Key TakeawaysMost people take RMDs toward the end of the year, which is probably better if you\u2019re doing other things like qualified charitable distributions.First-time RMD takers can delay until April 1, but they should not do it, because the next year, you\u2019ll have to double up.Once you\u2019re in the RMD territory, if you want to convert, it will essentially cost more because you cannot convert an RMD.There are no income limits for traditional IRA contributions, and for some reason, there are income limits for making Roth contributions. And if you\u2019re over those limits, there\u2019s something called the backdoor Roth. If you\u2019re still working, you can do it.I always say the way to always pay the lowest tax over your lifetime is my \u201calways\u201d rule. Always pay taxes at the lowest rates, even if it means paying taxes when they\u2019re not required, like taking more than the RMD.<\/p>\n
Christine Benz: Hi, I\u2019m Christine Benz from Morningstar. Investors have until Dec. 31 to take their required minimum distributions for 2025. Joining me to discuss some questions that frequently come up in the realm of RMDs is tax and retirement expert Ed Slott. Ed, thank you so much for being here.<\/p>\n
Ed Slott: Thanks, Christine. Great to be back.<\/p>\n
Should Retirees Wait to Take RMDS?<\/p>\n
Benz: It\u2019s great to have you here. We want to talk about required minimum distributions and tackle some of the most commonly asked questions in this realm. Investors sometimes wonder about the timing. Of those RMDs, whether it\u2019s better to take them earlier in the year or wait? What\u2019s your advice on that front?<\/p>\n
Slott: It depends on your situation. Most people take them toward the end of the year, which is probably better if you\u2019re doing other things like qualified charitable distributions. If you\u2019re taking QCDs from your IRA, they can offset the income from the RMD. Where maybe you don\u2019t even have to take it if you do the QCD first before doing the RMD. In that case, you may want to wait till closer to the end of the year. There\u2019s different thoughts on that, but it\u2019s a personal preference. And it\u2019s also a psychological thing. You have some people who are go-getters. No, I want to do it right. Right in January, get it out of the way. I never have to worry about it. And some people want to wait till they\u2019re dragged, kicking, and screaming till the end of the year. To take it out. Because they know it\u2019s growing. Tax-deferred every minute they have it in there. And some people try and time the market. That never works.<\/p>\n
Why First-Time RMD Takers Should Not Wait Until April<\/p>\n
Benz: First-time RMD takers have some latitude to delay that first RMD until, I believe, it\u2019s April 1 of the year following the year in which they turn 73. Should they do it? What do you see as the major pros and cons?<\/p>\n
Slott: In most cases, they should not do it because they wait to take the first RMD by April 1 next year. Next year, you\u2019ll have to double up. You\u2019ll have to take two of them next year. You\u2019re better off taking the first distribution. Let\u2019s say you turned 73 this year, in 2025. You take your first distribution this year, even though it\u2019s not technically due till April 1 next year, and you take your second one next year. But there are some exceptions. If you know, next year… You\u2019re going to have a much lower income or some big deductions that could absorb a double RMD. It might work out better next year. It depends on your own situation for that. But in general, if income is the same each year, you\u2019re better off taking one distribution RMD in each year, a lower RMD in each year, less of an RMD, and a smoother tax bill for over the two years.<\/p>\n
How Retirees Can Reduce RMDs<\/p>\n
Benz: By far, the biggest question related to RMDs is how to reduce them. And I know, you and I have frequently talked about making Roth contributions, converting traditional IRA assets to Roth. You\u2019re generally a believer in both of those strategies. But once RMDs have started, say someone is over age 73 and on the hook for these RMDs, what tools do they have in the toolkit? Would the main one be the qualified charitable distribution, or is there anything else to consider?<\/p>\n
Slott: That would be it, other than certain losses or business deductions or things that happen to flow through. Maybe you have a small business and you can knock out income, maybe. But other than that, once you\u2019re in the RMD territory, once you turn 73 in a year, you\u2019re in the RMD territory. If you want to convert, it will essentially cost more because you cannot convert an RMD. I get that question a lot, by the way.<\/p>\n
Benz: I\u2019m sure.<\/p>\n
Slott: You know why? Because people think logically and the tax law doesn\u2019t work logically. People will say, wait a minute, I take my RMD, I pay tax on it. I already paid tax. Why can\u2019t I convert it? It\u2019s the same thing as a conversion, because it\u2019s not allowed under the law. It\u2019s almost like when you ask your mother, why can\u2019t I do it? Because I said so. It\u2019s not allowed. The RMD is not eligible to be rolled over or converted. You have to take the RMD, pay tax on it, and those funds can\u2019t be converted. And if you have several IRAs, you must satisfy your RMDS for all your IRAs before you can convert. Once you satisfy your RMDs for that year, for all your IRAs, then any part or all of the remaining balance can be converted. But in essence, you\u2019re paying more tax because you\u2019re paying tax on dollars that can\u2019t be converted. That\u2019s why we really push for conversions before RMDs start. If you\u2019re watching this and you\u2019re going to turn 73 next year, this may be the year to pile on Roth conversions to reduce them next year.<\/p>\n
Can You Reinvest an RMD into a Roth IRA?<\/p>\n
Benz: To clarify, I can\u2019t convert my RMD, but I could if I\u2019m still working, if my spouse or I have earned income, I could, and I don\u2019t need that RMD, I could put it into a Roth IRA? That would be an option if I have, again, earned income.<\/p>\n
