As retirement evolves, the savings you have built over the years may begin to play a different role in your life. Understanding required withdrawals can open a conversation about how those resources support you, the people you love and the causes you care about.
For much of our working lives, we become accustomed to setting money aside for the future. Those contributions may become a familiar rhythm, quietly building resources while our attention rests on our careers, our families and the responsibilities of each day.
Beginning to draw on those savings can feel less familiar, particularly when other sources of income already provide what we need. We may find ourselves wondering how much to withdraw, when to begin and how those decisions fit with everything else we have in place.
Required minimum distributions, often called RMDs, become part of this conversation because certain retirement accounts require annual withdrawals once we reach the applicable starting age. That requirement applies even when we do not need the money for everyday living.
At Amida, we see this as an opportunity to bring the full picture into view, considering the requirements alongside your income, your relationships and your intentions for the years ahead.
When your savings begin to support a new season
Traditional retirement accounts generally allow income tax on pre-tax contributions and investment growth to be deferred until money is withdrawn. Required minimum distributions establish when a minimum amount must begin coming out each year, with withdrawals generally included in taxable income.
For people reaching their starting age under today’s rules, RMDs generally begin at 73, although the age that applies depends on your year of birth. The type of account you hold and, in some circumstances, whether you are still working can also affect when withdrawals begin. [IRS guidance on required distributions]
These details are worth exploring before the first withdrawal is due, allowing time to consider how the additional income will sit alongside the resources you already draw on. Perhaps your savings will help support the life you enjoy today, or perhaps your needs have changed since you first began setting that money aside.
A conversation with your wealth advisor can help connect those personal considerations with the requirements that apply to your accounts.
Making room for the timing conversation
Required withdrawals are generally due by December 31 each year, although the first withdrawal can usually be delayed until April 1 of the following year. Taking that option means two required distributions will fall in the same calendar year, because the second is still due by December 31.
That timing may affect your taxable income and, depending on your circumstances, your tax bracket or Medicare premiums. [IRS guidance on the first withdrawal]
Looking at both years together gives you and your advisors room to consider the implications before choosing a date. It also allows the withdrawal to become part of a coordinated conversation about your retirement income, rather than another detail to resolve as the year draws to a close.
Bringing your accounts into view
Over a working life, retirement savings can come to rest in several places. You may have an IRA alongside accounts from earlier employers, with each representing a different chapter in your career.
The withdrawal requirements are not identical across those accounts. Some required amounts can be coordinated across eligible accounts, while others must be withdrawn separately. Roth IRAs and designated Roth accounts within workplace plans do not require distributions during the original owner’s lifetime, although inherited accounts have their own rules. [IRS guidance on retirement account requirements]
You do not need to become familiar with every calculation or exception to begin the conversation. Bringing your account information together gives your wealth advisor a starting point for helping you understand what is required, how much needs to be withdrawn and how the arrangements fit together.
There are penalties for missed or incomplete required withdrawals, so confirming those arrangements is a useful part of the review. If something has been overlooked, your advisor and tax professional can help you understand the correction process and whether penalty relief may be available. [IRS guidance on missed distributions]
When the account comes with a personal history
An inherited retirement account may carry memories of the person who left it to you, alongside questions about what to do next. Working through those questions can take time, especially when financial decisions arrive during a period of loss.
Inherited accounts follow different withdrawal rules from your own retirement savings. Many non-spouse beneficiaries must withdraw the full balance within ten years, and some must also take annual distributions during that period. The requirements depend on the circumstances, with different provisions for certain beneficiaries. [IRS guidance on inherited accounts]
This is an area where individual guidance is particularly valuable. Your wealth advisor, working with your tax professional, can help clarify the requirements while making space to consider how the inheritance fits into your own life and responsibilities.
Connecting withdrawals with your intentions for giving
For some families, charitable giving is already woven into the way they use their resources. If that is true for you, required withdrawals may provide a natural moment to revisit the causes you wish to support.
From age 70½, an eligible qualified charitable distribution, or QCD, allows money to pass directly from an IRA to a qualifying charity. Subject to the applicable rules and annual limit, it can count towards a required minimum distribution while keeping the qualifying amount out of income. [IRS guidance on qualified charitable distributions]
Whether this approach fits will depend on your circumstances and the giving you already intend to do. Raising the question before taking your withdrawal gives your advisors time to explain the requirements and explore how your charitable intentions could fit with your retirement income.
A place to begin
You may already know that a required withdrawal is approaching, or you may simply want a clearer understanding of what lies ahead. Either is a good reason to begin a conversation.
A few questions can help shape it:
- When will required withdrawals begin for my accounts, and what arrangements are already in place?
- How might those withdrawals affect the income I receive from other sources?
- Have changes in my life or responsibilities influenced how I would like to use these savings?
- If I have inherited an account or intend to give to charity, what would be helpful to discuss before taking a withdrawal?
At Amida, we believe these conversations deserve room for both the financial details and the life those details support. As your circumstances evolve, we can help you consider the requirements alongside your wider intentions, in coordination with your tax professional.
If required withdrawals are on your horizon, we invite you to schedule a conversation with us. Together, we can explore what this next season asks of your resources and how they can continue to support your wealth being™. The first step is easy… connect with us.
