By the Cornerstone Wealth Management Team
You spent decades doing one thing: putting money into your retirement accounts and leaving it alone. Then one year the rules flip. The IRS requires you to take a required minimum distribution (RMD), forcing you to pull a set amount out of those accounts annually and pay ordinary income tax on it, whether or not you need a dollar of it. That’s the exact moment when strategic wealth management becomes essential, because that mandatory withdrawal changes the entire game.
What surprises people isn’t the withdrawal itself, it’s everything the withdrawal touches: your tax bracket, your Medicare premiums, and how much of your Social Security becomes taxable.
Here’s what’s helpful to understand before your first one shows up.
When Your RMDs Actually Begin
For most retirees today, required minimum distributions start at age 73. That applies to anyone born between 1951 and 1959. If you were born in 1960 or later, current law moves your starting age to 75.
Your first RMD has a special deadline. You can delay it until April 1 of the year after you turn 73. Every RMD after that is due by December 31. That first-year flexibility sounds helpful, and sometimes it is, but delaying pushes two distributions into the same tax year. For some households that’s fine. For others it’s the difference between one tax bracket and the next.
RMDs apply to traditional IRAs, SEP and SIMPLE IRAs, and most employer plans like 401(k)s, 403(b)s, and 457(b)s. Roth IRAs don’t require distributions during the original owner’s lifetime, and as of 2024, Roth 401(k)s and Roth 403(b)s don’t either.
One exception people miss: if you’re still working past 73 and you don’t own more than 5% of the company, you may be able to delay distributions from that employer’s plan until you retire. It doesn’t cover your IRAs.
How the Amount Gets Calculated
Your RMD is your account balance on December 31 of the prior year, divided by a life expectancy factor the IRS publishes.
The factor shrinks as you age, which means the required percentage climbs every year. A 73-year-old takes out roughly 3.9% of the balance. By the mid-80s, that figure is closer to 7%. Retirees who assume RMDs stay flat are often caught off guard a decade in.
The aggregation rules trip people up too. If you have several traditional IRAs, you can add up the required amounts and pull the total from whichever account you choose. Employer plans work differently. Each 401(k) or 403(b) requires its own separate distribution. Consolidating old workplace accounts before 73 can simplify this considerably.
What Your RMD Touches Beyond Taxes
Your RMD counts as ordinary income, so it can lift you into a higher bracket. But the effects don’t stop there:
- Medicare premiums. Part B and Part D surcharges, known as IRMAA, are based on your income from two years earlier. A large distribution today can raise your premiums in 2028.
- Social Security taxation. Additional income can increase the share of your benefits subject to tax, sometimes up to 85%.
- Capital gains treatment. Higher income can shift how your investment gains are taxed.
None of this makes RMDs a problem to solve. It makes them a decision point that connects to the rest of your financial life, which is why they’re better handled inside a plan than at the end of December.
What Happens if You Miss One
If you don’t take the full amount on time, the IRS may assess an excise tax of 25% of the shortfall. If you correct the mistake within the allowed window, that can drop to 10%.
Be encouraged that this is one of the more avoidable penalties in the tax code, and automatic distributions and a calendar reminder can handle it. Often retirees who get caught simply forgot an account, usually an old 401(k) from a job they left years ago.
Planning Options to Consider Before 73
The years between retiring and turning 73 often bring lower taxable income than what comes before or after. That window offers room to work with.
- Partial Roth conversions. Moving portions of a traditional IRA into a Roth during lower-income years may reduce the balance that future RMDs are calculated from. It creates a tax bill now in exchange for potentially lower required distributions later. Whether that trade makes sense depends on your bracket, your timeline, and your legacy goals.
- Qualified charitable distributions. Starting at 70½, you can direct IRA money straight to a qualifying charity. The amount can count toward your RMD without being included in your taxable income, which may also help with the Medicare and Social Security effects above. For retirees who already give, this is often a more efficient path than writing a check.
- Withholding and timing. You can have taxes withheld directly from your distribution, which can simplify quarterly estimates. And you can take the amount in one December withdrawal or spread it across the year, depending on your cash flow.
RMDs and the People Who Inherit Your Accounts
Most non-spouse beneficiaries who inherit an IRA must empty it within 10 years. If you’d already begun taking RMDs before your death, they’ll generally also need to take annual distributions during those years.
For adult children in their peak earning years, that can mean a decade of added taxable income. It’s one reason beneficiary designations and account structure belong in the same conversation as your own distributions.
Getting Ahead of Your Required Minimum Distributions
Required minimum distributions aren’t complicated on their own. What makes them demanding is how many other things they affect at once.
At Cornerstone Wealth Management, we help retirees in Henderson, Las Vegas, and across the country look at distributions alongside taxes, Medicare, investments, and legacy goals, so a decision in one area doesn’t create a surprise in another.
Start preparing your financial future today! Schedule a complimentary call by calling (702) 342-0781 or emailing scheduling@cornerstonevegas.com.
Frequently Asked Questions
At what age do I have to start taking required minimum distributions?
Age 73 for anyone born between 1951 and 1959. If you were born in 1960 or later, current law sets your starting age at 75. Your first distribution can be delayed until April 1 of the following year, though every distribution after that is due by December 31.
How is my required minimum distribution calculated?
Divide your account balance as of December 31 of the prior year by a life expectancy factor published by the IRS. The factor decreases with age, so the required percentage rises over time. A 73-year-old withdraws roughly 3.9%, while someone in their mid-80s withdraws closer to 7%.
What happens if I forget to take my RMD?
The IRS may assess an excise tax of 25% of the amount you should have withdrawn, reduced to 10% if you correct it within the allowed window. Missed distributions usually involve a forgotten account, often an old employer plan. Automatic distributions can help you avoid the issue entirely.
Can I donate my RMD to charity instead of paying taxes on it?
Yes, through a qualified charitable distribution. Starting at age 70½, you can send IRA funds directly to a qualifying charity, and the amount can count toward your RMD without being included in your taxable income.
Do Roth accounts have required minimum distributions?
Roth IRAs don’t require distributions during the original owner’s lifetime. Roth 401(k) and Roth 403(b) accounts no longer do either. Inherited Roth accounts follow different rules, and most non-spouse beneficiaries still need to empty them within 10 years.
About Cornerstone Wealth Management
Cornerstone Wealth Management is a fiduciary wealth management firm based in Henderson, Nevada, helping retirees and pre-retirees nationwide plan for their future with clarity, confidence, and care. Co-founded by Jammie Avila, Kyle Kirwan, and Anthony Napolitano, the firm takes a comprehensive approach that unites income, investment, tax, healthcare, insurance, and legacy planning under one roof—simplifying complex financial decisions so clients can focus on what matters most.
Disclosures: Registered Representatives offer securities through Independent Financial Group, LLC (IFG), Member FINRA/SIPC. Investment Advisor Representatives offer Advisory services through Independent Financial Group, LLC (IFG), a Registered Investment Adviser.
Cornerstone Wealth Management, Cornerstone Tax Advisory and IFG are unaffiliated entities.
The foregoing content was prepared by Indigo Marketing Agency with verbiage, opinions and/or financial commentary input provided by Cornerstone Wealth Management.
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