Retirement accounts like IRAs and 401(k)s offer significant advantages when saving for retirement, including tax-deductible contributions and tax-free withdrawals until required minimum distributions (RMDs). However, RMDs typically start at age 73, and not taking them can lead to penalties.
Waiting until December to take RMDs can be beneficial in several ways. For tax-savvy retirees, it allows for more time to compound investments, potentially reducing quarterly tax estimates. A clever hack involves withholding enough taxes from the RMD to reduce quarterly estimates to zero. This also enables retirees to determine how much they want to contribute to charity before taking their RMD.
Additionally, waiting until December can help reduce Medicare Part B premiums and Social Security tax liabilities due to lower adjusted gross income. Retirees can still take the standard deduction on top of the charitable distribution. However, this approach may not be ideal for everyone.
Taking an RMD in December may result in a larger account balance, but it also means facing a bigger RMD next year. In some cases, it’s more advantageous to move investments to a taxable account earlier in the year to avoid taxes on capital gains. Retirees who plan to pass on their investments to heirs can benefit from a stepped-up tax basis, reducing future tax liabilities.
It’s essential for retirees to weigh the pros and cons of waiting until December for RMDs and consult with a tax professional to determine the best approach for their specific situation.
Source: https://www.fool.com/retirement/2024/12/07/is-taking-your-required-minimum-distribution-rmd-i