The buoyant stock market has swelled the amount of money Americans have in their retirement savings plans, which is undoubtedly a welcome development for seniors who will need that money to live on.
But most of the more than $13 trillion in savings is stockpiled in tax-deferred plans, which means retirees will eventually have to pay taxes on it. And depending on the size of the account, that tax bill could be significant.
The IRS requires owners of traditional IRAs and other tax-deferred accounts, to take minimum annual withdrawals starting at age 72.
Required minimum distributions are taxed as income, so a large withdrawal could vault you into a higher tax bracket. In addition, more of your Social Security benefits could be taxed, you could lose out on certain deductions and credits tied to your modified adjusted gross income, and you could pay higher premiums for Medicare parts B and D.
But here are some ways to reduce the size of your required withdrawals and, consequently, your tax bill.
Tap your IRA for charity: If you’re 70½ or older, you can donate up to $100,000 a year from your IRAs to charity via a qualified charitable distribution, and after you turn 72, it will count toward your required minimum distribution.