Planning for Retirement Withdrawals: Understanding RMDs
As you approach retirement, understanding required minimum distributions (RMDs) is crucial for determining when and how much you need to withdraw from your tax-deferred retirement accounts. For those turning 73, like your husband, these rules ensure that retirement funds are used as intended during one’s lifetime, rather than being indefinitely deferred.
Calculating RMDs: A Step-by-Step Guide
To calculate your husband’s RMD for 2027, you’ll need the following details:
- Account balances as of December 31, 2026
- Life expectancy divisor from the IRS’s Uniform Lifetime Table or Joint Life Expectancy Table
For example, if his IRA has an ending account balance of $1 million, the calculation would look like this:
RMD = $1,000,000 / 26.5 ≈ $37,736
Timing is Everything: When to Take RMDs
The IRS mandates that RMDs be taken by the end of the calendar year (December 31), with no requirement tied to the date of birth within that year. Your husband can choose to delay his first RMD until April 1, 2028, but this would mean taking two distributions in 2028.
RMD Percentage and Sustainable Withdrawal Rates
The RMD percentage begins around 4% at age 73 and increases incrementally each year. To estimate a sustainable withdrawal rate, consider factors such as life expectancy, healthcare costs, investment returns, and other sources of income.
Aggregating RMDs: Simplifying Withdrawals
A common misconception is that RMDs must be taken from each retirement account individually. However, if your husband has multiple IRAs, he can take the aggregated RMD amount from any single account or combination of IRA accounts. 401(k) accounts, on the other hand, require RMDs to be withdrawn from each account individually.
Developing a Sound RMD Strategy
Understanding the rules is just the first step. Consider the different accounts you own that will be subject to RMDs and personalize your approach to navigate RMDs effectively, ensuring funds are withdrawn in a tax-efficient manner that supports financial security in retirement.
Remember: RMDs Count as Income
RMDs count as income in the year the withdrawal occurs. If you’re planning to delay your first RMD, you’ll still be required to make your second RMD in that same year, which could leave you with more income than anticipated and an onerous tax bill.
Seeking Professional Guidance
A financial advisor can help you create a retirement plan that accounts for your RMDs and other sources of income. Consider seeking professional guidance to ensure you’re making the most of your retirement funds.
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