Key Points Required minimum distributions (RMDs) on tax-deferred retirement accounts begin at age 73 for individuals born between 1951 and 1959. RMDs must be completed by Dec. 31; the only exception is the first RMD, which may be delayed until April 1 of the subsequent year. Failure to complete the RMD before the deadline is penalized with an excise tax equal to 25% of the amount not withdrawn, but that figure can be reduced. The $23,760 Social Security bonus most retirees completely overlook › T ...

Group 1 - A significant number of retirement savings accounts, specifically 401(k)s, are left behind or forgotten, with 31.9 million such accounts reported as of July 2025, averaging a balance of $66,691 [1] - Forgotten accounts often result from job changes, but other types of retirement accounts, like IRAs, can also be lost or overlooked [2] - The ability to claim an inherited IRA depends on the original beneficiary designation, account title, and compliance with tax rules and required distributions [2][3] Group 2 - Inherited IRAs are passed to the named beneficiary, with surviving spouses having the most flexibility in managing the account, including rolling it into their own IRA [3] - If no beneficiary is named, the IRA becomes part of the decedent's estate and is distributed according to the will or state intestacy laws, requiring adherence to IRS rules for non-spouse beneficiaries [3] - Non-spouse beneficiaries are generally subject to the 10-year rule under the SECURE Act, necessitating the account to be emptied within ten years of the original owner's death [3]

Core Insights - Transferring retirement savings from a 401(k) to a Roth IRA can reduce or avoid required minimum distributions (RMDs) and income taxes in retirement, providing flexibility in tax planning [1][4] - Roth accounts are not subject to RMD rules, which can help retirees manage their tax liabilities and financial situations better [4][5] - Converting a significant portion of a 401(k) can lead to a substantial immediate tax bill, potentially pushing individuals into a higher marginal tax bracket [2][6] Group 1: Roth Conversion Benefits - Roth conversions allow for tax-free withdrawals for heirs, making them an attractive option for estate planning [1] - By eliminating RMDs, retirees can potentially pay fewer income taxes and have more disposable income for lifestyle expenses [5] Group 2: Tax Implications of Roth Conversions - Amounts converted from a tax-deferred account to a Roth IRA are considered taxable income, which can significantly impact the individual's tax bracket [6] - For instance, converting 25% of a $1 million 401(k) could result in an additional $250,000 in taxable income, leading to a tax bill of approximately $53,014 for a single filer in the 32% marginal tax bracket for the 2024 tax year [7]

Core Points - The government mandates that individuals must start taking required minimum distributions (RMDs) from tax-deferred retirement accounts at age 73, with exceptions for current employer accounts if still employed [1] Group 1 - Failing to take RMDs incurs a 25% penalty on the amount that should have been withdrawn, which is often more costly than simply taking the RMD and paying taxes [2] - RMD funds can be utilized in various ways, including covering living expenses, building an emergency fund, and reinvesting in a taxable brokerage account [2][8] Group 2 - RMDs can be used to cover everyday living expenses, and if not needed immediately, they can be saved for future use [4] - Establishing an emergency fund with RMDs is advisable, ideally containing three to six months of living expenses, kept in a high-yield savings account for easy access [5][6] - RMDs can be reinvested in a taxable brokerage account, allowing for potential long-term capital gains tax benefits if held for over a year [7][9]

Core Insights - Transferring funds from a 401(k) to a Roth IRA can help retirement savers manage their future tax liabilities, especially if they expect to be in a higher tax bracket after retirement [2][4] - Roth IRAs do not have Required Minimum Distribution (RMD) rules, allowing funds to grow tax-free indefinitely, which can be beneficial for tax minimization and estate planning [5][4] - Gradual conversions of 401(k) funds to Roth IRAs can help spread out tax liabilities, making it a popular strategy among retirement savers [6][8] Roth Conversion Concepts - Tax-deferred accounts like 401(k) plans require withdrawals to be taxed as ordinary income and are subject to RMD rules after age 73 or 75 [4] - Converting to a Roth IRA allows individuals to avoid RMDs, thus potentially reducing their overall tax burden in retirement [5] - Immediate taxation on converted funds can lead to significant short-term tax bills, making gradual conversions a more appealing option [6] Hypothetical Scenarios - A 58-year-old with a $1.4 million 401(k) could convert $140,000 annually, resulting in a total taxable income of $240,000 and an annual tax bill of $49,814 [7] - At this conversion rate, it would take approximately 16 years to deplete the 401(k) account, with a total tax bill of $797,024, compared to a one-time tax bill of $507,784 for a full conversion in one year [8]

