My wife and I are taking RMDs. We are invested in mostly ETFs in both taxable and IRA accounts. Are there tax strategies we should be considering either in our equity selections or withdrawals. Thank you.
I’m 68 and have been retired for almost 30 years (early advocate of FIRE and the 4% rule.)
My strategy is to limit interest and dividend income to the maximum extent possible and take my withdrawals in capital gains and tax-free returns of capital. Berkshire Hathaway is your friend.
I’ve been delaying SS to age 70 and doing Roth IRA conversions to whittle down the size of my IRA. If you’re a successful investor, you’ll wish you put more of your money in a Roth IRA when you were younger.
Keep in mind that a withdrawal from your IRA does not necessarily mean that a withdrawal from your portfolio. If you don’t need to take money from the RMD out for expenses, you can do an in-kind distribution to your taxable account.
Since you are taking RMDs, presumably you are over 70 1/2. If so, and you are inclined to make charitable donations, you can take up to $100k of your RMDs each year as QCDs (Qualified Charitable Distributions). QCDs are a top of the line deduction, so they don’t count toward your income and don’t have to go through Schedule A to deduct them. This can be helpful in avoiding IRMAA premiums on Medicare, since the QCDs don’t count toward your AGI.
Asset location is important. Investments that generate ordinary income/interest are generally best placed in Traditional accounts. Investments that will generate long-term capital gains and qualified dividends are better suited for taxable accounts.
If you have Roth accounts, they can be helpful to generate income without incurring taxes, but since you’re already taking RMDs, if you don’t already have Roth accounts, you would have to do an analysis of your projected taxes to see if there will be any long-term tax benefits to doing Roth conversions. There may be some benefit in doing conversions in 2024 and 2025 because of the bracket changes that will occur in 2026 due to the expiration of the TCJA provisions (assuming that Congress doesn’t get it’s act together to change that law before then).
Excellent suggestions. We are doing charitable giving as part of our RMDs total and that’s been helpful. Thanks for responding!
A new law in 2023 allows a one-time charitable annuity donation of up to $50,000. Unlike the older charitable donation of the RMD, the annuity will provide income to you while you are alive. One organization which has enable this is the Red Cross.
Thanks so much WendyBG!