Do RMD’s Bother You?


March 4, 2020

Some people who have shared this message with will respond with a theory known as the spend-down theory. The spend down theory is simply one that determines in which order you’ll spend your assets in retirement. So, well most people can see the obvious threat of loss inside qualified plans, their argument is that they will spend their money last, so they won’t need as much and therefore won’t feel the negative effects as much.

However, this may be impossible for most Americans because of a requirement called the required minimum distribution. RMD’s are the government’s way of saying that at the age of seventy-two, they will require you to take a minimum amount of money from your account. This money is taxed fully and is added to your bill, regardless of whether or not you need the money. This means that our empties could trigger a much higher tax bill if you’re using a spend-down theory.

If you take money out of your 401k first, you could be interrupting one of your goals. If you want to enjoy the same standard of living and retirement that you are accustomed to while working, these extra tax rates plus stock market volatility may mean that you have to take more money out of your account than needed to cover the bill. Does it bother you that traditional financial planning has put you in this position?