to get by.

They’ve focused on step No. 1 (saving and investing), but never moved on to step No. 2 (creating a reliable retirement paycheck).

They are in for a surprise because, without a proper income plan, these conscientious accumulators — who should be able to make a smooth transition into retirement — are instead likely to make some costly mistakes.

In my last article, I offered some do’s and don’ts — and one never — for those who are nearing retirement. Here are five more points to think about as you close in on that important day when your paycheck goes away:

1. DON’T rely on conventional wisdom when claiming Social Security.

There’s no one-size-fits-all answer here, so tune out the noise and run the numbers to see what’s best for you.

Most of the guidance I see urges retirees to maximize their Social Security benefits by waiting as long as possible to file. And that may make perfect sense for you (and your spouse, if you’re married). But it may not.

People often talk about their Social Security benefits as though that money is in some special silo, separate from the rest of their assets, when it should be part of a holistic income plan. Before you make the critical — and difficult to undo — decision about when to file, I urge you to do your research with your specific needs and goals in mind.

Some things to consider include:

• How will your various income streams hold up against inflation during a long retirement? In other words, what’s the best way to keep your money growing?
• How might a significant or lengthy market downturn affect your retirement withdrawal strategy? Having to sell stocks at a loss can have a lasting impact on the longevity of your nest egg.
• Do you hope to leave behind a legacy for your loved ones? Keep in mind that your adult children can’t inherit your Social Security payments when you die. (Only your spouse or an adult child with a disability can receive Social Security benefits based on your record after you pass.)

2. DON’T forget there will be tax implications for any income decision you make.

No one wants to see their hard-earned savings eaten up by taxes. But if you’re planning to pull a large amount of your retirement income from a tax-deferred 401(k), traditional IRA or similar plan, you could be looking at a burdensome tax bill every year. And you’ll likely end up paying taxes on a portion of your Social Security benefits as well.

To minimize the bite, your plan should be set up in a way that helps you manage your tax bracket from year to year based on your income needs.

3. DO make dealing with required minimum distributions (RMDs) an important part of your income plan.

Whether you need the money or not, at some point the IRS is going to force you to start taking distributions from your tax-deferred retirement accounts. The age when those RMDs must start is now 73, and it will eventually creep up to 75. But that day will come faster than you think.

Knowing what you plan to do with those mandated withdrawals could help you reduce your taxes and provide more opportunities to keep that money growing.

4. DO pay attention to how your retirement withdrawals might affect your asset allocation.

The risk in your portfolio can change — a little or a lot –– based on what happens to your various investments throughout the year. And selling certain holdings for income also can affect your mix. Rebalancing can help you keep your asset allocation in line with your risk tolerance as you move through retirement.

5. NEVER go into retirement without an income plan.

It’s preferable to work with a professional to draw up your income plan. If you thought accumulating those assets for retirement was tough, wait until you start using those funds. I often liken it to ascending and descending Mount Everest. We pay far more attention to what it takes for climbers to reach the peak, but in reality, coming back down is more treacherous.

Think of your retirement adviser as a sherpa who is dedicated to getting you safely and comfortably through the second half of your journey.

Kim Franke-Folstad contributed to this article.

The appearances in Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

With the S&P 500 hitting a record high in January, account balances have also reached new highs — and while that may mean a bigger nest egg for some, it could lead to higher taxes and surcharges for older retirees required to withdraw from pre-tax retirement accounts every month.

These withdrawal requirements, called required minimum distributions (RMDs), mean that rising account balances lead to larger withdrawals and, in turn, greater taxable income. This can push people over the age of 72 into a higher income tax bracket or trigger the net investment income tax of 3.8% on returns from interest, dividends and capital gains. Such thresholds can come as an unwelcome surprise — especially for retirees who have more income than they need.

If this sounds like you, there is good news. Working with your own qualified tax professional, here are some ways to consider for allocating the extra income, including strategies that allow you to leave money to loved ones or causes that matter most to you.

Options to consider:

1. Make qualified charitable donations (QCDs).

With the passage of the federal SECURE 2.0 Act of 2022, individuals over the age of 70½ are eligible to transfer up to $105,000 from an individual retirement account (IRA) to a charity tax-free each year. Referred to as qualified charitable distributions (QCDs), these donations can be leveraged to avoid paying taxes on extra personal income. Eligible charitable organizations, typically 501(c)(3) organizations, also receive tax breaks on QCDs.

Still, you should be mindful of timing in light of the “first-dollars-out rule,” which states that the first dollars withdrawn from an IRA in any year are deemed to satisfy the RMD. Consider taking QCDs at the beginning of the year — before any RMD income is withdrawn — to offset taxable income. Unfortunately, RMD income can’t be offset by a QCD done later in the year.

This option can be suited for those who truly don’t need additional income and are already accustomed to making charitable contributions every year, especially since QCDs are irreversible once they’ve been transferred.

But the returns from QCDs extend beyond financial gains; philanthropic endeavors can advance the causes you care most about, help others in need and set a positive example for your children and grandchildren.

