Hi friends, it’s Devin Choules, Founder and CEO of Choules Financial. Today, we’re going to walk through the five things you need to know about RMDs—Required Minimum Distributions.
1. What Are RMDs?
An RMD is a required amount you must withdraw from your pre-tax retirement accounts once you reach a certain age. The government originally set the age at 70½, then changed it to 72, and now it’s 73—eventually phasing up to 75. With the rules shifting so often, it’s no surprise people feel confused. That’s exactly why we’re here—to bring clarity to your retirement planning.
When you reach age 73 (as of now), whether you need the money or not, you are required to take a distribution. If you don’t, you could face a 25% penalty—and that’s on top of the taxes. So, we never want to miss an RMD.
2. Which Accounts Are Subject to RMDs?
All pre-tax retirement accounts are subject to RMDs. That includes:
401(k)
403(b)
457 plans
TSP
401(a)
Traditional IRAs
The reason? You haven’t paid taxes on these funds yet, and the government wants its share.
3. How Is Your RMD Calculated?
Once you understand when and which accounts require RMDs, the next question is how much you have to take out.
The IRS provides a life expectancy table you’ll need to use—so it’s not as simple as saying “Take out 4%.” The good news? When you work with a professional, we handle this math for you.
One common misconception: If you have multiple pre-tax accounts, you don’t need to take an RMD from each one individually. The IRS simply wants the total RMD amount withdrawn. So if your total pre-tax balance is $200,000, and your RMD is $8,000, it doesn’t matter if that comes from one account or split across several. As long as you take the required amount and pay the taxes, you’re in the clear.
4. Should You Take Your RMD as a Lump Sum or in Installments?
There’s no universal rule here—just what works best for you.
Some people argue for taking it all at the end of the year so the account has time to grow. Others prefer monthly or quarterly distributions so the money stays invested longer.
At Choules Financial, we often talk about making foreign things familiar. RMDs might be new to you, but getting a regular paycheck isn’t. That’s why I often recommend installments—it mimics the familiar rhythm of a paycheck and can make the transition into retirement feel more natural.
5. How RMDs Can Affect Your Social Security
This is a big one, and it surprises many people.
The IRS uses a complex formula to determine whether your Social Security is taxable. Often, retirees can live off their Social Security and modest withdrawals from retirement accounts and stay mostly tax-free.
But once you’re forced to take RMDs, that additional income can push your total income over the threshold—and suddenly, your previously non-taxable Social Security becomes taxable.
This is where tax planning becomes essential. If we can proactively plan before RMDs begin, we may be able to reduce or even eliminate taxes on your Social Security for years to come.
Bonus: Qualified Charitable Distributions (QCDs)
If you’re charitably inclined and over age 70½, you should know about Qualified Charitable Distributions (QCDs). This strategy allows you to donate directly from your IRA to a qualified charity—and it doesn’t count as taxable income.
Many people try to bunch charitable giving into a single year to itemize deductions. That can work—until you hit 70½. At that point, QCDs become the smarter option.
If you’re giving to charity, do it through a QCD. It satisfies your RMD and reduces your taxable income at the same time.
That’s it for this week’s edition of the QDS. If you have questions about your RMDs, how they impact your Social Security, or how to reduce your tax liability in retirement, schedule a time to meet with us.
And as always, don’t forget to click below to subscribe and turn on notifications—we’ll see you next week.
