Six Strategies to reduce RMD

Tom Woulfe

CPA, Partner, Evans & Woulfe Accounting

Six Strategies to reduce RMD

1. Defer taking social security benefits, which results in higher social security payments in future years. Instead, take IRA distributions for living expenses before RMD start when you turn 70 1/2.  Then future RMD are lower since the tax advantage accounts’ balances are reduced.
2. Qualified Charitable Contribution (QCD) – An individual age 70½ or older can make direct charitable gifts annually of up to $100,000 from an IRA to a public charity and not have to report the IRA distributions as taxable income on his federal income tax return.
3. Roth IRAs do not require RMD, so, consider converting your traditional IRA to a Roth before you reach 70 ½ to reduce RMD in the future. You can choose to convert your IRA assets to a Roth IRA at any time, even in retirement.
4. Qualified Health savings Funding Distribution (QHFD) – Take an IRA distribution to fund Health Savings Account (HSA) – A HSA if not used for Medical expenses, after age 65, can be used for anything.  A QHFD is done by direct transfer from your IRA to your HSA.
5. Roll your IRA into 401K before age 69 1/2. If you have a 401(k)s or 403(b)s you can put off taking RMDs if you’re still working.  So, if you plan to keep working into your 70’s you may be able to let your 401(k) or 403(b) accumulate until April 1 following the calendar year in which you retire.
6. Purchase a Qualified Longevity Annuity Contract (QLAC) in your IRA which would be excluded from RMD calculation. This means that a person can take up to 25% of their overall account balances in their retirement plans but not more than $125,000 and use that money as premium to fund a longevity annuity contract.

The rules are intricate and not everyone may benefit from each strategy, so it’s wise to consult with a financial advisor and tax professional if you are considering any of these options.