Tax saving moves ahead of RMDs

Because many retirees are in a lower federal income tax bracket before they reach the age when they are mandated to take required minimum distributions (RMDs), they have an opportunity to manage the impact of taxes on their income.

The RMD age is 73 for individuals who born between the years of 1951-1959. In 2033, the RMD age will increase to 751. For example, if you turn 73 in October 2024, your first RMD must be taken by April 1, 2025, and your second RMD must be taken by December 31, 2025.

Here are five potential opportunities to consider ahead of your RMD birthday. We — along with your tax advisor — can help you understand whether any of these five actions could benefit you. 

1. Converting taxable assets to a Roth

If you expect to be in a higher tax bracket when your RMDs begin, consider converting taxable investments to a Roth IRA before then. Designated Roth accounts in a 401(k) or 403(b) plan were subject to RMD rules prior to 2024. However, for 2024 and later years, RMDs are no longer required from these accounts if you are the original owner of the account. Think about your ability to pay the taxes on the conversion as well as your timeline before you would need to access the Roth IRA or 401(k). Converting to a Roth IRA or 401(k) generates a tax bill, but it could be less expensive now because of your temporarily lower income tax bracket — and the temporarily lower federal income tax brackets that are set to expire after 2025.

2. Selling investments that have appreciated

The tax rate on long-term capital gains — assets held beyond one year — is based on your taxable income. If you have stocks, mutual funds, bonds or other taxable investments, it may make sense to sell appreciated long-term investments while your taxable income is lower. Some, or all, of net long-term capital gains may be taxable at the 0 percent capital gains tax rate if your taxable income falls below the threshold. Talk to your tax professional to see if this applies to you. 

3. Redeeming older savings bonds

While you’re in a lower tax bracket, you may want to cash in savings bonds issued when interest rates were higher. If you have bonds issued more recently, talk to your financial advisor about whether to hang on to them, given rising interest rates.

4. Exercising employee stock options

If you own employee stock options,2 exercising them while you’re in a lower tax bracket may benefit you — especially if the current stock valuation is high.

5. Revisit your withdrawal strategy

Because withdrawals from tax-deferred accounts are neither penalized nor required between ages 59 1/2 and your RMD age, you have more flexibility and control with your withdrawal strategy for retirement savings. Together, we will help you make a plan to determine how much money to withdraw each year while managing your tax liability across the years. 

Talk to us

We will help you decide how and when to withdraw money in retirement. A personalized retirement distribution strategy could help make your money last longer.