Should I Take More than the Required IRA Distribution?
The short answer is: It depends. With recent tax law changes and the growing need for strategic retirement and estate planning, it’s worth looking at why withdrawing more than the RMD might be a smart move for some.
What is an Required Minimum Distribution (RMD)?
Required Minimum Distributions (RMDs) are the amounts that individuals must withdraw each year from their traditional IRAs and certain employer-sponsored retirement plans, starting at age 73 under current law. For some retirees, especially those who don’t need the extra income, RMDs can feel like an unwanted tax burden since the withdrawals are added to taxable income.
When Do You Have to Start Taking RMDs?
You must start taking Required Minimum Distributions (RMDs) from your traditional IRA and other qualified retirement accounts by April 1 of the year after you turn 73. After that, RMDs are due every year by December 31. Keep in mind, if you delay your first RMD until April 1 of the following year, you’ll need to take two distributions that year—one for the year you turned 73 and one for the current year. This could increase your taxable income. For most people, it’s wise to take the first RMD in the same year they turn 73 to avoid doubling up the next year.
What Happens if You Do Not Take Your RMD?
If you don’t take your Required Minimum Distribution (RMD) by the deadline, the IRS may charge a penalty of 25% of the amount you were supposed to withdraw. If you correct the mistake quickly, the penalty may be reduced to 10%. Timely withdrawals help you avoid costly tax consequences.
Why You Might Withdraw More Than Your RMD
Here are four key reasons to consider a higher IRA distribution:
1. Take Advantage of a Lower Tax Bracket
If you’re currently in a 10% or 12% tax bracket, you may want to recognize more income while staying in that lower bracket. Doing so allows you to withdraw extra funds without jumping into a higher tax rate—especially helpful if you expect your income to rise in the future.
2. Balance Future Income Streams
Are you or your spouse expecting future income from Social Security, annuities, or an inherited IRA? Taking larger withdrawals now might spread your income out more evenly over time—reducing the chances of a tax hit later.
3. Think About Your Heirs
If your children or other beneficiaries are in higher tax brackets than you, withdrawing more now at your lower rate might save the family money in the long run. When they inherit your IRA, they’ll have to pay taxes on those distributions at their higher rate.
4. Watch Your Medicare Premiums
Extra income can bump you into a higher bracket for Medicare Part B and D premiums. Plan ahead to avoid surprises—sometimes taking slightly more now can help manage your income levels in future years.
Estate Planning Strategies That Work with RMDs
Planning your IRA distribution strategy isn’t just about taxes—it’s also a key piece of your estate plan. If you’re not relying on RMDs to cover everyday expenses, consider these smart options:
Make a Qualified Charitable Distribution (QCD)
Once you turn 70½, you can donate up to $100,000 directly from your IRA to a qualified charity. This move counts toward your RMD, but doesn’t count as taxable income—a win-win for charitable giving and tax savings. The key is to ensure the IRA trustee or custodian makes the check made payable to the charity, not to you personally. Also, the receiving organization must be a public charity approved by the IRS.
Fund Life Insurance to Offset Taxes
Using your IRA distributions to pay premiums on a life insurance policy can help preserve wealth for your heirs. You can name family as beneficiaries of the tax-free insurance payout, while using your IRA to benefit a charity or cover final expenses.
Reinvest in a Taxable Account
You might choose to reinvest the money you don’t need in a mutual fund or brokerage account. While it won’t grow tax-deferred like your IRA, this gives you flexibility and continued growth potential.
Start Roth Conversions Early
While you can’t convert RMDs into a Roth IRA, you can convert other IRA assets. Starting these conversions before age 73 lets you move money into an account that doesn’t require future distributions—and grows tax-free.
Planning Ahead in Las Cruces
If you live in or near Las Cruces, working with a local estate planning attorney can make a big difference. At E-Law, Michele Ungvarsky helps families understand their options and create personalized plans that support their retirement and legacy goals.
Speak with a Las Cruces Estate Planning Attorney
If you’re unsure whether to withdraw just the minimum or take a bigger distribution, you’re not alone. Retirement planning and estate strategies can be overwhelming—but you don’t have to figure it out by yourself. Request a discovery call with E-Law in Las Cruces for helping building a plan that works for your family, your finances, and your future.
Reference: Thrivent “Make the most of your required minimum distributions“
