The IRS requires that most retirement account holders annually withdraw a minimum amount of funds from many different types of pre-tax retirement accounts once you reach a certain age.

These are called required minimum distributions (RMDs), and their purpose is to ensure the government receives tax payments on this money instead of it sitting in your account, indefinitely.

But how do you work RMDs into your retirement plan?

If not properly planned for, these distributions could take a tax toll on your retirement nest egg.

Consulting a fiduciary financial advisor can be a great first step to factoring RMDs, and the potential tax repercussions, into your retirement plan. That's why we created a free tool to help match you with up to three financial advisors who have passed a rigorous vetting process.

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Research suggests people who work with a financial advisor feel more at ease about their finances and could end up with about 15% more money to spend in retirement.¹

A 2022 Northwestern Mutual study found that 62% of U.S. adults admit their financial planning needs improvement. However, only 35% of Americans work with a financial advisor.²

RMDs can play a pivotal role in planning out a potentially steady stream of income during retirement, and there are real penalties for not adhering to the rules.

Most importantly, those who don’t take RMDs in time may be subject to up to a 50% excise tax on the amount they didn’t withdraw. The SECURE 2.0 Act offers chances to drop that to 25% or 10%, if corrected by taking extra within two years. The IRS may potentially waive the penalty under certain circumstances, though.

Additionally, RMDs can potentially have significant tax implications due to the pre-tax nature of the account types. Assets withdrawn from traditional IRAs and 401(k)s are subject to income taxes, with the exception of after-tax accounts like Roth IRAs.

Therefore, by accurately calculating RMDs, retirees could potentially plan their income tax liabilities and avoid potential financial hurdles that come with skipping that step.

This is why speaking with a financial advisor may be beneficial. This free quiz can match you with up to three advisors who serve your area.

An RMD calculation requires inputs such as your age, account balance and marital status, as well as using the IRS Uniform Lifetime Table to estimate your annual RMD. This straightforward method considers various factors influencing this amount.

However, factors like your age, the balance of your retirement accounts and your spouse’s age may significantly impact your RMD. Therefore, it could be helpful to speak with a financial advisor to ensure accurate calculations.

These calculations are done every year, and if the balance in your account changes significantly then so could your RMDs, as your life expectancy declines each year you live. You will not likely withdraw the same amount each year.

Understanding and accurately calculating RMDs can significantly affect your financial stability in retirement. Proper preparation may help prevent unexpected tax bills or potential hefty fines for missed RMD deadlines.

Consulting a fiduciary financial advisor could help you determine a plan that factors RMD taxes into your overall retirement goals. Fiduciaries are obligated by law to act in your best interest as they manage your assets or money, and any potential conflicts of interest must be disclosed.

Yet knowing how to find a vetted fiduciary advisor is, for many, the most confusing task of all. Common Google searches related to the topic reveal a desperate search for direction.

“Fiduciary financial advisors near me,” “best fiduciary financial advisor,” and “financial investment advisors near me” are searched for hundreds of times per day.

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Our free matching quiz helps Americans get matched with up to three fiduciary advisors who serve their area so they can compare and decide which advisor to work with. All advisors on the matching platform have been rigorously vetted through our proprietary due diligence process.

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