Whether you’re currently taking required minimum distributions (RMDs) from your retirement account or will begin once you turn 73 (based on the age listed in the SECURE 2.0 Act), using an RMD calculator is a wise choice. It allows you to determine how much you need to withdraw annually to meet the legal requirements, allowing you to reduce costly penalties.
As a result, using an RMD calculator can make maximizing your retirement savings easier. Here’s what you need to know.
How Calculators Help Minimize RMDs
Using an RMD calculator helps you see how much you’ll need to withdraw from various retirement accounts to meet the legal requirements. Technically, there’s no way to use that information specifically to reduce RMDs, as the amount you need to withdraw is based on a strict formula.
However, using an RMD calculator can help you explore the value of options that may allow you to avoid RMDs. For example, rolling a tax-deferred account into a Roth IRA functionally eliminates RMDs for that account. Just keep in mind that the rollover does trigger taxes, and you’ll have to pay income taxes based on your marginal tax rate on the total value. As a result, it’s only financially wise if you anticipate paying more taxes during retirement than you do currently.
Continuing to work for the company that sponsors a tax-deferred account can also delay RMDs. While you remain employed there, that specific retirement account isn’t subject to RMDs. As a result, rolling over other tax-deferred accounts into that employer-sponsored account can eliminate RMDs on the rolled-over accounts as well.
There are other options that can work similarly to those above, such as qualified longevity annuity contracts (QLACs). As a result, it’s wise to consult with a financial professional to see what options work best if avoiding RMDs is your goal.
Calculating the Right Amounts
Getting the calculations right is critical for maximizing your retirement savings. Along with ensuring that you withdraw enough to meet the RMD requirements, it also allows you to avoid pulling more than what you need if you prefer to leave as much money as possible in the account.
Generally, RMD calculators are a simple way to determine how much you need to withdraw. Just make sure that the calculators you select use the latest regulations in their calculations, as versions that rely on older equations may be inaccurate based on current law.
Alternatively, you can use a manual process. Most RMD calculators rely on the equations presented in the IRS RMD worksheets and the three associated tables: the Uniform Lifetime, Table I (Single Life Expectancy, and Table II (Joint Life and Last Survivor Expectancy). However, you can use those resources to handle the math yourself if you prefer.
Taking Money From the Right Accounts
The types of retirement accounts you have dictate where the withdrawals need to originate. With 401(k)s, you need to calculate the RMD for every account, pulling money from each one based on the resulting figure.
With IRAs, you can total up the amount invested in IRAs – not including money in 401(k)s, 403(b)s, or 457(b)s – first, use the cumulative amount to determine your RMD, and then take it from a single account or divide the total withdrawal amount across several IRAs.
