How RMDs fit into your retirement strategy

Determining how much to take out of your retirement accounts can be complicated. There are many factors to consider, such as how your spending needs will likely change over time (whether planned or not). You’ll also need to think about how long your sources of income (Social Security, pension, retirement funds) need to last, how much income each will provide and when you’ll begin receiving those payments.
When it comes to your retirement funds, it’s important to be aware that some accounts require withdrawals at a certain time. Here’s a brief overview of required minimum distributions (RMDs) and how they can fit into your retirement strategy.
Once you turn 73, you’re generally required to start withdrawing from certain retirement accounts (such as your traditional IRA, 401(k) or similar employer-sponsored retirement plans) in what is known as a required minimum distribution (RMD). If you don’t, you’ll take a significant hit — the IRS penalty for not taking the RMD is 25% of the amount not taken by the deadline (though may be lower if corrected in a timely manner). The deadline to take your first RMD is usually April 1 of the year after you turn 73, and Dec. 31 each year after that.
Your RMD for any year is the account balance as of the end of the prior calendar year divided by a life expectancy factor according to the IRS.
If you’d like more information on the requirements of your RMD, be sure to get in touch with your Edward Jones financial advisor. Additionally, the IRS provides resources to help you calculate your RMD.
If you need your RMD to pay for your living expenses in retirement, it should be one of the first sources you draw from since you’re required to take that money. However, if you don’t need it to pay for living expenses, you can use your RMD in a myriad of ways.
A few common strategies may help reduce future RMDs or delay when they must be taken.
Also, if you’re considering a rollover or conversion strategy, understand that you can’t roll or convert any RMDs in the year they’re due. In other words, you must distribute the RMD amount due that year.
Before you decide what to do with your RMD funds, talk with your Edward Jones financial advisor to help you determine which option is right for you.