Retirees: How To Automate Your RMDs for a Worry-Free Retirement
Written by
John Schmoll
Edited by
Amen Oyiboke
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The federal government encourages Americans to save for retirement in various ways. Tools like an IRA or 401(k) allow savers to make tax-deductible contributions for retirement. On the flip side, the IRS requires people to begin withdrawals the year a person turns 73. Required minimum distributions (RMDs) must be taken from many retirement accounts.
Missing an RMD can be costly, as the IRS stipulates a 25% excise tax on the amount not withdrawn. Automation is a powerful tool to avoid such a tax hit. Here are three ways you can automate your RMD.
Do It Yourself
If you prefer to personally calculate your RMD, the IRS provides resources to help you do this. The agency provides worksheets people can use to calculate the amount, as it varies each year.
To calculate the exact number, you must divide the retirement account balance from the end of the prior year using the Uniform Lifetime Table number people can find on the IRS website. Americans must currently do this by April 1 of the year after turning 73.
You can create a calendar reminder to do this before the required time. There are online RMD calculators for people who don’t want to calculate their number manually. Unfortunately, this puts the onus on you to remember and determine the number, and if you miss it, there can be a nasty surprise.
Contact Your Broker
Understandably, missing an RMD creates stress, not to mention taxable consequences. The latter can be reduced if corrected within two years, but it doesn’t eliminate it.
Full automation is one of the best choices to eliminate this stress. Many online brokerages, including Vanguard and Schwab, provide tools to assist you with managing the process.
Possible options include calculating your number, transferring the money in-kind to a non-retirement account, sending the funds to a local branch and more. Some brokerages may even allow you to electronically transfer the funds to a bank account where you can spend it or donate to charity.Â
Speak With Your Financial Advisor
For Americans working with a financial advisor, automated RMDs should be a service the advisor offers. They can assess your entire portfolio, considering tax efficiency to make sure you comply with the Secure 2.0 Act.
Like online brokers, an advisor can automate much of the process. Advisors can manage the withdrawn funds in a way that suits your needs best. This can remove stress from your plate so you can focus on the other, more enjoyable parts of retirement.
Americans don’t need to take RMDs from all retirement accounts, such as Roth IRAs and Roth 401(k)s. However, missing the withdrawal can be costly for those with other account types. Using available resources to automate the process can be a good way to remove that stress.
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