5 Retirement Distribution Pitfalls (and How to Work Around Them)
Distribution Pitfall 1: Not allowing for some variability in your withdrawals, based on need. Workaround: anticipate unanticipated expenditures.
Distribution Pitfall 2: Not adjusting distributions to account for market fluctuations. Workaround: Maintain a well-diversified asset mix, make adjustments during times of market duress.
Distribution Pitfall 3: Not reinvesting RMDs you don't need. RMD rules require that people initially withdraw less than 4% of assets at age 70 1/2, but distributions quickly step up into the 5%, 6%, and 7% range. Workaround: reinvest in a taxable account or reinvest RMDs in a Roth IRA, provided you or your spouse have enough earned income to cover your contribution amount.
Distribution Pitfall 4: Relying strictly on income-producing securities to meet income needs. Workaround: the bucket approach to retirement income own bonds and dividend-paying stocks also own other stock types, including those that don't pay dividends.
Distribution Pitfall 5: Neglecting to consider tax consequences of some distributions. Workaround: pay quarterly estimated taxes to avoid a penalty from the Internal Revenue Service. use tax-preparation software such as Turbotax.
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