Slott: Yes, that\u2019s a good strategy. And I don\u2019t want people to misunderstand what we just said here. Once you take your RMD. And you pay tax on that money and you have the dollars in your hand. You can do anything you want with it. You can bet it. Of course, it\u2019s just regular money at that point. It comes; it\u2019s in your bank account or investment account. It\u2019s regular money. And you can use any part of that to use for a Roth contribution or to pay tax on converting part of the rest of the balance.<\/p>\n
How Older Investors With Earned Income Can Contribute to IRAs<\/p>\n
Benz: Say, I wanted to put the money into an IRA and into a Roth, and I realize it\u2019s a rare, 73-year-old who still has earned income, But some do. Would I be subject to those contribution limits that apply to all of us when making the IRA contribution?<\/p>\n
Slott: Well, there are no income limits for traditional IRA contributions. And for some reason, there are income limits for making Roth contributions. And if you\u2019re over those limits, there\u2019s something called the backdoor Roth. If you\u2019re still working, you can do it. A nondeductible contribution to a traditional IRA, where there are no income limits, and then convert that to a Roth. You end up in the same place.<\/p>\n
Should Retirees Accelerate RMDs?<\/p>\n
Benz: A last question is that you have a little bit of a contrarian take, which is that people shouldn\u2019t necessarily wait to take RMDs when they\u2019re required, that I don\u2019t need to let my IRAs just go until I\u2019m 73, that we might want to accelerate them in some cases. Can you discuss that thesis?<\/p>\n
Slott: Very contrarian. Only because I believe in math. I look at the deficit and debt levels, you know, at 38, 39 trillion. All I know is, I don\u2019t know, they round up to the nearest trillion. That\u2019s not a good sign. At some point, I think the math is going to come back to bite us, and I expect future higher taxes. Now, it hasn\u2019t happened because Congress keeps kicking the can down the road. But we\u2019re also in the lowest rates you may ever see in your lifetime. And now they were extended permanently by the ABA law. But when I say the word permanent, it doesn\u2019t have the same meaning it does in the dictionary in tax law. In the dictionary, permanent means unchangeable, etched in stone, irrevocable, permanent. You can\u2019t change it. In tax law, it only means until a future Congress changes the rules. We have these low rates now. And if you\u2019re not maximizing the 12, 22, 24% bracket, so, for example, you\u2019re wasting it. And you\u2019ll never get that back again. Let\u2019s say your RMD only pushes you into a 12% bracket. And I had somebody who came to me and said that after the fact.<\/p>\n
Once I said, you know, the guy said, I kept in the 12% bracket this year. I said, I\u2019m sorry to hear that. I said, you blew it. I only took the minimum. You should have taken more and maxed out the 22% and 24% bracket. These are known rates. We have them now. We don\u2019t know how high it will be later on. All you\u2019re doing is building up for a future tax problem, I believe, unless you truly believe, you\u2019ll be in a lower bracket in retirement. Or your spouse might be, or the kids might be. But it doesn\u2019t seem to happen for most people with larger IRAs. The larger your IRA balance, the more likely it is that more of that will be left over to the next generation. And under the Secure Act, which was the real game changer, not the ABA Act, all of that money has to come out by the end of the 10th year after death. You have a shorter window. And if you\u2019re just piling on because you\u2019re only taking the minimum, there\u2019s going to be a big tax bill later on. You have to look at the planning over a lifetime, actually multigenerational, over several lifetimes, to pay the lowest tax. And that may be paying some tax today.<\/p>\n
I always say the way to always pay the lowest tax over your lifetime is my \u201calways\u201d rule. Always pay taxes at the lowest rates, even if it means paying taxes when they\u2019re not required, like taking more than the RMD. Or take another situation, Christine. Take somebody who\u2019s not at RMD age. Take somebody who\u2019s age 60 now, right? Now, according to the law that we have, a 60-year-old, by the time he reaches RMD age, it would be 75. He\u2019s 60. A 60-year-old might say, good, I don\u2019t have to touch anything for 15 years till I\u2019m 75. Should they do nothing for 15 years and waste 15 years of low tax brackets? I wouldn\u2019t do that. I would start converting to Roth IRAs, even though distributions are not required yet to get the money out at the lowest rates. You have to look at the long-term big picture, especially if you have a large building compounding IRA.<\/p>\n
Benz: People have a lot of questions about these required minimum distributions. Thank you for being with us to field some of them.<\/p>\n
Slott: Thanks, Christine.<\/p>\n
Benz: Thanks for watching. I\u2019m Christine Benz from Morningstar.<\/p>\n
Watch Ed Slott: Make Your Charitable Gifts Count at Tax Time<\/a> for more from Christine Benz<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"Key TakeawaysMost people take RMDs toward the end of the year, which is probably better if you\u2019re doing…\n","protected":false},"author":2,"featured_media":175345,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[72,176,61,60,174,175],"class_list":{"0":"post-175344","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-ie","11":"tag-ireland","12":"tag-personal-finance","13":"tag-personalfinance"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/175344","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=175344"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/175344\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/175345"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=175344"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=175344"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=175344"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}