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Required Minimum Distributions: When Your Retirement Savings Start Paying Off

William F. Casey, III


Whether you’re about to begin enjoying the benefits of your years of saving for retirement or just starting to contribute to a retirement plan, you’ll want to know a few things about required minimum distributions (RMDs).

Essentially, RMDs are how the federal government recovers a portion of the taxes you avoid over the years as you contribute to a tax-deferred plan such as a 401(k) or IRA. RMDs officially start at age 73 (The SECURE Act of 2022 raised the age from 72). That’s when you are required to start taking money out of your tax-deferred plan and pay tax on those distributions. You must take your first RMD by April 1 of the year following the year you reach age 73.

One of the advantages of a tax-deferred plan is that you are likely to be in a lower tax bracket after you retire, so the tax you pay on your RMDs will be less than what you would have paid on those earnings when you were working. Of course, that isn’t always the case. When it comes to earnings and taxes, everyone is unique. While the IRS rules for RMDs generally apply to all taxpayers, they also allow for some creative ways to lessen the impact of, or even eliminate, the tax consequences.

A few basic facts about RMDs:

  • You must start taking RMDs as of age 73 whether or not you continue to work.
  • You must take your first RMD by April 1 of the year following the year you reach 73.
  • Your RMD for each year is calculated by dividing the balance of your tax-deferred savings plan at the conclusion of the prior year by a life expectancy factor according to the IRS Uniform Lifetime Table (
  • Your savings plan custodian should send you a statement by January 31 letting you know the amount of distribution you will be required to take that year.
  • You can take your distributions however you want—monthly, quarterly, etc.—but you have to take the “minimum” by the end of each year.
  • If you fail to take your full RMD by December 31 of any given year, you will incur a penalty of 50 percent of the shortfall. In some cases, however, the IRS has waived the penalty.
  • If you are the owner of an Inherited IRA, the rules have also been changed by the SECURE Act. Non-spousal beneficiaries must withdraw all funds from an inherited IRA within 10 years of the original owner’s death. Consult with your tax or financial advisor to plan your distributions.
  • Now, let’s look at a couple of situations where the rules encourage some smart tax planning strategies:

  • If you are just starting to contribute to a retirement savings account, consider a Roth IRA, or a Roth 401(k) if offered by your employer. Contributions to a Roth are after-tax as opposed to tax-deferred. Because you’re paying the tax on that money before it’s set aside you won’t have to pay taxes when you start drawing on it when you retire, nor on any of the dividends, interest and other earnings your Roth has generated over the years. Also, there are currently no RMD requirements for Roth IRAs, so you can leave the money in your Roth to your heirs, and it will provide tax-free income or earnings if it remains in place. You might even find it advantageous to pay the tax and convert a current tax-deferred plan to a Roth.
  • When a taxpayer taking RMDs dies, taxable distributions can be moved into the deceased’s estate and the taxes can be deferred, and in some cases, reduced or even eliminated by expenses related to administering the estate.
  • If you are past the RMD age but employed by a business that offers a 401(k) plan, and you are not an owner of the company, and you participate in the plan, you do not have to take RMDs from those plan assets.
  • If you are required to pay estimated taxes, you can use your RMD at the end of the year to catch up on one or all your quarterly estimated tax payments without penalty. The withholding from an RMD, even if paid on the last day of the year, is treated as if it has been received equitably throughout the year.
  • If you want to contribute to a charity, you can contribute all or part of your RMDs directly to a qualifying charity and avoid having to pay the tax on those distributions. Or you can have the money distributed to a donor-advised fund for future contributions.
  • RMDs can be substantial depending on how much you have in tax-deferred savings. But there are nuances associated with the laws governing RMDs that provide options on how you want to take them. Whether you’re already retired, approaching retirement, or just beginning to save for retirement, talk with your financial advisor about how to maximize your retirement savings in a way that best accommodates your financial circumstances and objectives.


    The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.

    Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.

    The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.

    HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.

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