Converting your 401(k) to a Roth portfolio will allow you to entirely avoid RMDs. This is a legitimate form of tax planning. However, often there's a difference between whether you can do something and whether you should; whether it's allowed, and whether it's in your long-term best interest.
For example, say that you're 62 years old. You have $1.6 million in a 401(k). If you convert this portfolio to a Roth IRA 10% at a time, you can avoid required minimum distributions on your $1.6 million. However, particularly for households approaching retirement, a Roth conversion may result in a net-loss. There's a chance that the tax costs of making those conversions will outweigh the tax benefits of avoiding minimum distributions.
Here are some things to consider. Also consider matching with a fiduciary financial advisor who can help you weigh your options.
Starting at age 73 (or 75 starting in 2023), the IRS requires you to begin taking regular, minimum withdrawals from every pre-tax retirement account. This includes 401(k) and traditional IRA portfolios. These withdrawals are known as RMDs.
The exact amount you must take is based on the portfolio's total value on January 1 and your age. You have until the end of each year to make the withdrawal, so you can take your minimum distribution in any amount at any time by or before December 31. If you don't take your minimum distribution, the IRS charges a tax penalty typically worth 25% of the amount not withdrawn.
#rmds #avoid
For example, say that you're 62 years old. You have $1.6 million in a 401(k). If you convert this portfolio to a Roth IRA 10% at a time, you can avoid required minimum distributions on your $1.6 million. However, particularly for households approaching retirement, a Roth conversion may result in a net-loss. There's a chance that the tax costs of making those conversions will outweigh the tax benefits of avoiding minimum distributions.
Here are some things to consider. Also consider matching with a fiduciary financial advisor who can help you weigh your options.
Starting at age 73 (or 75 starting in 2023), the IRS requires you to begin taking regular, minimum withdrawals from every pre-tax retirement account. This includes 401(k) and traditional IRA portfolios. These withdrawals are known as RMDs.
The exact amount you must take is based on the portfolio's total value on January 1 and your age. You have until the end of each year to make the withdrawal, so you can take your minimum distribution in any amount at any time by or before December 31. If you don't take your minimum distribution, the IRS charges a tax penalty typically worth 25% of the amount not withdrawn.
#rmds #avoid
2 days ago
