RMD's Expected to Hit All Time Highs

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Episode Transcript

(00:00):
All topics and securities mentioned on straightTalk from the House or for informational purposes
only, and should not be usedas investment advice. Tanton Investment House does
not offer tax or legal advice.Investments or investment strategies covered are not a
recommendation or solicitation to buy or sellthe securities. Past performance is not a
guarantee of future performance. This isstraight talk from the House. Gets Serve

(00:21):
five financial planner Tracyanton right here thirteenten WI b A. You can learn
more about Tracy and the team atTanton Investment House all on the website Tanton
investment House dot com. That's tA N t O N investment House dot
com. Only can you learn moreabout Tracy and the team. You can
listen back to the podcast. Youcan also sign up or actually find an

(00:43):
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Tanton Investment House dot com. Ofcourse, t Anton Investment House a
fee only fiduciary with offices right inMiddleton telephone number six oh eight five zero
one fifteen forty nine at six oheight five zero one, fifteen forty nine
and joining this morning is certified financialplanner Tracy and Ton. Tracy, how
you doing this week? I'm doinggreat, Sean, how about you?

(01:04):
I'm doing all right and it's greatto talk with you. My back is
finally recovering from doing a little bitof shoveling and it's that nicely here.
Yes, yes, very nice stuff. We've got an important conversation this week,
Tracy, what are we going tobe talking about today, Well,
we're going to talk about require minimumdistributions and they're expected to hit some all

(01:26):
time highs. So basically, thesurge in the stock market during the end
of twenty twenty three really resulted insome notable upswings and the retirement account balances,
and because they're hitting new highs,that's creating again. You know,
for some people it's positive, rightbecause account values are up, so most

(01:47):
people are pretty happy. But forsome there might be a mixed blessing just
because the require minimum distributions are higherin their four to one ks and their
iras and therefore the you know abit more or in tax. Right.
But you know, we had kindof the opposite problem last year because the
account balances were low and people wouldsay, well, gosh, my RMD

(02:08):
was actually lower than I expected itto be. That's because the twelve thirty
one balance of the year prior waslower, but now they're higher. And
so there was a headline that caughtmy eye about this, and I thought,
wow, it's worthy of a conversationtoday. It's going to be a
fascinating one for sure. So,Tracy, why can't retire basically delay drawing

(02:30):
from their accounts? Well, therational behind this is really tied to regulation
mandating the individuals over the age ofseventy three have to start withdrawals from their
traditional pretext for one ks and iraisannually. Most people recognize that this is
called required minimum distributions or rmds.And again the calculation, really it just

(02:53):
involves dividing the individual's account balance onDecember thirty first, so the prior year
by a art that's supposedly life expectancy, and they have you live into like
one hundred and fifteen. So youknow, most people, I haven't seen
people actually, you know, gettingto the point where their balances and in
their retirement accounts are zero or anythinglike that. In fact, most people

(03:15):
I know their balances are always higher. Hopefully the account is growing, right,
but it starts off usually at aboutthree point six percent roughly. But
the chart is what they use.So anyway, the article that that I
saw here was Fidelity had pointed outthat the I rays for millions of Americans

(03:37):
expect is expected that the cumult ofrmds for clients to reach a record high
shown of twenty five billion in twentytwenty four. Yeah, it seems like
a big number to me. Soagain that basically just kind of reflects that
we've hit some you know, higherhighs in the markets, and therefore the
rmds are expected to be higher.And of course Uncle Sam is going,

(04:00):
oh good, you know, kindof reminds me of some kind of cartoon,
right, whether smacking their lips orsomething. Yes, savoring the opportunity
that it's for sure and Trace,we've talked a little bit about this stuff
in the past, and you know, this is this is important stuff.
What makes it so vital for retireesto understand this Well, a rising balance

(04:20):
that year end in twenty twenty threeagain means that the amount of money many
retires have to take out of theirretirement accounts in twenty twenty four will increase,
and along with that is the amountof money that they owe in taxes
will also rise. You know.Again, well it's a really a good
thing that the market has increasing.I mean, I wouldn't want to go
the other way, right. Thetiming, you know, just might not

