Navigating RMDs at 74: When Should You Consult a Financial Planner?

As you approach retirement age, navigating Required Minimum Distributions (RMDs) can be a daunting task. At 74, with a $120k 401(k) balance, it's crucial to understand the rules and strategies to optimize your RMDs and minimize tax implications. In this article, we explore the benefits and drawbacks of hiring a financial planner to help you manage your RMDs.



First, let's understand the basics of RMDs. The SECURE Act raised the RMD age to 72 for those who reach that age after Dec. 31, 2019. If you reach age 72 in 2023, your first RMD is due by April 1, 2025, for 2024. For a $120k 401(k) balance, the RMD for 2023 would be approximately $5,041, assuming a life expectancy of 23.6 years.



Now, let's consider the pros and cons of working with a financial planner for managing your RMDs.

**Benefits of hiring a financial planner:**

1. **Expert guidance**: Financial planners specialize in retirement planning, including RMDs. They can help you understand the complex rules, calculate your RMDs accurately, and strategize ways to minimize taxes and maximize your retirement income.
2. **Tax optimization**: A financial planner can suggest strategies like converting a portion of your 401(k) to a Roth IRA, which has no RMDs and allows tax-free withdrawals in retirement. They can also advise on qualified charitable distributions, which can help meet RMDs while supporting causes you care about.
3. **Diversification and investment advice**: A financial planner can help you diversify your portfolio, ensuring your RMDs come from lower-basis, higher-growth assets to minimize capital gains taxes. They can also assist in tax-loss harvesting, strategically selling assets at a loss to offset gains.

**Drawbacks of hiring a financial planner:**

1. **Costs**: Financial planners typically charge an annual fee, averaging 1% of your assets under management. For a $120k 401(k) balance, that's $1,200 annually, or $12k over 10 years.
2. **Potential misadvice or conflicts of interest**: While rare, it's essential to choose a reputable and experienced financial planner to minimize risks.

Ultimately, the decision to hire a financial planner depends on your individual financial situation, goals, and comfort level with managing your RMDs. If you're not familiar with the complex rules and calculations involved, consulting a professional can provide valuable guidance and peace of mind.

In conclusion, working with a financial planner can help you optimize your RMDs, minimize taxes, and maximize your retirement income. However, it's essential to weigh the costs and potential risks against the benefits and make an informed decision based on your unique circumstances.