Remove the Pain of RMD’S – Gillian Giorgio

For Retirees over age 70 1/2, the end of the year means taking Required Minimum Distributions (RMD’s) from their IRAS. Some people welcome them, others don’t. If they don’t take them, the cost is very high, a 50% IRS penalty!!

There are some options that may reduce the pain.

1. Gifting the RMD’s to a qualified charity. For those over 70 ½, The RMD is of the IRA or 401K is not considered federally taxable income if paid directly to a qualified charity. $100,000 is the current limit. Even gifting a portion to a qualified charity to keep the income below the income threshold for Social Security taxation could be a big help. 85% of Social Security is taxed if income thresholds are exceeded. ($34,000 for singles, $44,000 for couples).

2. Buying a Qualified Longevity Annuity Contract: These are specific annuity contracts. They can only be fixed products, not indexed or variable. The amount is capped at $125,000 per person, but no more than 25% of the funding source. This postpones taxes on a portion of your retirement income until a predetermined withdrawal date. This could be a good thing or a bad thing depending on what taxes do in the future. Another thing to consider is that fixed annuities may give a lower return than other options. Also, no withdrawals are allowed prior to the predetermined withdrawal date.

3. Using RMD’s to purchase life insurance. If your do not need the current income, and your wish is to increase the funds left to your heirs, this may be a viable approach. Using your RMD’s each year to fund a life insurance policy has the potential to increase the money you are leaving to your heirs. Obviously, purchasing life insurance requires the insured to qualify medically, this could be an issue for unhealthy seniors. The best part however, is that the death benefit becomes income tax free & with proper estate planning, estate tax free also.


Written by Gillian Giorgio

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