After years of building retirement savings inside traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer plans such as 401(k)s, many retirees reach a point where the IRS requires annual withdrawals. These withdrawals are called required minimum distributions, or RMDs.
The rule itself is straightforward, but the planning around it is often more nuanced. The timing of the first distribution, the amount withheld for taxes, the account used for the withdrawal, and the way proceeds are reinvested can all affect a household’s cash flow and tax picture.
You should not have to feel surprised by a required withdrawal or rushed into year-end decisions. With a clear process, RMDs can become part of a coordinated retirement income plan rather than a last-minute compliance task.
RMDs Can Feel Technical
We understand that RMD rules can feel confusing because they combine tax law, account logistics, investment decisions, and deadline management. Many clients want to know the same practical things: how much must come out, when it must happen, how taxes should be withheld, and whether the money can stay invested after the distribution.
At HBKS Wealth Advisors, we help clients coordinate RMDs within a broader retirement strategy. The goal is to help you stay compliant while making thoughtful decisions about taxes, spending needs, investment positioning, charitable goals, and legacy planning.
When Do RMDs Begin?
Under current IRS rules, account owners generally must begin taking RMDs from traditional IRAs, SEP IRAs, SIMPLE IRAs, and most pre-tax employer retirement plans when they reach their required beginning age. For many current retirees, that age is 73. Individuals born in 1960 or later generally begin at age 75 under the SECURE 2.0 framework.
Your first RMD is generally due by April 1 of the year after the year you reach your required beginning age. After that first year, annual RMDs are generally due by December 31. Waiting until the following year to take the first RMD can create two taxable RMDs in the same calendar year, so that choice should be reviewed carefully.
Roth IRAs are not subject to lifetime RMDs for the original owner. Designated Roth accounts in employer plans are also generally exempt from lifetime RMDs for the original owner under current rules. Some active employees may be able to delay RMDs from a current employer plan until retirement, depending on the plan and ownership status, but that exception does not apply to IRAs.
How Is an RMD Calculated?
In its simplest form, an annual RMD is calculated by taking the account value as of December 31 of the prior year and dividing it by the applicable life expectancy factor from IRS tables. Most account owners use the IRS Uniform Lifetime Table. A different table may apply when the sole beneficiary is a spouse who is more than 10 years younger than the account owner.
For example, assume a client turns 73 this year and had a traditional IRA worth $1,000,000 on December 31 of the prior year. The IRS Uniform Lifetime Table distribution period for age 73 is 26.5. The calculation is $1,000,000 divided by 26.5, which equals $37,735.85. That is the minimum amount that must be distributed for the year.
If a client has multiple traditional IRAs, the total IRA RMD can generally be calculated across those IRA balances and withdrawn from one IRA or split among several IRAs. Employer plans such as 401(k)s usually follow separate plan-level rules, so each plan should be reviewed individually.
This example is for illustration only. Actual RMD calculations depend on account values, account types, beneficiaries, plan rules, and applicable IRS tables.
RMD Coordination Process
At HBKS, we try to make the RMD process efficient and unobtrusive. If a client needs cash during the year, we often review whether the RMD should serve as the first funding source before creating additional taxable withdrawals elsewhere. That can be sensible because the RMD tax cost generally must be incurred anyway.
As year-end approaches, we review households that are required to take RMDs, determine how much has already been distributed, and verify whether an additional amount is needed before the deadline. That reconciliation is an important control step because missed or incomplete RMDs can result in IRS excise tax exposure.
The process works best when clients tell us about expected cash needs, major tax changes, charitable intentions, and any significant updates from their CPA. With that information, we can better coordinate the distribution mechanics, withholding analysis, and reinvestment decisions.
What Happens After the RMD Is Taken?
Once the RMD amount is identified, the next planning question is how much should be withheld for taxes and where the net proceeds should go. We typically estimate a reasonable withholding level using the client’s tax return and, when appropriate, input from the client’s CPA.
For some households, withholding from the RMD can reduce or replace separate quarterly estimated tax payments. This can be useful later in the year because federal tax withholding is generally treated as paid evenly throughout the year for estimated tax purposes, even when the withholding occurs later in the year.
Operationally, the gross RMD may be generated by selling an investment inside the IRA. A portion may be sent to the IRS or state tax authority for withholding, and the net proceeds may be transferred to a taxable brokerage account. If the cash is not needed for spending, the proceeds can often be reinvested so the household remains aligned with its long-term investment strategy, subject to account-specific and tax considerations.
How Can Clients Reduce the Impact of RMDs?
An RMD does not have to mean the money leaves the investment plan permanently. Net proceeds can be used for spending, reserved for taxes, reinvested in a taxable brokerage account, coordinated with a portfolio rebalance, or aligned with broader gifting and legacy goals.
For charitably inclined clients, a qualified charitable distribution, or QCD, may be worth considering. A QCD allows an IRA owner age 70 1/2 or older to send funds directly from an IRA to an eligible charity. If the client is already subject to RMDs, a properly completed QCD can satisfy all or part of the RMD while excluding the donated amount from taxable income, subject to annual limits and IRS requirements.