(04:43):
be favorable for some. And again, you know, despite the adjustments for
inflation and tax brackets, you know, the performance of the market in twenty
twenty three implies that the elevated rmds will place certain retirees possibly in higher
te ax brackets. So yeah,so again, this is all where financial
planning takes into consideration, the taxplanning along with it. So you know,

(05:10):
the situation will compel summary tirees toencourag surg charges on incoming Medicare premium
payments. It might even change howmuch your Social Security becomes taxable. You
know, these are the things thatare affected for some individual. Shown to
the heightened income levels will activate athree point eight percent surch charge on net
investment income. And again, thisserve tax is really applicable when modified adjusted

(05:36):
income surpasses two hundred thousand for asingle person in two fifty for married couples.
You know, those and those numbersare not adjusted for inflation. And
again, what is the downside isthat the rm ds, you know,
they tend to get bigger and bigger. And there was one advisor, jeffred
Levine, he's the chief planning officerat Buckingham Wealth Partners, and you know,

(06:00):
he said it good. He said, you know, that's because a
seventy three year old has a shorterlife expectancy than the seventy two year old.
And what they're talking about is,you know, it used to be
seventy and a half that you hadto take your rm D. Now it's
seventy three and for some it's goingto be aged seventy five. Well that
just means that later, you know, those account balances are going to continue

(06:23):
to grow, which is again agood thing, but those rm D amounts
are even going to be higher.So I've just done planning for people,
Sean, and it's so fun tosee first of all them get excited that
yes, I can retire. Youknow, that's really fun. But then
the second part is is, youknow, we look at it from basically
you know now, and then everyyear it's really mapped out to show you

(06:46):
the expectations of you know the incomethat you are expected to get and what
the account values are supposed to growby, and also what those later later
years are going to look like,like what is my arm D going to
be? How much do I haveto take out at what tax bracket?
I've got a pretty nifty software thateven models tax is based on of course

(07:08):
current tax law, but it'll evenpull up a ten forty so we can
look at it here by ear andyou know I looked at for clients today,
you know, ten years later,twenty years later, what what is
your tax bracket going to be?And for most people that tax bracket does
not go down because that rm Dis much higher than they anticipate. That
is pretty cool. I did notknow that that'd be really neat to check

(07:30):
out. And that's all the great. It's super fun. I'm telling you,
I didn't have fun at this office. Really, I believe it.
I believe it. I know youand the team are a fun bunch of
people. And that's just some coolbut really powerful stuff. That is great
stuff. As we talk with certifiedfinancial planner Tracy Andton right here on thirteen
ten wi b A the website TantonInvestment House dot com. That's t A

(07:53):
N T O N investment House dotcom. Gets no trace in the team.
You can also sign up and ifyou're looking for money management, enter
portfolio management and appointment with tracing theteam at a time and a date that's
convenient to you. Again, allI got to do is head on over
to Tanton Investment House dot com.That's helph a number for the office right
in Middleton. Six so eight fivezero one fifteen forty nine. That's six
eight five zero one fifteen forty nine. Talking this week about rmds course being

(08:16):
at an all time high and Tracy, there's got to be some strategies right
to kind of lessen the impact ofour hide high required minimum distributions. Yeah,
so one we've talked about previously,but is again a really good option,
which is qualified charitable distributions or qcds. This is a distribution from an
individual retirement account that goes directly tothe qualified charity. And again qcds are

(08:41):
available to people age seventy and ahalf or older. They must go like
the distribution must go to a fiveoh one three C charity and they are
off limits for transfers to donor advicefunds, so that's something you need to
know. The money must be trainedfor directly from the IRA to the charity,
so the owner can't take a distributionand then end up sending a donation

(09:07):
letter later or something like that.It has to go from your IRA to
the charity. You just have tocontact your advisor or the place where you're
custodian and say I need a formto fill out my QCD and this is
the place that's going to get it, and then they will receive the money.
You never receive the money. Andagain the key benefit of a QCD

(09:28):
it does it excludes the money that'sdistributed in on the taxpayer's taxable income.
So basically you take the money outof the out of your IRA and it
never hits your tax your taxable account, It never hits your your taxes,
right, and so things like socialSecurity that are dependent on how much income

