The Ultimate Guide to Required Minimum Distributions (RMDs)

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Welcome to the One of a Kind Financial Show Daily with your host, Mike Milligan. I want you to be one of a kind. You already are. You just need to realize it. Today's Wednesday, September 24th. On this day, just last year, the Improving Retirement Security for Family Caregivers Act of 2024 became law. This bill allows Qualified family caregivers, specifically those who are unemployed or severely underemployed and provide significant in-home care, to contribute up to $7,000 to a Roth IRA, or $8,000 if you're 50 or older, and that began this year. The bill removes the income cap for Roth IRA contributions for those caregivers, allowing them to save for retirement even when caregiving responsibilities reduce their wages below typical contribution eligibility limits. I wanted to bring this to you, right? Because there's many people who wish in retirement that they actually had more money in Roth IRA than they had in traditional IRA. See, recently on the One of a Kind Financial Show, Gary and I talked about required minimum distributions and how they impact those late in life from a tax standpoint, increasing Medicare, and many other considerations. Listen next.

Let's face it, RMDs don't exactly sound like a good time. There's no applause when you turn 73 and the IRS says, congrats, time to start paying your taxes on your savings. But RMDs are a big part of retirement life. Avoiding costly mistakes can make a huge difference in your tax bill, your income, and your legacy. So let's talk you through some of these missteps to avoid. Here's the first one, Mike. Out with the old, the RMD Age has changed.

Yeah, it has. Once upon a time, retirees had to start taking RMDs at age 70 and a half. Well, that's officially been bumped under SECURE Act 2.0. The RMD age is now 73, and it rises to 75 for those born in 1960 or later. It is like a, it's like a little gift from Congress that comes with a ticking clock.

Yeah, absolutely. So how do you help clients take advantage of the extra RMD delay to lower future taxes? What do you do, Mike?

Well, we do, we look to do Roth conversions. You know, that little extra time, you know, people have gotten money, who've gotten money in their 401s and IRAs did not do it by just putting like $100,000 in one time and letting it grow for 30 years. They did it with contributions either biweekly, twice a month, once a month into their 401 with a match. And they did that over a career, maybe combining a couple. You know, from different jobs as they went along the way. But with this delay in like from 70 and a half to 73, it allows people 3 extra years to maybe do small Roth conversions to ultimately reduce RMDs in the future and give themselves some tax-free money as they age.

Right, exactly. You don't get hit with that huge tax bill by converting it all at once.

That's right.

Double trouble, 2 RMDs in 1 year. That can happen.

It can, right? And this rule's always been out there where The first RMD can be delayed until April 1st of the year following your RMD age. And then, so you would have to take one by April 1st of the year after you turn the age, but then you'd also have to take another one within that year by December 31st. So that means 2 withdrawals in one year, possibly doubling your income and bumping you into a higher tax and possibly a higher IRMAA bracket.

RMD math. It's not just guesswork. It's math. You have to actually put some math into this equation here.

It is. And most people don't know what to put into the math problem, right? They just, they just think, oh, my company tells me how much I take out and I'll just take it out pro rata from whatever they tell me to take it from. The, it's a math problem. It's what your account value was on December 31st of the previous year. And then you take that number and you divide it by a factor that is found in the uniform life table that the IRS publishes. But here's the thing, Gary, a mistake in this calculation can be Costly, even if you're working with multiple accounts.

Mm-hmm. Yeah, that's why you need somebody like Mike on your side to help you handle this. The show is the One of a Kind Financial Show. I'm Gary Nolan, your consumer advocate. With us each week at this time is Mike Milligan. Mike is with Ideas by Mike. I want to get it on the calendar: 800-748-1838. 800-748-1838. Or text the word IDEAS to 600-700. You deserve a more confident plan to retire. Want to be stress-free? Peace of mind starts by picking up the phone and dialing that number one more time on the number Before we get back to the show, 800-748-1838, or text the word ideas to 600-700. Well, there's 2 different rules, one for IRAs, another for 401s. Explain that to our listeners, Mike.

