06 Sep How can I make sure I won’t be overtaxed on my IRA?

Q. I am 68 and have very modest retirement savings in a pre- tax IRA and an even smaller mutual fund. I own my home and have two sons who will inherit anything I have. I initially bought into an estate trust, which I realized afterwards was confusing, unnecessary and such a pain to undo. Do I need a financial planner to be sure that I’m not overtaxed when my Required Minimum Distribution comes up? My income from Social Security and my pension teeters on that 12% to 22% tax bracket line. I hate spending money unnecessarily.
— Retired

A. No one likes to spend money when they don’t have to.

Estate planning can be complicated, but it’s great that you’re taking the initiative to put a plan in place.

First, though, we don’t know about why an estate attorney recommended a specific plan or financial vehicle to you.

“There are many possible reasons for using different types of trusts for estate planning,” said Michael Green, a certified financial planner with GYL Financial Synergies in Parsippany. “Before undoing the planning you already put in place, I recommend speaking with the attorney to learn what the benefits are of the plan and what the drawbacks are to reversing it.”

In terms of a financial planner, it depends.

“Many people believe that everyone should work with a trusted financial planner to help guide them through their financial journey,” Green said. “The adage, ‘you don’t know what you don’t know’ comes to mind when I hear people say they can do it on their own.”

It could be well worth a consultation to see what an advisor could provide based on your specific situation.

As for your Required Minimum Distribution (RMD), you must take your first one in the year you turn age 72, Green said.

“Your RMD is calculated based on the balance in your IRA account from the prior calendar year on Dec. 31. Therefore, the RMD amount is determined based on this specific calculation,” Green said. “Since your Social Security retirement benefits and pension income are fixed, there will be minimal room to adjust your gross annual income.”

On that, both a financial planner and a qualified accountant could help you make projections to determine what your future tax liabilities may be, and they may also have suggestions for you to position your assets to minimize what’s due.

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This story was originally published on Sept. 5, 2022.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.