Tax Planning: Your Tax Plan Should Include RMDs

Surprise, you may have to pay income taxes in retirement, sometimes even on your Social Security benefit. Most people don’t realize how important it is to make sure tax planning is addressed in your overall retirement plan, especially RMDs (Requirement Minimum Distributions), which the IRS requires you to take out of tax-deferred accounts yearly starting at age 70-1/2, possibly bumping you into a higher income tax bracket. A comprehensive retirement plan always addresses RMDs.

Paying the Least Amount to the IRS May Require Conversions

At APO Financial Inc., we take a close look at all your accounts to see how much money you will be paying to the IRS when RMDs begin. In some cases, if you have more than, say, $500,000 in tax-deferred accounts, we may recommend that you start slowly converting some of those into an option like a Roth IRA, which is not subject to tax or mandated withdrawals. We will help you look at all your options to reduce taxation in retirement so that you can keep more of your money instead of paying it to the IRS.


WATCH: Required Minimum Distribution

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Another way to describe tax planning in retirement is RMD planning—Required Minimum Distributions which the IRS forces you to take every year starting at age 70-1/2, whether you need the money or not. You could not only be pushed into a higher tax bracket, but you could also be subject to increased Medicare premiums due to your higher income. RMD planning allows you to look ahead at your tax situation and take steps now to help lower income taxes in the future.

WATCH: Ray Stein Discusses Retirement Tax Planning Strategies on

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Taxes are a huge issue, and the biggest surprise in retirement. One way to increase your retirement income is to reduce the amount of taxes you owe. There are three types of money: taxable money you’ve already paid taxes on (but may be subject to tax on gains), tax-deferred or qualified money like 401(k)s or traditional IRAs, and tax-free money like Roth IRAs. We work to carefully develop your complete retirement plan, and in some cases, help you systematically transfer money to reduce taxes.