(09:50):
you have, now your rm Ddoesn't hit that. And for some people,
you know, you think, wellthat's rm D is going to be
small. No, the RMD canbe very large, especially if you're talking
talking about spouses and so your soialsecurity might be less taxed, your Medicare
premiums are also a hingine upon howmuch income you're showing. So the fact
that that you took your RMD itwent to the charity you didn't get You

(10:15):
didn't get the money, but youstill had the good feeling of giving it
to a charity. And it neverhit your taxes, so you didn't get
to itemize it, but you don'tcare because it didn't show up in your
taxes, so it doesn't affect theother items on your taxes. So hopefully
that you know it makes sense thatwhy do people do a qualified charitable distribution

(10:37):
instead of just writing out a checkto the charity is because they take their
RMD and do the gifting before ithits their taxes. That is super cool
and what a great what a greatway to do that, not only helping
helping your tax situation, but helpingothers as well. As we're talking this
morning with certified financial planner Tracy Antonright here thirteen ten WUIB A great time

(10:58):
to check out the website Eanton investmentHouse dot com. That's t A N
T O N investment house dot com. Looking for money management or portfolio management.
Tracey, the team would love toget to know you. I'll get
you a schedule appointment right at thewebsite Tanton Investment House dot com. Scheduled
appointment at a time and a datethat's convenient to you, or pick up
ponet give a call six so eightfive zero one fifteen forty nine. That's
six so eight five zero one fifteenforty nine. Let's kind of play this

(11:22):
out in the real world, Tracy, you have like an example of how
this all would work. Yeah,So I was reading this article on the
Wall Street Journal and it talked aboutthis man named Kevin Lynch, and he
was seventy three years old, andhe's retiring this week from a job as
a college professor. I tell you, those professors they really love their jobs.
Anyway, I've had professors. Theydo love their jobs, which is

(11:43):
awesome. Anyway, he and hiswife plan to pay their essential expenses with
their Social Security benefits and apparently theyhad some other income, so to avoid
taxes on their RMD for twenty twentyfour, the couple recently instructed their retirement
account custodian to donate their entire RMDamount from their traditional I rate directly to

(12:05):
various charities, using the strategy thatwe just talked about. Which is known
as qualified charitable distributions or qcds.And again, I mean it's just a
small example, but it just showsyou, you know, they wanted to
do that, and it was abetter tax advantage than them just donating it
directly right or writing out a check, because it's going to affect possibly how

(12:31):
much those Social Security benefits are goingto be taxed, and also what is
their medicare premium going to be.Another note here I have is a QCD
can count toward an RMD up toa limit this year of one hundred and
five thousand. So if you ifyour RMD is more than one hundred and
five thousand, that means it's avery large account, right because it's three

(12:52):
point six percent. You know,you can't go above one hundred and five
thousand. Most people don't write,and some people like let's say they are
rm D is twenty five thousand orforty thousand. You know, they might
do half to a charity or acordto the charity. They don't have to
do all of it. In thisexample, the Lynches, they won't be

(13:13):
able to take itemized deductions for thecharitable donations. Again, that's okay.
Their QCD isn't taxable. That meansthey're required distribution won't inflate. Again,
they're adjusted gross income, they're agiwhich is used to again determine the Medicare
surge charges or the three point eightservetex on the net investment income and maybe

(13:35):
other tax deductions along the way,like you know, Social Security, whether
that's going to be taxable. Sothat's why people do qualified charitable distributions if
they're charitable, you know. Mindedit's a great tool and again it's a
great thing to put to use,but as we talk about a lot of
intricacies to this, and you wantto make sure that as you're executing it,
it's being done properly. Are thereother strategies traces, the other things

(13:56):
that like other examples for were thingsthat people need to know about as far
as other strategies here. Yeah,So there are some r m D exemptions.
So if you are actively employed andparticipating in employer sponsored retirement plan such
as a four one K, youmay be able to delay rm ds from
that plan until you until you've stoppedworking. There is some exception to that,

