An RMD at 73? It’s not the catchiest IRS rule we’ve ever heard… And you’re not alone if you’ve ever been confused by an IRS rule. 😅 In this week’s video Mark’s talking about “Required Minimum Distributions.” Stop by or give us a call if you’re wondering what it might mean for you.
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“Well begun is half done,” the proverb says. And we tend to agree. Since it’s your journey, we don’t like to sweat the particulars: it’s never too early to start, but it’s also never too late.
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You don’t need to follow a yellow brick road or consult a man behind a curtain to feel confident about your financial future. This week, Greg borrows a little inspiration from a classic story to remind us the key to a successful retirement may already be within our reach.
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Those first paychecks can be thrilling. It’s like a signal of being a real adult—and all the responsibilities that come with that term. You’re earning real money, but how do you make those earnings powerful? When you spend less than you earn, you develop savings—but how do you learn how to manage those funds?
We think the easiest place to start is to try and sort your financial goals into three buckets.
The first one you have is short-term. This is where you go to find money to deal with emergencies. You also use the short-term bucket to save for annual expenses like real estate taxes or insurance premiums. This bucket must be stable and liquid, to provide money when you need it. Returns are secondary.
On the other end, you have a long-term bucket. If you ever hope to retire instead of going to work every day, or accumulate wealth for other long-term goals, you need one of these—even if retirement feels like forever away. Unlike the first bucket, this one may endure more volatility in the hopes of garnering higher returns over a long-time horizon. You should plan on not tapping this bucket except for those long-term goals, short of an emergency which can be met no other way.
Naturally, the third bucket is in-between. You may have goals for things that happen in a few years, on an intermediate time horizon. It might be for a major purchase like a boat or camper, to meet educational expenses for a child, a down payment on a home you intend to buy at some point in the future.
Not surprisingly, the third bucket may balance stability and higher returns with a middle of the road approach. It might use a mix of investments from the other two buckets, or other types of investments with intermediate stability and returns.
The idea of three buckets is a helpful way to understand the functional purposes of investing. You will need to know something about the basic kinds of investments, styles of investing, some tax considerations, and the options available.
Clients, if you need help sorting the buckets to reach your financial goals, please email us or call.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
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Even heroes get knocked down a time or two when fighting their monsters. There may be a couple of bumps in the road, but what good plot doesn’t have some conflict? With our passions in mind, a little bit of perseverance, and a good plan, we all get to be the hero of our own story. Want to talk through what’s important in your story? Call or email to chat.
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We have noticed that the rules about IRA account withdrawals can cause some confusion, particularly among those who are getting close to the “Required Minimum Distribution” age.
Here, we’d like to cover what the basics might mean for most people, though it is not intended to be advice or a recommendation for your specific situation.
For traditional or rollover IRA account owners, withdrawals after age 59½ are free of penalty, but income taxes must be paid on the amounts withdrawn. One may withdraw money or not, in accordance with their needs and plans.
But beginning at age 73, the rules change.
For each year beginning with the year you turn 73, a “Required Minimum Distribution” (RMD) must be withdrawn:
The way the numbers work, the first RMD for age 73 is around 4% of the prior year-end account balance. Then, the RMD rises gradually each year. The RMD is around 5% at age 80 and around 10% by age 92.
The withdrawals will be taxable—that is the whole object of the exercise, from the IRS’s perspective.
Even with those requirements, IRA accounts may still have significant balances until advanced ages.
Here are just a few fine points:
For more information, the IRS explains more details about RMDs online, available here. Please also keep in mind that different rules apply to inherited IRAs, Roth IRAs, and certain other situations, so do seek specific advice for your situation as necessary.
And our role? We aim to help each client figure out how your money might do what you need it to do.
So the question of how you should manage your accounts and your withdrawal strategy is best answered in a one-on-one discussion. If you would like our help talking through your situation, please call or email us. Happy to help.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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What does it mean for our business to be “client-centered”? (Wait, shouldn’t all business be “client-centered”?…) In this week’s video, Mark and Caitie talk about the role the firm plays in our relationships with you, what the client’s job is, and more.
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Listening to one another is a gift that costs nothing but means everything. We know that our time and attention are precious resources, which is why our team here at 228 Main always has our “listening ears” on. 🙏
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Sometimes life’s big milestones arrive in a neat, straight line. And sometimes that’s just not what happens—or what we want to happen. How do we plan for a swoopy life?
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For many people we know, money represents work. It’s the sweat and the time and everything else that goes into one’s livelihood.
It may have started decades ago, perhaps with a job for a local farmer, walking beans or baling hay. (Does that reference date us?) It’s all the jobs that followed, too. No matter where those paychecks came from, the work behind them can become a source of pride—one that can also fund our retirement years.
We’re fortunate to know many people who end their careers with resources beyond their needs. It’s a nice problem to have: what happens when the excess outlives us? What’s the next “life” for what you’ve earned and accumulated?
We’ve been hearing from some of you about these big financial legacy questions, and there are many possible answers. In no particular order, here are a few ideas that you have been sharing with us.
Spend it on shared memories. For many, the pace of retirement includes more travel and experiences that weren’t possible during the working years. And while you’re at it, you might think about including those closest to you. Some might take their children or grandchildren with them on the big adventures. If you don’t want to leave behind wealth well beyond your beneficiaries’ needs, spend well now, with them: create the memories while you have the opportunity to do so. Bonus? They have another shared memory to enjoy, long after the experience is over.
Consider making gifts where they would make a difference now. There’s no rule saying you have to wait until you’re gone to get the excess to your beneficiaries. An inheritance can be life-changing, but who’s to say that a well-timed gift couldn’t make a big impact? It could be that splashing around a little cash now might make more difference in the long run. Maybe a loved is working toward a down payment on their first house, or some seed funding for their business expansion, or some other worthwhile project that you’d like to support. Why not now?
Direct it to the causes you care about. You can turn some of your charitable intentions into plans now, too. Your legacy planning may already involve leaving behind some assets to charity, and there are other strategies that might fit your goals. For example, a Donor Advised Fund (DAF) can be set up to benefit organizations of your choice after you’re gone, but it can also be left to a successor: a person you trust to direct charitable distributions of your gifts. They could carry on the work you start now.
Making these kinds of choices truly is a great problem to have. Generational wealth is a powerful tool and privilege. It also highlights the tensions we feel around money: what is the utility of money in our lives—and beyond? We don’t have to know all the answers, but there might be a chance to unlock some exciting opportunities for the generations ahead, if only we get a little more intentional or organized now.
Clients, may your wealth bring you only the best of dilemmas. We’ll be here to try to help you along your way.
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