As retirees get closer to age 73, they need to be aware of and start planning for Required Minimum Distributions (RMDs). This requirement extends to their pretax retirement savings accounts. You need to begin taking the required minimum distribution in the year after you reach age 73. This crucial rule governs retirement planning and can dramatically impact the financial strategies you’re able to employ.
The initial due date for RMDs is April 1 of the year following one’s 73rd birthday. Any further such withdrawals must be completed by December 31 of each year. Fail to meet these requirements, and you may be subject to significant penalties from the IRS. Retirees need to be proactive and well-informed about the financial responsibilities they will be facing.
As of 2025, the cap for RMDs is $108,000 per investor. This price tag may appear intimidating—even to those who need these dollars for their day-to-day expenditures. Today, most retirees are facing a growing deficit of guaranteed income. Consequently, private foundations usually don’t have to rely on these distributions.
Certified financial planner Judy Brown says that taxpayers need to be aware of RMDs, what they are and the consequences of not taking them. “Required Minimum Distributions can impact a lot of people,” she states, highlighting the necessity for strategic financial planning.
Retirees who don’t need the money from their required minimum distributions have options to help them avoid tax. There are proactive things they can do to improve their financial prospects. One simple but powerful strategy is to use RMDs to make contributions to a 529 college savings plan. The benefits of this approach extend into your family legacy planning. Currently, over 30 states provide a tax credit or tax deduction for 529 contributions as of May 2025. This makes it one of the most attractive options available to families who wish to save for their children’s education.
Furthermore, retirees who are 70½ or older can use Qualified Charitable Distributions (QCDs) to meet their annual RMD obligations. A QCD is a direct transfer made from an individual retirement account (IRA) to an eligible non-profit organization. Brown notes that this strategy allows retirees to “get a benefit going for the grandchildren.” Because the transfer of QCDs does not raise adjusted gross income, additional tax liabilities are avoided.
“It’s the IRS’ best-kept secret for retirees,” states Ashton Lawrence at Mariner Wealth Advisors, emphasizing the advantages of utilizing QCDs effectively. This method makes it easier for retirees to fulfil their RMD requirements. It gives them the tools they need to advocate for the issues they care about most. Lawrence thinks retirees will want to avoid that tax bill while taking care of something important to them. This simple measure produces an extraordinary incentive for philanthropy.
In 2024, Social Security will be the primary source of retirement income for more than half of retirees. Most retirees were further buffered by private sector cushions—pensions, investments, rental income, and/or a second career. According to a recent study from the Federal Reserve, nearly 81 percent of retirees have at least two sources of income. This shocking statistic underscores the complex financial terrain that Americans find themselves traversing in retirement.
It’s imperative for retirees to be informed. In addition, if they reinvest their RMDs into a taxable account, their money will be subject to ongoing annual taxes. This last factor is a reminder of the need for strategic asset management to ensure optimal post-retirement income coupled with the lowest possible tax burden.
As Judy Brown explains, another advantage that Exchange-Traded Funds (ETFs) bring to the table is greater control over selling individual assets. This flexible use can be important especially as retirees recalibrate their portfolios and take RMDs.