HUNTSVILLE, Ala. (WAFF) – Making the right money moves can be a challenge if you try and tackle your finances on your own. For those of you with pre-tax retirement accounts like IRA’s and 401k’s, the government mandates distributions from these accounts once you reach a certain age.
Financial expert, Marshall Clay with The Welch Group explains the implications that come with recent congressional changes to these mandates. Clay describes the apprehension people around a certain age may have. Especially those in their 70s. “I think there are a couple of big changes that happened just on the back end of 2022. The first change is the age was moved upward from age 72 to 73 for 2023,” Clay said. “And then there’s going to be a further adjustment upward in 2033 and beyond.”
The Certified Financial Planner explains the change in 2033 will go from age 73 to 75. Clay is able to further break down the implications for those in that category this year.
“I think the biggest one and most obvious one is that if you’re turning 72 in 2023, you will not have a required minimum distribution from this pre-tax account,” Clay said. “You won’t have to start that required minimum distribution until 2024.”
That means those in this age group will get a delay, which is a financially beneficial perk. Another piece of advice Clay offers is to make sure you’re getting the money out of these pre-tax accounts in the most efficient tax manner. “Look at these accounts in relation to your other accounts, and try to pull that money out in the lowest possible tax bracket,” Clay said. “So even though you may not have a required minimum distribution in 2023, you may want to consider distributing some of that money as long as you can get that money out at really, really low tax rates.”
Another thing to consider is a bit of an unusual strategy at first blush, but it’s one the financial expert offers to his clients. It’s what’s known as an IRA to Roth IRA conversion. “This allows you to get money out of a pre-tax account,” Clay said. “Now you’re going to have to pay tax, but it allows you to put money into a Roth IRA which is a more favorable taxed account.”
The benefit here is that the money in the Roth IRA can grow tax-free. Clay explains there’s also no required minimum distributions in those accounts. Clay hammers home the point of getting with your financial planners to see what makes financial sense for your situation.
“Even though you may not have a required minimum distribution, you may want to take a distribution from those accounts,” Clay said. “Then look at your required minimum distribution if you do have one, and make sure that you’re distributing those monies in the most tax efficient way.”
Clay explains the key to all of this is to distribute assets with the lowest possible tax liability.
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