Important Note

You are now leaving the Strong Valley Wealth & Pension, LLC ("Strong Valley") website. By clicking on the "Schwab Alliance Access" link below you will be entering the Charles Schwab & Co., Inc. (“Schwab”) Website. Schwab is a registered broker-dealer, and is not affiliated with Strong Valley or any advisor(s) whose name(s) appears on this Website. Strong Valley is/are independently owned and operated. Schwab neither endorses nor recommends Strong Valley. Regardless of any referral or recommendation, Schwab does not endorse or recommend the investment strategy of any advisor. Schwab has agreements with Strong Valley under which Schwab provides Strong Valley with services related to your account. Schwab does not review the Strong Valley website(s), and makes no representation regarding the content of the Website(s). The information contained in the Strong Valley website should not be considered to be either a recommendation by Schwab or a solicitation of any offer to purchase or sell any securities.

Article

Required Minimum Distributions & Tax Strategies

Are you familiar with the IRS’s required minimum distributions (“RMDs”)? Learn about RMDs and strategies to effectively reduce taxes, optimize financial planning and maximize your legacy by preserving wealth in retirement for what is most important to you.

March 17, 2025
Important Disclosure: Content on our website and in our newsletters is for informational purposes only. The information provided may (or may not) directly apply to your situation. We recommend that readers work directly with a professional advisor when making decisions in the context of their specific situation.

Once retirees reach age 73 (as per the latest SECURE Act changes), they must start taking Required Minimum Distributions (RMDs) from tax-deferred accounts such as 401(k)s and traditional IRAs. Failure to comply can result in hefty penalties. Understanding how to calculate and manage RMDs is essential to maintaining tax efficiency and financial stability.

How to Calculate and Take RMDs Without Unnecessary Tax Burdens

The IRS provides a formula for RMD calculations based on life expectancy and account balances. Here’s how to approach it:

  • Use the IRS Uniform Lifetime Table: Find the appropriate distribution factor based on age and apply it to the account balance at year-end.
  • Plan for Taxes: RMDs are treated as ordinary income and may push retirees into a higher tax bracket.
  • Consider Withdrawal Timing: Spreading RMDs throughout the year rather than taking a lump sum can help manage tax liabilities.


Roth Conversions and Other Tax-Efficient Withdrawal Strategies

Retirees can mitigate the tax impact of RMDs by incorporating these strategies:

  • Roth Conversions: Strategically transferring funds from a traditional IRA to a Roth IRA can reduce future RMD obligations, as Roth IRAs are not subject to RMDs.
  • Tax Bracket Management: Withdraw funds strategically to avoid bumping into a higher tax bracket.
  • Delaying Social Security: If possible, delaying Social Security benefits allows retirees to withdraw from tax-deferred accounts earlier, reducing future RMD burdens.

Charitable Giving Strategies, Such as Qualified Charitable Distributions (QCDs)

For charitably inclined retirees, QCDs offer a tax-efficient way to satisfy RMD requirements:

  • What is a QCD? Retirees can donate up to a certain amount each year directly from their IRA to a qualified charity.
  • Tax Benefits: QCDs satisfy RMD obligations without increasing taxable income.
  • Estate Planning Considerations: Charitable donations can reduce estate taxes and leave a philanthropic legacy.

By proactively planning with a financial professional to leverage tax-efficient strategies, and explore charitable giving, retirees can minimize tax burdens and maximize their retirement wealth.

Other content you may like

  • What's Driving the Market

    Podcast Highlight - What the Market is Forecasting for Rates

    March 8, 2023
    Diving deeper into examining the Federal Reserve, the team explains the popular term Soft Landing for the economy. Also, what the Market is using to forecast what the Feds will do with interest rates.
    Read this Article

  • Implement a Family Debt Ceiling

    September 17, 2024
    Adopting a personal debt ceiling can be a transformative step for families, helping your whole family to stay focused on their long-term financial objectives. In the process, there are several benefits along the way, such as promoting financial discipline, reducing stress and avoiding excessive debt.
    Read this Article

  • How will the 2020 elections shape the financial market?

    August 13, 2020
    This special report looks at the historical market returns in the context of presidential elections, which parties are in control of Congress, and various government election outcomes. While nobody can predict the future, and past results don't guarantee future outcomes, this report gives some insights as to what the financial landscape might look like after the 2020 elections.
    Read this Article
  • Mid-Quarter Roundtable Highlights

    Podcast Highlight - Is It Safe? Money Market and Bank Deposit Sweeps

    December 8, 2022
    There is no riskless asset. Even if you had it all in green – someone could steal it, your house could catch fire, or inflation could devalue it. The team points out some of the pros and cons of money market vs. bank deposit.
    Read this Article
    • The link you have selected is located on another server. The linked site contains information that has been created, published, maintained, or otherwise posted by institutions or organizations independent of this organization. We do not endorse, approve, certify, or control any linked websites, their sponsors, or any of their policies, activities, products, or services. We do not assume responsibility for the accuracy, completeness, or timeliness of the information contained therein. Visitors to any linked websites should not use or rely on the information contained therein until they have consulted with an independent financial professional. Please click “Continue to Link” to leave this website and proceed to the selected site.
    No, stay on StrongValley.comContinue to link
    phone-handset