If you have neglected retirement planning most of your life, you may have one last chance starting at age 69 that could determine how you live your final years and if you leave anything to heirs, some financial advisers said.
Age 69 begins the last stretch before required minimum distributions (RMDs) start at age 73 and is still early enough to take steps to keep taxes low, advisers said. For example, Americans may find the road from 69 to 73 is the best time for Roth conversions, advisers said. Withdrawals from Roth accounts are tax- and penalty-free as long as you’re 59-1/2 years or older and your first contribution was made at least five years ago.
Taxes are one of the largest surprise expenses for retirees, according to Citizens Bank. Withdrawals from traditional IRAs and 401(k)s count as taxable income. Depending on how high that is, your Social Security could also get taxed or you could end up paying thousands of dollars more each year in Medicare premiums, making planning critical.
These years comprise “the last window to take control of your taxable income and take control of your tax future,” said Sheena Gray, chief executive of the Association of African American Financial Advisers. “They could determine if your wealth is preserved or lost for generations.”
How to Keep Taxes Low Before RMDs Hit
Roth conversions top the list of smart moves to make, according to experts.
From age 69 and throughout these retirement, pre-RMD years, “you have a lower tax bracket opportunity to do Roth conversions” if you’re retired, Gray said. Since taxes are due on the converted amount, start at age 69 and spread the conversions over several years. You’ll avoid racing up tax brackets and being stuck with one giant tax bill, she said.
Since you no longer receive a paycheck, you can replace the W-2 income with Roth conversions, said Jordan Mangaliman, chief executive and fiduciary wealth advisor at GoldLine Wealth Management. For instance, if you used to earn $150,000 annually before retirement and now only receive a $50,000 annual pension, you can convert about $100,000 to a Roth and stay in your usual tax bracket, he said.
Roth accounts also are beneficial from a legacy and generational wealth perspective, Mangaliman said. Roth accounts aren’t subject to RMDs, so a surviving spouse wouldn’t have to continue receiving RMD income that would immediately boost the widow or widower into a higher tax bracket when filing as single rather than joint.
Plus, most beneficiaries who inherit traditional retirement accounts must liquidate them within 10 years and withdrawals are taxed — but Roth withdrawals, even by heirs, are never taxed.
Other Steps to Take at 69
- Income planning: Determining the sources of your income before you must take RMDs “is huge,” Mangaliman said. “Look at what is producing income. Is it dividends or bonds? Are you selling stocks, and if so, is that sustainable? A properly allocated portfolio is crucial because you have no time to recover” if the market takes a downturn. “Every dollar has an assignment. It’s not just one blob of money.”
- Work with a financial expert: If you’ve never worked with a financial adviser or certified accountant, this would be a good time to start. “Financial advisers will be the best people to guide you, help you set up a withdrawal plan from investment income,” Gray said.
How to Find the Right Financial Adviser
There are many resources to help you find the right financial expert to develop a plan so you don’t run out of money during retirement. Make sure they hold a certified financial planner (CFP) designation and are a fiduciary — someone who is legally and ethically obligated to act in your best interest.
Searchable databases allow you to look for local advisers. The National Association of Personal Financial Advisors lists only fiduciaries. The Association of African American Financial Advisors also has a searchable database of vetted advisers based on your needs and location.
“A lot of mistakes people make includes waiting too long to have a strategy,” Gray said. “It’s too late if you hit 73. The IRS has taxes planned for you if you have no plan” — and it’s probably not one you would have chosen.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY.
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