Retirement Planning Tips to Cut Taxes in Your 60s With Roth Moves and QCDs

RMD withdrawals typically incur income taxes at normal income tax rates and inflation must also be factored into your retirement budget, as prices continue to increase over time.

Are You Planning on Retiring Soon or Just Beginning? Your 60s Present an Opportunity to Plan Retirement Strategically Here are six Ways You Can Lower Tax Bill During this Stage

1. Consider a Roth conversion

Roth conversion involves moving pretax retirement assets from traditional or employer-based accounts into Roth accounts. Although you will owe taxes on the amount converted, future growth and withdrawals should generally be tax-free. As your timeframe for retirement nears, Roth conversion may make more sense, helping avoid higher tax brackets as RMDs come due. Furthermore, for preretirees who plan on giving significant portions of their IRA balance away through Qualified Charitable Distribution (QCDs), such a move can potentially decrease tax liability significantly.

Decisions on whether or not to convert depend heavily on your current tax rate and ability to cover income tax payments on withdrawal without incurring penalties in other accounts or retirement funds. There’s also a five-year rule which stipulates you wait five years before withdrawing conversion dollars, except in certain exceptional cases; for guidance regarding this matter please reach out to a financial or tax advisor.

2. Take a closer look at your IRA

Future tax changes could potentially have an adverse impact on your retirement savings, but there are steps you can take to lessen their exposure. One strategy could be combining RMDs from your IRA or 401(k) with income from sources other than these accounts (like Social Security benefits and interest, dividends and capital gains from investment accounts), to lower taxable income levels.

Withdrawals and Roth conversions both increase your taxable income, so it’s essential that you understand their tax implications. RMDs combined with other sources of income could put retirees in higher tax brackets than anticipated.

Use of qualified charitable distributions (QCDs) may also help reduce your overall tax liability and postpone payment of RMD taxes.

3. Schedule an appointment with a financial professional

Before retiring, consulting a financial professional is crucial in helping you maximize retirement savings and minimize taxes. Not only can they assist with developing a portfolio tailored specifically to your goals; their software also can show exactly how RMDs and withdrawals may develop over time in various scenarios.

After retiring, your income may come from various sources – tax-deferred accounts such as your IRA and 401(k), investment income, Social Security benefits and pensions are just a few examples – making the decision on how you withdraw money from these accounts a key component of retirement planning that could drastically change how much money is available in retirement.

RMDs are legal requirements that become due at age 73 (or 75 for those born after 2032), and missed deadlines could incur severe penalties. Therefore, it’s wise to work with a financial professional on developing an RMD strategy which minimizes taxes across your lifetime.

4. Consider a rollover

Once your funds have been distributed by either an employer’s retirement plan or an IRA, there are various methods available to you for moving them around. Cashing a distribution check, rolling it over within 60 days into another plan/IRA account within your control or having payments directly transferred may all be options available to you (please refer to Rollover chart PDF for details). When rolling over directly you may even be eligible to recover mandatory federal withholding taxes from the new account(see Rollover chart PDF for details). With direct rollover you could even be able to recover mandatory federal withholding requirements when making direct transfers – see Rollover chart PDF for details! When doing a direct rollover you could potentially recover mandatory federal withholding payments as part of that move!

There are advantages and disadvantages associated with each approach, including investment options, fees, required minimum distributions, loan provisions, protection from creditors or legal judgements and tax treatment. Before selecting one that aligns best with your goals it is wise to carefully examine all available choices.