Key Takeaways

• Additional thresholds regarding new legislation could further alter the age requirements for
  Required Minimum Distributions (RMDs) from retirement accounts. The SECURE 2.0 Act
  extends them out to the year 2033 and age 75, following the previous change to age 73.
  
• Financial planners recommend that retirees maintain a cash bucket within their retirement accounts. Cannon Financial Institute suggests a cushion of 18-24 months of anticipated RMD withdrawals, aiding in financial stability during bear market conditions.
• Conducting disciplined rebalancing of portfolios, whether quarterly, semi-annually, or
  annually, is emphasized. This practice helps capture gains, reinvest in underperformers,
  and ensure that the cash bucket is an integrated part of the portfolio's income allocation.
• This cash bucket approach can mitigate the risks associated with market volatility,
  especially for retirees who might otherwise be forced to sell assets at a loss to fulfill their RMDs should market values dip sharply towards the year-end.
• For retirees not needing the income, alternative distribution methods such as in-kind distributions or Qualified Charitable Distributions (QCDs) are presented as tax-efficient options to satisfy these important RMD requirements.

There has been significant discussion regarding the new legislation that will once again impact IRAs/Retirement plans, particularly focusing on required minimum distributions (RMD's). Currently, as you may know, RMD's commence when the retiree reaches age 73, a shift from age 70 and ½ following the enactment of the SECURE 2.0 Act in late 202sently. Legislative thresholds will extend the age requirements to the year 2033; and age 75, respectively.

In his insightful book The New Retirement Savings Time Bomb, Ed Slott, a distinguished author,
brings forth several excellent points worth mentioning here. Ed delineates some of the pivotal ages of planning, referring to the period between age 59 and ½ and 73—as the retirement sweet spot. [1]
Accessing a retirement account before age 59 and ½ would incur a 10% penalty for early withdrawal, which Ed views as a significant deterrent. On the flip side, required minimum distributions (RMD) now commence at age 73, rendering "the time between these dates is an oasis of planning where you get more of the carrot and less of the stick." [2]

At Cannon Financial Institute, we share this perspective wholeheartedly. As Advisors to your clients: This is a golden opportunity to collaborate with your retirees and the soon-to-be retirees to leverage this advantage while they are in this sweet spot!

For retirees over age 73, whether opting for RMD disbursement throughout the year or in a lump
sum, financial planners advocate maintaining a Cash Bucket in your retirement account to cover this distribution. Many recommend having at least the equivalent of the current year's RMD in cash.

We advise, along with Mr. Slott, holding a cushion of 18-24 months of anticipated RMD withdrawals in this cash bucket position if financially viable. "The average top-to-bottom duration in a bear market is 18 months," mentions Larry Divers, CFI's EVP and Director of Retirement and Investments, adding "a buffer" of another 6-8 months for market recovery. The cash reserve can be allocated in CDs, money market accounts, or ultra-short-term bond funds, replenished as your retirement savings buckets are rebalanced. With the upward shift in interest rates, a solid 4-5 percent yield in the short-term arena is now achievable. "This rebalancing should be executed over disciplined time intervals - whether quarterly, semi-annually, or annually. When you rebalance a portfolio, you capture the gains from your high performers and reinvest the proceeds in the underperformers to maintain your portfolio's predetermined allocations and risk tolerance levels. 

This cash bucket now becomes an integral part of the portfolio's income allocation. For instance, if your portfolio maintains a 60/40 equity to income split and 10% is your cash bucket, the allocation effectively becomes 60% stock, 30% bonds, and 10% cash," Divers explains. 

The cash bucket strategy also potentially addresses a hurdle that many lump sum "RMD withdrawers" encounter if they defer the entire distribution till the year-end. In a bullish market, postponing the RMD yields an extra year of tax-deferred growth, but a sharp investment dip in December flips the scenario. Lacking cash in your bucket, you may be compelled to sell assets at a loss to fulfill your mandatory withdrawal.

Not all hope is lost. Retirees in this quandary, not requiring income, have a viable alternative. "They can execute the distribution in-kind," Divers notes.

Transferring the shares or securities in-kind from an IRA to a taxable account is an alternative
method to satisfy the distribution requirement. It may necessitate a bit more mathematical
maneuvering due to share price fluctuations, and Divers advises to always "err on the side of
receiving a few dollars more, rather than attempting to calculate the shares' market value down to
the last decimal point." As with any RMD, the value of the transferred shares is still taxed as income.

For the fortunate ones able to minimize taxes on an unneeded RMD, nothing surpasses a qualified
charitable distribution (QCD), a strategy Cannon’s Divers and this author have championed for many years. Individuals aged 70½ and older can channel up to $100,000 directly to charity in the form of a QCD each year tax-free.

Note – the age threshold for a QCD remained unchanged with the passage of SECURE 1.0/2.0.
More insights on the value of the QCD will be shared in an upcoming Cannon article.

Conclusion
In summary, accurately estimating and allocating the RMD amount(s) to Your Cash Bucket presents several merits to Retirees and the Advisors dedicated to serving them.

• Firstly, we would avoid the necessity to sell in a declining market, adding insult to injury, to fulfill
  the required distribution.
  
• Secondly, once the RMD calculation is finalized, we can structure the distributions to be
  disbursed monthly and/or quarterly, alleviating sudden surprises and possible added volatility.
• Lastly, this pragmatic multi-year RMD calculation, funding, and withdrawal strategy is integral to
  the Retirees' disciplined retirement plan process while offering tax efficiency.

FAQs
1. What are the proposed changes to the age requirements for Required Minimum
Distributions (RMDs)? The new legislation extends the age requirements for RMDs in the year 2033 and age 75, a shift from the current age of 73 stipulated by the SECURE 2.0 Act. Plan Accordingly.

2. What are the alternatives to traditional RMD withdrawals?
Alternatives include executing the distribution in-kind by transferring shares or securities from an IRA to a taxable account or making a Qualified Charitable Distribution (QCD) if you’re 70½ years or older, where you can transfer up to $100,000 directly to charity tax-free each year thereby reducing your RMD amount and possibly your taxable income for that year.

3. How does the cash bucket strategy mitigate risks associated with market volatility?
The strategy provides a financial cushion, allowing retirees to fulfill their RMD obligations without being forced to sell assets at a loss during market downturns, thus offering another level of
protection against market volatility.

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