Required minimum distributions (RMDs) are an often misunderstood retirement rule. You might know that you have to withdraw a certain amount of money each year from your tax-deferred retirement accounts in order to avoid government penalties.
But you may still be confused about exactly how much you need to withdraw -- and from which accounts. To make things more complicated, RMD rules have changed over the last several years. That can lead to people believing in RMD myths, like the ones below, which could cost them big time.
Let's clear up each of these myths -- one by one.
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Myth #1. You must take RMDs beginning in the year you turn 70 1/2
RMDs used to begin in the year a person turned 70 1/2. Then legislation changed the start age, first to 72 and later to 73. This is where it sits right now. The RMD starting age is set to jump to 75 for those who will turn 73 after Dec. 31, 2032. This will affect those born in 1960 or later.
Myth #2. You must take RMDs from every single retirement account
For many years, you had to take RMDs from all retirement accounts in your name, except Roth IRAs. However, Roth 401(k)s are now exempt from RMDs, too. If you have money in one of these accounts, you no longer need to transfer it to a Roth IRA to avoid problems with the IRS.
You also don't have to take RMDs from every traditional IRA you have, though you can if you want. You must take annual IRA withdrawals that are at least equal to your total IRA RMDs. For example, if you have two IRAs, one with a $2,000 RMD and one with a $5,000 RMD, it doesn't matter if you withdraw $7,000 from one, $3,500 from each, or any other combination as long as you take out at least $7,000 from your IRAs.
This rule doesn't apply to 401(k)s. You must take individual withdrawals from each of your accounts. However, you may be able to cut down on the number of 401(k) RMDs you must make by rolling old 401(k)s over into your current 401(k) or an IRA.
Myth #3. There's no way to avoid taxes on RMDs
The IRS forces you to take RMDs so it can get its cut of your retirement savings, so many are surprised to learn there's a way to avoid taxes on RMDs. If you direct your plan administrator to donate the money directly to a charitable organization, the IRS considers your RMD fulfilled, and it doesn't tax you on the withdrawal. This is known as a qualified charitable distribution (QCD).
However, you must complete QCDs by Dec. 31 of the tax year in question. That means it's too late to make a 2025 QCD, but you could do this in 2026 if you'd like to keep your tax liability to a minimum.
If you have any questions about how RMDs work, consult with an accountant who can give you personalized advice for your situation.
