Like we mentioned above, RMDs are the government’s plan for your distributions. You will want a plan of your own, which will distribute your retirement savings over your lifetime to minimize the taxes you pay.
For many people who wait until 72 to start withdrawing, their RMDs are pretty high. They can be so high that the distributions, since they count as table income, increase their taxes a significant amount, as well as subject them to the Medicare tax IRMAA and pay more tax on their Social Security.
The smartest way to do distributions from your retirement account is to start before age 72.
At Cardinal, we help clients come up with a plan to start distributing this money out of the accounts, typically earlier than age 72. Sometimes this starts at age 65 when they retire, sometimes it starts at age 55, it really depends on the client.
We look at your current income, where you are in the tax brackets, and figure out a way for you to distribute the money out of your accounts and pay the least amount of taxes.
If your plan for this money is to leave it to your heirs, there are better ways to do this. You can purchase life insurance with this money, which will leave them a tax free inheritance. You can also put this money in a Roth IRA, through a Roth conversion, which would also pass tax-free to your heirs.
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