What to Know Before Taking Your First Required Minimum Distribution (RMD)

What Are RMDs?

RMDs are withdrawals the IRS requires you to take from certain retirement accounts once you reach a specific age. These accounts include Traditional IRAs, 401(k)s, and similar tax-deferred accounts. The purpose of RMDs is to ensure the government eventually collects taxes on the income you’ve deferred over the years.

One exception is Roth IRAs, which don’t require RMDs during your lifetime. This feature makes them an attractive option for retirees looking to minimize taxable income.

When Do RMDs Start?

The age for starting RMDs depends on your birth year. As of 2024:

• If you were born before July 1, 1949, your RMDs started at age 70½.
• If you were born between July 1, 1949, and December 31, 1950, your RMDs began at age 72.
• If you were born in 1951 – 1959, RMDs begin at age 73.
• If you were born in 1960 or later, RMDs begin at age 75.

Your first RMD is due by April 1 of the year after you reach the required age. Keep in mind that delaying your first withdrawal means taking two RMDs in the same year, which can significantly increase your taxable income.

How Are RMDs Calculated?

Your RMD amount is based on the balance of your retirement account as of December 31 the previous year, divided by a life expectancy factor determined by IRS tables. For example, if your account balance is $500,000 and your life expectancy factor is 26.5, your RMD would be $18,867.92. But don’t worry, your Allworth advisor is here to do the math for you and make sure your RMD is taken on time.

If you have multiple accounts, we calculate the RMD for each. For IRAs, you can withdraw the total amount from one or more accounts. However, for 401(k)s, the RMD must be taken separately from each account.

Tax Implications of RMDs

RMDs are taxed as ordinary income, which means they’re subject to your marginal tax rate. Depending on the amount, they can push you into a higher tax bracket, increase the taxation of your Social Security benefits, and even raise your Medicare premiums. To reduce the tax impact, your Allworth advisor can work with you to develop a withdrawal strategy that aligns with your goals.

Strategies to Manage RMDs

Several strategies can help you manage RMDs effectively:

1. Qualified Charitable Distributions (QCDs): If you’re 70½ or older, you can donate directly to a qualified charity from your IRA. This satisfies your RMD while excluding the amount from your taxable income.
2. Roth Conversions: Converting a portion of your Traditional IRA to a Roth IRA can reduce future RMDs. Though the conversion is taxable, it can offer long-term tax savings.
3. Strategic Withdrawals: Taking distributions before you’re required to can help spread out your taxable income and minimize tax burdens in retirement.
4. Bucket Strategy: Allocate funds into “buckets” for different stages of retirement. This strategy can help you meet RMD requirements without disrupting your portfolio.

Your Allworth Advisor Is Here to Help

Preparing for your RMDs doesn’t have to be stressful. Your Allworth advisor is ready to guide you through tax planning, help you create a withdrawal plan, and work with you to make sure your RMD strategy fits seamlessly into your overall financial goals.

Taking your first RMD is a significant step in retirement, but it’s one you don’t have to face alone. With careful planning and the right guidance, you can make the most of your hard-earned savings and enjoy the retirement you’ve worked so hard to achieve.