One of the key concepts in retirement planning is required minimum distributions (RMDs). Consider the Apostle Paul’s advice in Romans 13:7-8: “Render therefore to all their due: taxes to whom taxes are due, customs to whom customs, fear to whom fear, honor to whom honor. Owe no one anything except to love one another, for he who loves another has fulfilled the law” (NKJV). Taking RMDs is a way to fulfill one’s financial responsibilities in retirement savings.
A successful retirement plan incorporates RMDs strategically into your overall plan. But first you must understand how they work. This article aims to offer some insight.
What Are Required Minimum Distributions?
Required minimum distributions are the lowest amount retired persons (or their beneficiaries) must withdraw from their retirement funds every month. The Internal Revenue Service requires retirees to begin taking RMDs once they are 73 years old, as per the SECURE Act 2.0. (Note: Under the SECURE 2.0 Act, that RMD age will rise to 75 in 2033.) Investment accounts with RMDs include:
Traditional IRAs
401(k) plans
457 plans
403(b) plans
SEP IRAs
SIMPLE plans
Roth IRAs aren’t on that list because they’re funded with after-tax dollars. The IRS therefore considers taxes on Roth IRAs as settled—regulation isn’t necessary. Roth 401(k) plans, however, do have RMDs that account holders must make.
How Much Must Retirees Take in RMDs?
The amount you must take in required minimum distributions hinges on a couple of factors. These include the balance your retirement fund had on December 31 of the previous year and your average life expectancy according to the IRS. Understanding this data helps you withdraw the proper amount without financial penalties.
5 Facts About Required Minimum Distributions
Here are a few things to keep in mind about RMDs.
1. RMDs need to be taken by December 31 each year.
Your total annual RMD must be withdrawn by 11:59 p.m. on December 31 of every year to avoid penalties. Missing the deadline results in a 50% tax penalty on the annual RMD amount.
2. Your first RMD must be taken by April 1st.
You can delay taking the annual required minimum distributions until April 1 of every year. If you turned 73 in 2024, you have until April 1, 2025, to start taking RMDs. However, be aware that waiting until April 1 could elevate you into a higher tax bracket since you’ll be taking out two distributions in a single year. Consult with a financial professional to find out what the numbers say is the best strategy.
3. If you’re still employed, you may defer RMDs.
With 401(k) plans, you can delay taking RMDs if you haven’t yet retired—even if you’re 73. However, this delay is only acceptable if the RMDs apply to your current employer’s sponsored plan. Retirement funds from previous employers, if you still have them, are subject to RMDs.
4. RMDs still apply to inherited accounts.
Non-spousal beneficiaries who have inherited a deceased person’s retirement account in 2024 may still be subject to RMDs starting in 2025. This also goes for inherited Roth IRAs, which normally wouldn’t be bound to RMDs.
5. Charitable RMD donations can reduce your tax bill.
A solid way to ease your tax liability is by redirecting your required minimum distributions to a charitable cause. Qualified charitable donations (QCDs), which came into effect in 2016, mean RMDs don’t have to be reported as taxable income if they were donated to approved charities. If your RMD is $3,500 and you give it all to charity, you won’t pay taxes on the RMD.
Take Responsibility for RMDs With EagleFlight Wealth Management
Wise planning is a vital part of managing finances. That includes strategizing required minimum distributions. Working with RMDs is a way to provide yourself and others with the blessings you’ve received and leave a respectful Christian legacy.
EagleFlight Wealth Management takes a Christian approach to our clients’ financial needs. When you contact us, you’ll receive considered, faith-based advice using the wisdom of the Bible and loving Christian principles.
To get in touch to schedule an introductory meeting, call (765) 288-1927 or email barry.hickey@cfdinvestments.com.
About Barry
Barry Hickey is the founder, managing partner, and financial advisor at EagleFlight Wealth Management, a financial services firm based in Muncie, Indiana, helping people live and retire with dignity and financial peace by planning their financial future with a biblical worldview. Barry has been in the financial services field since the mid-1980s. In 2006, inspired by Isaiah 40:31 (“They that wait upon the Lord shall renew their strength; they shall mount up with wings as eagles; they shall run, and not be weary.”), Barry became an independent financial advisor and founded EagleFlight with the mission to help people plan for their financial future and find financial peace, and to fulfill the mission God gave him.
Born and raised in Muncie, Barry graduated from Muncie Southside and served in the Marine Corps during the Vietnam War. He holds a Series 6, 7, 63, and 66 securities licenses and the Indiana Life and Health Insurance License. He also holds the Accredited Asset Management Specialist℠, Chartered Retirement Planning Counselor℠, Certified Kingdom Advisor®, and Retirement Income Certified Professional® designations.
Outside of work, Barry enjoys reading, watching football and baseball, and spending time with his wife (Carla), children (Kristin, Ryan, and Lauren), and grandchildren (Emmi, Cate, Ben, Maddie, Sophia, Bella, and Brady). His favorite Scripture is Matthew 6:33, “But seek first his kingdom and his righteousness, and all these things will be given to you as well.” To learn more about Barry, connect with him on LinkedIn.
Advisory Services offered through Creative Financial Designs, Inc., a Registered Investment Adviser. Securities offered through CFD Investments, Inc., a Registered Broker/Dealer, Member FINRA & SIPC, 2704 S. Goyer Rd., Kokomo, IN 46902. 765-453-9600. EagleFlight Wealth Management is not an affiliate of Creative Financial Designs, Inc. or CFD Investments, Inc.