The RMD "Tax Bomb" Explained

If you're in your 70s, you've likely encountered RMDs. Once you reach the mandated age, you are required by law to withdraw a specific amount from your tax-deferred retirement accounts each year. The problem? That withdrawal is taxed as ordinary income, which can push you into a higher bracket or make your Social Security benefits taxable.

But the problem goes deeper. It also means you get less bang for your buck on every dollar you're forced to withdraw.

For example, if you need $10,000 for a home repair, you might have to withdraw over $12,000 from your IRA just to have enough left after taxes. You're draining your hard-earned savings faster simply because you have to pre-pay Uncle Sam's cut. It's a frustrating situation where your own money isn't fully yours to use.

How to Turn a Tax Bomb into a Firecracker

While you can't always avoid your RMDs entirely, you can take strategic control over their financial impact. This is where your home's equity becomes the tool you need to shrink the explosion. By setting up a reverse mortgage line of credit, you have a source of cash that is **income tax-free.**¹

This strategy gives you the power to turn a potential tax bomb into a much smaller, more manageable tax firecracker. The tax event still happens, but you've reduced its impact from a destructive force to a small, harmless pop.

Here’s how it works:

1. Cover Expenses with Your Line of Credit: Instead of taking a large, taxable withdrawal from your IRA to cover living expenses, you use the tax-free funds from your line of credit.

2. Manage Your RMD Wisely: You still have your required distribution. However, since your expenses are already covered, you can now take the smallest amount possible to minimize the tax hit.

3. Stay in a Lower Tax Bracket: By strategically using tax-free funds from your home, you keep your taxable income lower. You've successfully turned a potentially devastating tax bomb into a minor event.

Take Back Control from Uncle Sam

A reverse mortgage line of credit gives you the flexibility to manage your retirement on your terms, not the IRS's schedule. It puts you back in control, allowing you to defuse the annual tax bomb and keep more of your hard-earned money.

It’s your money. Shouldn't you be the one to decide when and how you use it?

Ready to Take Control of Your Taxes?

Learning how to defuse your RMD tax bomb is a powerful step toward a more secure retirement. The best way to start is by getting the facts in a simple, straightforward way.

We can walk you through the strategies that give you more control over your hard-earned money. If you're ready to explore a more tax-efficient retirement, we invite you to take this easy, no-pressure next step.

This is not tax advice. Please consult with your tax professional.