Not So Fast, Mr. and Mrs. Retiree!

Q: Harold wrote, “Dear Derek, I have been reading about not having to take my required minimum distribution (RMD) in 2020. Is that true and how can I take advantage of this opportunity?

A: Harold that is true for 2020 only. President signed this into law as part of The Cares Act. This may seem to most that this is a free pass and a “no-brainer” related to continuing to defer your savings another year and not take a distribution, right? For some, it may be, but for more affluent savers there is much more to consider.

Keep in mind, that your RMDs are taxed at federal income tax rates. For most, these are the worst tax rates they pay. Also, it is reasonable to think that will our Federal Debt recently surpassing $27,000,000,000,000, that those rates will soon increase to pre-1980 rates that hovered between 70-94% for top income taxpayers. That includes your future heirs of these monies who may be nearing or at their peak earning years and already teetering or near top income tax rates already. Thus, for those with balances above $500,000 within IRAs, 401k, and other qualified accounts, this year is not a year to ignore. The last 50+ business days of the year are ones to engage in the serious matter of adjusting your personal wealth transfer plans to be in accordance with the 2017 Tax Cuts and Jobs Act, the 2019 Secure Act, and this year’s Cares Act.

Harold, for those with significant IRA balances 2020 is a significant planning year. First, because for this year only, under The Cares Act, you have an opportunity to offset all of our large portion of your adjusted gross income with charitable contributions. When you combine this opportunity with a strategic initiative for what I like to call “micro” conversions of your qualified asset(s), you can begin to best convert IRA balances to Roth IRA balances more efficiently.

You may be asking, “Why is he suggesting I take money out in a year that I am not obligated to do so?” The answer is twofold. First, it is wise to distribute funds from your IRA account(s) today while you are in lower-income brackets and let them begin growing tax-deferred in an account that you will not pay income tax or net investment income tax on later in life when tax rates could be higher. Secondly, by converting to a Roth IRA now, your heir will avoid future state income and net investment income tax during their lifetimes if your plan is designed correctly. The goal is to pay less tax. Most are under the estate tax exemption limit; however, most overlook the erosion in growth that state income and federal investment tax can have over time.

My company has developed software to analyze the benefit of four important considerations when individuals are seeking help on how to best optimize these three new tax acts. Email me at to have your FREE personal analysis completed today. I am happy to complete two analyses for you related to year-end capital gain harvesting techniques and what the best strategies are related to using the Secure Act, 5-year Rule, Charitable Remainder Annuity Trusts, Charitable Remainder Unitrusts, or simply doing nothing.

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