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To Maximize the Value of IRAs, Take Action When Client Is 69

Almost any IRA owner will tell you that the year in which he or she turns 70 ½ is the most critical year of the IRA lifecycle—the required minimum distribution (RMD) rules kick in, shifting the focus from accumulation to distribution of assets. What many of these clients don’t realize, however, is that the actions taken in the year prior to age 70 ½ can actually prove to be much more important when it comes to maximizing the value of those IRA funds.

Both contribution and distribution rules change in the year the account owner turns 70 ½ so, in reality, it is the year prior to this year that becomes most important in the IRA lifecycle—as the last year clients can take steps to reduce their RMDs and the associated tax liability that they generate.

Minimizing Distributions

The RMD rules essentially require clients to begin withdrawing funds from IRAs when they reach age 70½. The minimum amounts that must be withdrawn are calculated based on the account value and the client’s life expectancy, determined using IRS actuarial data. Despite this, there are ways that clients can minimize their RMDs in the year prior to 70 ½ if they will have no immediate need for the funds at that time.

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