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IRS Poised for Boomer Retirement Boom

June 30, 2016

As the oldest Baby Boomers reach retirement age this week and the rest of their generation follow, the Internal Revenue Service will be waiting to take its cut from tax-deferred savings accounts, Bloomberg writes.

Financial advisors are cautioning clients against ending up in a higher tax bracket due to required minimum distributions, according to the news service.

For starters, Bloomberg writes, it helps to start early and to keep in mind IRS rules. For instance, the amount required to be withdrawn is based on life expectancy, it has to be done by the end of the year each year, and the tax man will try to keep 50% of whatever required distribution retirees don’t take in a particular year.

The news service also recommends that retirees only work with fiduciaries.

Financial planners, meanwhile, can help clients strategically convert traditional individual retirement accounts into Roth IRAs to prevent them from falling into a higher tax bracket, Kevin Reardon of Shakespeare Wealth Management tells Bloomberg.

He recommends converting just enough IRAs into Roths prior to being forced to take RMDs. Such conversions should help clients stay in the same low tax bracket, the news service reports.


The actual amount to be converted, however, can be hard to determine as it depends on a variety of factors, including how close a saver’s income is to the next tax bracket and the amount of money in taxable accounts, both for living expenses and for covering taxes, Bloomberg writes.

In part to allow for Roth IRA conversions without getting into a higher tax bracket, Reardon suggests his clients wait to collect Social Security until age 70, according to the newswire.

John Shanley, a certified financial planner with Pinnacle Investment Management, suggests comparing the tax obligations from a conversion today to the ones in the future depending on the tax bracket during both times, Bloomberg writes.

Finally, the news service writes that retirees who don’t need the money can make up to $100,000 in annual qualified charitable distributions — but it’s the firm that holds the client’s tax-deferred account who has to send that money straight to the charity.

By Alex Padalka
  • To read the Bloomberg article cited in this story, click here.