Your RMD Does Not Have to Be a Surprise

Required Minimum Distributions have a way of feeling like a rule someone else invented for someone else, right up until the year it applies to you. Then it suddenly becomes very personal, very real, and very connected to your tax bill.

A good RMD review is not just about making sure a withdrawal happens. It is about making sure the withdrawal supports your cash needs, your investment strategy, and your tax planning for the year. Asking the right questions early can keep the process from becoming a last-minute scramble.

Start With a Simple Question: Do You Even Need the Money?

The first issue is straightforward. Is your RMD more than what you need for living expenses? If so, one option is to transfer the distribution to a non-qualified account for reinvestment rather than leaving it in cash.

There is one crucial caveat. Sometimes cash is exactly what you need, particularly if your emergency fund has been drawn down. The RMD does not have to be spent by default, but it should serve a purpose.

Make Sure All RMDs Get Satisfied

If you have more than one retirement account subject to RMDs, it is worth confirming that every required distribution will be satisfied.

This is one of those areas where assumptions can quietly cause problems. One missed account can lead to penalties, even when everything else was handled correctly. A quick review can prevent an unpleasant surprise later.

Let Market Conditions Inform Timing

Market conditions can influence your timing for the distribution.

If the value of your retirement account is significantly higher or lower due to current market conditions, timing may matter. In some cases, taking the RMD earlier or in a larger lump sum may help lock in gains. In other situations, spreading withdrawals throughout the year may help avoid selling assets after a decline.

This is not about predicting markets. It is about being thoughtful about how assets are sold to meet the requirements.

Inherited Accounts Deserve Special Attention

Inherited retirement accounts come with their own set of rules.

If the account was inherited, it is important to understand whether special distribution rules apply. In many cases, non-eligible beneficiaries must withdraw the entire balance within a set period following the original owner’s death. Treating inherited accounts as a separate planning category can help avoid errors.

Check for Possible Exceptions

Not everyone subject to RMD rules is treated the same.

There may be exceptions, such as remaining employed and contributing to an employer-sponsored retirement plan, or being in the first year subject to RMDs. If an exception applies, it may create planning opportunities to delay or modify the distribution requirement.

Consider the Tax Impact

RMDs are not just cash flow events. They are tax events.

Reviewing tax withholding is an important step. Withholding can be adjusted to better align with your overall tax situation.

If you are planning to complete Roth conversions during the year, there is an important sequencing rule to keep in mind. RMDs must be taken before Roth conversions can occur. Some individuals choose to earmark their RMD for tax withholding, even up to the full amount, to help cover the taxes generated by a conversion.

A similar approach may be helpful if you expect to recognize significant taxable income during the year from dividends, interest, or capital gains. Using RMD withholding can help supplement missed or insufficient estimated tax payments and reduce the risk of penalties.

Charitable Giving and RMDs

For those who are charitably inclined and meet the age requirements, Qualified Charitable Distributions can be an effective way to give.

QCDs allow eligible individuals to direct all or part of an RMD to qualified charities. Because these distributions are excluded from adjusted gross income, they may complement other tax planning strategies. There are limits and eligibility rules, so the details matter.

A Thoughtful Review Beats a Rushed Decision

Reviewing your RMD does not need to be complicated. It does need to be intentional.

Do you need the money, or should it be reinvested? Are all accounts covered? Does timing make sense given current market conditions? Are there inherited accounts or exceptions that change the rules? Should withholding be adjusted to reflect Roth conversions or other taxable income? And if charitable giving is part of your plan, is a Qualified Charitable Distribution the right tool?

Answering these questions early in the year is far easier than answering them at the deadline. And in the case of RMDs, a little foresight can make a meaningful difference.

WHWM is here to guide you in identifying your priorities, developing a plan, and making adjustments along the way. By choosing WHWM, you're partnering with our Founder and President, Stephen Bodwell. As a CPA and CFP® professional, Stephen is committed to helping you achieve your financial goals and aspirations. Don't hesitate to take the next step toward realizing your dreams. Schedule your complimentary, no-obligation 30-minute consultation with Stephen. 

Walnut Hill Wealth Management, LLC (“WHWM”) is a registered investment advisor offering advisory services in the State of Texas and in other jurisdictions where exempt. The information provided is as of the date indicated and is subject to change.