Summary

The article outlines strategies for retirees to receive their Required Minimum Distributions (RMDs) tax-free by leveraging the standard deduction offset, managing account balances, and employing financial tools like 72t distributions, Roth conversions, and specific life insurance contracts.

Abstract

The article titled "How To Get Your RMD’s 100% Tax-free in Retirement" discusses the tax implications of RMDs from qualified retirement accounts such as 401k's and IRA's, which become mandatory at age 72. It explains that by aligning RMDs with the standard deduction, individuals over 65 can receive up to $28,700 tax-free if married. The article also addresses the potential taxation of Social Security benefits due to provisional income and suggests methods to mitigate this, aiming for no more than$ 350,000 in taxable retirement accounts to ensure a tax-free retirement, including tax-free Social Security checks.

Opinions

The author suggests that managing RMDs to align with the standard deduction is a key strategy for tax-free income in retirement.
There is an emphasis on the importance of not exceeding the standard deduction limit to avoid higher tax brackets and the taxation of Social Security benefits.
The article implies that traditional retirement accounts can become a tax burden if not managed properly and advocates for proactive financial planning.
The author provides a specific financial target of $350,000 for taxable retirement accounts to optimize tax-free retirement income.
The article promotes alternative financial strategies such as 72t distributions, Roth conversions, and life insurance contracts as tools to reduce taxable income in retirement.
The author expresses that with careful planning, retirees can enjoy a significant portion of their retirement income, including Social Security, without paying taxes on it.

How To Get Your RMD’s 100% Tax-free in Retirement

(Be sure to checkout the video of this blog too)

RMDs, or (required minimum distributions) are how the government forces you to pay taxes on your qualified retirement accounts.

Qualified accounts are just simply tax-advantaged retirement accounts, such as: 401k’s, IRA’s, 403b’s, etc.

These types of qualified accounts require you to start taking money out so that you can “pay the piper”, so to speak (“the piper” being the IRS).

At age 72 you are required to take a distribution of 3.65% of the total balance out of your taxable retirement accounts (that number is going to continue to grow each year, which can push you into a higher tax bracket if the market does well).

Remember, since all of this money was contributed “pre-tax”, it’s all taxable in retirement.

But, there’s still a way to collect a large portion of this “taxable” money, completely tax-free. 😏

It’s called a standard deduction offset.

If you’re older than 65 and married, you can collect $28,700 of income every single year from your taxable retirement accounts…. and it will all be completely tax-free (The IRS allows the first $28,700 of your annual income to be free of any taxation, that’s why you want the required minimum distributions from your taxable accounts to be equal to, or less than your standard deduction).

This how you turn taxable income into tax-free income, however there are limits to how much you can take each year.

So if you do the math and have about $786,000 in IRA’s/401k’s (or other taxable retirement accounts) the 3.65% minimum will be just under your standard deduction amount and therefore…..

Tax-free‼️ 👏

But wait… there’s another problem!

All of this income counts as “provisional income” and at this level, it WILL trigger social security then being taxed. 😩

Here’s how it works ⚙️ 🔧

If you take all of your RMDs + 1/2 of your social security benefit and it exceeds $32,000 in any given year, your social security check will be taxed….

That means no tax-free retirement. ☹️

So what you can do is start actively reducing the balance of your taxable retirement accounts through either what’s called a 72t, a Roth conversion, or simply by repositioning money into a very specific type of life insurance contract.

And I’ve crunched the numbers for you, but the typical sweet-spot is to have no more than $350,000 in your taxable retirement accounts.

This is how you retire tax-free…

Which includes collecting your social security check completely tax-free in retirement as well!

Want some more information on exactly how to do this⁉️

Let’s chat 💬😎

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To your success,

Matt