SGH Wealth Management: What I'm Reading

Early Stage Retirement Income Tax Planning (RMD Tax Planning)

09/10/2019 – SGH Wealth Management’s “Read What I’m Reading” Sept 2019

As year-end financial planning season approaches, there may be a window of opportunity with the lowered tax brackets of the Trump Tax Reform Act sunsetting in 2025. One thing that Early Stage Retirees generally do not prepare well for is Required Minimum Distributions (RMDs), where the IRS forces you to take taxable distributions from your Retirement Accounts at age 70.5. The RMD distribution along with social security, pension income (if eligible), and any other forms of income may move you into a higher tax bracket at that time with limited tax strategies available if not planned for in advance.

Due to tax rates currently being at historically lower levels, we believe now may be an ideal time to analyze if a systematic Roth Conversion strategy makes sense for you. When you convert assets from a Traditional IRA to a Roth IRA the conversion amount will be considered ordinary income and subject to federal and state taxes. However if spread out over years with a goal of “filling up” these lower tax brackets, it could lead to a future reduced tax bracket in the ages of 70.5 and beyond, as Roth IRAs are not subject to Required Minimum Distributions (RMDs).

This is a long term strategy and does not make sense for everyone. For us to complete this analysis, we would need to know what you anticipate your total taxable income will be for this year and we could then put together a Monte Carlo back-tested projection to put data behind this potential Roth Conversion decision. For our clients, this is an annual exercise that does not come with any additional costs. Reach out if you believe you might be a good candidate for this or would like to learn more (or if there was anyone around you that is in the early years of retirement or close approaching).

**$50 Bonus on a $500 Contribution made to MESP 529 Savings plans in September: Free 10% return on college savings:

See Investment News’ coverage on our creative uses of the 529 College Savings Plan in the top article below: