What Should I Do with My RMD?

Full Circle
Jul 2
2 min read

Q: I need to start taking withdrawals from my retirement accounts when I hit a certain age. I believe the age is 73. How does that work, and is it necessary?

Answer: Absolutely—what you're referring to is something called Required Minimum Distributions, or RMDs. These are mandatory withdrawals the IRS makes you take from your retirement accounts once you reach a certain age.

For a long time, RMDs began at age 70½. Then the SECURE Act changed it to 72, and now, as of current law, it’s age 73. Over the next several years, this will gradually shift again to age 75, depending on your birth year. But as of now, if you're turning 73 this year, you must begin taking RMDs.

How is the RMD calculated?

It’s based on your total retirement account balances and a life expectancy factor provided by IRS tables. A rough rule of thumb? About 4% of your total account value in your first year of RMDs.

Example:Let’s say you have:

$100,000 in a 401(k)
$200,000 in an IRA
$100,000 in a 403(b)

That’s $400,000 total. Your RMD would be roughly $16,000 for the year. You don’t need to pull proportionally from each account—you can take the full $16,000 from just one account, or split it however you’d like, as long as you withdraw the full amount.

What happens if I don’t take it?

There’s a hefty penalty. If you only withdraw $10,000 when your RMD is $16,000, you could be penalized 50% of the shortfall—in this case, $3,000. So it’s really important to get it right.

Once I take it out, what should I do with the money?

You’ve got three main options:

Spend it – Go on that trip, upgrade the mower, treat yourself. You saved this money—enjoy it.
Gift it – Support a cause you love, give to your children or grandchildren, or fund education accounts like 529s or UGMAs.
- Bonus: If you’re charitably inclined, you can make a Qualified Charitable Distribution (QCD), where the money goes directly to a nonprofit—this can help reduce your taxable income.
Reinvest it – If you don’t need the money right away, you can put it into a taxable investment account to continue growing your wealth.

Bottom line: Once you hit 73, RMDs aren’t optional. But how you take them and what you do with the money gives you some flexibility. If you need help planning out your RMD strategy, we’re here to walk you through it.

*This is provided for informational purposes only and should not be construed as tax advice. Please consult your tax advisor.