Distribution Planning For Near-Retirees

We constantly hear about the importance of saving for retirement and put a lot of effort into it during our working years. Yet, the final element of any retirement strategy is often neglected: distribution planning. This tax season, as you begin collecting the information you need to file, consider how you’ll take tax-efficient distributions in retirement.

Consider the Roth*

While this time of year focuses on deadlines to minimize taxes, they should play only a part in how you take eventual retirement distributions. From a later required minimum distribution (RMD) age to Roth IRAs and more, there are a variety of ways you can maximize what you receive in retirement and how much you pass on to future generations.

Roth IRA accounts might be appropriate if you expect to have the same or higher income in retirement. In 2023, joint filers can contribute up to $6,500 — plus an extra $1,000 if age 50 or older and have an adjusted gross income of $218,000 or less ($138,000 or less if filing single). Make a partial contribution if your income is less than $228,000 (or $153,000, respectively).

Roth IRAs have no RMD rules during the life of the account owner, but Roth 401(k)s do through 2023.** There are no income restrictions if you have a Roth 401(k) so consider contributing the maximum the plan allows. Withdrawals for both types of Roth accounts are tax-free, subject to restrictions.

Orderly Withdrawals

Beyond the Roth, consider this distribution order for a potentially more tax-efficient withdrawal strategy:

1. Cash in taxable income;


2. Delay RMDs until penalties apply for not taking them;


3. Take Roth distributions.

Make sure to contact your financial and tax professionals to help ensure you have a retirement distribution strategy that meets your unique needs.

*To qualify for tax and penalty-free withdrawals of earnings, a Roth IRA or 401(k) must be in place for at least five tax-years and the distribution generally must take place after age 59-1/2, with a few exceptions.

**Starting in 2024, Roth 401(k) accounts will be exempt from RMDs during the account owner's lifetime.