If you’re approaching your 70s or are already retired, you’ve possibly heard about required minimum distributions (RMDs) — or will soon. 

While the concept may seem straightforward, RMDs involve important timing decisions, tax implications, and strategic opportunities that can significantly impact your retirement income and overall financial plan. At Premier Financial Group, we believe that education leads to confidence, and the more you understand about RMDs, the better equipped you’ll be to make decisions that align with your goals. 

Here’s what you need to know.

RMD Essentials 

What are RMDs and Who Needs to Take Them?

RMDS are mandatory withdrawals from your retirement accounts that the IRS requires once you reach a certain age. 

Currently, RMDs begin at age 73 for traditional retirement accounts. This age requirement has changed over time — it was previously 70½, then 72, and now 73. Looking ahead, it’s scheduled to increase again to 75 in 2033. These changes reflect shifting retirement patterns as Americans continue to work longer.

RMDs apply to all qualified retirement accounts, including traditional IRAs, 401(k) plans, and 403(b) plans. The notable exception is Roth accounts or retirement accounts funded with after tax money, which do not have required distributions. This is one of the significant advantages of Roth accounts — the flexibility to withdraw funds on your own schedule or potentially leave them to heirs tax-free.

An Important Exception for Employer Plans

If you’re age 73 or older and still working, you may not need to take RMDs from your current employer’s retirement plan just yet.

The IRS waives RMDs from employer-sponsored retirement plans (like 401(k)s or 403(b)s) if all the following apply:

• You’re still actively employed by the company that sponsors the plan
• You are not a 5% or greater owner of the company
• The plan allows for this delay (most do, but it’s best to confirm)

This exception only applies to the employer plan at your current job — it doesn’t apply to IRAs or old 401(k)s from previous employers.

It’s one reason why some people choose to continue working (or “working”) well into their 70s — delaying RMDs can be a strategic tax move.

Key Deadlines

Timing is crucial when it comes to RMDs. For your first withdrawal, you have two options: take it by December 31 of the year you turn 73, or delay until April 15 of the following year.

However, delaying your first RMD comes with a significant caveat: You’re taking an RMD for the previous year, but still have to take an RMD for the current year. This means you’d be taking two required distributions in the same tax year, potentially pushing you into a higher tax bracket and possibly increasing your Medicare premiums which may reduce your Social Security benefits. 

After your first RMD, all subsequent distributions must be taken by December 31 each year.

Calculation and Tax Implications

How RMDs are Calculated

The IRS has a specific formula for calculating your Required Minimum Distribution. The calculation is relatively straightforward: the value of your retirement account as of December 31 of the previous year, divided by a life expectancy factor provided by the IRS.

The IRS maintains life expectancy tables that assign a factor based on your age. For example, at age 73, the uniform lifetime table factor is approximately 27.1. If your IRA was worth $500,000 on December 31 of the previous year, your RMD would be about $18,450 ($500,000 ÷ 27.1).

Each year, the life expectancy factor decreases, which means you’ll generally need to withdraw a higher percentage of your account as you get older. If your investments grow significantly, your RMD amount will also increase, as it’s based on the account’s value at the end of the previous year.

There are actually three different life expectancy tables the IRS maintains:

1. The Uniform Lifetime Table (most commonly used)
2. The Single Life Expectancy Table (for non-spouse beneficiaries of the IRA owner)
3. The Joint Life and Last Survivor Expectancy Table (for married couples with age differences of 10 years or more)

The tax implications of calculated RMDs can be complex. The team at Premier keeps clients well-informed, walking them through these calculations and helping them understand how RMDs fit into broader tax and financial strategies. 

Tax Treatment of RMDs

All RMD withdrawals from traditional retirement accounts are taxed as ordinary income in the year you take them. This means they’ll be taxed at your current federal income tax rate, plus applicable state income taxes.

This can have significant implications for your overall tax situation. A large RMD could push you into a higher tax bracket, especially if you have other sources of income such as Social Security, pension payments, or investment income.

The state you live in also impacts the tax treatment of RMDs. If you reside in a state with no income tax like Florida, Washington, or Nevada, you’ll only pay federal income tax on your distributions.

