MINNEAPOLIS – November 12, 2018 – Required minimum distributions (RMDs) – which can be complex, mandatory and challenging from a tax perspective – have come back into the spotlight due to potential government rule changes. While a majority (88%) of high net worth consumers ages 65-75 are familiar with RMD rules on tax-deferred retirement plans, a full 80% of these respondents believe they will not need all of their RMDs for day-to-day living expenses, according to the new RMD Options Study* from Allianz Life Insurance Company of North America (Allianz Life®). This can potentially leave these Americans feeling unsure of how to use this money and confused on how it may impact their finances, particularly their taxes.
The study, which asked these consumers about their opinions and behaviors with RMD payments, found that almost a third (32%) find it difficult to understand the impact RMDs might have on their taxes. Additionally, 71% said they are interested in using RMD payments to fund a financial product that could help offset the impact of taxes. This is significant as the study also confirmed the vast majority (95%) of respondents believe it is very important to reduce their taxes in retirement.
“For some consumers, RMDs have long been thought of as a necessary evil,” said Paul Kelash, VP of Consumer Insights, Allianz Life. “The government mandates that people take them, even though many find they don’t need the money for every day expenses. So consumers face the challenge of managing the impact on their taxes while being unsure of how to use the leftover funds.”
Confusion over the impact RMDs can have on taxes leaves many Americans seeking methods to more efficiently handle their RMD payments. More than half (57%) of respondents in the study said they want the disbursement and tax payment to occur “without getting involved.”
In addition to determining their tax strategy with RMDs, these consumers also must decide how to use the funds leftover after taxes, which tends to vary by age. While half of the study respondents said they are interested in leaving a significant portion of their savings to beneficiaries, older consumers in the study (age 71-75) are even more likely (58%) to want to leave a legacy.
“Different age groups within the study have different priorities for their RMDs,” said Kelash. “The 65-70 age group is most interested in tax-deferred growth of their RMD disbursements, and may feel unsure about how to best use RMDs. In contrast, the 71-75 age cohort, who have already started taking their payments, is realizing they don’t need the additional money and are looking to leave a legacy – either to leave to family or another beneficiary like a charity.”
Overall, these Americans want to use RMDs to work with their financial goals – whatever they may be – with two-thirds wanting another way to use RMD payments to improve their financial situation. Further, 79% wish they could use RMDs in a way that allows their portfolio to grow.
Of those who work with a financial professional, 77% feel they have gotten good advice from them about managing their RMDs.
“For those who are taking RMDs or preparing to do so, working with a financial professional is a key way to finding a solution to more efficiently handle the taxes on their RMDs and use them in a way that works with their larger financial strategy,” said Kelash.
This content is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement.
*Allianz Life Insurance Company of North America conducted an online survey. The RMD Options Study was conducted in February/March 2018, and included a nationally representative sample of 805 respondents ages 65-75 with retirement savings of $500,000 if single or $750,000 if married and who are the primary decision maker or share equally in decision making.