RMDs: 4 Things You Can Do (And 1 You Can’t)

Navigating Required Minimum Distributions (RMDs) in 2025: Strategies and Insights

By Archyde News Team | April 9, 2025

Understanding your options for Required Minimum Distributions (RMDs) is crucial for a pleasant retirement. This article explores strategies to optimize your RMDs for your financial goals.

Understanding Required Minimum distributions (RMDs)

As of 2025, Required Minimum Distributions (RMDs) are mandatory withdrawals from tax-deferred retirement accounts, generally beginning at age 72 for most taxpayers. While some may view RMDs as a burden, thay represent teh culmination of years of tax-advantaged savings. It’s the government’s way of collecting taxes on money that has grown tax-free for decades.

The central point isn’t whether RMDs are desirable, but rather how to manage them effectively. Understanding your options can significantly impact your financial well-being.

according to IRS guidelines, the amount of your RMD is calculated by dividing the prior year-end value of your retirement account by a life expectancy factor based on your age. this factor is published annually by the IRS in Publication 590-B.

Strategies for Managing Your RMDs

Once you understand the basics of RMDs,you can begin to explore different strategies for managing them. Here are several options to consider:

1. Spend the RMD

The most straightforward approach is to simply spend your RMD. This is particularly relevant if your retirement income doesn’t fully cover your living expenses. It ensures you are utilizing the funds you diligently saved over the years.

However, many retirees find themselves in a position where they don’t need the additional income.They might be living comfortably on Social Security,pensions,or other investments. In these cases, consider this: “Maybe they just need to up their spending game.more cruises. Fly first class.Upgrade the kitchen. Get a new car or RV. spend it on your heirs while you’re still alive. Whatever.”

real-World Example

john and Mary, a retired couple from Chicago, found themselves with excess income after years of disciplined saving. They decided to use their RMDs to take a long-dreamed-of trip to Italy and upgrade their home entertainment system.

2. Give to Charity via Qualified Charitable Distribution (QCD)

A Qualified Charitable Distribution (QCD) allows individuals age 70½ or older to donate up to $108,000 [2025 amount, indexed for inflation] directly from their IRA to a qualified charity. This can be a tax-efficient way to fulfill charitable intentions.

By using a QCD, “you can still take the full standard deduction, and you still get to make the entire charitable contribution with pre-tax dollars.” This strategy avoids including the RMD in your adjusted gross income (AGI), which can have benefits for managing Medicare premiums and other income-based calculations.

Important Note

QCDs cannot be directed to a Donor Advised Fund or a private foundation. The distribution must go directly to a qualified public charity.

Case Study: The Impact of QCDs

A study by Fidelity Charitable found that individuals who utilize QCDs tend to give more to charity as the tax benefits incentivize larger contributions. The study emphasized that this approach can align philanthropic goals with sound financial planning.

3. Reinvest the RMD

You are free to reinvest your RMD into a taxable investment account. This allows you to maintain your investment strategy and potentially continue growing your wealth. “RMD regulations only require you to remove the money from the tax-deferred account and pay any tax due on the income. they really don’t specify what you do with the money.”

Practical Application

Consider selling a portion of your total Stock Market Index Fund within your IRA to satisfy your RMD, and then purchasing the same amount of the Total Stock Market Index Fund within your taxable account.This maintains your asset allocation while complying with RMD rules.

4. Use the RMD to Pay Taxes

Instead of making estimated tax payments throughout the year, you can have your entire RMD withheld for taxes. This strategy allows you to keep your money invested for a longer period.”If you don’t take that RMD until the end of the year, that means your money was working for YOU for an extra 365 days rather then the IRS.”

Tax strategy

This approach is particularly useful if your RMD is large enough to cover your entire tax liability. Ensure you accurately estimate your tax burden to avoid penalties for underpayment.

Expert Insight

Financial planner Jane Doe suggests, “Consider running a tax projection in October or November to determine if your RMD withholding will adequately cover your tax liability. Adjust accordingly to avoid surprises during tax season.”

What You Can’t Do: RMDs and Roth Conversions

It’s important to note that you cannot use your RMD to fund a Roth conversion. While Roth conversions can be a valuable tax planning tool, they do not satisfy your RMD requirement.”Unlike a QCD, a Roth conversion does not take the place of an RMD.”

Additional Insights and Recent Developments

The SECURE Act 2.0, enacted in late 2022, made notable changes to RMD rules.One key change is the gradual increase in the RMD age, providing further versatility for retirees.

Here’s a brief overview of the changes:

Year	RMD Age
Before 2023	72
2023-2032	73
2033	75

Moreover, the penalty for failing to take an RMD was reduced from 50% to 25% of the RMD amount, offering some relief for those who inadvertently miss the deadline. If the failure is corrected in a timely manner, the penalty can be further reduced to 10%.

Conclusion

RMDs are a reality for many retirees. By understanding your options and implementing a strategic approach, you can effectively manage your RMDs to align with your financial goals. Consider consulting with a qualified financial advisor to develop a personalized plan that addresses your specific circumstances.

As the saying goes, “RMDs are marvelous things. Forty percent of American retirees are living ONLY on Social Security. They’d love to have an RMD but don’t have an IRA or another retirement account. Congratulations to you if you ‘have to’ take RMDs. Make sure you understand your options for using them.”

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Consult with a qualified financial advisor before making any investment decisions.

How do Qualified Charitable Distributions (QCDs) work, and are there any limitations to be aware of?

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Navigating Required Minimum Distributions (RMDs) in 2025: Strategies and Insights

By Archyde News Team | April 9, 2025

Interview with sarah Chen, Certified Financial Planner

archyde News: Welcome, Sarah. Thanks for joining us today. RMDs are a important topic for many retirees. Coudl you briefly explain what they are?

Sarah Chen: Thanks for having me. Required minimum Distributions,or RMDs,are mandatory withdrawals from tax-deferred retirement accounts,like traditional IRAs and 401(k)s.Generally, you start taking them at age 72, though that’s changing gradually. The government requires them to collect taxes on the money that has grown tax-free over the years.

Archyde news: So, it’s essentially the government’s way of getting their share. What are some of the main strategies people can use to manage their RMDs?

Sarah Chen: There are several approaches. One is to simply spend the RMD, using the funds to cover living expenses. Another popular one is the Qualified Charitable Distribution, or QCD, which allows those 70½ or older to donate directly from their IRA to a qualified charity, potentially avoiding taxes on the distribution. You can also reinvest the RMD in a taxable account, keeping your investment strategy intact. you can use the RMD to pay taxes, either through withholding or estimated tax payments.

Archyde News: QCDs sound particularly interesting. Are there any critically important limitations people should be aware of?

Sarah Chen: Yes, QCDs cannot be directed to a Donor Advised Fund or a private foundation. The donation must go directly to a qualified public charity. Also, the 2025 amount, indexed for inflation up to $108,000, is the maximum that can be distributed through a QCD annually.

Archyde News: Reinvesting the RMD is another option. Can you give us a practical example of how that might work?

Sarah Chen: Certainly.Let’s say someone has a Total Stock Market Index Fund within their IRA.They could sell a portion of those shares to satisfy their RMD and then purchase the same amount of that same fund in a taxable brokerage account. This maintains the asset allocation.

Archyde News: That’s a very straightforward approach. What about using the RMD for taxes? Are there any things to keep in mind?

Sarah Chen: It’s a valuable strategy,but accuracy is key. if your RMD is large enough, you can have the full amount withheld for taxes, but you need to carefully estimate your tax burden to avoid any underpayment penalties. Consider running a tax projection toward the end of the year to see if what you are withholding