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Meet Alice. She retired recently after spending 30 years teaching English literature at a world-renowned university. She has also made responsible choices with her money and has paid off her house while building a nest egg worth $700,000.
Much of this money is in a traditional IRA. She also receives a pension of $5,000 a month and Social Security payments of $2,000 a month, after taxes. The combined checks comfortably cover all of her current living expenses, sitting at just about $6,000 per month.
Earlier this year, Alice learned that Required Minimum Distributions (RMDs) could help her money go further. Now she wants to know the optimal way to comply with RMD rules without overpaying in taxes down the line. While she has 12 years before she has to worry about RMD rules going into effect, she doesn’t want to drain her nest egg unnecessarily fast and would prefer to have something left over to leave behind for her kids.
Beyond planning for potentially needing long-term care, Alice should also consider a plan for RMDs in her retirement. Since much of Alice’s nest egg is saved in a traditional IRA, the funds will be subject to RMDs once she reaches age 73.
Here’s what she could do next.
While your golden years can be full of memorable times, the reality of aging is that it can also come with increased living expenses. At some point, you may no longer be able to take care of certain tasks on your own.
Some retirees simply need an extra hand with groceries or household chores. Others may require long-term care with daily support for everyday tasks. And while it’s easy to imagine staying healthy and independent forever, things don’t always play out that way.
Alice is a relatively young retiree and likely has many independent years ahead of her. But it’s helpful to consider that at some point, she may need to outsource some daily living tasks. In fact, according to the Center for Retirement Research (CRR) at Boston College, 80% of 65-year-olds will need long-term care at some point over their remaining years (1).
Unfortunately, the price tag for long-term care is steep. The CRR also reported that in 2023, the median annual cost for a private nursing home room was $116,800, compared to $75,500 for a home health aide, or $64,200 for an assisted living facility.
One way to mitigate the potential costs of long-term care is to purchase long-term care insurance. For a single male, the average annual premium purchased at 65 is $1,200. For a single female, like Alice, that same premium is $1,900, according to the American Association for Long-Term Care Insurance (2). If possible, Alice should find a way to pay for this insurance policy — especially given her premium will only increase if she waits longer to purchase.
Since she’s spending less than her income each month, it’s an expense worth considering to safeguard her financial future.
When considering long-term care insurance, GoldenCare offers different options based on your needs. These include hybrid life or annuity insurance with long-term care benefits, short-term care, extended care, home health care, assisted living and traditional long-term care insurance, too.
With GoldenCare, Alice could even combine her term life insurance policy with a long-term care insurance policy to give her and her family peace of mind.
Think of RMDs as the minimum amount an account holder must withdraw after a set age.
Starting at 73, you’ll need to withdraw a set amount each year from accounts such as traditional IRAs, SEP IRAs, SIMPLE IRAs and employer retirement plans, according to the IRS. They’re the IRS’s way of making sure you don’t let your retirement money sit forever. And if you skip your RMD, you will be hit with a 25% tax penalty on the set amount.
Per NBC, 53% of Fidelity investors with an RMD for 2025 haven’t yet taken one. If they aren’t taken by April 1 of the year after turning 73, or December 31 for every following year, then they’ll face that hefty IRS penalty (3).
There are many considerations needed to craft the best strategy to reduce your RMDs. And that can be a crucial financial move, given RMDs are taxed as ordinary income once distributed. That added income can have a profound impact on your financial situation — potentially launching you into a new tax bracket, reducing your deductions or even increasing Medicare premiums.
An optimal process involves understanding multiple tax rules and seemingly unrelated consequences. Because of that, it’s often best to enlist the help of a financial advisor.
An advisor may suggest to Alice that if she wants to minimize her RMDs, the best way is by lowering the balance of the relevant account. For example, she could pursue a conversion strategy that would pull funds out of her traditional IRA and put them into a Roth IRA, which isn’t subject to RMDs.
In that case, she would still have to pay income taxes on funds she withdraws from her traditional IRA before she tucks them into a Roth IRA.
Alternatively, an advisor may simply tell Alice that she should opt for the simpler path. While she could further optimize her situation through RMDs, the hassle of properly timing conversions and managing the tax consequences may not be worth it, both financially and administratively, for her.
Clearly, RMD strategies are both individual and complex. But finding a financial advisor that suits your specific needs and financial goals is simple with Vanguard.
With a minimum portfolio size of $50,000, this service is best for clients who already have a nest egg built and would like to try to grow their wealth with a variety of different investments. All you have to do is set up a consultation with a Vanguard advisor, and they will help you set a tailored plan and stick to it.
Another option for Alice, although it would require long-term planning, is to capitalize on the back-door Roth IRA method. It’s a strategy that those with high net worths may wish to consider when retirement planning.
That’s because Roth IRAs do not have RMDs, so you can grow your money, tax-free, indefinitely. There are RMD rules for Roth IRA beneficiaries though — so make sure you fully understand all of the financial and tax implications before going down this path.
While Roth IRAs don’t allow joint filers making above $246,000 or individuals making more than $165,000 in modified adjusted gross income to make contributions, there’s a workaround. You can instead contribute to a traditional IRA and then convert it into a Roth IRA.
If that sounds complicated — and indeed, it is — then the experts at Advisor.com are here to help. Their platform connects you with licensed financial professionals in your area who can provide personalized guidance.
A professional advisor can also help you determine how many years you have left to invest before retirement and assess your comfort level with market fluctuations — two key factors in building the right asset mix for your portfolio.
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