Dear Liz: I’m a bit puzzled about the required minimum distributions from my retirement account. I want to avoid taxes on these withdrawals, but it seems impossible. Can you help clarify this?
Answer: If you took a deduction when you contributed to your retirement account, then you’ll have to pay taxes on those distributions.
As of now, minimum distributions from retirement accounts need to begin when you turn 73. There are a few exceptions to this rule. For instance, Roth accounts don’t require these withdrawals since there were no deductions made. You can also delay RMDs from workplace plans like 401(k)s or 403(b)s if you’re still working for the employer, the plan permits it, and you don’t own more than 5% of the company.
If you don’t really need the funds, you might think about donating your required minimum distribution to a charity. Starting at age 70 and a half, these “qualified charitable contributions” can be a good way to avoid taxes on that money as long as the donation goes directly from your IRA to a recognized nonprofit. By 2025, you can give up to $108,000 per year. However, you can’t directly make these contributions from a workplace plan, but you could transfer some or all of your account into an IRA first.
Sometimes RMDs can be so high that they push you into a higher tax bracket or lead to increased Medicare premiums. If you’re still a few years away from having to take RMDs, it might be worth discussing your tax options with a professional. You could consider taking distributions earlier or converting some of your savings into a Roth IRA.
