How RMDs Could Impact Your Retirement Income Plan
Introduction
RMDs—or Required Minimum Distributions—can be a wake-up call for many retirees. These mandated withdrawals from your retirement accounts can bump up your taxes and even affect your Medicare premiums. Planning for RMDs is essential to maintaining tax efficiency and control.
What Are RMDs?
- Apply to traditional IRAs, 401(k)s, and similar plans
- Start at age 73 (for most current retirees)
- Amount based on account balance and IRS life expectancy tables
Tax Implications of RMDs
- Count as ordinary income, increasing your taxable income
- Can push you into a higher tax bracket
- May trigger higher Medicare IRMAA surcharges
Consequences of Missing an RMD
- Penalty of 25% on the missed amount (10% if corrected promptly)
- Still owe regular income tax on the distribution amount
Smart Strategies to Manage RMDs
- Roth Conversions: Reduce future RMDs by converting pre-RMD years
- Qualified Charitable Distributions (QCDs): Donate RMDs directly to charity, tax-free
- Spend Early from Tax-Deferred Accounts: Reduce future RMDs and avoid large jumps in tax liability
How RISA Can Help
Your RISA income style may affect how aggressively you manage RMDs. Risk-averse styles may prioritize RMD minimization strategies early. With our 👉 complimentary RISA assessment, you can create a withdrawal plan that aligns with your retirement style.
Conclusion
RMDs don't have to be disruptive. With smart planning and strategic withdrawals, you can integrate them into a balanced income plan—and avoid penalties and tax surprises.
FAQs
Q: When do I need to start taking RMDs?
A: Generally, April 1 following the year you turn 73.
Q: Can I reduce or avoid RMD taxes?
A: Yes, through strategies like QCDs or Roth conversions.
Q: What happens if I miss an RMD?
A: You may owe a penalty of 25% (reduced to 10% if corrected), plus regular income tax on the missed amount.