For decades, retirement planning often focuses on one central objective: saving and investing enough money to support the life you want after you stop working.

 

But eventually, the focus shifts.

 

Instead of asking how much you should contribute to retirement accounts, you begin asking how much you should withdraw, when you should withdraw it, and how those decisions might affect your taxes and long-term financial security.

 

One important part of that transition involves required minimum distributions, commonly called RMDs.

 

For retirees with traditional IRAs, 401(k)s, and certain other retirement accounts, the IRS generally requires withdrawals beginning at a specified age, whether or not the money is needed for living expenses.

 

But an important question often gets overlooked:

 

Just because you're not required to withdraw money from your retirement accounts yet, does that mean you should wait?

 

The answer depends on your circumstances. Understanding how RMDs work, and how they fit into your overall retirement income plan, can help you make more thoughtful decisions before and after withdrawals become mandatory.

 

What Are Required Minimum Distributions?

 

Required minimum distributions are the minimum amounts the IRS requires you to withdraw each year from certain tax-advantaged retirement accounts once you reach the applicable age.

 

These rules generally apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, and other qualifying retirement plans.

 

The reason is straightforward.

 

Many retirement contributions were made with pretax dollars, allowing the money to grow without annual taxation inside the account. RMD rules eventually require distributions so that previously untaxed amounts generally become subject to income taxes.

 

RMDs are not an additional tax. They are withdrawals from your own retirement savings.

 

However, distributions from traditional retirement accounts are generally taxable as ordinary income, except to the extent they represent previously taxed amounts or qualify for another exclusion.

 

Importantly, Roth IRAs and designated Roth accounts in employer retirement plans are not subject to lifetime RMDs for the original account owner. Different rules can apply to beneficiaries who inherit these accounts.

 

When Do Required Minimum Distributions Begin?

 

Under current federal law, the age at which RMDs generally begin depends on your birth year.

 

If you were born between 1951 and 1959, your RMDs generally begin at age 73.

 

If you were born in 1960 or later, your RMDs generally begin at age 75.

 

Individuals born in 1950 or earlier generally became subject to RMDs under previous rules, which established starting ages of 70½ or 72, depending on their date of birth.

 

Generally, your first RMD must be taken by April 1 of the year following the year you reach your required beginning age.

 

Subsequent annual distributions are due by December 31.

 

For example, someone who turns 73 in 2026 would generally need to take their first RMD by April 1, 2027.

 

However, delaying that first distribution until 2027 would mean taking two RMDs in the same calendar year: the first by April 1 and the second by December 31.

 

That could result in higher taxable income for that year.

 

Certain employer-sponsored plans may allow eligible employees who are still working to delay distributions until retirement. This exception generally does not apply to traditional IRAs, and special rules apply to certain business owners.

 

How Is Your Required Minimum Distribution Calculated?

 

Your annual RMD is generally based on your retirement account balance as of December 31 of the previous year, divided by an IRS life expectancy factor.

 

For example, consider a hypothetical retiree who is age 75 and has $1 million in a traditional IRA at the end of the previous year.

 

Using the standard IRS Uniform Lifetime Table factor of 24.6, the required distribution would be approximately $40,650.

 

That amount represents the minimum withdrawal for the year, not necessarily what the retiree should spend.

 

As you age, the applicable life expectancy factor generally decreases, which can increase the percentage of the account that must be distributed.

 

Investment performance and account balances also affect future distribution amounts.

 

If you have multiple retirement accounts, the rules for calculating and combining distributions depend on the account types. For example, traditional IRA RMDs generally can be aggregated, while 401(k) RMDs typically must be satisfied separately.

 

Should You Wait Until RMDs Begin to Withdraw Retirement Money?

 

Not necessarily.

 

One of the most important retirement planning decisions involves determining which accounts to draw from and when.

 

Some retirees prefer to delay withdrawals from traditional retirement accounts for as long as possible, allowing those assets to remain invested on a tax-deferred basis.

 

That may be appropriate in certain circumstances.

 

But waiting isn't automatically the most tax-efficient approach.

 

Consider someone who retires at age 62 but won't begin RMDs until age 75.

 

During those years, their taxable income may be lower than it was during their working career.

 

Taking some withdrawals from traditional retirement accounts during that period could potentially reduce the size of future RMDs and spread taxable income across more years.

 

Likewise, partial Roth conversions may be worth evaluating before RMDs begin.

 

A Roth conversion generally creates taxable income in the year of conversion, but qualified future Roth distributions may be tax-free.

 

The decision requires careful analysis because additional income can affect tax brackets, Medicare premiums, and other financial considerations.

 

The goal isn't necessarily to delay taxes as long as possible. It's to consider how withdrawals and taxes may work together throughout retirement.

 

What If You Don't Need Your RMD for Living Expenses?

 

This is a common question among retirees who have sufficient income from Social Security, pensions, or other sources.

 

If you don't need your RMD to support your lifestyle, you still generally must take it.

 

However, you're not required to spend it.

 

Once the distribution has been made and any applicable taxes addressed, you have several options.

 

Reinvest the money. You may invest the after-tax proceeds in a taxable brokerage account, allowing the assets to remain part of your long-term investment strategy.

 

Build cash reserves. Distributions may help establish liquidity for unexpected expenses, future healthcare needs, or planned purchases.

 

Support family members. You may use distributed funds to make financial gifts to children, grandchildren, or other loved ones, subject to applicable gift tax rules.

