I’m 65, have over $5 million in savings, and am headed for RMD disaster.


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I think I have an unusual problem. I am a recently retired she is a 65 year old education administrator. I think I may have saved too much in my retirement account when I was working. Here is my situation:

  • Minimum pension: less than $15,000 per year, not adjusted for inflation
  • $900,000 pre-tax fixed annuity paying 4.5% interest. You can withdraw up to 20% annually.
  • $3.5 million in IRAs invested primarily in equities
  • $270,000 was most invested in equities in the Roth IRA
  • $1.3 million in a brokerage account invested primarily in equities
  • $150,000 in a savings account used for spending
  • $150,000 in the money market paying about 4.2% for emergencies or possible home purchases
  • Other pre-tax 457(b) accounts worth approximately $100,000

We are currently debt-free and spend about $100,000 a year.

I am told that I will have an RMD disaster when I turn 72. Struggling to increase spending after years of saving. I don’t know what to do.

thank you.

new jersey zoom

Dear NJ Zoom,

Congratulations on your retirement! The problem of having too much savings is relatively easy to solve. Start donating money.

When I have more assets than I am likely to spend in my lifetime, I want to distribute them to others as much as I can in a structured way that supports my overall financial situation and brings me joy at the same time. I guess.

“Many people think about their wealth and say they donate whatever is left over to charity,” said Andrew Crowell, vice chairman of wealth management at DA Davidson. You won’t be able to see anything good,” he said.

You worked hard and saved a lot. What is your purpose now?It seems to be the missing key ingredient in your retirement image. thing It doesn’t sound like it’s working for you. And not only is the minimum distribution required approaching 73 (not 72 since the rules changed), but if the exemption is reduced, your property will be subject to federal taxes after 2026. , may be subject to state property. Current taxes, depending on where you live.

Federal estate tax exemption is currently $12.92 million for individuals ($25.84 million for couples), but will be halved by the end of 2025 unless new legislation is passed. As you grow, your wealth may exceed your limits when the time comes. And some states have lower thresholds, like New York, which is currently at $6.58 million.

Here’s a three-step plan that might help you decide how to start gifting your assets.

1. Hand over cash directly

If you’ve spent your career teaching, it’s probably important to you. One of his ways to make a big difference in that area and get money out of his account is by helping his grandson, niece, nephew or friend with their education expenses.

“If he’s going to walk before he runs, he can fund 529 college savings plans,” Crowell says. β€œHe has enough liquidity in his brokerage account, so he does that first.”

A gift limit of $17,000 per year can be prepaid for up to 5 years on the 529 plan. Crowell had one client of hers, recently widowed, who wanted to help his grandchildren and reduce their taxable fortune, so he prefunded 11 grandchildren’s accounts.

You can also donate up to $17,000 a year outright to individuals in your life. It happens in places,” says Crowell.

2. Tiptoe to larger charitable giving

Most charitable trusts are irrevocable. This means that once you designate a donation, you cannot change your mind and get your money back. So you might want to give small gifts that lead to big ones, suggests Crowell.

If you don’t know where to donate, you can start by donating to something like a Donor Advised Fund. With this fund, you can set aside funds in a potentially growing account and then decide where to allocate them later. You can get a tax deduction in the year you donate. If you have a charitable organization in mind, you can set up what is called a Charitable Residual Trust. This allows you to have a stream of income from the trust for the rest of your life, but what’s left over when you die goes to a designated charity.

You can even go a little further and set the foundation for your family. Crowell’s own family did this after his father passed away. Decide, which amounts to donating at least 5% of your balance.

3. Switch to QCD when you reach retirement age

The need to balance income streams (annuities, fixed annuities, social security) with the money the government said they needed to withdraw based on their formula once they reached the age to start distributing the minimum required there is. That’s when you want to convert your charitable donations to qualified charitable distributions (QCD). You can accrue up to $100,000 in annual RMD and avoid income tax on that amount, greatly reducing your burden.

You could also consider converting some of your large IRA balances into Roth IRAs over the next decade or so, but that won’t cut your spending. This removes the money from the RMD formula and makes it easier for heirs to inherit tax-free.

In fact, you may want to focus more on your fixed annuity and how you manage it as a source of income. “When you withdraw money, it’s last in, first out. Every dollar that comes out is taxable income,” he says Crowell. “You can decide how much salary it will generate over time, but it can also be considered a gift when you receive it.”

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