Okay, okay… This is It (I Promise)
One More Post That’s Related to Taxes
I’ve probably bored you to tears over the past few blogs, but I can’t help trying to be more complete. (This is in response to some finfluencer posts I found that only give the sexy part of any story.)
Somewhat tangential to my recent Taxes Matter posts (Taxes Matter In Retirement Part I and Part II), I want to offer two more tax ideas for diversification, but first a word on Required Minimum Distributions (RMDs).
RMDs are the amount you must remove from your traditional IRA or traditional 401(k) beginning at age 73 (if you are born prior to 1960) or 75 (if you were born in 1960 or later). This is where Uncle Sam says it’s time to “pay the piper” for all that beautiful tax-free growth you enjoyed in your younger days.
The amount is based on your age and the balance in your combined traditional accounts on December 31 of the previous year. Thus, if the market has a great year end, like it did in 2023, your RMDs will be higher than if the market has had a yucky year end, like in 2018. I suppose that’s a good (albeit taxable) problem to have, and you should have your financial advisor withhold the taxes and send you only the net amount. It’s safer that way.
Now for the two new tax diversification ideas.
Idea 1: If you know you have to take RMDs and will not need them, you may contribute up to $105,000 in 2024 to a QCD (Qualified Charitable Distribution). This is a philanthropic tool that enables you to send traditional funds directly to a not-for-profit. You show no income and pay no taxes on the amount. Since in retirement you may no longer itemize expenses, this gives you back the charitable deduction you may have had previously.
Idea 2: This one is associated with annuities. You can park up to $200,000 in 2024 of your retirement funds in a QLAC (Qualified Longevity Annuity Contract) and annuitize it as late as age 85. Since it’s an IRA, a beneficiary will receive the proceeds if you die early. But it allows you to pull $200,000 out of your RMDs if you need it.
Whew! I’m done. At least until next year. I Promise. #NotYoungNotDone #WeRescueOurselves
Copyright © Madrina Molly, LLC 2024. All rights reserved.
The information contained herein and shared by Madrina Molly™ constitutes financial education and not investment or financial advice
Sherry Finkel Murphy, CFP®, RICP®, ChFC®, is the Founder and CEO of Madrina Molly, LLC.
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According to the American Heritage Dictionary, retirement is the “withdrawal from one's occupation or position, especially upon reaching a certain age.” Note that the definition uses the word “withdrawal” and not “end.” The definition of “withdrawal” uses the words “retreat” and “removal.” Again, not the word “end.” That should be instructive for us in the 21st Century.
Retirement is not an end. We do not expire. Ageism in society notwithstanding, we have choices:
· Fund retirement in our 50s to support ourselves in our 80s and 90s. Or don’t.
· Be curious and embrace lifelong learning to nourish our brains. Or don’t.
· Invest in our health so that our bodies will stand a chance of taking us the distance under our own steam. Or don’t.