i'm recording this video in november of 2021 they're about 50 days left in this fine year
and if you are 72 and older and have money in an ira or 401k or 403 b i hope you know by now
that you have to do a required minimum distribution known as an rmd this is what
the government forces you to do you may recall because it was a long time ago maybe you don't
recall but you put all this money in your tax deferred account you got a big tax deduction and
that money grew all this time well now when you turn 72 the government says hey you got to take
some money on that account pay some tax because we need money now it can be very confusing so
to help you i have created a video that we will call s
we will get to
in a second but first let me share i am darrell rosen i'm the voice behind real retirement advice
and the reason i created this free resource is to help people retirees future retirees anybody who's
even thinking about retirement to help you create a life full of safety simplicity and strength
if you like what we're doing please subscribe to this channel please like and comment on the
videos now back to the subject at hand are you prepared for rmds number one rmds are not optional
starting at age 72 the pre-tax money you put away over the course of your career will now
be subject to the tax and the government has a very specific way of calculating that tax in other
words the amount of the rmd and i'll get to that in just one second number two the distribution
amount is determined by the irs so the irs has this worksheet and this is how we can determine
how much tax you're going to owe so if you look at line number one ira balance on 1231 i just threw
in the number 500 thousand dollars now the only number that really needs to be researched is a
little bit lower so if we go over here if you look at the 74 so you're on you can see table three
uniform lifetime and if you go from age 70 down to 74 you can see i put a box around some numbers age
74 distribution period 23.8 so basically what they're saying is you have 23.8 years to go
if we come back here under the 500 000 you could see i put in the 23.8 if you divide that
it comes out to 21 000 and eight dollars
now if you if you go backwards and take twenty one thousand zero zero eight over five hundred
thousand dollars you're going to get into about the three and a half percent range
number three the tax rate depends on your income because rmds are considered ordinary
income this is why we want to do some of the planning to reduce these amounts
the reality is that if we consider a funnel and let's say at the bottom of the funnel you have
other income income from a job part-time work investment wages and other in a pension let's say
so what happens when you have to start taking the rmd is it goes
right on the top it goes right on the top and it forces you higher in the tax rate cylinder so
if you're paying some tax at 10 some tax at 12 some tax at 24 what that rmd can cause you to do
is to get near the top or higher and now we're paying 24 so this is the reason why we want to
be very careful about some of the tax planning we do because we want to stay as low in the cylinder
as possible because it is ordinary income number four there are massive penalties for not complying
number five if you're charitable you can reduce your tax liability making a qualified charitable
distribution can be a good way to make use of your rmds and lower your tax burden a qcd as it's known
in the trade is not considered taxable income as it goes directly to a charity so the secure
act changes a little bit but as long as you're 70 and a half you can take advantage of this vehicle
number six roth accounts have no such rmd requirement so the great thing about roth accounts
is they are exempt in other words once you put money in the roth environment that money can grow
and grow and grow and under current law you're never going to pay tax on that ever again it's
also much better in terms of inheritance for money that you leave to your kids because you didn't use
if it's in the roth account it's just it's going to give them a lot greater flexibility in how they
take that money out so this is another reason why roth accounts are so positive number seven there
are strategies for reducing rmds and the resulting taxes yes there are ways to reduce your rmds
and thus your future tax liabilities so as part of this video i have included about a minute and
42 seconds of an animated video i recorded not long ago to share the bucketing strategy
um in other words and it'll get more into this in the video each of your assets can go into an
individual bucket and to the extent that you are that you have the ideal amount of money
in each of these buckets you're going to save money on taxation in the future so
give this a watch and i'll come back after you may remember the grand prize game from the bozo show
there were six buckets lined up in a row one lucky child from the audience get the ball in the first
bucket and win a small prize get the ball in bucket three and you went home with some goodies
i like to play with buckets as well but in this case i'm not clowning around see every assay you
own every dollar you have resides in a series of financial buckets these buckets determine future
tax treatment and there's a mathematically ideal amount of money you should have in each bucket to
maximize your ability to save taxes bucket one cds money market accounts brokerage accounts savings
accounts even assets invest in real estate live in bucket one bucket two tax deferred accounts
such as 401ks iras sep iras 403b accounts most of america has the bulk of their money in this bucket
these assets are the most susceptible to a future higher taxes because this money has never been
taxed and distributions are taxed as ordinary income bucket three roth iras and if your employer
offers one a roth 401k as you know not everyone is eligible to make a roth contribution you have
to be working and earning under a certain income level roth accounts are nice but not particularly
helpful for affluent people bucket four contains properly structured cash value life insurance
which is the only 100 percent tax-free investment no federal tax no state tax no capital gains tax
so that's a little bit about the bucket strategy so you can see what we're trying
to do we're trying to move from buckets one and two taxable and tax deferred into the roth
and or life insurance buckets we're trying to go i feel like a weatherman we're trying to go
over to where we'll pay less tax in the future and rmds will be less affected so a little bit
of review rmds are not optional the distribution amount is determined by irs tables the tax rate
depends on your income there are massive penalties for not complying if you are charitable you
can help reduce your tax bill roth accounts are exempt in other words money can grow forever it's
actually a very very good vehicle and last but not least there are many ways to reduce the amount of
taxation you'll pay on your rmds and this brings us to the end of our video seven must know must
understand facets of the complex and easily misunderstood rmd distribution process i had to
take a breath just to say that i am darrell rosen thank you for watching i've created these videos
this resource for people who want to enjoy safety simplicity and strength in the future if you
need help with anything money related retirement related tax related please feel free to reach out
you