4 tips for managing your retirement account distributions

Withdraw now or wait until later? How much should you take? How should you handle required minimum distributions (RMDs)? Consider these helpful insights.

All the money you've been putting away toward retirement — are you aware that you can't necessarily keep it all in your retirement accounts as long as you want? For example, you're typically obligated to begin withdrawals from your traditional IRAs and other qualified retirement plan accounts consisting of non-Roth assets when you turn 73.Footnote ¹ Once you begin taking these RMDs, you must take one every year.

Calculating RMDs can be tricky, especially if you have several retirement accounts. And you may be subject to an additional federal tax on the amount of missed or insufficient RMDs. But by taking the appropriate distributions at the right time, you'll potentially avoid problems and make the most of your retirement assets. To get an idea of how much you might need to withdraw, use our RMD Calculator.

One of the biggest mistakes people make with RMDs is thinking they know how much they need to withdraw.

— Kevin Brune,
director, division manager
Merrill Edge Self Directed Sales Management

Every financial situation is unique, so it might make sense to consult with a tax and/or legal advisor before making any decisions, as distributions may impact your taxes. Here are four tips to help ease the task.

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Tip 1: Use the calendar to your advantage

You generally can start taking withdrawals from an IRA or other qualified retirement plan accounts, like a 401(k), as soon as you turn 59½ without incurring a 10% additional federal tax for early withdrawals. But waiting longer — even until RMDs kick in for non-Roth assets — could mean a larger nest egg to draw upon.

You may even be able to delay your RMDs if you have a workplace retirement plan and are still working at age 73. As long as you do not own more than 5% of the company you work for, you may not have to take RMDs from that company's qualified retirement plan account until April 1 of the year after you retireFootnote ¹ (though you must still take distributions of non-Roth assets from your IRAs or any former employer's qualified retirement plan accounts).

"You should check with your tax advisor, as there are cases where delaying the first RMD may make sense," says Kevin Brune, director, division manager, Merrill Edge Self Directed Sales Management. "For example, if you're still working and you plan to retire, you may expect to be in a lower tax bracket the following year."

Tip 2: Stick to the minimum if possible

"One of the biggest mistakes people make with RMDs is thinking they know how much they need to withdraw," says Brune. Generally, your age and your account values determine what you are required to withdraw, and the amount will vary from year to year.

While you can take out more than required, you'll pay income tax on withdrawals from a traditional IRA or on pre-tax assets withdrawn from an employer-sponsored retirement plan account. You'll also sacrifice potential future tax-deferred growth of those funds. "If you need to supplement your distributions, consider taking that money from an after-tax brokerage account or a savings account," says Brune. Also, consider working with an advisor or tax professional to help you determine your cash flow needs and whether your RMD is enough to meet them.

Tip 3: Remember all your retirement accounts

If you have multiple traditional IRAs and qualified retirement plan accounts, such as a 401(k) or 403(b), with former employers, you must calculate your required distribution for the non-Roth assets in each account. You don't have to withdraw from every traditional IRA if the money you take from one or more IRAs meets the overall required distribution. But you do need to withdraw the RMD from each qualified retirement plan account with respect to the non-Roth assets.

Keeping track of everything can be cumbersome and confusing. To simplify matters, many people elect to roll over multiple qualified retirement plan accounts into a single IRA or consolidate multiple IRAs into one account.

You have options for what to do with your employer-sponsored retirement plan accounts. The decision you make depends on your financial circumstances, needs and goals. Learn more about your choices and the pros and cons of each.

Tip 4: Consider our RMD Service

If you have a Merrill IRA that requires you to take minimum distributions, you may want to consider enrolling in Merrill's Required Minimum Distribution Service. This convenient service allows you to authorize Merrill to automatically calculate and distribute your annual RMD from your IRA to a Bank of America banking or Merrill investment account or an account at another financial institution. This helps you take a distribution on time and avoid additional federal taxes for not taking the minimum necessary. Connect with a Merrill advisor to learn about this service and for retirement planning guidance.

Next steps

Use our RMD Calculator to get an idea of how much you may need to withdraw
Check out our retirement plan withdrawal FAQs to get answers to key questions
Read about 3 steps to help you create a retirement paycheck

Footnote ¹ Effective Jan. 1, 2023, the required beginning date for RMDs is Apr. 1 of the year after you turn age 73. You are required to take an RMD by Dec. 31 each year after that. If you delay your first RMD until April 1 in the year after you turn 73, you will be required to take two RMDs in that year. You may be subject to additional taxes if RMDs are missed. See your tax advisor regarding your specific situation.

You have choices about what to do with your 401(k) or other type of plan-sponsored accounts. Depending on your financial circumstances, needs, and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over a 401(k) from a prior employer to a 401(k) at your new employer, take a distribution, or leave the account where it is (if applicable). Each choice may offer different investments and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment (particularly with reference to employer stock), and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care. For more information, visit our rollover page or call Merrill at 888.637.3343.

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

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4 tips for managing your retirement account distributions

Tip 1: Use the calendar to your advantage

Tip 2: Stick to the minimum if possible

Tip 3: Remember all your retirement accounts

Tip 4: Consider our RMD Service

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