(14:20):
however, if you are an owner, so you have to double check
that rule. But in another inanother case, if your current employer retirement
plan allows, you might have theoption to roll over other i ras or
other for one ks from a previousemployer into the four one K four one
K plan, and this potential rollovercould enable you to avoid mandatory distributions on

(14:45):
those balances. And again, thisgentleman from the Wall Street Journal article,
said Lawrence Pond, He said anadvisor. He's an advisor based, I
guess in Redwood, California. Hesuggests the strategy to manage your retirement funds
again, you know, basically rollingover iras into four o one ks to
avoid it. Now, I woulddouble check all this stuff. You know,

(15:07):
this is what's in the article.I don't know a lot of people
that do that. Okay, mostpeople when they leave their job, they're
like, cyonara, I'm ready totake a distribution and I'm ready to live
on my assets. You know.So I don't see that play out that
often. But one thing to notetoo is that let's say you inherit money

(15:28):
Sean, and you have an inheriteddiarray. You can't combine and inherited diarray
with your current four O one K. Those are you know, two different
baskets, so you have to keepthose things separate. I'm gonna ask you
a little bit more about inherited diary. Also, I want to ask about
talk about some of those other strategiesout there to minimize your rmds, your
required minimum distributions. We'll get thedetails on those from Tracy in just a

(15:50):
moment. In the meantime, thewebsite it's there for you twenty four hours
a day, seven days a week. Tanton Investment House dot com. That's
t A N T O N investmentHouse dot com. Gets know Tracy and
the team. Also listen back tothe podcast. You can also schedule appointment
at a time and a date that'sconvenient to you right online at Tanton Investment
House dot com or pick up aphone call the office right in Middleton six

(16:11):
oh eight five zero one, fifteenforty nine at six oh eight five zero
one fifteen forty nine. Continue ourconversation with certified financial planner Tracy Anton.
We will do that next as StraightTalk from the House continues right here on
thirteen ten double u IBI Straight Talkfrom the House with certified Financial Planner Tracy
Anton. Right now, you're onthirteen ten Wui b A talking this week
with Tracy RMD's required minimum distributions.They are at all time highs. Talking

(16:36):
a little bit about what they are, different ways and different strategies to minimize
those in Tracy, just before thebreak though, you had mentioned someone who
may have inherited an IRA. Howare those text? Yeah, so let's
say your parents pass and you receivetheir IRA, you turn that into a
beneficiary IRA with your name as well. It used to be that you could

(16:59):
spread that out over your life expectancy, so say you're in your forties,
you know you can spread it allover your lifetime. Now it's within ten
years. So they did kind ofa sleight of the hand when they passed
the last Secure Act and it wasbasically, oh, look over here,
we're going to change the RMD ageto age seventy three and then seventy five.
But on the other hand, ifyou're a beneficiar IRA, now you

(17:22):
have to pay the tax, youhave to pull all the money out within
ten years, where it used tobe your lifetime, which could have been
decades. So it's kind of disappointingfor you know, people who inherit money
that they not me of course.But you know what I mean that they
now have to pay the taxes overa much shorter period, you know,

(17:44):
ten years versus you know, possiblytwenty thirty four years, you know,
depending on how old they were whenthey receive the money. That is really
important to know on what a difference. Wow, that is, uh and
that I mean, that's but that'sonly if you if you inherit it after
twenty twenty. If you inherit itbefore they then you still have your life
expectancy. But it's those who inheritit after your twenty twenty Okay. And

(18:07):
that's and I know there's probably someother people people listening R and I want
what And it's like, yeah,exactly, that's what I want to call
it. Thank you, Tracy.What about some other strategies when it comes
to minimizing R and DS. Whatare some of the things people can look
at there? Well, let's goback to the college professor Kevin Lynch.
Another strategy that he did was heshrunk the size of his traditional IRAHE account,

(18:32):
so he converted some of the savingsto a ROTH account in twenty twenty
one in twenty twenty two, andthen paying the income tax on the conversion
with the money he had in hisbrokerage account. Again, I love using
this example because I've had lots ofpeople who have done this too, and
you know, it's like a strategy. It's like, Okay, every year,
we're going to do X amount.And again, this strategy often makes