Core Insights - Roth conversions allow the transfer of funds from tax-deferred accounts like 401(k)s to Roth IRAs, requiring current tax payments but enabling tax-free withdrawals later [4][5][6] - The decision to convert should consider future tax rates, as higher rates may make current conversions less advantageous [2][7] - Roth accounts are exempt from Required Minimum Distribution (RMD) rules, providing flexibility in retirement fund management [4][8] Group 1 - Roth conversions can lead to significant current tax bills due to the requirement to pay taxes on converted amounts [5] - Withdrawals taken within five years of conversion may incur penalties, suggesting that only funds not needed for at least five years should be converted [6] - Predicting future tax rates is challenging, and current lower rates may not remain, impacting the timing of conversions [7] Group 2 - To avoid RMDs, one must completely empty their 401(k), but partial conversions can provide a mix of taxable and tax-free withdrawal options for better tax planning [8]

Core Insights - The article discusses the "Social Security tax trap," which can lead to unexpected increases in Social Security taxes for retirees with significant retirement savings due to required minimum distributions (RMDs) starting at age 73 [3][5]. Group 1: Social Security Tax Trap - The Social Security tax trap results from increased income due to RMDs, which can raise taxable income and reduce net Social Security benefits [3]. - Retirees may face taxation on 50% to 85% of their Social Security benefits if their combined income exceeds certain thresholds, defined as adjusted gross income plus tax-exempt interest and half of Social Security benefits [4]. Group 2: Impact of RMDs - RMDs can also lead to higher Medicare premiums for retirees whose incomes surpass specific thresholds, resulting in additional surcharges on Part B and Part D benefits [6]. - The situation can create a "tax cliff," particularly for married couples with tax-deferred retirement accounts, where a small increase in income can lead to a significant tax burden [6]. Group 3: Strategies to Mitigate Tax Traps - One strategy to avoid the Social Security tax trap is to convert traditional IRAs to Roth IRAs, which eliminates RMDs on the converted amount, although taxes will be due in the year of conversion [8]. - It is recommended to spread the conversion over several years to minimize the tax impact and avoid moving into a higher tax bracket [8].

Core Insights - The article discusses the implications of Required Minimum Distributions (RMDs) for retirees, particularly those with significant IRA balances, and offers strategies for managing these distributions effectively [1][4][5]. Group 1: Required Minimum Distributions (RMDs) - RMDs can be substantial, with one example showing a required minimum distribution of $300,000 for an individual with a significant IRA balance [1][4]. - The article emphasizes the importance of planning for RMDs, especially for high earners who may face higher tax brackets [4][7]. Group 2: Tax Strategies - The article suggests considering Roth conversions as a strategy to manage tax implications of RMDs, particularly for individuals who may experience a dip in income during early retirement [7][8]. - A qualified charitable distribution (QCD) of $108,000 could significantly reduce taxable income, potentially saving around $24,000 in taxes [10][12]. Group 3: Legacy Planning - The article highlights the importance of considering tax implications for heirs when planning to leave an IRA balance, as distributions from tax-deferred accounts can lead to significant tax burdens for beneficiaries [13][14]. - Converting an IRA to a Roth IRA may be beneficial for legacy planning, as it allows heirs to inherit tax-free funds [15][16].

Core Insights - Roth conversions can have significant and immediate tax implications, making it essential for individuals to consult with a financial advisor to explore the best options for their specific situations [1] Group 1: Roth IRA and RMDs - Roth IRAs are not subject to Required Minimum Distributions (RMDs), making them an attractive option for households looking to avoid these distributions by converting 401(k)s into Roth IRAs [2] - The only requirement for conversion is that the assets must originate from a pre-tax portfolio, and the converted assets cannot be part of a required minimum withdrawal [2] Group 2: Financial Planning Considerations - Required Minimum Distributions can disrupt financial planning, as they increase taxable income and can reduce the account's value, which may not align with some households' goals of leaving assets to heirs [3][4] - The decision to convert a 401(k) to a Roth IRA should be tailored to individual financial situations, as there is no one-size-fits-all approach [5] Group 3: Tax Implications of Conversion - Converting funds from a pre-tax account to a Roth IRA requires the converted amount to be included in taxable income for the year, which can lead to significant tax liabilities [8] - For example, converting $250,000 from a 401(k) could result in approximately $54,547 in taxes owed [8] Group 4: Strategies for Conversion - It is generally advisable to convert pre-tax accounts earlier in life to minimize tax liabilities, as delaying the conversion can lead to higher taxes on account growth [9] - Converting in stages can help manage tax rates and reduce the overall tax burden [9] Group 5: Age and Income Considerations - Younger individuals with lower current incomes are more likely to benefit from converting their 401(k) to a Roth IRA, as they can maximize tax-free returns [13] - Conversely, older individuals with higher retirement incomes may face significantly higher taxes if they convert their portfolios, making it less advantageous [17][19] Group 6: Long-Term Growth and Inheritance - A Roth IRA can be a more valuable inheritance than a 401(k), making conversions worthwhile in certain circumstances, especially for those looking to leave assets to heirs [19] - The effectiveness of a Roth conversion strategy largely depends on individual financial situations and proximity to retirement [20]