How to Coordinate RMDs With Other Retirement Income to Minimize Taxes
Written by Selena Maranjian for The Motley Fool -> Don't be late taking your RMD, as the penalty is severe. Think through the tax implications of your RMDs. There are some moves you might make to reduce your tax bill with RMDs. Anyone who is (sensibly!) socking money away for
There are some moves you might make to reduce your tax bill with RMDs.
Anyone who is (sensibly!) socking money away for retirement in tax-advantaged retirement accounts such as IRAs and 401(k)s should learn more about Required Minimum Distributions (RMDs). That's because some forms of these accounts require you to be making certain withdrawals on a certain schedule -- and if you fail to do so, a severe penalty may result.
Specifically, we're required to take RMDs annually from traditional IRAs , SEP IRAs , and SIMPLE IRAs once we reach age 73. (RMDs are not a feature of Roth IRAs and Roth 401(k)s for the original owners of the accounts.)
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It's smart to consider RMDs in the context of your various retirement accounts and income sources, and to make moves that minimize your tax bill. For starters, know that your RMD will count as taxable income to you, so it will likely increase your tax bill and may even push you into a higher tax bracket.
Note, too, that you have until April 1 of the year after you turn 73 to take your first RMD. After that, though, the deadlines fall on Dec. 31. So your second RMD will be due on Dec. 31 of the year you turn 74.
Also, the penalty for failing to take your RMD on time is 25% of the amount you failed to withdraw. (You may be able to pay a smaller penalty if you take action soon after missing the deadline.)
Spend some time learning about RMDs and thinking about how you might best take them.
