Alice recently retired after spending 30 years teaching English Literature at a world-renowned university. Throughout her career, she’s made responsible choices with her money. Not only did she pay off her house, but she also has a nest egg amounting to $700,000. Much of this money is saved in a traditional IRA.

Beyond this sizable amount, she also receives a pension of $5,000 a month and Social Security payments of $2,000 per month, after taxes. The combined monthly checks comfortably cover all of her current living expenses, which sit at $6,000 per month.

When she jumped into retirement last year, Alice learned about Required Minimum Distributions (RMDs) while digging around for information about long-term care costs. Now she wants to know the optimal way to comply with RMD rules without overpaying in taxes down the line. While she has 12 years before she has to worry about RMD rules going into effect, she doesn’t want to drain her nest egg unnecessarily fast and would prefer to have something left over to leave behind for her kids.

Although she hasn’t worked with a financial advisor before, Alice is open to the idea as she wades into the realm of RMDs and tax efficiencies. So, here’s what she could do next.

While your golden years can be full of memorable times, the reality of aging can also come with increased living expenses. At some point, you may no longer be able to take care of certain tasks on your own.

Some retirees just need an extra hand with groceries or household chores. Others, though, may require long-term care — daily support with the basics of living. And while it’s easy to imagine staying healthy and independent forever, the truth doesn’t always play out that way.

Alice is a relatively young retiree and likely has many independent years ahead of her. But it’s helpful to consider the fact that at some point, she may need to outsource some daily living tasks. In fact, approximately half of Americans turning 65 today will need some type of long-term care during their lives, according to a [1] recent Treasury report.

Unfortunately, the price tag for long-term care is steep. Without coverage, you could be looking at $4,000 to $15,000 (or more) every single month.

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One way to mitigate against the potential costs of long-term care is to purchase long-term care insurance. For a single female, the average annual premium for long-term care insurance is $1,900. If possible, Alice should find a way to pay for this insurance product. Since she’s spending less than her income each month, this is one expense to add to her budget that could safeguard her financial future.

Read more: Rich, young Americans are ditching stocks — here are the alternative assets they’re banking on instead

Since much of Alice’s nest egg is saved in a traditional IRA, the funds will be subject to Required Minimum Distributions (RMDs) when she reaches age 73.

Think of RMDs as the IRS’s way of making sure you don’t let your retirement money sit forever. Starting at age 73, you’ll need to withdraw a set amount each year from accounts such as traditional IRAs, SEP IRAs, SIMPLE IRAs and employer retirement plans

RMDs represent the minimum amount the accountholder must withdraw each year after this age. While you could skip your RMD, it comes with a tax penalty of 25% on the amount.

Crafting the appropriate strategy for reducing RMDs is multifaceted. An optimal process involves understanding many different tax rules and seemingly unrelated consequences, such as Medicare impacts. With that, it’s usually best to enlist the help of a financial advisor. For a one-time fee, a competent advisor can help you lay out an effective plan for your unique situation.

If Alice wants to minimize her RMDs, the best way is by lowering the balance of the relevant account. For example, she could pursue a conversion strategy that would pull funds out of her traditional IRA and put them into a Roth IRA, which isn’t subject to RMDs.

Notably, Alice would have to pay income taxes on funds she withdraws from her traditional IRA before she tucks them into a Roth IRA. Additionally, increasing her income artificially through this conversion could impact her Medicare premium costs.

Another option is to choose simplicity. Alice has done well for herself. While she could further optimize her situation through RMDs, the hassle of properly timing conversions and managing the tax consequences may not be worth it for her. Especially if she’s nailed down her long-term care insurance plan, she’s done more than many to prepare for an enjoyable and financially stable retirement.

But it certainly wouldn’t hurt to speak to a financial advisor to get a second set of eyes on her finances to find out where she can make improvements. From there, she can decide how far she’s willing to go.

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[1]. IRS. “Retirement topics – Required minimum distributions (RMDs)”

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