Three retirement planning topics for year-end meetings with investors

Three retirement planning topics for year-end meetings with investors

As year-end approaches, retirement planning often becomes a focus for investors, especially retirees who have specific year-end deadlines for retirement income distributions.

Year-end planning discussions should address required minimum distributions (RMDs), beneficiary reviews, and Roth IRA conversion strategies.

Required minimum distributions have a year-end deadline

Investors face a significant penalty — 50% of the required amount — if they fail to take an RMD. Advisors may want to reach out with reminders about taking these distributions.

  • Investors must take their first RMD by April 1 of the year after they turn 70½, and then by December 31 each year going forward. If investors wait until April 1 of the following year to take their first RMD, they will have to take another RMD by December 31 of that same year to satisfy the requirement. Taking two RMDs in one calendar year may result in tax-related issues for some taxpayers. For example, a greater portion of Social Security may be taxed or the individual could shift into a higher tax bracket.
  • An investor with multiple IRA accounts can take the RMD out of just one account as long as the distribution amount is based on the aggregate IRA balance. This provision differs for 401(k) plans. If an investor has multiple 401(k) plans, they must take an RMD from each account based on the proportional amount.
  • There is an exception for investors who are still working and participating in an employer plan.
  • A Roth IRA does not require an RMD, except for investors who inherit a Roth IRA and hold the account as an inherited or beneficiary IRA.
  • Investors who may not need the income from the RMD may consider donating the funds to a charity. A provision allows investors to donate up to $100,000 directly to a qualified charity annually tax free. Read “Donating IRA assets to charity,” for more information.
  • Investors may also consider using the RMD to establish a 529 for grandchildren or other family members.

Annual beneficiary reviews can avoid future conflicts

Advisors should conduct annual beneficiary reviews with investors to avoid potential problems. Accounts may have outdated information, such as a former spouse, or if no beneficiary is listed, the account may be subject to a probate process. Also, a beneficiary must be in place for an investor to benefit from a “stretch IRA” strategy. See “Stretch an IRA over generations” for more details.

Having a beneficiary discussion may also provide advisors with an opportunity to connect with heirs.

Investors have time to act on a Roth IRA conversion

If an investor decides that a Roth IRA conversion is an advantage, they must convert the account by the end of the year to realize income in the current calendar year. It may make sense for investors who find themselves in a lower tax bracket due to the Tax Cuts and Jobs Act (TCJA) to consider a Roth conversion.

Investors may want to consult with an advisor before acting on this strategy as they will not be able to undo or reverse the conversion. The TCJA eliminated this option.

Seek professional advice

Retirement planning is a key topic for year-end discussions with a professional advisor. It is especially important to review strategies with year-end deadlines to avoid incurring a penalty or missing out on a tax-smart opportunity.


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