What are the tax rules around IRA accounts?

There are important ages that determine when you can or need to pull money from your retirement accounts to avoid tax penalties:

• 50: Catch-up contributions – Once you reach 50, you are allowed to make additional contributions above the standard limit to your 401(k) and IRA. For 2024, the catch-up contribution is an additional $7,500 for 401(k)s and $1,000 for IRAs.
• 59 ½: Penalty-free withdrawals – Generally, withdrawals from retirement accounts like 401(k)s and IRAs before age 59½ may incur a 10% early withdrawal penalty. After reaching 59½, you can withdraw funds without penalties, although regular income taxes may still apply.
• Age 73: Required Minimum Distributions (RMDs) – You must start taking distributions from most retirement accounts by April 1st of the year after you turn 73. Not taking RMDs on time can result in significant penalties.

It’s important to understand how these rules apply to your age and financial situation to make smart decisions that maximize your retirement savings.

What tax savings strategies are there for retirement accounts?

Personalized retirement tax strategies aim to minimize your taxable income through retirement and secure tax-free growth for your savings accounts.

Strategies for this include:

• Roth Conversions: Converting part of a traditional IRA or 401(k) to a Roth IRA can be beneficial, particularly if you expect to be in a higher tax bracket in retirement or if tax rates rise. 
• Strategize Required Minimum Distributions (RMDs): Once you reach age 72, you must start taking RMDs from your traditional retirement accounts. Planning these forced withdrawals helps minimize the tax impact, especially if combined with Roth conversions earlier in retirement.
• Charitable Contributions: Consider using your RMDs for charitable contributions through a Qualified Charitable Distribution (QCD). This move can satisfy your RMD requirement without increasing your taxable income.
• Delay Social Security Benefits: Delaying the start of Social Security benefits until age 70 maximizes the monthly benefit. Although this isn’t a direct interaction with retirement accounts, it can influence how and when you need to withdraw from your savings, potentially keeping your taxable income lower during the earlier years of retirement.

We have decades of experience building personalized tax savings strategies in retirement.

Don’t miss out on your opportunities to save.

Dick is a member of the Ed Slott Elite IRA Advisor Group