You spend decades saving for retirement. Eventually, the IRS requires you to start withdrawing a portion of the money you've accumulated in certain retirement accounts.
These withdrawals are called Required Minimum Distributions (RMDs), and understanding the rules can be an important part of retirement planning.
When do RMDs start? Which retirement accounts require them? How could they affect your taxes? And what happens if you don't need the additional income?
Here are answers to five common questions about Required Minimum Distributions and what they could mean for your retirement plan.
1. At What Age Do Required Minimum Distributions Start?
One of the most common questions about RMDs is simply: When do I have to start taking them?
Your RMD starting age depends on when you were born.
Under current rules:
- If you were born between 1951 and 1959, RMDs generally begin at age 73.
- If you were born in 1960 or later, RMDs generally begin at age 75.
There is also a special rule for your first RMD. You may be able to delay your first distribution until April 1 of the following year.
However, delaying your first RMD isn't automatically the better choice. If you wait, you could end up taking two RMDs in the same calendar year—your delayed first distribution and your regularly scheduled second distribution.
That could mean more taxable income in a single year, making the timing of your first RMD an important planning consideration.
2. Which Retirement Accounts Require RMDs?
Required Minimum Distribution rules generally apply to tax-deferred retirement accounts, including:
- Traditional IRAs
- 401(k)s
- 403(b)s
- Other qualifying employer-sponsored retirement accounts
Roth IRAs are different. Under current rules, the original owner generally does not have to take RMDs from a Roth IRA during their lifetime.
If you have multiple retirement accounts, it's important to understand which accounts are subject to RMD rules and how your required withdrawals will be handled.
3. How Do RMDs Affect Taxes, Social Security and Medicare?
The impact of an RMD can extend beyond the retirement account itself.
Distributions from tax-deferred retirement accounts are generally treated as ordinary taxable income. Depending on your individual circumstances, that additional income could affect other areas of your financial picture.
An RMD could potentially:
- Increase your taxable income
- Affect your income tax bracket
- Cause a larger portion of your Social Security benefits to be taxable
- Contribute to higher Medicare Part B and Part D premiums through income-related surcharges
This is why RMD planning isn't just about determining how much money you're required to withdraw.
Understanding how those distributions fit alongside Social Security, investments and other retirement income can help you see their potential impact on your overall financial plan.
4. What Happens If You Miss an RMD?
Missing a Required Minimum Distribution can result in a significant penalty.
Under current rules, the excise tax on an RMD amount that wasn't withdrawn as required can be 25%. In certain circumstances, that penalty may be reduced to 10% if the mistake is corrected promptly.
RMDs can sometimes be overlooked, particularly when someone has several retirement accounts or assumes the distribution will happen automatically.
Before reaching your RMD starting age, consider confirming:
- Which of your accounts require RMDs
- When your first distribution is due
- How much needs to be withdrawn
- Who is responsible for initiating the distribution
Planning ahead can help reduce the chance of missing an important deadline.
5. What Should You Do With an RMD If You Don't Need the Money?
You may reach RMD age and discover that you don't actually need the distribution to cover your living expenses.
Maybe Social Security, a pension or other savings already provide the income you need.
Unfortunately, not needing the money doesn't eliminate the RMD requirement.
But taking an RMD doesn't mean you have to spend it.
Depending on your financial goals, you may decide to:
- Use the distribution for living expenses or lifestyle goals
- Reinvest the money in a taxable brokerage account
- Use some of the distribution as part of your charitable giving strategy
For individuals who are already charitably inclined, a Qualified Charitable Distribution (QCD) may be worth discussing.
A QCD allows eligible IRA owners to transfer funds directly from an IRA to a qualifying charity. When completed properly, the distribution can count toward an RMD while potentially reducing the amount included in taxable income.
The rules and eligibility requirements matter, so it's important to evaluate a QCD in the context of your individual financial and tax situation.
Don't Wait Until Your RMDs Begin to Start Planning
Required Minimum Distributions are more than another retirement rule to check off your list.
They can affect your taxable income, Social Security taxation, Medicare premiums and overall retirement income strategy.
That's why the best time to start thinking about RMDs may be before you're required to take them.
Consider asking:
When will my RMDs begin? How could they affect my income and taxes? Will I need the money? And are there planning opportunities I should consider before required withdrawals start?
At Bridger Financial Group, we help individuals and families understand how Required Minimum Distributions fit into their broader retirement picture.
Whether you're approaching RMD age or you're already taking distributions, reviewing your strategy can help you better understand your options and make more informed decisions about your retirement income.
Have questions about your RMD strategy? Schedule a complimentary conversation with a Bridger Financial Group advisor.
This material is for informational and educational purposes only and is not intended as investment, tax, or legal advice. Individual results and outcomes will vary. Strategies discussed, including Required Minimum Distributions and Qualified Charitable Distributions, are subject to IRS rules, eligibility requirements and individual circumstances. Always consult a qualified tax advisor regarding your personal tax situation and a qualified legal professional regarding your personal estate planning situation.