Reduce Your RMD Tax: Tips to Save You Money

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

How to Avoid or Reduce Taxes on RMDs

Required Minimum Distributions (RMDs) are mandatory withdrawals from retirement accounts, such as traditional IRAs, starting at age 73. There are strategies to minimize or avoid taxes on these distributions:

Convert Traditional IRA to Roth IRA

Invest in a Qualified Longevity Annuity Contract (QLAC)

  • Strategy: Allocate a portion of retirement funds to a QLAC.
  • Benefits: Delays RMDs on the invested amount until age 85.
  • Considerations: Limits on investment amount and potential for reduced liquidity.

Donate RMD to Charity

  • Strategy: Directly transfer RMDs to a qualified charity.
  • Benefits: The amount donated is excluded from taxable income.
  • Considerations: Must be a direct transfer to the charity, and no personal benefit received.

Purchase a Deferred Annuity with a Premium Bonus

  • Strategy: Use RMDs to buy a deferred annuity offering a premium bonus.
  • Benefits: Bonus might offset taxes owed on RMDs.
  • Considerations: Assess the annuity’s fees, terms, and the insurer’s financial strength.
Reduce Required Minimum Distribution (Rmd) Taxes.

Buy Life Insurance for Beneficiaries

  • Strategy: Use RMDs to purchase a life insurance policy.
  • Benefits: Tax-free death benefit to beneficiaries.
  • Considerations: Insurance premiums and policy suitability based on age and health.

Tax Minimization Strategies for RMDs

StrategyDescriptionBenefitsKey Considerations
IRA to Roth ConversionConvert traditional IRA funds to Roth IRATax-free withdrawalsTaxes paid at conversion
QLAC InvestmentAllocate to a QLACDelays RMDs till age 85Investment limits, reduced liquidity
Charity DonationTransfer RMDs to charityExcludes from taxable incomeMust be a direct transfer
Deferred Annuity PurchaseBuy annuity with RMDsBonus may offset taxesAssess fees, terms, insurer’s strength
Life Insurance PurchaseUse RMDs for life insuranceTax-free benefit to heirsConsider premiums, policy suitability

Conclusion

Utilizing these strategies can effectively reduce or avoid taxes on RMDs. Each approach has unique benefits and considerations, making it vital to evaluate them based on individual financial situations and goals. For personalized advice and more information, contact us today for a free quote.

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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