Impact on Other Retirement Benefits

RMDs can trigger a cascade of other financial effects beyond just income taxes. They can affect:

1. Medicare Premiums: Higher income from RMDs can increase your Medicare Part B and Part D premiums through what’s called Income-Related Monthly Adjustment Amounts (IRMAA). These surcharges are based on your modified adjusted gross income from two years prior.
2. Social Security Taxation: Increased income from RMDs might cause a larger portion of your Social Security benefits to become taxable, effectively reducing your net benefits.

Consequences of Missing RMDs

The IRS takes RMD requirements seriously, and the penalties for non-compliance can be substantial. Failing to take your full RMD by the deadline may result in a 25% excise tax on the amount not distributed as required, or 10% if a correction is withdrawn within two years.

Remember that while financial institutions may send reminders and advisors or accountants may help you calculate the amounts, the responsibility for taking RMDs ultimately falls on you.

Prevent missing deadlines by:

• Setting calendar reminders
• Submit your distribution request well before the year-end rush
• Consider automatic distributions
• Maintain documentation of all your RMD calculations and withdrawals
• Work with a financial advisor to help ensure you meet all requirements and deadlines

At Premier, advisors document discussions and maintain detailed records, proactively monitoring deadlines and working collaboratively to ensure nothing falls through the cracks.

Take Control of Your RMD Strategy

Understanding required minimum distributions is essential for confident retirement planning. Premier Financial Group is committed to educating our clients because informed decisions lead to greater financial peace of mind.

Our experienced advisors understand the intricacies of RMD planning and can help you develop a personalized strategy that aligns with your goals. Whether you need help calculating your required distributions, exploring Roth conversion opportunities, or coordinating RMDs with your broader financial plan, we’re here to guide you through every step of the process.

Receiving an inheritance is a blessing, but also comes with challenges. While it often comes during an emotionally difficult time, a thoughtful approach to managing this financial windfall can transform it into a meaningful legacy that provides lasting benefits. 

Unlike generations past, inheritances today are becoming less common as people live longer, often spending down their assets in retirement. When they do occur, the financial landscape is more complex than ever, with various investment options and family considerations to navigate.

This guide offers practical advice for managing inherited wealth with purpose.

First Steps When Receiving an Inheritance

Taking the right initial steps can make a difference in how effectively you manage an inheritance. Rather than rushing into spending decisions, follow this strategic approach:

1. Contact the Estate Planning Attorney

Your first call should be to the attorney who handled the estate planning for the deceased. This is critically important because:

• You may have inherited more than just money. You might also have inherited the position of successor trustee or executor, which comes with significant responsibility.
• You have fiduciary liabilities. As a successor trustee or executor, you have legal obligations to properly distribute assets according to the will or trust.
• The attorney can guide you through the legal process. They can explain what documents need to be filed, deadlines that must be met, and the proper procedures for administering the estate.
• They can help interpret the deceased’s wishes. If there are any questions about how assets should be distributed, the attorney who created the estate plan will have the best insight into the deceased’s intentions.

2. Contact the Accountant

After understanding your legal responsibilities, your next call should be to an accountant, preferably one who worked with the deceased. This step is crucial because:

• You need to understand tax implications. The accountant can help you determine what taxes might be due on the inheritance itself and any ongoing tax liabilities.
• The estate may owe final taxes. Before distributing assets to beneficiaries, you need to ensure that the deceased’s final tax return is filed and any taxes owed are paid.
• Outstanding debts must be addressed. The accountant can help identify any outstanding debts of the deceased that need to be paid from the estate before assets are distributed.
• You need to know how much you’ll actually keep. After accounting for taxes and debts, the amount you’ll actually retain could be significantly different from the initial inheritance amount. 

3. Contact a Financial Advisor

Only after you’ve consulted with both the attorney and accountant should you contact a financial advisor. At this point, you’ll have a clear picture of what you’re inheriting and any obligations attached to it. Your financial advisor can help you:

• Develop a long-term plan for the assets. Based on your current financial situation and goals, they can help you determine the best ways to integrate the inheritance into your overall financial plan.
• Decide which inherited investments to keep or sell. If you’ve inherited stocks, bonds, or other investments, your advisor can help you determine which ones align with your financial goals and risk tolerance.
• Avoid timing mishaps. Selling inherited assets too quickly or too late can have significant tax implications. Your advisor can help you time these decisions appropriately. 
• Create a strategy for inherited retirement accounts. If you’ve inherited an IRA or other retirement account, special rules apply that your advisor can help you navigate.

This methodical approach helps you avoid common pitfalls like spending money that might be needed for taxes or making investment decisions before understanding your full financial picture.

