Is it better to take your required minimum distribution (RMD) sooner rather than later? While the IRS determines when you must begin taking RMDs, you may benefit from taking them earlier.

An RMD is the minimum amount you must withdraw each year from certain retirement accounts, such as traditional IRAs and employer-sponsored plans, once you reach a certain age.

In this week’s Money Wisdom Question Series, Jake Doser, CFP®, CPWA® breaks down what qualifies as an RMD, which accounts are affected, and why waiting until age 73 might not be the most tax-efficient strategy.

Accounts Subject to RMDs

You’re required to take RMDs from most pre-tax or traditional retirement accounts, such as 401(k)s, 403(b)s, and traditional IRAs. The government eventually wants its share, so any money you haven’t paid taxes on yet is fair game.

Roth IRAs and Roth 401(k)s, on the other hand, are currently not subject to RMDs. However, this changes when it comes to inherited accounts. Inherited 401(k)s and inherited IRAs, including Roths, may be subject to RMDs depending on certain IRS rules.

If you’ve inherited a retirement account, it’s important to speak with your financial advisor to understand your distribution requirements and avoid potential penalties.

RMD Start Ages

Under the Secure Act 2.0, you must begin taking RMDs at age 73. For many years, the starting age was 70½. It later increased to 72, and as of now, it’s 73. Effective January 1, 2033, this requirement is set to rise to age 75 for individuals born in 1960 or later.

While the rules can change, one thing remains constant: eventually, you’ll be required to withdraw money from your retirement accounts, whether you want to or not. There are very few exceptions.

Benefits of Early Withdrawals

Just because you’re not required to take RMDs before age 73 doesn’t mean you shouldn’t. In many cases, taking money out early can be a smart tax move, whether through Roth conversions, qualified charitable distributions (QCDs), or strategic gifting.

Bottom line: don’t wait until you’re forced to act. Being proactive could save you money and help you make better use of your assets. Consult your advisor to learn what makes sense for your unique situation.