2. Convert pre-tax retirement accounts to Roth IRAs.

If you have retirement accounts with pre-tax contributions that are subject to income tax upon distribution — 401(k)s, traditional IRAs, 403(b)s and other similar plans — you might consider converting them to Roth IRAs, which offer after-tax contributions and qualified tax-free distributions. By doing so, you create an asset that is no longer subject to taxation under RMD requirements.

If appropriate for your individual set of circumstances, there are other benefits from taking this route. For one, all of the growth you see after a Roth conversion is truly yours — meaning you’ll spend less time trying to plan out withdrawals based on current tax policy. And you gain full control over the timing and amount of your own distributions.

The downsides? Well, for any Roth conversion, you’ll have to pay taxes upfront, which can leave you with thousands of dollars less. However, this move can be worth it in the long run.

Keep in mind that it’s important to consult and work closely with your qualified tax professional in determining and carrying out any course of action.

3. Use a life insurance policy to build intergenerational wealth.

If you’re in your 70s, now may be a good time to create as much opportunity for your grandchildren as possible. One way to do that is to take out a life insurance policy on your children that pays out a death a benefit to their children (your grandchildren).

You can start by setting up a trust that serves as the owner and beneficiary of the policy. That trust could then require that certain sums of money be used for specific purposes, such as college tuition or living expenses.

One advantage to considering a permanent life insurance policy is the potential for you to build leverage over time. Since a permanent life insurance strategy oriented around the death benefit hinges on the age and health of those being insured, it’s important to work with an insurance-licensed financial professional in seeking a suitable permanent life insurance policy.

Once a life insurance policy has been established, you won’t be able to withdraw from it like a bank account. So, before you divert your excess income to a life insurance policy, consider whether you may need that money later in life.

Your financial runway should match your needs

It’s easy to see the downsides of outliving your retirement income. But rarely do we expect our money to outlive us — which is what could happen if you save more money than you end up spending.

If you are unsure where you stand at the top of this year, take the time to assess your situation and consider working with financial and tax professionals to see if your nest egg is more than you may need. These strategies can guide you in putting extra funds toward planning your legacy.

This article, which has been obtained from an outside source and is provided as a courtesy by Stephen B. Dunbar III, JD, CLU, Executive Vice President of the Georgia Alabama Gulf Coast Branch of Equitable Advisors, LLC, does not offer or constitute, and should not be relied upon, as financial, investment, tax, legal advice. Your unique needs, goals and circumstances require the individualized attention of your own tax, legal, and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its affiliates do not provide tax or legal advice or services, nor do they endorse, approve, or make any representations as to the accuracy, completeness, or appropriateness of any part of any content linked to from this article. It is not possible to invest directly in an index. Stephen B. Dunbar III offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC. Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. GE-6363158.1(02/24)(exp.02/26)

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The start of the year always brings a sense of excitement, infused with the promise of a fresh start and renewed motivation. But this period is also fraught with uncertainty, particularly for those planning for retirement.

2024 is no exception, with ongoing concerns about inflation and interest rates coupled with a presidential election. Given the complexities of the year ahead, it’s essential to draw upon expert insights to make well-informed decisions.

I am fortunate to have curated a network of 230 highly qualified registered investment advisers (fiduciaries) whose expertise spans various key areas, including maximizing savings and investments, minimizing taxes and ensuring robust estate planning.

So, leveraging my Wealthramp network, I tapped into five leading retirement planning experts, asking them about their current strategies to best prepare their clients for the challenges of 2024. Here’s what they said:

Consider the advantages of Roth conversions

“Roth IRAs offer benefits for both investors and their heirs,” explains financial adviser Katherine Brown of Joss Brown Wealth Advisors.

The allure of Roth IRAs lies in their provision for tax-free withdrawals. Recognizing this advantage, Brown advises individuals age 55 to 72 to consider converting smaller amounts of your traditional IRA to a Roth while in a lower tax bracket before required minimum distributions (RMDs) and Social Security benefits begin.

This strategy is particularly beneficial for those planning to leave an inheritance. By opting for a Roth IRA, heirs have the option to defer withdrawals, avoiding the necessity to deplete the account within 10 years and facing hefty taxes, a common scenario with traditional IRAs.

Brown emphasizes the importance of timely action, especially regarding backdoor Roth IRA conversions, a strategy often used by high-income earners who are ineligible to contribute directly to a Roth IRA. They can instead contribute to a traditional IRA and subsequently convert it to a Roth. “Many investors are contributing after-tax dollars into traditional IRAs, and the money is sitting in accounts that can be converted to a Roth IRA without double taxation,” she advises.

She further clarifies, “As long as there aren’t other rollover IRAs involved, it may be best to convert already-taxed money before regulators eliminate this loophole. If you have pre-tax funds from a previous rollover, transfer those to your company 401(k) prior to conversion to mitigate the tax implications on the pre-tax IRA funds.”

Brown also points out a commonly overlooked opportunity: after-tax money in company retirement accounts. “Many investors don't realize that these can be rolled over into a Roth IRA, rather than being cashed out,” she says.

