Lower RMD in 2023? 3 Things Retirees Can Do

Will your required minimum distribution from your IRA be lower in 2023?

Today, we are discussing why this is not a bad thing and 3 things you can do to make a lower RMD work in your favor.

Lower RMD in 2023

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Full transcript:


Alex Okugawa & Anthony Saffer

Alex Okugawa 0:00
The stock market is down here in 2022. And so a lot of retirees are concerned that their income may be going down due to lower required minimum distributions starting next year. Today, we’re going to discuss why that’s not necessarily a bad thing. And three things that you can do to make it work in your favor. Stay tuned. Hey, there, it’s Alex and Anthony, from One Degree Advisors, and we help you gain confidence in your retirement, Anthony required minimum distributions, or RMDs, for retirees at age 72. That’s the new rule. These are calculated yearly. And they’re based on two factors. The first is your age. And then the second is the balance of your IRA at your end.

Anthony Saffer 0:46
That’s right. And age is certain every year, we do get a year older, and the IRS tables based on age dictate that an RMD would increase. However, the other part of the calculation is the value of your retirement account at year’s end. And since retirement accounts, in many cases are down for the year, that could result in a lower required minimum distribution going into 2023.

Alex Okugawa 1:09
So, a retiree may be taking income from their IRA and think, Well, this is a bad thing, right? My income is going down. But that’s not necessarily the case. And so we’re going to share three things retirees can do to take advantage of a lower RMD and 2023. Yeah, and

Anthony Saffer 1:25
that’s right. And but first, let’s look at it when we talk about our lower RMD. That’s just the minimum amount, and a lot of people fail to understand that is, that’s just what you must take out if you’d like to continue to take out the same amount of income. As long as you’re meeting that minimum, it’s okay.

Alex Okugawa 1:42
So let’s look at three things you can do to take advantage of that lower RMD. The first thing is, you can simply take the lower RMD as income because honestly, it’s just going to mean less taxable income to you. Yeah, that’s

Anthony Saffer 1:54
Let me put up an illustration on the screen here. And you’ll see with this particular retiree in 2022, they were age 72. And the value of their IRA from the previous year was a million dollars. So their calculation for their RMD would work out to $36,496. Okay, we’ll post the IRS table in the notes, and always go over that with your tax advisor because there can be different tables that are used, in this case, 2023, the value there a year older, and the value is down to $900,000. Okay, so this would result in an RMD. That’s over $2,500 less.

Alex Okugawa 2:33
And of course, for folks that maybe don’t need all the income, this is a good solution, because now they have less taxable income. The second option here is you could take that lower RMD and then also take additional income from another maybe more tax-efficient account to kind of meet the gap.

Anthony Saffer 2:50
Yeah, so let’s go back to our hypothetical illustration in 2022,, they were taking $36,000, if you still need that $36,000, you can take the lower required minimum distribution from your IRA. So that means less taxable income, and then take the additional $2,500 to make up the difference, perhaps from a more tax efficient.

Alex Okugawa 3:11
A brokerage account or a Roth IRA kind of blend the two together and help you take advantage of your different tax brackets. The third option here is to take that lower RMD and then incorporate qualified charitable distributions, which we’ve talked about before.

Anthony Saffer 3:28
Yeah, many times the qualified charitable distribution is a great strategy because when you give directly out of your IRA, it just doesn’t show up as income. You don’t have to report it as taxable income. And that’s actually better than getting a deduction. Number one is that far fewer people are itemizing their deductions in the first place since the tax reform of 2018. But even if you are itemizing it not showing up as income is generally better than it is a deduction.

Alex Okugawa 3:56
Absolutely. And if folks want to explore further lowering their arm we posted a video called five strategies to lower your RMD. Once again, this is Alex Ogawa with One Degree Advisors. And if you’d like to learn how we can help you gain confidence in your retirement, visit our website at onedegreeadvisors.com

Transcribed by https://otter.ai

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