High-Net-Worth Individuals Would Like to Use RMDs to Offset Taxes

While 88% of high-net-worth consumers between the ages of 65 and 75 are familiar with required minimum distributions (RMDs), 80% say they will not need this money for day-to-day living expenses, according to the new “RMD Options Study” by Allianz Life.

Thirty-two percent are unsure how RMDs will impact their taxes, and 71% said they would like to use their RMD funds to purchase a financial product that could offset their taxes. Ninety-three percent believe it is very important to reduce taxes in retirement.

“For some consumers, RMDs have long been thought of as a necessary evil,” says Paul Kelash, vice president of consumer insights at Allianz Life. “The government mandates that people take them, even though many find they won’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.”

Fifty-seven percent want the RMD disbursement and tax payment to be automatic, so that they do not have to get involved. Sixty-three percent would like their RMD payments to improve their financial situation, and 79% would like the money to help their portfolio grow. Among those who are working with a financial adviser, 77% say they have gotten good advice on managing their RMDs.

“Different age groups within the study have different priorities for their RMDs,” Kelash says. “The 65 to 70 age group is most interested in tax-deferred growth of their RMD disbursements, and many feel unsure about how to best use their RMDs. In contrast, the 71 to 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. For those who are taking RMDs or preparing to do so, working with a financial professional is a key way to find a solution to more efficiently handle the taxes on their RMDs and use them in a way that works with their larger financial strategy.”