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RMD Considerations

With people living longer and benefiting from the long-running
bull market, there are more factors to consider in taking required minimum
distributions (RMDs) from retirement accounts. The traditional IRA, SEP IRA and
401(k) plans offer tax deductions on contributions and tax-deferred growth on
earnings during the accumulation phase, but eventually the government wants you
to pay taxes on that money.

Be aware that the IRS has proposed a new update to the life
expectancy tables used to calculate annual RMDs for the first time since 2002.
The proposed changes, which are not expected to go into effect until 2021,
would likely reduce the RMD amount for many retirees, based on today’s longer
life expectancies.1

Some retirees who have saved and invested well may find they
do not need these distributions for their day-to-day expenses. Therefore, it’s
a good idea to have a strategy for where to allocate these funds based on your
longer-term goals, such as plans for beneficiaries, charitable giving or to
have them available for medical or caregiving expenses down the road. Please
give us a call if you’d like to discuss strategies for your RMDs moving
forward.

How you handle RMDs can be especially important for your
spouse. You may want to consider reinvesting a portion of your withdrawals for
growth opportunity if there is a significant age difference between you and
your spouse.

In late December, President Donald Trump signed into law the
Setting Every Community Up for Retirement Enhancement (SECURE) Act. Among its many
provisions is the ability for retirees to delay taking RMDs until age 72 (up
from the current age of 70½). Be aware that this change applies only to people
who turn 70½ after Dec. 31, 2019.2

Once you begin taking RMDs, please know that you have
options; you don’t just have to convert long-time investments into cash.
Strategic alternatives include:3

  • Making a
    qualified charitable donation (up to $100,000 a year) directly from your IRA to
    a charity.
  • Paying taxes on
    the RMD and then putting those funds into a Roth IRA, which continues to grow
    tax-free and can be inherited free of inheritance tax. There are also no RMDs
    for a Roth. Note that you must be eligible for a Roth based on your income.
  • Contributing the
    funds to a grandchild’s education via a 529 college savings plan, where
    earnings are tax-free as long as they’re used for qualified education expenses
    (you may even be able to deduct contributions on your state tax return).

Another option is to reposition assets before RMDs kick in
to purchase a qualified longevity annuity contract (QLAC). This strategy allows
you to defer your RMDs until you need the income (up to age 85), at which point
you can receive guaranteed monthly payments for the rest of your life. The IRS
limits the total contribution to 25 percent of the assets in the IRA, up to a
maximum of $130,000.4

Content prepared by Kara Stefan
Communications.

1 Jeffrey Levine. Nerd’s Eye View. Nov. 13, 2019. “IRS
Proposes New RMD Life Expectancy Tables To Begin In 2021.” https://www.kitces.com/blog/irs-proposes-new-rmd-life-expectancy-tables-to-begin-in-2021/. Accessed Jan. 3, 2019.

2 Stephen Miller. Society for Human Resource Management.
Dec. 20, 2019. “SECURE Act Alters 401(k) Compliance Landscape.” https://www.shrm.org/ResourcesAndTools/hr-topics/benefits/Pages/SECURE-Act-alters-401k-compliance-landscape.aspx. Accessed Jan. 3, 2019.

3 RBC Wealth Management. “Five strategies for taking
your required minimum distributions.” https://www.rbcwealthmanagement.com/us/en/research-insights/five-strategies-for-taking-your-required-minimum-distributions/detail/?utm_id=wm1552523589020191. Accessed Jan. 3, 2019.

4 Ibid.

Neither the firm nor its agents or representatives may give tax advice.
Individuals should consult with a qualified professional for guidance before making
any purchasing decisions.

Guarantees and protections
provided by insurance products including annuities are backed by the financial
strength and claims-paying ability of the issuing insurer.

We are an independent firm helping individuals create
retirement strategies using a variety of insurance and investment products to
custom suit their needs and objectives. This material is intended to provide
general information to help you understand basic financial planning strategies
and should not be construed as financial or investment advice. All investments
are subject to risk including the potential loss of principal. No investment
strategy can guarantee a profit or protect against loss in periods of declining
values.

The information contained in this material is believed to be
reliable, but accuracy and completeness cannot be guaranteed; it is not
intended to be used as the sole basis for financial decisions. If you are
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