What is the R/D Factor™? - Rodgers & Associates
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What is the R/D Factor™?

Planning a tax-efficient retirement income is easier when you under­stand the R/D Factor™ and how to use it to minimize taxes. The R/D Factor (R/D = retirement distri­b­ution) is a measure of how well you did reducing your taxable retirement income by balancing your savings. The scale runs from 0 to 100, with 100 meaning that all of your retirement income is tax-free and 0 meaning all of your income is taxable.

The New Three-Legged Stool approach to retirement planning balances your savings between after-tax, tax-deferred, and tax-free accounts so that you can maximize the R/D Factor. Tax liability from after-tax accounts is not based on the amount of withdrawal. It is based on how the money is earned. Earnings classified as long-term capital gains or qualified dividends may be taxed at a zero rate if you plan your income properly. Distri­b­u­tions from tax-deferred accounts have the worst tax impli­ca­tions and must be planned carefully. Roth IRA distri­b­u­tions have no tax impli­ca­tions and are used to supplement your income when needed without concern from income taxes.

Your goal should be to reach an R/D Factor greater than 50. A tax planner that under­stands the R/D Factor can help you structure your income to minimize income taxes each year. This needs to be reviewed regularly as the financial markets change and your individual tax circum­stances may require adjust­ments. Taxable income should be accel­erated in low tax years. Higher tax years will require minimizing taxable income in other years in order to stay in a lower tax bracket.

A complete expla­nation of the R/D Factor and how to use it can be found in The New Three-Legged Stool: A Tax Efficient Approach to Retirement Planning. “R/D Factor Explained” is an abbre­viated expla­nation that was published in our July newsletter.