How can I minimize taxes on RMD besides charitable contributions?

Hi Faye!

Minimizing taxes on Required Minimum Distributions (RMDs) can be a smart financial move. RMDs create taxable income so what you’re really striving to do is minimize your overall tax burden.

Besides charitable contributions, here are a few strategies you can consider:

1. Utilize tax-efficient investments: Allocate your investments in a tax-efficient manner by prioritizing tax-efficient funds, such as index funds or ETFs, in taxable accounts. This can help reduce the impact of taxes on investment gains.

2. Consider Roth conversions: If you have a traditional IRA, you can convert a portion of it to a Roth IRA each year. While this will generate taxable income in the year of conversion, future distributions from the Roth IRA will generally be tax-free, potentially reducing your overall tax burden in the long run.

3. Optimize your deductions: Review your eligible deductions to maximize tax benefits. This may include itemizing deductions, such as medical expenses, property taxes, or mortgage interest, if they exceed the standard deduction. Consulting with a tax professional can help identify potential deductions and ensure compliance with tax laws.

4. Tax-loss harvesting: If you have investments in a taxable account (e.g. an individual brokerage account), consider strategically selling some of the investments that have losses to offset the taxable portion of your RMD. Capital losses can also be used to offset gains, reducing your overall tax liability. Also, if you have net losses that exceed your net gains, you can deduct up to $3,000 against other forms of income such as your RMD.

5. Explore tax-efficient withdrawal strategies: Coordinate your RMDs with other sources of retirement income to minimize your tax bracket. By carefully managing the timing and amounts of withdrawals, you may be able to keep your income in lower tax brackets and reduce the overall tax impact.

My book 15 Retirement Planning Tips for People Age 50+ has several tips that may help you reduce taxes. You can grab a free copy by signing up for my email list here: www.swadwealth.com/free-resources

Remember, tax laws and regulations can be complex and subject to change, so it’s always a good idea to consult with a qualified tax professional who can provide personalized advice based on your specific financial situation.

Hope this helps!

Best,

Zack Swad, CFP®, CWS®, BFA™, AWMA®, AAMS®
President & Wealth Manager, Swad Wealth Management, LLC
Tel: 707-899-1010
www.swadwealth.com
100 Stony Point Rd, Suite 244, Santa Rosa, CA 95401