It’s always fun to hear from listeners and to field questions about retirement and retirement-related financial issues. I publish my podcast to help people deal with those issues with wisdom and insight, so they can live a better life in retirement.
This episode is not just another listener question episode — it’s the BEST questions I’ve received over the past week. There are so many decisions to be made and the questions are relevant not only to the person who asked the question, but also to others who never ask a question but have questions all the same.
You will want to hear this episode if you are interested in...
- How you can gain access to my retirement toolbox (free resources) [3:20]
- Susan asks about taking an RMD from her 401K at age 72 [4:22]
- Are Series I savings bonds worth considering for an emergency fund? [7:12]
- I would like to start 529 funds for our grandkids, what happens if we don’t use the money for their college tuition? [9:30]
- How can I find out about the free retirement assessment (2nd opinion)? [14:14]
- Tammy has inherited a $400K IRA and other financial assets and accounts. How do these impact taxes, retirement, etc.? [15:08]
- Johnny has asked about 2026 being the “year of the big tax increase” [19:04]
What’s the best strategy for a 72-year old to use when taking a 401K Required Minimum Distribution (RMD)?
For most people, age 72 is when they are required to start taking those infamous “Required Minimum Distributions” from their 401Ks. Susan is concerned about the tax implications because the bulk of her retirement savings, almost $2M, is in her 401K. That would be a concern if she’s retired or retiring in 2021 (as Susan says she is - this December), but if she’s not retired, then she doesn’t have to take the RMD even though she is 72 years old. The rule only applies to those individuals who are not working.
My recommendation to Susan is that she pushes off her official retirement to January of 2022. That way her RMD can be done in the new tax year and as a retiree, her income that year should be far less than in 2021, which means she’ll be in a lower tax bracket and pay less tax on the RMD.
How do 529 funds relate to retirement planning?
A listener wants to start a 529 Fund for each of her grandchildren (it’s an educational savings account) but she’s concerned about what will happen to the funds should her grandchildren decide they don’t want to attend college. Does she lose the money she’s put in should that happen? 529 plans are a great way to save for college and many States allow tax deductions for money put into the plan. Should your kids not use the funds, you can change the beneficiary and give the funds to another grandchild, a niece or nephew, etc. As well, the qualified educational expenses the funds can be used for are more liberal than ever. Technical school, trade school, nursing certifications, licensing, computers, and more can be purchased with those funds. And if you can’t use the funds in any of those ways, then the gains will incur a 10% penalty and you will pay taxes on the funds.
What’s all the talk about 2026 being a huge tax year?
As things stand at the moment, if congress does not agree on new tax legislation and if the 2017 Tax Cuts and Jobs Act is not extended, it will expire at the end of 2025. That means the tax code will reset to what it was prior to the 2017 legislation, which is a higher tax rate among other things. Reasonably, those planning for retirement should keep this issue in mind to mitigate the tax implications in their situation.
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