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Required minimum distributions (RMDs) are one of the most misunderstood parts of retirement planning. With so many rules and strategies available, it can be time-consuming to understand everything you need to know.

That’s why the team is breaking down RMDs in this episode of Money Wisdom. Join Nicholas J. Colantuono, CFP® and Eric Hogarth, CFP® as they explore how RMDs fit into your overall retirement strategy.

What Are Required Minimum Distributions?

An RMD is the specific amount the IRS requires you to take out of your tax-deferred retirement accounts. For instance, you may have saved for retirement in a traditional 401(k) or IRA and never paid taxes on those funds. But eventually, you will have to take your first distribution at age 73, or age 75 if your birth year is 1960 or later.

What If I’m Still Working at 73 or 75?

If you’re still working at your RMD age, you can generally delay your first RMD from your current employer’s retirement plan. In this scenario, you would have to start taking RMDs by April 1 of the year after you retire. However, RMDs still start at age 73 or 75 for other retirement accounts such as previous employer plans and traditional IRAs.

What Are the Tax Implications of RMDs?

The money in your traditional retirement accounts has grown tax-deferred for years. But when you start taking RMDs, every dollar hits you as taxable income. Increased income can impact everything from your capital gains tax bracket to your Social Security benefits and Medicare premiums.

Overall, it’s important to maintain flexibility and control in retirement planning. Having different ‘buckets’ of money can help you choose where to draw from. Based on market conditions, tax implications, and unexpected expenses, you can strategically time your withdrawals.

Waiting until your RMD age to make withdrawals can lead to higher taxes for you and potentially your heirs. That’s why it’s important to consider strategies like Roth conversions and qualified charitable distributions (QCDs) to reduce your future tax burden.

How Can QCDs Help Manage RMDs?

At age 70½, you may be able to transfer money directly from your IRA to a qualifying charity. This QCD can satisfy all or part of your RMD without counting as taxable income. To have the most opportunities available, be sure to discuss your options with a financial professional before RMDs start.

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