To reduce taxes when you start withdrawing from a 401k & 403b plan, there are several strategies you can consider:

Before Age 73:

1. Delay Withdrawals:
• The longer you wait to start withdrawing from your 401k & 403b, the longer you can defer paying taxes. Aim to avoid withdrawals before age 59 ½ to prevent the 10% early withdrawal penalty.
2. Roth Conversions:
• If you anticipate being in a lower tax bracket for a few years, consider converting some of your traditional 401k & 403b funds to a Roth 401k & 403b or Roth IRA. You’ll pay taxes on the converted amount now, but future withdrawals from the Roth accounts will be tax-free.
3. Diversify Retirement Accounts (Tax Triangle):
• Ordinary Income Accounts: Traditional 401k & 403b, traditional IRA, pension plans.
• Capital Gains Accounts: Individual or joint investment accounts.
• Non-taxable Accounts: Roth 401(k), Roth IRA, Health Savings Account (HSA).

After Age 73:

1. Take Required Minimum Distributions (RMDs):
• You must start withdrawing from your 401k & 403b by age 73. Failure to do so can result in a 25% penalty on the RMD amount.
2. Avoid Taking Two RMDs in One Year:
• Your first RMD can be delayed until April 1 of the year following the calendar year in which you turn 73. However, this could result in having to take two RMDs in one year, potentially pushing you into a higher tax bracket.
3. Qualified Charitable Distributions (QCDs):
• After age 70 ½, you can donate up to $105,000 directly from your IRA to a charity, which can count towards your RMD without being included in your taxable income.

Additional Strategies:

• Backdoor Roth IRA: Contribute to a traditional IRA and then convert those funds to a Roth IRA. This can be beneficial if you are ineligible to contribute directly to a Roth IRA due to income limits.
• Mega Backdoor Roth IRA: Contribute after-tax dollars to your 401k & 403b and then roll over those contributions to a Roth IRA or Roth 401k & 403b.
• Tax-Loss Harvesting: Offset capital gains with losses from other investments.

Professional Advice:

• Consult a Tax Expert: They can help you navigate complex tax strategies and ensure you’re making the most tax-efficient decisions.

Contact us today for a personalized plan.
By planning ahead and utilizing these strategies, you can significantly reduce the tax burden on your 401k & 403b withdrawals, making your retirement savings stretch further. For more information direct from the IRS visit here Retirement and taxes: Understanding IRAs