In this video, I’m going to talk to you about the required minimum distribution and how to mitigate it.
What is the required minimum distribution?
A required minimum distribution (RMD) is the amount of money that someone over the age of 72 must be withdrawn from their 401k and their IRA every year, based upon their age. As of 2020, anyone that was born after 1949 and who has actually now turn 72 must begin withdrawing from their retirement accounts by April 1 following the year they reach age 72, prior to 2020, the RMD age had been 70.5 years old. Now you get an extra year and a half before you actually have to take the RMD.
So let’s talk about exactly what I did in order to get out of doing that.
Now, you probably are asking Gena, you’re not close to 72, Why do you care?
Here’s what I care, I don’t ever want to be mandated to distribute or withdraw money, when I may not want to at any age. That’s number one. Number two is in the event that I have to withdraw money at any age, it might actually have a few consequences that are negative to me. I mean, I could actually go into a higher tax bracket, or I could then withdraw money from whatever the actual stocks are when they are at a depressed price and I might actually only have that amount of capital available for me in order to live my life. So, these are just some of the reasons why you do not want to actually be beholden to having to withdraw an RMD.
So how do I get out of that game?
The most important thing is to always work with your team, that is your CPA (Certified Public Account) and your lawyers. The first step of actually moving over your money to an IRA or pension to a Roth IRA should be Financial Freedom.
As most of you must know, I’m now fully on the right side of the quadrant as a business owner or investor and that is why I don’t make any money. Gena often makes no money. However, Gena Lofton assets do generate income, they are the ones making the money. They could be real estate, they could be businesses, royalties, etc. So those are actually generating the cash flow.
I’ve achieved actual financial freedom by having my passive income from my assets. They generate the income I need in order to pay my taxes and Gena Lofton, under her social security number often makes no money.
How is that possible? What are you doing with your CPA?
We evaluate exactly how much money did Gena Lofton make minus all of my deductions be that depreciation, be that expenses be that interest expense and since Gena makes no money or just made X amount of dollars, I can convert this amount of money this year over into a Roth IRA tax-free. So yes, every December that is what we do.
To recap, you become financially free first, so you don’t need a job and you’re not making any money from your actual social security number, you’re making money from the assets in which you own that are generating income. Then, at that time you work with your CPA, in order to begin identifying how much money you can convert, and making sure you do not convert any more than you actually can tax-free in any given calendar year.
Now, once you’ve converted all of it over, guess what? You can begin making money all over again. Isn’t that wonderful?
Now, there are some limitations to what I can make. And I’ve got to figure all of that out with my CPA in order for me to continue to live in the highest state income tax jurisdiction in the Union called California. Lord knows I never going to pay that 13%. So I will continue to actually share how I go about doing.