Hi All, my retired mom is about to turn 73 and will need to start taking a required minimum distribution. She has about $1Mil in a tax deferred annuity. Currently, her pension and social security have her making about $105,000 per year. She does not need the RMD to live as she is comfortable on the pension / ss income.
Any recommendations / tips / tricks to best protect the RMD money or reduce taxable income or skip tax on the RMD money? She has one young grand child. No trusts have been created yet and no 529s yet.
Require Minimum Distribution Strategies?
byu/records23 inpersonalfinance
Posted by records23
5 Comments
RMDs = *Required* minimum distribution
Emphasis on the *required*.
It’s got to happen. It’s not a choice. RMDs even continue after death.
(well I guess you can choose not to take an RMD, but the repercussions are quite… onerous)
If she wants to support a charity, a [Qualified Charitable Distribution](https://www.schwab.com/learn/story/reducing-rmds-with-qcds) (QCD) can let her use part/all of her RMD without increasing her income.
If she is a single filer, the 22% bracket goes up to $105,700 in 2026 less the $16,100 standard deduction. So an AGI of $121,800 is taxed up to 22%.
The 24% bracket goes up to $201,775, so there is a lot of headroom in that bracket for RMDs.
The tax man gets his cut when she takes RMDs (unless you go QCD) or when her heirs inherit them upon her passing.
She can donate the money to charity through a QCD and not have it count as taxable income.
I have an RMD on a beneficiary IRA and I withhold almost all of it to cover non-W2 income like dividends and capital gains. Doesn’t sound like that fits your mom’s needs but perhaps worth considering.
From the limited information provided sounds like all her income streams are guaranteed/inflexible. Maybe she can pay a surrender charge and cancel the annuity I don’t know check the contract.
Other than that’s what else do you propose? It’s not magic you can’t just “skip” taxes. Other people have proposed QCDs but giving away 100% to avoid probably 22-24% taxes isn’t exactly a strategy to maximize take home assuming that’s your goal.
The time to plan retirement strategies is when you are in your 40s and 50s not when you’re 73. All her choices were already made years ago.
She could do a direct rollover from the annuity to a traditional IRA, then make Qualified Charitable Distribution (donation to charity) in the amount of her RMD. This must be a direct transfer from the IRA to the charity, and not pass through her hands.
You also might look into Qualified Longevity Annuity Contracts. Funds committed to these can defer RMDs to age 85.