Could your client use the IRA 'bridge' strategy? Here are the numbers

For some clients, taking distributions from their traditional individual retirement accounts before retirement may be a bridge too far. For others, the strategy could lead them from pre-retirement jitters to higher Social Security benefits and lower taxes a decade or more down the road.

That's because the array of rules and figures outlined in the slideshow below add up to complex calculations that vary greatly among clients whose financial advisors and tax professionals may want to consider the so-called bridge strategy. The idea revolves around how clients can take IRA distributions in pre-retirement in order to avoid facing required minimum distributions later while gaining the cash flow necessary to delay Social Security until the payments are bigger.

The thicket of financial calculations, IRS guidelines, Medicare rules and long-term planning involved with deciding when to begin withdrawals and Social Security benefits shows the need for careful, individualized advice, according to four experts who spoke with Financial Planning. 

The last two months of a year mark an especially good time to discuss the possibilities of the bridge with clients. Prior to New Year's Day, factors such as the level of capital gains, investment dividends, business-related transactions or job situations are coming into focus, said Valerie Escobar, a senior wealth advisor with Kansas City, Missouri-based advisory practice BMG Advisors. Advisors and their clients can weigh them against the possible IRA distributions.

"As we're approaching the end of the year, you have a better sense of what your income picture is going to look like," Escobar said. "Having that clarity of the picture makes the year-end the best time to be looking at that."

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The fourth quarter "is the most important time to be looking at your taxes" because "it's the last chance you have to fix things," said Erin Wood, a senior vice president for financial planning and advanced solutions with Omaha, Nebraska-based registered investment advisory firm Carson Group. Client decisions on when to take required minimum distributions and when to begin claiming Social Security can have major consequences — including on their spouse's survivor payments or the size of their monthly benefit checks (clients could see a bump of 8% a year if they wait until age 70).

"Those are a great example of something that you really only get one chance to make the right decision," Wood said. "Once you make your decision, you are very much going to be stuck with that decision."

In addition, those considerations often determine whether clients get stuck with "stealth taxes" on their benefits and whether they have to pay an income-related monthly adjustment amount on their Medicare premiums according to Sarah Brenner, the director of retirement education with retirement consulting firm Ed Slott and Company.

Once traditional IRA owners reach 59½ years old — or the age they must be to avoid getting "whacked with a 10% penalty" for a withdrawal, unless they're for certain exceptions — they're going to be thinking through how the distribution affects their income.

"It bumps up what you're going to pay for Medicare," Brenner said. "One thing they hate is IRMAA charges."

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Other than a general rule that claiming Social Security benefits while still employed is not usually a good idea, Heather Schreiber, the founder of advanced planning consulting firm HLS Retirement Consulting, said she had no one-size-fits-all standard timeline for beginning the payments.

"First of all, I'd say, 'Don't listen to your neighbor,'" Shreiber said. "Everyone's decision is very unique to them. I really don't have an, 'Everyone should file at X date.'"

For a rundown of the key numbers involved with the IRA "bridge" strategy to claiming bigger Social Security benefits later, scroll down the cardshow. To read FP's year-end tax planning feature, "A primer on the IRA 'bridge' to bigger Social Security benefits," click here. And, for a look at changes to tax brackets and IRA rules for 2025, follow this link.