For investors age 73 or older with a traditional (non-Roth) 401(k) or 澳洲幸运5官方开奖结果体彩网:individual retirement account (IRA), 澳洲幸运5官方开奖结果体彩网:required minimum distributions (RMDs) are a part of life. This can be daunting, as the 澳洲幸运5官方开奖结果体彩网:extra income 𝔉comes with its own tax implications. Not taking RMDs—or not taking the right amount—can result in substantial penalties. But there are ways to 澳洲幸运5官方开奖结果体彩网:manage RMDs when you don’t need the money.

1. Keep Working

If you have a 401(k) and don’t own 5% or more of the company where you work, you can delay distributions from the 401(k) at your workplace until you retire.

If you have an IRA or a 401(k) from a previous employer, you will have to follow the RMD rule, and start taking RMDs at age 73. Not taking a distribution means you’ll face the excess accumulation penalty, which is 25% of the required distribution. So not taking a $2,000 RMD would result in a penalt🌱y of $50🧸0.

2. Convert to a Roth IRA

Another strategy is to 澳洲幸运5官方开奖结果体彩网:roll over some of your savings into a Roth IRA. Unlike a traditional IRA, which requires RMDs, a Roth IRA doesn’t require any distributions at all. That means the money can stay—and grow tax-free—in the Roth IRA for as long as you want, or it can be left to heirs.

Contributing to a Roth IRA won’t lower your taxable income (as contributing to a traditional IRA does). The upside is you don’t have to 澳洲幸运5官方开奖结果体彩网:pay taxes on withdrawals if you're over 59½ and you've had the account open for five years or more. 

Be aware, though, that moving 澳洲幸运5官方开奖结果体彩网:pre-tax money from a traditional retirement account into a Roth IRA means you have to pay taxes all at once on those funds. Roth conversions can be expensive, whether you’re moving money 澳洲幸运5官方开奖结果体彩网:from a 401(k) or a 澳洲幸运5官方开奖结果体彩网:traditional IRA. Investigate your options i♕n detail with your tax advisor.

3. Limit Distributions in the First Year

A big knock against RMDs is the taxes investors have to pay as a result of drawing down some of their retirement savings. This can potentially push a retiree into a higher 澳洲幸运5官方开奖结果体彩网:tax bracket, which means more money going to Uncle Sam. Retirees who turn 73 have until April 1 of the calendar year after they reach that age to take their first distribution. After that, they must take it by Dec. 31 on an annual basis.

Many retirees opt to hold off on taking their first RMD because they figure the🐠y will be in a lower 𒆙tax bracket when they retire. While holding off makes sense for many, it also means you will have to take two distributions in one year, which results in more income that the IRS will tax. This could also push you back into a higher tax bracket, creating an even larger tax event.

Here’s another option: Take your first distribution as soon as you turn 73 (🔴unless you expect to end up in a significantly lower tax bracket) to prevent having to draw down twice in the first year.

4. Donate Distributions to a Qualified Charity

Some savers would rather see their money go to a good cause than give some of it to the government. Traditional IRA account holders 澳洲幸运5官方开奖结果体彩网:can donate their RMD 🍌to a🐼 qualified charity. This is known as the 澳洲幸运5官方开奖结果体彩网:qualified charitable distribution (QCD) rule. It does not apply to 401(k)s.

If the contribution is $100,000 or less (or $200,000 or less if you're 澳洲幸运5官方开奖结果体彩网:married and file jointly)—and is rolled out of the IRA and directly to the charity—you won’t have to pay taxes on the RMD. In order to get the tax break, the charity has to be deemed 澳洲幸运5官方开奖结果体彩网:qualified by the IRS.🍸 This is a good way to save on paying taxes, as you are donating to a charity that would otherwise have gotten a donation from your regular savings. You may even feel you can give a bit more🐬 if you do it this way.

The Bottom Line

Many people rely on required minimum distrib🅘utions (RMDs) to fun🎐d their retirement years. However, for those who don’t need the money, limiting the tax exposure from RMDs is the name of the game. Delaying retirement, converting to a Roth IRA, limiting the number of initial distributions, and making a qualified charitable distribution (QCD) are four strategies that can help reduce the tax exposure that comes with RMDs.