Required Minimum Distributions: What Retirees Should Know

Preston Rosamond |

At The Rosamond Financial Group, much of my work focuses on designing retirement plans which reflect the goals, values, and hard work of each client. As clients approach their 70s, a key aspect of planning comes into focus: required minimum distributions (RMDs).

 

It’s natural to feel uncertain or even uneasy about mandatory withdrawals from your retirement accounts. But RMDs don’t have to be a source of stress. When handled thoughtfully, they can actually serve as a strategic tool to manage your retirement income and tax situation.

 

Let’s take a closer look at how RMDs fit into your unique financial picture, clear up the common misconceptions, and create a plan to support the retirement lifestyle you’ve been envisioning.

What Are Required Minimum Distributions?

Let’s start with a simple definition.

 

The IRS defines required minimum distributions as the minimal amount you must begin taking out of your retirement funds after you turn 73. (Note: Under the SECURE 2.0 Act, RMD age will rise to 75 in 2033.)

 

  • IRAs
  • 401(k)s
  • 457 plans
  • 403(b)s
  • SEP IRAs
  • SIMPLE plans

Since Roth IRAs are funded with after-tax money, they are the only account type exempt from RMDs. You must, however, withdraw funds from other types of Roth account types, like Roth 401(k)s.

How Much Do I Have to Withdraw?

Both your average life expectancy (as calculated by the IRS) and the total money in your account on December 31st of the previous year determines how much you’re required to withdraw.

Four Things You Need to Know About RMDs

This article isn’t intended as an all-encompassing discussion of RMDs, but there are four core rules you need to know: 

1. RMDs Must Be Taken by December 31st of Every Year

To avoid a penalty, you are required to take your annual RMD before December 31st of each year. If you miss this deadline, you have to pay a substantial 25% tax on the money you should have taken out. 

2. You Must Take Your First RMD by April 1

Even though annual RMDs are due on December 31st, you can postpone your first RMD until April 1st of the next year. For example, if you turned 73 in 2025, you could postpone your first distribution until April 1, 2026. 

 

However, waiting this long could potentially push you into a higher tax bracket. This is because you would be taking two distributions during one year. So calculate exactly when it makes sense for you to take your first RMD.

3. You Could Defer RMDs if You’re Still Employed

The “still working” rule for 401(k)s exempts 73-year-olds who are not yet retired from taking RMDs. 

 

Of course, there are exceptions:

 

  • Only RMDs for your current employer-sponsored plan can be postponed. 
  • You must take withdrawals from any 401(k)s or IRAs you may have from prior workplaces.

4. You Can Reduce Your Taxes By Redirecting Your RMD to Charity

One excellent approach to give back and lessen your tax burden is to donate your RMD to a worthy cause. The tax code’s permanent inclusion of qualified charitable distributions (QCDs) in 2016 allowed RMD gifts to be excluded from taxable income on your tax return. 

 

For example, this means you won’t be required to pay taxes in a given year if your RMD is $3,000 and you donate $3,000 to charity. 

 

Remember, though, not every retirement account is eligible to use its funds as a QCD. The retirement account has to be an IRA with a traditional, rollover, inherited, inactive SEP, or inactive SIMPLE plan. 

 

A SEP or SIMPLE is deemed dormant if no employer contribution has been made during the plan year which ends during the tax year in which the charitable contribution is made.

Avoid RMD Confusion and Stay on Track for Retirement

Many retirees have questions when it comes to RMDs, and with good reason. The rules can be complex, but understanding them can turn a simple requirement into a meaningful opportunity to manage your wealth with intention.

 

At The Rosamond Financial Group, we’re dedicated to professionally supporting, educating, and guiding our clients with informed direction at every step. Our experienced team takes the time to explain your options clearly, helping you make confident, well-informed decisions to support your long-term financial vision. Call my office at 830-798-9400 or email solutions@rosamondfinancialgroup.com.  

About Preston

Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with over two decades of industry experience. He provides comprehensive wealth management and financial services to successful business owners, corporate executives, and affluent retirees who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch, a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing solutions@rosamondfinancialgroup.com or schedule a call on his online calendar.