(18:53):
sense for people in early years ofretirement who find themselves in a temporary lower
tax or who expect to be inthe same bracket in the later years.
So the only monkey wrench I'm goingto throw in here, Sean is I've
seen that an issue that if you, let's say you're in a low bracket
and you're needing health insurance, soyou're you're you know, it's before your

(19:17):
age sixty five, before you qualifyfor Medicare, and you'd like to get
subsidized health insurance right through Obamacare,then converting money from an IRA to a
wroth IRA might negate you to havethe ability to get subsidized insurance. So
a lot of times people would probablythey will probably opt for the subsidized insurance

(19:40):
instead of moving money from an IRAto a wroth IRA. And that's even
if they're in a low bracket,because you know, they get they get
the benefit today of basically a subsidizedhealth insurance. So again all this depends
on how how old you are,well how much you convert, what your
total income is up to that point, you know. So this is all

(20:02):
planning type stuff, very individual,very personalized as well as we talk about
this stuff with certified financial planner TracyAnton here at thirteen ten WIBA whats been
some of the tax advantages tracy ofputting IRA money into a into a wroth
ira. Well, we love talkingabout this, So converting money from an
IRA to a wrath IRA really doeshave several advantages. The money in a

(20:23):
wroth iry obviously grows tax free andwill never be tax So if you chase,
if the tax law changes, seanand you find yourself in a much
higher bracket even if your income didnot change. So like later in life
you're like, oh my gosh,you know instead of this bracket, I'm
now in this even though I hadthe same amount of income, you will
not have to pay the taxes atthe higher rate. So people are trying

(20:47):
to scram and try to put moneyin the wrath right and convert so that
they don't have to worry about potentiallyhigher brackets later. Plus sean, you
don't have any require minimum distributions,so the dollars can grow tax free as
long as you know you're alive andthe account's growing. The other great thing
is is that it gives you moreoptions on how you take distributions in retirement.

(21:11):
So if taking more money from anIRA like would put you in a
higher bracket, you can switch andtake the additional monies from the roth iry
at no tax. So to me, it's like, it's so nice to
have some options in retirement about youknow, different pools of money and how
that's going to be taxed for you. So it just gives you another option.

(21:32):
And again, remember the tax cutsthat Congress enacted in twenty seventeen.
Their scheduled to expire at the endof twenty twenty five. It's only a
three percent increase for most brackets,but it's still something you might want to
consider. You know, if youare trying to use up these lower brackets,
you know, are they still goingto be there? That's the question,
right, we have the ten percentbracket, the twelve percent bracket.

(21:56):
You know, Congress can do alot of funny things so are they going
to change that so that there isno ten percent bracket anymore. I remember
a time when I was in theindustry, there wasn't any ten percent and
there wasn't a twelve percent bracket,So you know, that's why people are
doing conversions. Of course, youhave to remember that when you convert money,

(22:17):
though, it's a taxable event,you'll have to pay both a federal
and state tax when you convert it. And it also like can affect other
items on your taxes, such asSocial Security how much that's tax and what
your Medicare premiums will be that willalso be affected. So sometimes people do
this if they retire early and it'sbefore they have to worry about these items

(22:38):
like how much the Social Security wouldbe taxed and their Medicare. But again,
it all. It all also mattersif you're getting subsidized health insurance.
So lots that think about. Buthopefully you know some strategies that you just
want to even ponder and go overwith your advisor or look into more as
you walk through the stops of takingrm d's or potential taking them later in

(23:03):
life. A lot of really importantinformation if any of this has peaked your
information, I peak your interests.Maybe something grabbed and said, ohoah,
that's interesting. It's a great dayto start that conversation with certified financial planner
Tracy Anton and her team makes itreally to dow. If you head on
over to t Anton investment House dotcom, give a schedule and appointment right
online at a time and a datethat's convenient to you. The website t
Anton investment House dot com. That'st A N t O N investment house

(23:27):
dot com. Fell a number forthe office right in Middleton, six oh
eight five zero one, fifteen fortynine. That's six oh eight five zero
one, fifteen forty nine. Tracy, It's always great chatting with you.
You enjoy this fantastic day, youtoo, Sean, thanks so much,