How Do New IRS Required Minimum Distribution Rules Affect My Retirement?

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

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Transcript:

Easan Arulanantham:

How do the new R or Required Minimum Distribution tables affect my retirement? Um, I know that the first of this year, there’s new tables.

Tom Vaughan:


Yeah, so what ASINs referring to, there’s the, you know, if you have a retirement plan, a 401k, or an IRA, especially traditional ones, this does not apply to Roth accounts Roth are tax free, there is no requirement distribution. So when you turn 72, you have to start taking money out of those accounts. And so the IRS has a table, they call it a life expectancy table, and you take your age 70 to 75, whatever it is, you go to that table, you find this number, and then you take that number, you divide it into the value of your account, at the end of the last year. So if you’re taking, if you’re 72, this year, in 2021, you’re sorry, 22, you’re looking at the end of 2021 value for your IRA. And so it’s been a real problem, actually, because you know, people are living longer, and they haven’t adjusted the table. And so we’ve got people that are taking a tremendous amount of money out of these accounts. So the IRS did make an adjustment to the table. And so you’ll be able to take out have to be required to take out less, not tremendous amounts less, but still less. I think he’s and you were telling me the other day, it’s roughly 5% Less, which you know, is good, that’s a big deal, it’ll add up. If you need more, you take more, that’s fine. You know, that’s part of your living expense. But it’s awful nice to have the ability to take less if you don’t need it, because it is a taxable event, it can create all kinds of problems that can push you into a higher tax bracket, it can make you have to pay more for Medicare if you’re retired, which probably will be by 72.

And so you know, having that be moderated is actually a fairly big deal. I think you can do a lot other things to try to deal with RMDs with looking at Roth conversions and different things that we’ve talked about many times on this show, that I think are really important, but they don’t apply to everybody. And not everybody can do that effectively. So it is nice when they reduced the table. I think they needed to get more aggressive personally, with the table to reduce it because people have so much more money in retirement plans. And I also think they needed to deal with a single person, because I really don’t feel like it’s fair, when a couple was working together putting their money, you know, in their own 401k Ks. And then one of them passes away, and all of a sudden one person has 200 half million in IRAs. Now it’s a single filer, single filer tax rates, single filer in terms of Medicare, and even though two people generated that one person might not have generated two and a half million in 401k, two people did it. But now one person is paying the tax as if they generated, they did not deal with that problem. I think that’s an issue. And so you know, that’s just something I don’t think they completely understand what’s happening there. And I got some clients stuck in that situation where they’re having to pay, you know, a lot of money out for taxes, very high rates, plus, you know, higher Medicare costs, and have no way around it, and no way to get out of that. So anyway, I still think it’s a good thing. It’s better, even those clients will pay less, but it would have been nice to have some type of a carve out. So that there was some way to keep kind of those accounts separated from the calculation. For tax purposes and Medicare, it’s not happening. So it’s like a penalty for having your spouse pass away, which is not good.

Easan Arulanantham:


Yeah, and I’ve seen some different ways to combat that is they have like a life insurance policy solely for the purpose of if they have one of them passes that the other one can just convert the money become a Roth to then control like the RMDs.

Tom Vaughan:


Yeah, that’s, that’s, that’s worth repeating. Because what happens there is so in that situation where there was a couple, building up these 2401 K’s you have a life insurance policy, sitting there for the sole purpose of dealing with the problem. So one of you passes away, the other one has this doubling in the single tax rates and all those that you have a policy 500,000 A million dollar policy that kicks in, when that person passes away, then you can convert that thing over to Roth IRA, pay the taxes with the tax free money you get from the insurance policy, and be able to then not have the problem I just described. And so you know, that cost something for the policy. Right. But a budget cut? Well, I don’t know about this, for sure. But it’s possible that there’s some offsetting, you know, gains by not having to pay the higher taxes and the you know, the higher Medicare. Yeah, that’s, I think that’s a strategy that nobody talks about, and it’s really worth looking at and there’s A lot of uses for life insurance that people don’t don’t really get

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

By participating in any of these live streams, you agree that any questions submitted by you might be used by us in the future on this YouTube channel. We will not share your personal information.

If you have questions, please write to us at: asktom@talkmoneywithtom.com.

  • MoneyGuidePro®
  • Advent Software/Black Diamond Reporting
  • Riskalyze, Inc.
  • thinkpipes®
  • Right Capital
  • YCharts, Inc.