Required minimum distributions from traditional retirement accounts may cause stress and confusion, but retirees and those nearing retirement can take steps to make RMDs less painful. So suggests Christine Benz, Morningstar's personal finance and retirement planning director.
In a recent conversation posted on Morningstar's website, Benz focused on RMD silver linings and what investors can do to minimize any financial hit — and even use RMDs to boost their portfolios.
Wealthy retirees often complain about RMDs because the distributions can increase their taxable income, Benz notes. And as a ripple effect, an income-related Medicare adjustment, or surtax, known as IRMAA can cause affluent retirees to pay more for their Medicare premiums.
A reminder: RMDs apply to any traditional tax-deferred retirement account, such as traditional IRAs, 401(k)s, 403(b)s, 457s and traditional SEP IRAs, Benz notes. Roth-type accounts are the exception. Investors generally must start taking RMDs at age 73; the start age is set to move to 75 in 2033.
People older than 73 who are working and contributing to an employer retirement plan generally can delay taking RMDs from that account while in that job, she notes.
A note: Clients shouldn't expect to take lower RMDs when the market is down. As Benz explains, a retiree's RMD is calculated based on retirement account balances on Dec. 31 the previous year.
See the accompanying gallery for five moves that clients can take to optimize their RMDs.
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