By LouAnn Schulfer, AWMA®, AIF®
If you have a retirement account, you probably know there are a lot of rules. For example, in most cases 59½ is the earliest age at which you can make withdrawals without penalty and typically at age 72 you should start collecting Minimum Required Distributions (RMDs) from your retirement accounts before. tax. The 12 and a half years in between can be an opportune time.
I have high income clients and excellent retirement savings during their working years. Their accumulated retirement savings enabled them to retire early, taking advantage of withdrawals without penalties. During their working years, their combined income had kept them from making ROTH IRA contributions and their tax bracket discouraged them from making ROTH conversions. One concern that we have identified is which tax bracket they will be in after 72 years. With their combined Social Security and minimum required distributions, their Adjusted Gross Income (AGI) level would force them to pay higher health insurance premiums than their peers who are in income tax brackets. Fortunately, they are young enough and retired from their higher earning years that we can take advantage of ROTH conversions, where we will methodically transfer money from their pre-tax IRAs to ROTH IRAs, paying tax due on conversions. at a lower tax rate. that they had not been subjected while they were working. Money in
ROTH IRAs are not subject to RMDs, which reduces their taxable income at age 72 and beyond, thereby helping to keep the AGI lower, which affects Medicare premiums.
My clients are delighted to see their ROTH accounts grow and their future RMDs decline as we take advantage of this great place for retirement accounts.
LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Wealth Management and can be contacted at (715) 343-9600 or [email protected] www.SchulferAndAssociates.com
Securities and advisory services offered by LPL Financial, a registered investment adviser. FINRA / SIPC member.
Traditional IRA account owners have some considerations to take into account before making a Roth IRA conversion. These primarily include the tax consequences on the amount converted in the conversion year, the withdrawal limits from a Roth IRA, and the income limits for future contributions to a Roth IRA. Also, if you need to make a minimum required distribution (RMD) in the year of the conversion, you must do so before you convert to a Roth IRA.