What are RMD’s?

When it comes to managing your retirement accounts, there’s a term you’ll want to get familiar with: Required Minimum Distributions, or RMDs. These are essentially the minimum amounts that the government requires you to withdraw each year from your traditional IRAs and employer-sponsored retirement plans, here are some of the highlights:

  • Timing of RMDs: RMDs come into play when you hit 72 years old, or if you turned 70 ½ after 2019. Alternatively, they might kick in after you decide to retire. 

  • Which Accounts Does It Impact? Traditional IRAs and employer-sponsored plans, such as 401(k)s, are the usual suspects subject to RMDs. 

  • Tax Insights: It’s important to note that RMDs are treated as taxable income in the year they’re withdrawn. 

  • Penalties to Watch Out For: Missing out on your RMDs can result in a substantial 50% penalty on the required withdrawal amount. Ouch! So, staying on top of your withdrawals is crucial – even if you opt to take out more than the minimum required.

  • Consider the Benefit of Qualified Charitable Distributions (QCDs): If you’re over 70 ½ and have a traditional IRA, you might want to explore Qualified Charitable Distributions. These allow you to donate up to $100,000 directly from your IRA to a charity without facing taxation on the distribution. A QCD can even fulfill part or all of your RMD, up to the limit of $100,000. By donating IRA funds to qualified charities, you can sidestep taking possession of the funds and the associated tax liability. Plus, there’s potential for reduced taxation on other income sources and Medicare-related expenses. 

RMDs ensure your retirement funds are put to use during your lifetime, preventing them from being stowed away indefinitely. If any aspect of RMDs leaves you with questions, remember, we’re here to help! Give our office a call for any follow-up inquiries. Happy retirement planning! 

RMDs are generally subject to federal income tax and may be subject to state taxes. Raymond James and its advisors do not offer tax or legal advice. Consult your tax advisor to assess your situation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the author, and not necessarily those of Raymond James. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.