An RMD to-do list, including ways to use the money

You’re 73. You have a traditional IRA or other tax-deferred retirement account. You’ve yet to take your required minimum distribution (RMD).

You better get to it. The deadline for most who are subject to this tax rule is Dec. 31.

Here’s a quick RMD to-do list to help ensure you complete the task. As a bonus, there also are some suggestions on how to use the retirement money.

Take out the mandated amount. Your traditional IRA or affected retirement account trustee should have been bugging you about this. It’s time to take the nagging seriously and withdraw your RMD. The main reason to do so is to avoid penalty charges. If you fail to withdraw the full RMD by the due date, you’ll face a 25 percent excise tax on the amount not withdrawn. The 25 percent tax penalty can be cut to 10 percent if you correct the error within two years. But why pay any penalty? Take your RMD. On time.

    
And if you find you want to take out more than your RMD, that's OK. It is, after all, called a minimum distribution. Uncle Sam actually would be delighted to collect even more tax from you on a larger withdrawal.

Calculate the correct amount. IRA trustees or plan administrators must either report the RMD amount to the account owner or offer to calculate it. But even with that help, you, the account owner, are ultimately responsible for ensuring the correct RMD is taken.

Basically, the RMD is calculated based on your age and the account balance as the end of the prior tax year. Most use the Uniform Lifetime Table, an actuarial table of life expectancy. The Internal Revenue Service updated the table following changes to retirement law under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, versions one and two. Here's a basic example of how it works.

Janet is a 75-year-old whose spouse is her age and she has a traditional IRA worth $100,000 at the end of the year. The Uniform Lifetime Table says she must divide her $100,000 IRA by 24.6 years, meaning that by Dec. 31 she must withdraw at least $4,065 from her account.

The IRS provides required minimum distribution worksheets to help calculate the RMD amounts and payout periods. Financial advisers also have calculators that can run the numbers for you. This RMD calculator from AARP can give you an idea of how much you’ll need to withdraw.

Deal with multiple accounts subject to RMDs. You have several traditional IRAs. Good for you for being an uber retirement saver. This diversification of tax-deferred accounts, however, means more RMD math. When all your retirement money is in various traditional IRAs, the required withdrawal amount for each must be calculated separately. However, you don’t have to take a separate RMD from each IRA. You may add up the total required amount due from all your IRAs and then take that sum from one IRA or a portion from each of your IRAs.

The rules are different for workplace defined contribution plans, such as a traditional 401(k), that are subject to the RMD rule. If you have multiple tax-deferred workplace plans, you must calculate and satisfy your RMDs separately for each one.

Decide what to do with your RMD. The obvious choice for many retirees is to use the withdrawals to cover living expenses. If, however, you don’t need the full RMD amount, here are four other things you can with the money.

1. Keep saving it. Find an account or CD that offers a decent savings rate. That’s not as easy, since interest rates have been dropping. Still, it could earn a bit of interest and be easily accessible in case you do find you need the funds.
2. Invest it. If you’re willing to take a risk on the stock market, use all or part of your RMD in a taxable account. This could be adding to an investment you already have, or opening a new asset account. Note, however, that it cannot go back into another retirement account, say a separate Roth IRA, unless you also have earned income for the tax year.
3. Open a 529 plan for a grandchild. Take your required distribution, then establish a grandparent-owned account naming the student as beneficiary and invest the money. The 529 funds will grow tax-free, and be taken out again without any tax consequences to help pay the youngster’s qualifying college costs.
4. Donate your RMD. If you have a traditional IRA, this charitable option can help you meet your RMD and avoid paying tax on the distribution, up to $105,000 for the 2024 tax year. But you need to plan ahead. This is possible when you donate your RMD directly to the IRS-authorized charity of your choice as a qualified charitable distribution, or QCD. Since you don't take possession of the retirement funds, you don't owe tax on the amount given to the charity. You can read more on the RMD QCD option in my post Don’t need your RMD? Give up to $105,000 of it as a QCD.

You can find more about RMDs at IRS.gov, starting at the agency's retirement plan and IRA required minimum distributions FAQs. More details are in IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

No matter how you decide to use your RMD, just be sure you take the money out (or directly donate it from an IRA) by Dec. 31.

You also might find these items of interest:

• 7 tax breaks for older taxpayers
• Retirement plan inflation adjustments for 2025
• Digging a little deeper into the 2025 Social Security COLA

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