Well, it gets tricky here, right? Because everybody just thinks I have a retirement account, right? And they think that IRAs and 401s are the same because they can just— you can move money back and forth without tax between the 2. But with traditional IRAs, you can total up the value of it. So if you have 3 IRAs, you can total up the value of those 3 IRAs on December 31st, calculate the RMD, and just take it from one account.

Right.

So you don't have to take any— you don't have to take money from each of your IRAs. You just have to take a total or the sum from those IRAs. With 401s, 403s, and TSPs, it's totally different. You can't add those up with your IRAs and then just take it from one account. With retirement plans— Ks, Bs, and TSPs, the letters—

you actually have to take them individually from each account.

This includes your old workplace plans that you may have forgotten about.

And don't forget about Roth 401s. Yes, like, yes, really.

Yeah, it's a, you know, it's a common mistake. People assume Roth accounts are exempt from RMDs, and that's true for Roth IRAs, but with Roth 401s, they're still subject to some RMDs until you roll them over into a Roth IRA. So if your client is 73 and still holding Roth 401s, they could be faced with some forced distributions and what they expect. One thing I do know about these, Gary, is I've talked to enough people and Washington to know that the rules are going to change on this in the future, right? It's just, it's just something that's never on top of their mind when they're in the middle of debating, but that's going to change. And you're going to be able to, just like IRAs, you're going to be able to move 401s where you don't have to take RMDs in the future.

Well, we hope so. You know, still working, you might get a pass, but not always. What do we mean not always?

If you're still working past RMD age and don't own more than 5% of the company where the plan is, you might be able to delay your RMDs from your current employer's 401. But, and this is the big but, you still need to take RMDs from all traditional IRAs and any previous employer plans.

Gotcha. Okay. So, it's, it's the previous employer's plans you have to worry about.

Do you want to hear, do you want to hear a wealth hack on that though, Gary?

Go ahead.

That most financial, most financial professionals would never advocate. Well, if you're still working past 73 and you have a 401 plan when you're working, you could always roll money into that plan. So if you have old 401 plans from other companies, roll them into your current plan. If you have IRAs, roll them in there. If you don't want to take RMDs, we can get all the money into that 401 plan so there are no RMDs.

Right.

There you go. And that's why you need Mike in your corner. Mike, up against the clock, what do you think?

So we, we love our listeners, right? And RMDs are a big point and big topic of conversation because RMDs impact your taxes, your retirement income, and your investments. They also impact— and many people don't know this too— they also impact your long-term care. See, RMDs have a special place in a one-of-a-kind financial plan because where the government forces us to do things, we can plan them away. Whether that's planning, you know, using qualified charitable distributions to satisfy RMDs and reduce taxes, whether that's using RMDs to help increase your retirement income, whether it's using a QLAC To push RMDs out to 85 as an investment solution, or using the itemized deduction rules of, of, of the medical side of your 1040 to make RMDs tax-free. We have solutions to be able to make RMDs appropriate for your situation. We do that in the form of building a one-of-a-kind financial plan. See, my 26 years of history, when it adds to your story and your assets, We can build a one-of-a-kind financial plan for your one-of-a-kind life.

800-748-1838, 800-748-1838, or text ideas to 600-700.

One last message from our compliance team. As a reminder, Mike Milligan, Certified Financial Planner, is an investment advisor representative of Advisory Alpha LLC, an SEC-registered investment advisor. All opinions expressed by me, Mike, or any podcast guest are solely our opinions. And do not reflect the opinions of Advisory Alpha. This recording is for informational purposes only, should not be relied on solely for investment, tax, or legal decisions, and it's in no way intended to communicate or guarantee specific performance or suitability of any security instrument or product as we may have discussed. Investment advisory and financial planning services offered through Advisory Alpha LLC, a registered investment advisor. Insurance products are provided by Ideas by Mike, a licensed agency located in Norfolk, Virginia, and licensed to do business in all 50 states. While tax and legal issues may be discussed in the course of financial and investment planning. Advisory Alpha does not provide tax or legal services. Please consult with your tax or legal professional prior to making decisions related to these issues. If you want us an appointment with Ideas by Mike or One Oak Financial, please reach out via our website. This podcast is produced in conjunction with Mike Milligan, LLC.

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