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How and When to Take Your RMDs in Railroad Retirement Thumbnail

How and When to Take Your RMDs in Railroad Retirement

Video Retirement Financial Planning Taxes


Learn the best ways to pay the government in Railroad Retirement.

Welcome, everyone, to another edition of the Highball Advisors Railroad Retirement whiteboard. My name is John McNamara of Highball Advisors, and today we're going to talk about distributions from your retirement accounts, all right? Specifically, tax deferred retirement accounts, so IRAs, 401ks.

So, what's happened is, the government has given you a benefit of not taxing that money as you were planning for retirement. However, like all good things, they come to an end. The government wants their money. So they do this through what they call a required minimum distribution or RMD. So, what happens is, at the age of 72, they want you to start paying taxes on that money. So they're forcing that money out of those tax deferred accounts. So those 401ks, the money has to come out, the IRAs, the money has to come out because you have to pay the government. And you pay the government in ordinary income tax.

So when do these RMDs, as they're called, when do this happen? It happens when you turn 72. Now there's two options at 72. You can make your first RMD payment in the year that you're 72, or until April 1st of the following year. However, just to give you a little advice on that, If you wait the following, then you'll have to make two RMD payments in that following year, one for the year of 72 and one for the year of 73. Those get paid at ordinary income tax, so that could bump up your income, and that could affect a lot of better things. Specifically for people in retirement, I'm always thinking about the Medicare tax premiums, the IRMAA charges. So that's a big one there that you want to keep an eye on, on when you want to take that.

So let's talk about RMDs in general. When do you want to take them? What time of the year should you take them? Early, late, however? Here's a couple of different ways to approach it, and see if your situation fits inside of here. So, early in the year, January, February. Why you want to do it early? You get it over with, it's done. I paid the tax bill, I'm done with it. Secondly, you can reinvest that money. The money comes out, you've paid the tax on it, it's now in a taxable account. You go reinvest it, and then obviously, if you hold it for over a year, it'll have long-term capital gains, but you can reinvest it.

And then, or maybe you're in debt, and you may have mortgage, car payments, whatever the situation might be. You need to take that money and pay down that debt, as opposed to accruing those interest charges. So that's early in the year, that's one option. I'm just going to take out a lump sum, my RMD, pay it during early year.

You can do later in the year, closer towards the end, so delay the tax on it. Say, "I'm not going to give the money to government. I'll wait, let them wait on it for 11, 12 months." And then you can maximize your deferred growth that way. Let the money keep growing, that type of thing, and then I'll pay the taxes. So that's one way to look at it. So that's early and late. And then finally, periodically. 12 months, you can do 12 payments, quarterly, four payments, that type of thing. Creates an income stream, and then no big tax surprises at the end of the year. So that's another way to do it. I don't see railroaders doing that too much because of their guaranteed retirement income through tier one, tier two. But that's something you could think about if you need an income stream.

So then I have a tax planning tip with the RMDs, especially for those who are charitably inclined. When you're taking that money out as RMD, that shows up on your income tax so, like I said, that can bump you up. So what you can do is, and you can check this out in my video, giving in railroad retirement, good stuff in there. But just real high level right here, is you can give the RMD to charity in the form of a QCD, qualified charitable distribution. And then what's great about that is that keeps that RMD off your taxes. So you're never going to show that income on your taxes, because as I say here, it could affect your Medicare IRMAA charges, the tax that you're going to have to pay in Medicare, if you have a significant amount of income. So that's a little tax planning tip there when it comes to RMD.

So I hope you found this video helpful. Especially reach out to me if you're nearing retirement, you really got to have your RMD strategies down. And sign up for my Boarding for Railroad Retirement process, really good stuff there. And I'll get through a lot of RMD stuff with you in those assessments, so that's great.

Also subscribe to YouTube channel, really appreciate that. Share this with other railroaders. Seeing some great, great growth. Also click on the notification bell down the corner, it notifies you every time these videos come out, and usually the whiteboards are every Thursday, and the mailbags Tuesday, trying to keep that rhythm going. So, until next time, everyone, please stay safe, stay on track and take care. So long, everybody. Bye.


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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved.from Highball Advisors, and all rights are reserved.