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Planning for your Required Minimum Distribution?

Here are a few considerations when thinking about your annual RMD-

1) Is part of your annual income already going to a 501(c)3 charity?

If that is the case, then you may be able to exclude part of your RMD from income tax by donating directly from the IRA to the charity. This is called a Qualified Charitable Distribution.

Some custodians allow you to set up a check book on your IRA account which makes requesting and tracking your QCD's easier.

Charities need to be a qualifying 501(c)3 entity to be eligible for a QCD. Make sure to ask the organization ahead of time. The IRS describes exempt examples as:

a) Charitable

b) Religious

c) Educational

d) Scientific

e) Literary

f) Testing for public safety

g) Fostering national or international amateur sports competition

h) Preventing cruelty to children or animals.

2) Do you have a safety fund and an investment account?

Investors who don't need or want to spend their RMD and that are in the right financial situation, for example cash in a safety fund, positive cash flow, and an investment account,

have found it valuable to transfer stock shares from an IRA into a non-retirement investment account.

The IRA distribution amount typically equals the value of the stock shares at the next available market close. For example, 100 shares of a stock with a closing price of $100 will equate to a $10,000 IRA distribution. The entire $10,000 is taxed at ordinary income rates. The stock will grow at capital gains rates. If you want tax withholding, then this has to be done using cash.

3) Do you want to keep your IRA money tax deferred?

There is a way to keep money tax deferred if you are not averse to annuity contracts. A qualified longevity annuity contract (QLAC) permits an IRA holder to postpone RMDs on a portion of their IRA money up to age 85.

The maximum amount of contributions is the lesser of $135,000 or 25% of the total eligible IRA balances. The RMD calculation is based on the amount of money left in the IRAs.

This can help mitigate the risk of outliving your assets, and could help reduce annual tax consequences from RMDs you don't need, but, like all other annuities, QLACs have built in costs and features that require careful selection.

Some QLACs may not offer a death benefit and others may have a lower guaranteed rate which, when combined with the tax advantages, still do not outweigh the benefit of a cost effective investment portfolio in the IRA or a non-retirement account.

4) Does your tax situation permit you to take advantage of a Roth conversion?

Once you’ve satisfied your RMD, it is possible for a retiree to convert additional IRA money into a Roth. Roth conversions create taxable income in the year you execute them.

Tax and investment planning helps to determine if the estimated increase of your annual taxes outweighs the probable tax free growth in the Roth.

Roth IRA’s do not require future RMD’s but will require faster withdrawals for your heirs.

Would these work for you?

Bulldog financial planning has expertise with planning for required minimum distributions which incorporates investment planning, tax planning, retirement income planning along with social security and some estate planning.

Selecting which investment works best in any of the above strategies is important and depends on the fundamentals of the company, the dividend or income payout percentage, and growth outlook along with your other goals and suitability.

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