Whether you are fully retired, working part time, or still in your career, it is important to understand how Required Minimum Distributions (RMDs) fit into your financial strategy. RMDs are mandatory withdrawals from certain retirement accounts, including traditional IRAs and many employer plans. For account holders who reach age 73 in 2026, the first RMD must be taken by April 1, 2027. After the first year, RMDs are due each year by December 31.
Inherited accounts
Inherited accounts can also require mandatory withdrawals. The rules vary based on the age of the decedent and the beneficiary, as well as the type of account. Because details matter, it is wise to confirm your specific timeline before year end.
The impact of RMDs on your tax picture
RMDs are taxed as ordinary income. Additional income can push you into a higher tax bracket and may increase Medicare premiums. Coordinate RMDs with other income sources, such as part‑time work or capital gains, to manage these effects.
Qualified Charitable Distributions (QCDs)
If you are charitably inclined and age 70½ or older, a QCD allows you to send funds directly from your IRA to an eligible charity. A properly executed QCD can satisfy your RMD for the year and is excluded from taxable income. Remember that QCDs must be sent directly to the charity.
Roth conversions as a long‑term strategy
A conversion does not count toward satisfying your current RMD, but the strategy can help reduce your traditional IRA balances for future years. All IRA RMDs due for the year must be withdrawn before you convert additional amounts.
How to use your RMD
Once you withdraw your RMD, you can spend it for current needs or reinvest the after‑tax amount in a taxable account to continue pursuing long‑term growth. The right choice depends on cash‑flow needs, taxes, and investment goals.
Practical steps to stay organized
- Consolidate where helpful: If you have multiple IRAs, you may calculate RMDs separately but often can take the total from a single IRA. Employer plans have different aggregation rules, so follow plan specifics.
- Automate distributions: Set up an annual or quarterly schedule and verify tax withholding preferences well ahead of December.
- Confirm beneficiaries: Keep beneficiary designations current.
- Review annually: Health, spending, and tax rules change. An annual review with your financial advisor helps you stay ahead of deadlines.
Planning for RMDs is a key part of a thoughtful retirement strategy. By understanding your distribution requirements, using tools such as QCDs, and evaluating long‑term strategies such as Roth conversions, you can better manage taxes and support financial stability throughout retirement.
Contact Us
To review your retirement accounts and any required distributions, we welcome you to schedule a meeting.
Contact Fiona Morina, Administrative Assistant for Jane M. LaLonde, CFP®, at 612.431.7509 or Fiona@LWAG.com.
Our address: 2701 University Ave SE, Minneapolis, MN 55414
This information is not intended as tax or legal advice. Please consult your tax advisor regarding your specific situation.
Some IRA’s have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney. Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. Before deciding whether to retain assets in a 401(k) or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Please view the Investor Alerts section of the FINRA website for additional information.