Changes in RMDs: What should you consider?

You may have spent decades contributing to your traditional IRA and 401(k) or similar employer-sponsored plan – so when it's time to tap into them, you'll want to manage your withdrawals carefully.
Once you turn 73, you generally must start taking withdrawals – called required minimum distributions, or RMDs – from your traditional IRA and your 401(k) or employer-sponsored plan. Your age and account balance determine your RMD each year. This year, the IRS life expectancy tables have been updated to reflect longer life spans – which may result in lower annual RMDs.
Lower RMDs can potentially benefit you in a few different ways. Because your withdrawals are generally taxable at your individual tax rate, the lower your RMDs, the lower your tax bill might be. And smaller RMDs will take a smaller “bite” out of your retirement accounts, allowing them to grow tax deferred for longer.
Furthermore, lower RMDs may give you more control over your retirement income planning. By definition, "requirements" take away some of your freedom. RMDs require you to take a certain amount regardless of whether you need it. In fact, if you withdraw less than the required minimum, the amount not withdrawn will be taxed at 25%. Reducing those requirements can give you more flexibility. And you’re always free to withdraw more than the required minimum.
While the potentially lower RMDs may prove helpful, you might also look for other ways to help manage withdrawals, especially if you don't need them to meet your retirement income needs. Here are a few suggestions:
Roth IRAs also offer the benefit of tax-free earnings if you’re 59½ or older and you’ve had your account at least five years, so this strategy might be especially valuable if you plan to leave some of your Roth IRA assets to your heirs. However, when converting assets from your traditional IRA or 401(k), you’ll typically need to pay taxes on the converted funds in the year of conversion. As a result, you should consult a tax professional before making any moves.
One final thought: If you’re considering a rollover or conversion strategy, keep in mind that you can’t roll or convert any RMDs in the year they're due – in other words, you must accept the RMD amount due that year. Traditional IRA and 401(k) balances above the RMD amount can be rolled over or converted.
You might benefit from the potentially lower RMDs resulting from changes in the life expectancy tables. And the options for managing your RMDs, described above, may also prove useful. But in any case, you’ll probably need to factor RMDs into your retirement income plans for many years to come. Your financial advisor, along with your tax professional, can help you choose the RMD-related moves that are appropriate for your needs.
Important Information:
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.