A qualified longevity annuity contract, or QLAC, may also be useful in select cases. A QLAC allows a portion of certain retirement assets to purchase a deferred income annuity, and the QLAC value is generally excluded from the account balance used to calculate RMDs before annuity payments begin. This can reduce near-term RMDs while creating a later-life income stream, but it is not appropriate for every client because it can reduce liquidity and flexibility.
Before RMDs begin, Roth conversion planning may help reduce future RMD pressure. A Roth conversion moves pre-tax retirement dollars into a Roth IRA, creating taxable income in the year of conversion but potentially reducing the size of the traditional IRA that will later be subject to RMDs. Once an RMD year has begun, the RMD itself generally must be distributed first and cannot be converted.
Where Estate Planning Can Fit
For some families, the RMD becomes part of a broader wealth-transfer strategy. For example, the net RMD may help fund a life insurance policy when the client is insurable and the policy supports a larger legacy goal. In other cases, a client may name a charity as beneficiary of some or all IRA assets, while other assets or life insurance proceeds pass to family members.
These strategies are highly fact specific. They depend on underwriting, charitable intent, estate size, projected tax rates, asset mix, family needs, and the client’s overall wealth-transfer objectives. They should be evaluated with the client’s estate planning attorney, CPA, and insurance professionals.
A Practical RMD Planning Checklist
- Confirm which accounts are subject to RMDs and which are not.
- Identify the prior year-end value for each applicable account.
- Calculate the required amount using the appropriate IRS table.
- Decide whether the distribution will fund spending, taxes, reinvestment, charitable giving, or a combination of these purposes.
- Coordinate federal and state withholding with your CPA or tax preparer.
- Complete the distribution before the applicable deadline and document the transaction.
- Review Roth conversion, QCD, QLAC, and estate-planning opportunities before future RMD years.
Frequently Asked Questions About RMDs
Q: What is an RMD?
An RMD is the minimum amount the IRS generally requires you to withdraw each year from certain retirement accounts once you reach your required beginning age. RMDs commonly apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and many employer retirement plans.
Q: Can I reinvest my RMD?
Yes. The distribution must leave the retirement account, but the net proceeds can often be reinvested in a taxable brokerage account if the money is not needed for spending. The reinvestment decision should consider taxes, portfolio allocation, and liquidity needs.
Q: Can a QCD satisfy my RMD?
Yes, a properly completed qualified charitable distribution from an IRA can satisfy all or part of an RMD. The transfer generally must go directly from the IRA custodian to an eligible charity and is subject to IRS rules and annual limits.
Q: Should I take my first RMD by December 31 or wait until April 1?
Waiting until April 1 of the following year is allowed for the first RMD, but it can create two taxable RMDs in the same calendar year. Many clients benefit from comparing both options before deciding.
Q: Are Roth accounts subject to lifetime RMDs?
Roth IRAs are not subject to lifetime RMDs for the original owner. Designated Roth accounts in employer plans are also generally exempt from lifetime RMDs for the original owner under current rules.
When RMDs are planned in advance, you can feel more confident that the required withdrawal is handled accurately, the tax withholding is coordinated, and the remaining proceeds are used intentionally. Instead of treating the RMD as a disruption, it becomes one part of a cohesive retirement income plan that grows with your needs.
Without a proactive process, RMDs can become rushed year-end transactions. That can lead to missed deadlines, incomplete withholding analysis, avoidable cash drag, or missed opportunities for charitable giving and tax coordination. The better path is to review the RMD before deadlines create pressure.
Ready to Review Your RMD Plan?
If you are approaching RMD age or already taking annual distributions, schedule a conversation with your HBKS advisor. Together, we can review your account types, estimated distribution amount, withholding needs, charitable intent, and reinvestment plan so the process is clear before year-end.
The goal is simple: move from uncertainty to confidence, with a plan that keeps your retirement income, taxes, and long-term goals working together.
Sources
- Internal Revenue Service, Retirement Topics – Required Minimum Distributions (RMDs)
- Internal Revenue Service, Retirement Plan and IRA Required Minimum Distributions FAQs
- Internal Revenue Service, RMD Comparison Chart: IRAs vs. Defined Contribution Plans
- Internal Revenue Service, Retirement Plans FAQs Regarding IRAs – Qualified Charitable Distributions
- Internal Revenue Service Notice 2025-67, 2026 Amounts Relating to Retirement Plans and IRAs
- Internal Revenue Service, Instructions for Form 1098-Q, Qualified Longevity Annuity Contract Information
IMPORTANT DISCLOSURES
The information and examples included in this document are for general, educational, and informational purposes only. It does not contain any financial or investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any financial or investment advice. If you would like financial or 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.
Investment Advisory Services offered through HBK Sorce Advisory LLC, d.b.a. HBKS Wealth Advisors. Not FDIC Insured – Not Bank Guaranteed – May Lose Value, Including Loss of Principal – Not Insured By Any State or Federal Agency.
