As you enter retirement, understanding Required Minimum Distributions (RMDs) is essential to avoiding penalties and managing taxes efficiently. RMDs are mandatory withdrawals from tax-deferred retirement accounts, beginning at age 73, and play a significant role in how much you must withdraw from your retirement savings each year.
At Prevail, we help retirees in Leawood and Kansas City develop strategic withdrawal plans that minimize taxes and maximize financial security. This guide covers everything you need to know about RMDs and how to manage them effectively.
What Are Required Minimum Distributions (RMDs)?
RMDs are mandatory annual withdrawals from tax-deferred retirement accounts once you reach the IRS-specified age. These withdrawals ensure that retirees begin drawing down their savings and paying taxes on pre-tax contributions.
Key Facts About RMDs:
- Start Age – RMDs must begin at age 73 (as of 2024).
- Applies To – Traditional IRAs, 401(k)s, 403(b)s, and SEP IRAs.
- Exemptions – Roth IRAs do not require RMDs during the account holder’s lifetime.
- RMD Calculation – Based on account balance and IRS life expectancy factor.
- Penalties for Missing RMDs – A 25 percent penalty applies to missed withdrawals.
Failing to take RMDs on time can lead to unnecessary penalties and increased tax burdens, making proper planning essential.
How to Calculate Your RMD Amount
It’s best to consult a financial advisor, tax expert, or the IRS rather than relying solely on a calculator. The IRS determines RMD amounts based on your account balance and life expectancy factor, ensuring that withdrawals occur systematically over your lifetime.
Steps to Calculate RMDs:
- Find Your Account Balance – Use the December 31st balance of the previous year.
- Locate Your Life Expectancy Factor – Based on the IRS life expectancy tables.
- Divide Balance by Factor – The result is the amount required to be withdrawn for the year.
A financial advisor can assist with RMD calculations to ensure accuracy and tax efficiency.
When and How to Take RMDs to Minimize Taxes
The timing and method of taking RMDs impact tax liability and financial security. Careful planning helps avoid excessive taxes and preserve retirement savings.
Tax-Efficient RMD Strategies:
- Consider Qualified Charitable Distributions (QCDs) – Donate up to $100,000 tax-free to a qualified charity.
- Delay Social Security Benefits – Reducing taxable income in early retirement can help manage tax brackets.
- Use Roth IRA Conversions – Convert portions of a Traditional IRA to a Roth IRA to lower future RMDs.
- Reinvest Excess RMD Funds – If the income is not needed, reinvest into a tax-efficient brokerage account.
Proper planning minimizes the tax impact of RMDs while keeping investments working for you.
Can You Delay RMDs?
Certain retirees may be able to postpone their first RMD or limit the amount required to be withdrawn.
When Can RMDs Be Delayed?
- Still Working Past Age 73 – If you own less than 5 percent of your company and have a 401(k) at your current employer, you can delay RMDs for that account.
- Roth 401(k) Rollover – Rolling over a Roth 401(k) into a Roth IRA eliminates RMDs for that account.
- First-Year RMD Deferral – The first RMD can be delayed until April 1st of the following year, though this may result in double withdrawals the next year.
Carefully consider delaying RMDs to avoid increased tax liability in later years.
How RMDs Impact Taxes and Social Security
RMD withdrawals increase taxable income, which may push retirees into higher tax brackets or increase Medicare costs.
Tax Considerations for RMDs:
- Ordinary Income Tax – RMDs are taxed at your current income tax rate.
- Higher Medicare Premiums – Large withdrawals could trigger higher Medicare Part B and D premiums.
- Social Security Taxation – RMDs increase provisional income, making up to 85 percent of Social Security benefits taxable.
By strategically planning withdrawals, retirees can reduce tax burdens and maintain financial flexibility.
Why Work with Prevail for RMD Planning?
At Prevail, we specialize in helping retirees in Kansas City and Leawood navigate RMDs with tax efficiency and long-term financial security.
How We Help:
- Accurate RMD Calculations – Avoid penalties and unnecessary tax liabilities.
- Tax-Optimized Withdrawal Strategies – Minimize tax burdens while maximizing retirement income.
- Charitable Giving Strategies – Utilize RMDs for tax-free charitable donations.
- Long-Term Financial Planning – Ensure that retirement savings last for decades.
Our team helps retirees develop structured RMD withdrawal plans that protect financial security.
Start Planning for RMDs Today
If you are approaching age 73 or already required to take RMDs, having a clear strategy ensures tax efficiency and financial stability.
Steps to Get Started:
- Schedule a Free Consultation – Speak with our retirement planning experts.
- Calculate Your RMDs Accurately – Avoid penalties and over-taxation.
- Build a Tax-Efficient Withdrawal Plan – Minimize unnecessary tax burdens.
- Ensure Long-Term Retirement Security – Implement a sustainable financial plan.
Contact Prevail today to create a structured RMD plan that protects your retirement savings.
Final Thoughts: Ensure Tax-Efficient RMD Withdrawals
Key Takeaways:
- RMDs begin at age 73 for most tax-deferred retirement accounts.
- Failing to take an RMD results in penalties up to 25 percent.
- Strategic withdrawal planning minimizes tax burdens.
- Charitable giving and Roth conversions can help reduce RMD impact.
- Professional guidance ensures an optimized withdrawal strategy.
Need help planning your RMDs? Contact Prevail today for a free consultation.
