At Wealth Advocate Group, we focus on building retirement plans that truly reflect our clients’ goals and dedication. As clients approach their 70s, an important topic comes into play: required minimum distributions (RMDs).
We understand that the idea of mandatory withdrawals from your retirement accounts can feel confusing or even overwhelming. However, with proper planning and knowledge, RMDs don’t have to be stressful; they can actually become a strategic tool to manage your retirement income and tax burden.
Let’s work together to clear up the misconceptions about RMDs, explore how they fit into your personal financial picture, and create a retirement plan that supports the fulfilling future you envision.
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, that RMD age will rise to 75 in 2033.)
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.
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.
This article isn’t intended as an all-encompassing discussion of RMDs, but there are four core rules you need to know:
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 50% tax on the money you should have taken out.
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 2024, you could postpone your first distribution until April 1, 2025.
However, waiting this long could potentially push you into a higher tax bracket. That’s because you would be taking two distributions during one year. So calculate exactly when it makes sense for you to take your first RMD.
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:
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, that 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, that not every retirement account is eligible to use its funds as a QCD. The retirement account has to be an IRA that is 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 that ends during the tax year in which the charitable contribution is made.
Many people have questions about RMDs, but the key to managing required minimum distributions effectively is staying informed. At Wealth Advocate Group, our experience and guidance makes us the trusted partner you need when navigating important financial decisions that impact your future.
Reach out to us at Contact@Wadvocate.com or 440-505-5578 to schedule an introductory consultation.
Lauren Coverdale joined Wealth Advocate Group in 2019 as an intern. Upon completion of her undergraduate degree, she joined the team as a paraplanner. As a paraplanner, Lauren provides analysis of client investments, estate planning, cash flow, and retirement readiness for her team. Lauren graduated from John Carroll University in 2020 with a Bachelor of Science in Business Administration in Finance with a concentration in Wealth Management and Financial Planning as well as a minor in Entrepreneurship. In 2021, Lauren also obtained her MBA from John Carroll University. Lauren received her CFP® designation in 2023. She also holds her Series 7 license through LPL Financial and 66 securities licenses through LPL Financial and Stratos Wealth Partners. In her spare time, she enjoys being outdoors, traveling, and spending time with her husband and their dog, Indi. To learn more about Lauren, connect with her on LinkedIn.
When you link to any of the websites mentioned, we make no representation as to the completeness or accuracy of information provided at these websites. The opinions found therein are those of the author(s) of the article or website.
David Thorne is CEO at Wealth Advocate Group, LLC, an independent, fee-based wealth management company based in Beachwood, OH. With over 25 years of experience, David specializes in working with executives, helping them create proactive strategies for incentive and non-qualified stock options, restricted stock (RSUs), and concentrated stock positions. David is known for delivering a high level of service to his clients through Wealth Advocate Group’s caring-first, relationship-based approach. Dave has a bachelor’s degree in finance and psychology from Kent State University and is a CERTIFIED FINANCIAL PLANNER® professional. He has also been a featured guest speaker for several financial service associations, focusing on executive stock option planning and risk management. When he’s not working, you can find David spending time with his wife, Tiffany, and their three adult daughters. He loves participating in all types of fitness activities, including snowboarding, mountain biking, and hiking with his dog. To learn more about David, connect with him on LinkedIn.
When you link to any of the websites mentioned, we make no representation as to the completeness or accuracy of information provided at these websites. The opinions found therein are those of the author(s) of the article or website.