Rebalance your portfolio

“Rebalance, rebalance, rebalance,” is the mantra Marc Lieberman, portfolio manager at Shorepine Wealth Management, stresses. He believes that while it might seem like routine advice, the act of fine-tuning your investment portfolio can yield significant benefits. Lieberman underscores the importance of this process, especially after several years marked by high market volatility.

He observes that many investors’ portfolios have likely drifted away from their intended allocations. “For example, fixed-income returns have been negative since July of 2020,” he notes.

With the possibility of the Federal Reserve reducing interest rates, Lieberman anticipates a positive turn for fixed-income markets. He warns that many investors might find themselves underweight in this asset class. “If you haven’t properly rebalanced your portfolio recently, now is a great time to do so,” he advises.

Lieberman also cautions investors to brace for heightened volatility in 2024. “In a year where we will see a presidential election, the Federal Reserve likely pivoting from raising to cutting rates, softer labor markets, weaker corporate profits and consumers running out of excess savings, I would expect markets to be volatile.”

To navigate this volatility, he suggests diversifying with gold and short-term Treasuries: “Gold can serve as a stabilizer in turbulent times, and the Treasuries could yield 3% to 5%, offering a safe harbor while waiting for more favorable conditions.”

Explore private debt for enhanced return potential

Eric Hutchens, president and chief investment officer at Allodium Investment Consultants, spotlights private debt as a key retirement income idea for 2024. “This type of fund offers attractive yields with great diversification benefits,” he asserts. Hutchens notes that private debt funds, by holding their loans to maturity, are not as susceptible to the market volatility that affects publicly traded stocks and bonds.

He elaborates on the variety within private debt funds, ranging from lower to higher risk profiles. "There is a wide spectrum of private debt funds, from less risky to more risky, and finding a high-quality private credit manager can add significant diversification and returns beyond traditional stocks and bonds," Hutchens explains.

However, he also highlights a potential trade-off in this asset class. “Investing in this asset class typically involves giving up some liquidity since the managers are holding the loans to maturity. However, the investors are compensated by an ‘illiquidity premium,’ which can add to their returns over time.”

Utilize high rates with a laddered approach

Financial adviser Melissa Walsh from Clarity Financial Design observes a growing preference among retirees and those nearing retirement for low-risk income options. “My first tip is to go ahead and lock in today’s attractive interest rates. Certificates of deposit and municipal bonds are both still appealing right now,” she advises. Currently, FDIC-insured CDs offer yields between 4% and 4.75% for maturities ranging from one to five years.

Walsh also highlights the tax benefits of municipal bonds for those anticipating a higher income tax bracket during retirement. “For those who expect to be in a higher income bracket during retirement, special consideration should be given to high-quality municipal bonds because interest from these bonds is exempt from federal tax,” she explains.

For managing investments and retirement income, Walsh suggests a “bucket approach.” She details this strategy:

“By segmenting funds for near-term needs and long-term investment, you’ll be better prepared to stick with your plan and withstand inevitable market volatility. In the first bucket, keep funds needed to cover your living expenses for the next 12 months and your emergency reserve funds in conservative interest-paying investments, such as a high-yield savings account or money market fund.

“In the second bucket, plan for near-term cash needs, such as those occurring in the next one to five years, by laddering CDs or high-quality bonds that mature when you expect to need the cash. Lastly, invest the remaining retirement portfolio in a diversified mix of stocks and bonds that suits your risk tolerance.”

Navigate changing tax laws without attempting to time Congress

Robert Carroll, managing director at Carnegie Investment Counsel, advises caution and strategic planning in light of evolving tax laws. “This year, avoid the urge to ‘do something,’” he firmly states.

With the Tax Cuts and Jobs Act of 2017 set to expire at the end of 2025, Carroll acknowledges the flood of strategies likely to emerge in response. However, he cautions against reactionary moves based on speculations about congressional actions. “The reality is no one knows for sure what will happen. For example, will the current provisions such as increased standard deduction limits be continued?”

Carroll argues that Congress often addresses issues closer to deadlines, suggesting there will be ample time to understand and adapt to any changes. He advises, “Take time now to better understand your tax situation. Do you itemize or take a standard deduction? What is your effective tax rate? Marginal tax rate? These variables provide important context for developing your tax planning strategy as any proposed policies are developed.”

He also highlights a significant opportunity for higher-income or net-worth families. With income limits sometimes restricting the ability to fund a traditional Roth IRA, Carroll points out, “More company retirement plans allow participants to make Roth contributions. The SECURE 2.0 Act, passed in 2022, expanded this feature, and now some plans offer the ability to contribute a certain amount of after-tax dollars and perform ‘in-plan’ conversions to a Roth.”

Carroll emphasizes the importance of integrating any Roth funding strategy into an overall financial plan, ideally with the guidance of a qualified tax professional.

Of course, not every move mentioned above is right for every person. You’ll want to consider your own circumstances and consult with a fee-only financial adviser to determine what adjustments are right for your situation, ensuring that the actions taken align with your specific financial goals and circumstances.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.