Long-term Planning for Inherited Wealth

Once you’ve addressed the immediate legal considerations of your inheritance, it’s time to develop a long-term strategy for these assets. This isn’t just about preserving wealth — it’s about integrating these resources into your broader financial goals and values.

Aligning Inherited Assets with Your Financial Goals

Inherited wealth provides an opportunity to reassess and potentially accelerate your financial journey. The key is ensuring these assets work in harmony with your existing financial plan rather than being a separate entity.

Start by considering your life stage and primary objectives, like:

• Building retirement savings
• Funding education for children
• Buying a home
• Achieving financial independence

Your inheritance should be strategically deployed to support these goals. For younger inheritors, this might mean using a portion of the inheritance to build a cash cushion or eliminate high-interest debt while investing the remainder for long-term growth. For those closer to retirement, it might involve bolstering income-producing investments or addressing gaps in retirement planning.

Timing Considerations for Managing Inherited Investments

When managing inherited investments, timing plays a crucial role in maximizing their value while minimizing tax impacts.

The step-up cost basis discussed above creates a unique opportunity. When you inherit investments that have appreciated significantly over time, your tax basis resets to the market value on the date of death. This means you can sell these investments immediately without incurring capital gains tax on all the appreciation that occurred during the original owner’s lifetime.

This creates an important planning consideration: If you inherit investments that don’t align with your risk tolerance or financial goals, there’s often little tax reason to hold onto them. Selling soon after inheritance allows you to reposition these assets according to your needs — without tax penalties that might have affected the original owner.

Conversely, if you decide to hold onto inherited investments but eventually need to sell them, be mindful of the potential capital gains implications. Any appreciation that occurs after you inherit the assets will be subject to capital gains tax when sold. If you anticipate needing liquidity in the near future, it might be more sensible to sell inherited investments sooner rather than later to minimize capital gains.

Creating a Sustainable Inheritance Strategy

Rather than viewing inheritance as a one-time windfall, consider developing a framework for how these assets will serve you and potentially future generations. This might include:

• Creating a personal investment policy statement that outlines your objectives, risk tolerance, and time horizon for inherited assets.
• Setting aside a portion of the inheritance for immediate needs or experiences that are important to you, while preserving the core for long-term growth.
• Considering how the inheritance might be used to create lasting impact, whether through charitable giving, education funding for family members, or supporting important causes.
• Regularly reviewing and adjusting your strategy as your life circumstances change. What makes sense for your inheritance right away might not be appropriate years later.

Remember that financial planning is deeply personal. Working with professionals who understand your unique circumstances can help you develop a tailored approach that maximizes the impact of your inheritance while respecting your individual values and goals.

Common Mistakes

Despite the best intentions, inheriting wealth can lead to unforeseen challenges and missteps. 

Many inheritors make impulsive financial decisions, purchasing expensive homes or cars, or even quitting jobs based on a temporary sense of wealth. Unfortunately, substantial inheritances can be depleted with surprising speed when approached without careful planning.

Others swing to extreme caution, keeping funds in low-yield accounts where inflation steadily erodes their value. Some maintain inherited investments out of misplaced loyalty (“Dad worked for this company for 40 years — I should keep his stock to honor him”) rather than making sound financial decisions.

Perhaps the most damaging are the family conflicts that emerge from unclear estate planning. Siblings often find themselves in painful disputes over distributions, perceived favoritism, or unexpected responsibilities as executors or trustees. These conflicts frequently cause permanent damage to relationships that far exceeds the monetary value at stake.

To avoid these mistakes, give yourself time before making major decisions and work with professionals who understand the legal, tax, and investment implications. Remember that your inheritance represents someone’s care for your future. Honor that intention with thoughtful management focused on long-term security rather than immediate desires.

Manage Your Inheritance with Purpose

Receiving an inheritance represents both an opportunity and a responsibility. While it may arrive during an emotionally challenging time, a methodical approach will help you honor this gift in a way that provides lasting benefit. 

The greatest tribute to someone who has left you an inheritance isn’t preserving exactly what they owned — it’s using their gift to meaningfully improve your life while reflecting the values they hoped to pass along with their financial legacy.

At Premier Financial Group, we understand the complex emotions and decisions that accompany an inheritance. Our team is dedicated to helping you navigate this journey with clarity and purpose, ensuring your inheritance becomes a meaningful part of your own financial story.