Planning for Retirement: Required Minimum Distributions (RMDs)

While Blustein, Shapiro, Frank & Barone, LLP is an estate planning law firm, a robust estate plan is incomplete without careful attention to retirement assets. Estate planning and retirement planning go hand in hand. BSF&B Partner Megan Conroy recently joined Bob O. on WGNY to discuss a crucial deadline for many retirees that is essential for preserving the wealth you plan to pass on: the Required Minimum Distribution (RMD) from tax-deferred accounts.

As the end of the year approaches, it’s the perfect time to review your accounts and make sure you’re staying compliant with these essential rules.

The Current Rule: Required Minimum Distributions (RMDs) Start at Age 73

Thanks to recent legislation, the age at which you must begin taking withdrawals from certain retirement accounts has been raised, giving your savings more time to grow. The current rule requires you to start taking distributions from your tax-deferred retirement accounts by age 73.

The government allowed your money to grow tax-deferred for years, and now they are ready to collect the taxes. The RMD amount is calculated based on your age and the total value of your deferred accounts, ensuring the growth and accrued income are taxed as ordinary income.

🚨 Don’t Forget! If you are 73 or older, you must take your RMD by the end of the calendar year to avoid significant IRS penalties.

Navigating Pre-Tax vs. Post-Tax Strategy

Understanding how your money is taxed when it goes in versus when it comes out is the cornerstone of retirement planning.

• Traditional Accounts (like many 401(k)s and Traditional IRAs) are funded with pre-tax money, meaning you get a tax break now, but the withdrawals in retirement are taxed as ordinary income. These accounts are subject to RMDs.
• Roth Accounts are funded with post-tax money, meaning you pay the taxes upfront, and the growth and qualified withdrawals in retirement are tax-free. Roth accounts are generally not subject to RMDs.

Many individuals benefit from a strategy that involves contributing to both types of accounts. Your financial advisor can help you determine the right balance, especially as your income level and tax bracket change throughout your career.

Choosing a Financial Advisor: Trust is Key

Retirement planning is complex, which is why it’s vital to work with trusted professionals. When selecting a financial advisor, Megan Conroy offers this advice:

• Interview Them. Approach it like hiring an attorney—meet with a few and get to know them. This is a long-term relationship, not a one-time transaction. 
• Ensure Comfort and Trust. You must be comfortable disclosing all your financial information to them so they can manage your assets effectively.
• Look Beyond Sales. You want an advisor who explains investment strategies clearly, not someone who is simply trying to push products (like annuities or specific accounts) without providing a proper explanation.
• Check Reputability. Ask for references or referrals. Often, your estate planning attorney can recommend a reputable financial firm or advisor, and vice versa.

Be sure to ask your prospective advisor about their fee structure (flat fee, percentage of earnings, etc.) as this can vary widely and impact your overall return.

🎧 LISTEN TO THE FULL INTERVIEW

Tune in to hear Megan’s full conversation and learn:

• The key details of the RMD calculation formula and how it changes yearly.
• Specific types of accounts that are subject to (and exempt from) the RMD rule.
• In-depth advice on how to vet and select a trustworthy financial advisor.

Proactive planning is essential—it’s never too early to start. Achieving true peace of mind means having a clear strategy for both today and tomorrow. Our team of experienced attorneys is here to guide you through careful, compassionate estate planning.

Contact the attorneys at Blustein, Shapiro, Frank & Barone, LLP today to schedule a consultation.