Getting the Right RMD Strategy For Wealthy Individuals
By Brian Famigletti, Managing Director & Head of Marketing
What Wealthy Retirees Need To Know
The right RMD strategy can be an important part of your retirement tax plan, especially if you are a high-net-worth individual. RMDs, or required minimum distributions, to give them their full name, are minimum amounts that you have to take from your retirement accounts once you reach a certain age. That includes IRAs, 401(k)s, and 403(b)s.
The IRS says you have to start taking minimum withdrawals by April 1st of the year following your 73rd birthday, and by December 31st of each year for the rest of your life. The minimum withdrawal amount is based on the account value at the end of the previous year and your life expectancy based on your current age.
You can use online calculators and tools to figure out your RMD for the year. Failure to withdraw this minimum amount can result in penalties up to 25% of the amount not withdrawn. There are some exceptions, such as for those still working. A professional advisor can help you understand the exceptions and integrate your RMD strategy into your wider retirement plans.
Building an Advanced RMD Strategy
The challenge of RMDs for wealthy individuals is that the IRS requires you to make withdrawals from tax-advantaged retirement accounts, even if you don’t need the money.
The good news is that there are some flexible options available. For example, funds only need to leave the retirement account; they don’t have to cease being invested altogether. Investors can transfer the assets into a taxable investment account. The transfer is taxed, satisfying the IRS, and the funds stay invested.
For some retirees, a Roth conversion can offer more flexibility. RMDs do not apply to Roth retirement accounts. However, it’s important to understand the pros, cons, and tax consequences of this approach.
Additionally, those over the age of 70 ½ are allowed to direct money from retirement accounts to qualified charities in what is known as a qualified charitable distribution, or QCD. QCDs satisfy RMD requirements and allow philanthropic investors to settle up with the IRS while helping out their favorite charity. The maximum QCD for 2025 is $108,000.
Structuring Your Withdrawals
You have to take your RMD before the end of the year, but there are different approaches to withdrawals. Many experts suggest spreading your RMD over the course of the year, either through quarterly or monthly payments. This approach allows you to smooth out market volatility and avoid locking in large losses during downturns.
Some retirees instead take their RMD in a lump sum, often on the same date each year, while others spread their payments. One strategy is to wait until December, hoping to let assets grow as long as possible, and receive a lump sum at the last minute. However, if markets drop that month, you might be forced to sell shares at a loss to fund the withdrawal. On the flip side, taking your entire RMD early in the year could mean missing out on potential gains.
If you need help incorporating RMDs into your retirement plan, contact Griffin Asset Management today to schedule a call. We specialize in tailored wealth planning, including tax planning, to meet each client’s needs.
Sources:
Barrons: Taking RMDs Can Be Tricky. Here’s the Right Way.
IRS: Retirement topics – Required minimum distributions (RMDs)
IRS: Give more, tax-free: Eligible IRA owners can donate up to $105,000 to charity in 2024
