Key Takeaways
- Required minimum distributions (RMDs) are IRS-mandated annual withdrawals from tax-deferred retirement accounts, starting at age 73.
- To calculate your RMD, take your year-end balance from the prior year and then divide it by your current year's “life expectancy” factor, as defined by the IRS.
- The IRS taxes RMDs as ordinary income, so your withdrawals count toward your taxable income and could potentially push you into a higher tax bracket.
- If you don’t need RMD money for daily living expenses, consider reinvesting the money in a non-retirement account or gifting it to loved ones.
- You can reduce your tax liability through a qualified charitable distribution (QCD), which is a direct transfer of funds from an IRA to a qualified charity. Another strategy is to consider a Roth conversion, as Roth IRAs do not have RMDs.