How to get the most from your RMD

It’s that time of year again, the time when people 70 and up are scratching their heads about their RMD — required minimum distributions.

At age 70½, holders of non-Roth individual retirement accounts are required by the IRS to begin withdrawing money from those accounts every year. Most people take this distribution in November or December, and if they don’t get it over with, they’re on the hook for a 50% penalty.

Many retirees go through the act of taking it out simply because they must. Such retirees can get creative with it instead, however. They can reinvest their money or grow it for the sake of their families – one option is municipal bonds.

A qualified longevity annuity contract (QLAC) can reduce the money retirees pay in taxes from RMDs. The money put into the QLAC — up to $125,000 — does not count in the IRS’ calculation of RMD taxes, and the money can stay safely in a QLAC until age 85.

Those concerned with what they will leave to their families may want to consider investing in insurance. A permanent plan has the added benefit of a cash value that builds up over time.

RMDs are also an opportunity for charitable retirees to give. They can channel money directly from their retirement accounts to charitable institutions. Retirees can also put the money into a 529 college savings plan for their grandchildren.

The RMD process, initially a grudging transaction, becomes a chance to build a legacy.

What to know about RMDs

When do you need to take them? The calendar year in which you turn age 70½, but the first payment can be delayed until April 1 of the following year.

Which retirement accounts require RMDs? IRA, SEP IRA and SIMPLE IRAs and traditional 401(k)s require RMDs. Roth IRAs do not require withdrawals until the owner dies.

How much will I need to take out? The older you get, the higher the RMD will be. Find an estimate using an online calculator such as the one by the Financial Industry Regulatory Authority at

For more information, read the full article here.