As most know, once a person hits 72, the IRS requires you to take a certain minimum amount from your IRA each year, the RMD or Required Minimum Distribution. Many take only the minimum, believing that this will leave more assets to grow tax-deferred. However, recent tax changes are a reason to revisit one’s IRA distribution strategy.
MSN’s article entitled “Should You Take an Extra Big RMD This Year?” says that although some people are worried about paying more in taxes this year than they need to may want to stay to the bare minimum of their required minimum distribution (RMD), others look for a broader tax strategy.
Those people may want to consider going big with their RMDs. Let’s look at the wisdom of taking more than the required minimum distribution from your IRA.
The article gives us four considerations to help with your RMD decision about possibly taking more than the IRA RMD in any year:
- Your tax bracket. Determine the amount of additional income you can recognize this year while still staying within your current tax bracket. Taxpayers in the 10% and 12% tax brackets should be especially aware of maximizing ordinary income in these relatively low tax brackets.
- Your income. See what your income’s projected to be next year and consider whether you (or you and your spouse) will have other sources of income in future years, such as an inherited IRA, spouse’s IRA RMD, or annuity income to add to the mix.
- Your beneficiaries. Look at how your current tax rate compares with the tax rates of your IRA beneficiaries. If you have a large IRA and children with high incomes of their own, your heirs could be pushed into a much higher tax bracket when they start their inherited IRA distributions.
- Your Medicare premiums. An increase in income can also result in higher Medicare Part B & D premiums in the coming years. As a result, consider this in the context of total savings.
Talk with your Financial Planner for strategies that will work for your life.
Reference: MSN (Nov. 23, 2021) “Should You Take an Extra Big RMD This Year?”