Take Advantage of the New RMD Rules

Retirement account owners are seeing some exciting changes regarding required minimum distributions or RMDs. Recent legislation has provided more flexibility and options for managing RMDs from 401(k)s, IRAs and other accounts.

If you're approaching age 72 or older, these new rules could help you maximize tax-advantaged growth and minimize taxes. This article explores how you can benefit from the updated RMD guidelines.
 

Delay Your First RMD for Longer Tax-Deferred Growth  

The SECURE Act of 2019 pushed back the age for beginning RMDs to 72. Now, the SECURE Act 2.0 allows those turning 73 in 2023 or later to wait until age 73 to take their first RMD.  If you turn 73 in 2023, you can delay your initial RMD until April 1, 2025.  

Postponing your first distribution allows your retirement accounts to grow larger through tax-deferred investment returns potentially. The longer you wait, the more you can benefit from compounding.

This strategy may be particularly useful if you have earned income or other cash flow sources to tap first.  

Plan How to Withdraw Your RMDs for Maximum Flexibility

Once RMDs begin, you have options for withdrawing the required amounts each year. You can take the full RMD by the December 31 deadline or spread it out over the year through monthly or quarterly installments.

You can also partially convert your RMD to a Roth IRA to minimize future taxes. For example, if your first RMD is $20,000, you may want to withdraw $5,000 per quarter. Or you can convert $10,000 of the RMD to a Roth IRA, paying taxes now on that amount, and withdraw the remaining $10,000 from your traditional IRA.

These strategies provide flexibility to align RMDs with your cash flow needs and tax situation.

Review Beneficiary Choices to Reduce Taxes 

The new rules also provide more options for distributing inherited IRAs to non-spouse beneficiaries. In many cases, inheritors can now stretch IRA distributions over their lifetime.

However, the rules are complex, so account owners should review beneficiary designations with the help of a financial advisor.

Making strategic beneficiary choices and properly titling inherited IRAs can help minimize the tax burden on your heirs. The new rules provide an opportunity to revisit your estate planning and make changes that benefit both current and future generations.

The updated RMD guidelines offer retirement account owners more flexibility and control. By understanding all your options, you can develop a smart distribution strategy that meets IRS requirements while optimizing your tax savings and financial legacy. Work with a tax or financial professional to implement a tailored plan for your needs.