 

Make charitable contributions. If supporting charitable organizations is important to you, certain distribution strategies may provide tax advantages.

The important distinction is that the IRS generally requires money to leave the retirement account. It does not require you to use that money for personal spending.

 

Can You Donate Your RMD Directly to Charity?

 

Yes, and for charitably inclined retirees, this may be one of the more useful planning opportunities.

 

A qualified charitable distribution, or QCD, generally allows eligible individuals age 70½ or older to transfer money directly from an IRA to a qualifying charitable organization.

 

When properly executed, the eligible distribution can be excluded from federal taxable income and may count toward that year's IRA RMD.

 

For example, if your required IRA distribution is $30,000 and you want to donate $10,000 to an eligible charity, you may be able to make that $10,000 gift directly from your IRA.

 

The remaining $20,000 would generally still need to be distributed to satisfy the full RMD.

 

This approach can be particularly meaningful for retirees who already give to charity but do not itemize deductions.

 

However, QCDs have annual limits and specific eligibility requirements. They generally must be transferred directly from the IRA to an eligible charitable organization. Donor-advised funds and certain other recipients do not qualify.

 

And a distribution taken personally and later donated is not treated the same way as a properly completed QCD.

 

Charitable strategies should be coordinated with your tax professional before funds are transferred.

 

Can You Give Your RMD to Your Children or Grandchildren?

 

Yes. Once you've received the distribution, you generally can use those funds to make gifts to family members.

 

However, an important distinction applies.

 

Gifting an RMD to a family member does not eliminate the income tax associated with the distribution.

 

The withdrawal is generally included in your taxable income, even if you subsequently give the money away.

 

For families interested in helping children with a home purchase, supporting grandchildren's education, or transferring wealth during their lifetime, RMD proceeds may provide a source of funding.

 

Gift tax reporting requirements and exclusions may apply depending on the size and structure of the gift.

 

These decisions are worth considering alongside your own retirement income, healthcare needs, and estate planning goals.

 

What Happens If You Forget to Take Your RMD?

 

Missing an RMD can result in an IRS excise tax.

 

Under current rules, the tax is generally 25% of the amount that should have been withdrawn but wasn't.

 

That rate may be reduced to 10% if the shortfall is corrected within the applicable correction window. The IRS may also waive the penalty in certain circumstances involving reasonable error and corrective action.

 

Because deadlines and calculations can become complicated, particularly when multiple retirement accounts are involved, it's important to establish a process for reviewing annual distribution requirements.

 

Financial institutions may provide RMD calculations, but account owners remain responsible for satisfying applicable requirements.

 

Frequently Asked Questions

 

Do I have to spend my required minimum distribution?

No. You must generally withdraw the required amount, but you can save, reinvest, donate, or gift the proceeds after satisfying applicable tax obligations.

 

Can I withdraw more than my RMD?

Yes. RMDs establish a minimum, not a maximum. However, additional withdrawals may increase taxable income, and amounts withdrawn above the current year's RMD cannot be applied toward future years' requirements.

 

Should I take retirement withdrawals before age 73 or 75?

Possibly. Earlier withdrawals or Roth conversions may be worth considering during lower-income retirement years. Whether they make sense depends on your current and future taxes, investment accounts, retirement income needs, and other financial circumstances.

 

Are Roth IRAs subject to RMDs?

Roth IRAs generally are not subject to RMDs during the original owner's lifetime. Designated Roth accounts in employer retirement plans are also exempt from lifetime RMDs under current rules. Inherited Roth accounts may be subject to separate distribution requirements.

 

Key Takeaway

Required minimum distributions are an important part of retirement planning, but they shouldn't necessarily determine your entire withdrawal strategy.

 

For some retirees, delaying withdrawals may make sense. For others, taking distributions earlier, evaluating Roth conversions, or using charitable giving strategies may better align with long-term financial goals.

 

The question isn't simply when the IRS requires you to withdraw money. It's when and how those withdrawals can best support your overall retirement plan.

 

Final Thoughts

 

At Cypress Wealth Services, we believe retirement income planning should involve more than simply determining how much money you can withdraw each year.

 

It should consider how your investments, taxes, Social Security, healthcare expenses, charitable interests, and family goals work together.

 

Required minimum distributions are one piece of that broader picture.

 

Rather than waiting until the IRS requires action, consider whether your retirement withdrawal strategy deserves attention years earlier.

 

Because retirement planning isn't just about accumulating enough wealth.

 

It's about making thoughtful decisions that help you use that wealth with confidence and clarity throughout retirement.

 

 

About the Author

 

Ross Biesinger is a Partner and Senior Financial Advisor with Cypress Wealth Services. Ross works with individuals and families navigating retirement, wealth management, retirement income planning, and the financial decisions that accompany aging.

 

His approach emphasizes comprehensive financial planning and helping clients understand how investments, taxes, healthcare, and long-term financial goals can work together throughout retirement.

 

 

Retire With Confidence and Clarity is an educational series focused on helping individuals and families navigate retirement planning decisions with greater understanding and purpose.

 

 

Tax laws, retirement distribution rules, contribution limits, and individual circumstances may change. Hypothetical examples are provided for illustrative purposes only and do not represent actual client results or guaranteed outcomes. Investments involve risk, including the potential loss of principal. Investment advisory services involve fees. Cypress Wealth Services does not provide legal or tax advice. Individuals should consult qualified financial, tax, and legal professionals regarding their specific circumstances.