Required Minimum Distribution Strategies: How to Protect Your Retirement Income
✨Key Points
- Missing required distributions can cost retirees, planning ahead keeps you compliant and stress-free.
- Mark Henry’s “three-bucket” strategy balances growth, access, and steady retirement income.
- Smart retirement plans help your savings last longer while protecting your lifestyle.
Mark Henry founded Alloy Wealth after watching his father lose half of his retirement savings to a large market downturn.
Along with a team of experienced financial advisors, Mark Henry helps clients at Alloy Wealth set up their portfolios with the aim of providing for them throughout their retirement years.
Through the creation of written retirement plans, his goal is to provide people with a guaranteed monthly income to draw on, even after they stop working.
As the CEO of Alloy Wealth, Mark Henry’s philosophy is that everyone can prepare for financial stability in retirement, regardless of how much money they have previously saved or what sort of income they are used to having.
He encourages clients to start saving and investing as soon as possible.
He also uses required minimum distribution strategies for retirement accounts to help protect long-term income.
Retirement plans are structured into three “buckets”: one for long-term growth, one for balanced liquidity and short-term growth, and one for liquid assets that provide steady monthly income.
Long-term financial stability
He encourages clients to start saving and investing as soon as possible.
He also uses required minimum distribution strategies for retirement accounts to help protect long-term income.
Retirement plans are structured into three “buckets”: one for long-term growth, one for balanced liquidity and short-term growth, and one for liquid assets that provide steady monthly income.
The goal of the team at Alloy Wealth is to help clients maintain their quality of life in retirement by aligning investments for long-term financial stability.
In addition to leading Alloy Wealth, Mark Henry provides a wide range of financial guidance and information to the public through a number of platforms.
He is available for speaking engagements both in person and online, and has been featured on a number of television and radio shows, as well as on podcasts.
He also hosts informative videos about various financial topics on his YouTube channel, @LivingLargeRetirement.
In addition, he discusses a variety of topics on his blog, which can be found at livinglargeretirement.com.
In a recent article, Mark Henry discussed required distributions from tax-advantaged accounts, such as IRAs.
There are a number of different accounts that can provide tax protection to investors, such as traditional IRAs and Roth IRAs.
Some of these accounts allow investments to grow tax-free, while others allow pre-tax money to be deposited into them (with growth taxed upon withdrawal).
There are advantages to each approach, depending on your current and expected future income and tax bracket.
Typically, the longer that investments sit in these accounts, the more they can grow (often tax-free), enjoying the power of compound interest.
Required minimum withdrawal
What many people fail to understand, however, is that there is a limit to how long these investment accounts can grow.
At a specific age, which is currently 73, people are required to begin withdrawing from these accounts.
The reasoning behind this is that the money invested in them has been protected from taxes for many years, often decades, but the government eventually wants to receive a tax benefit.
So while people can often begin withdrawing from these retirement accounts in their 60s without penalty, they are required to begin doing so at age 73.
The amount that they have to withdraw per year is calculated by taking the total value of the account and dividing it by the average life expectancy (which the government maintains is 26.5 years at age 73).
As an example, a person with a million dollars in a tax-protected account at age 73 would need to start withdrawing a minimum of $37,736 per year ($1,000,000 divided by 26.5).
Those who fail to make the required minimum withdrawal, whether due to ignorance of the rules, a failure to calculate the amount correctly, or some other reason, are charged an excise tax of 25 percent on any money that should have been withdrawn, but remains in the account.
That tax represents pure loss to the investor, as the remaining 75 percent will still be taxed normally upon withdrawal in the future, based on the rules of the particular account the funds are being kept in.
One of the best ways to ensure that the correct amount is being withdrawn each year after age 73, and to avoid paying an excise tax unnecessarily, is to work with a financial planner while you’re still working and after retirement.
They will check that all factors are taken into consideration when it comes to tax-advantaged investments.
