Personal Finance
7 Ways to Prep for RMDs at Age 63
You have a decade before RMDs begin, but now may be the time to start planning.
If you’ve been diligently saving for retirement in tax-deferred accounts like a 401(k) or a traditional IRA, Required Minimum Distributions (RMDs) are on the horizon as you approach your mid-60s.
These mandatory withdrawals, starting at age 73 (as per the SECURE 2.0 Act), may have significant tax implications if not managed properly.
Planning ahead at age 63 may be able to help you optimize your distributions, minimize taxes, and make the most of your hard-earned retirement savings.
Consulting a fiduciary financial advisor can be a great first step to factoring RMDs, and the potential tax repercussions, into your retirement plan.
A 2023 Northwestern Mutual study found that 66% of U.S. adults admit their financial planning needs improvement. However, only 37% of Americans work with a financial advisor.¹
In fact, SmartAsset’s latest proprietary model reveals that working with a financial advisor could potentially add from 36% to 212% more dollar value to investors’ portfolios over a lifetime, depending on multiple unique, individual factors.²
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Keep scrolling for seven smart strategies to help prepare for RMDs a decade ahead of time.
1. Understand Your RMD Timeline
At age 63, you have a decade before RMDs begin, but now may be the perfect time to start planning.
Taking strategic withdrawals or making adjustments to your retirement accounts today could potentially help you avoid large tax bills later.
Understanding your timeline may allow you to plan how and when to start drawing from your retirement accounts in the most tax-efficient manner.
2. Consider Roth Conversions
One way to help reduce future RMDs could be by converting a portion of your traditional IRA or 401(k) into a Roth IRA.
Starting Roth conversions at 63 may allow for tax-free growth for some individuals, but the benefits depend on factors such as tax bracket and timing..
If you’re in a lower tax bracket now than you anticipate being in later years, a Roth conversion could be a strategic move to potentially minimize future tax burdens.
3. Use Qualified Charitable Distributions (QCDs) Later
While you can’t take advantage of Qualified Charitable Distributions (QCDs) just yet (they’re available starting at 70½), now could be the time to plan for this tax-saving strategy.
A QCD allows you to donate up to $100,000 per year directly from your IRA to a qualified charity, satisfying your RMD requirements while keeping that income off your tax return.
It could be a good idea to consult a fiduciary financial advisor before planning for such a strategy to avoid unnecessary mistakes.
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4. Strategize Your Withdrawals
Rather than waiting until 73 to start withdrawing, consider taking distributions starting now.
Withdrawing smaller amounts at age 63 and beyond may help reduce the size of future RMDs, which could potentially smooth out your tax liability over several years rather than taking large, taxable distributions later.
5. Manage Your Tax Bracket
Since RMDs are considered taxable income, they may push you into a higher tax bracket if not planned for correctly.
It could be a good idea to work with a financial advisor to coordinate your withdrawals with other income sources to avoid unnecessary tax spikes.
Spreading withdrawals across multiple years from age 63 onward may help you stay within a lower tax bracket.
6. Reinvest Unneeded Withdrawals
If you don’t need the funds for living expenses, consider reinvesting early withdrawals in a taxable brokerage account.
Investing in tax-efficient funds or municipal bonds may help grow your wealth while minimizing additional tax burdens.
Starting this reinvestment strategy at 63 could potentially allow you to build tax-efficient savings ahead of RMDs.
7. Work with a Financial Advisor
Navigating RMDs, tax planning, and withdrawal strategies can be complex.
At 63, you still have time to make tax-efficient decisions that may benefit you down the road.
A fiduciary financial advisor specializing in retirement planning could help you develop a customized strategy that optimizes your tax situation, maximizes your investments, and ensures your RMDs align with your financial goals.
Additionally, any conflicts of interest must be disclosed, as fiduciaries are obligated to work in your best interest.
Finding a fiduciary shouldn't be that hard. Thankfully, now it isn't.
SmartAsset’s free matching quiz can match you with fiduciary advisors who serve your area. From there, you can compare and decide which advisor to work with. All advisors on the matching platform have been vetted through our proprietary due diligence process.
The quiz takes just a few minutes, and in many cases, you can be connected instantly with an advisor to have an introductory call.
This is a hypothetical example and is not representative of any specific security. Actual results when working with a financial advisor will vary.
This scenario is for illustrative purposes only and does not represent an actual client. Results may vary.
This is not an offer to buy or sell any security or interest. All investing involves risk, including loss of principal. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns). Past performance is not a guarantee of future results. There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest.
SmartAsset.com is not intended to provide legal advice, tax advice, accounting advice or financial advice (Other than referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your accountant, tax, or legal advisor with regard to your individual situation.
SmartAsset Advisors, LLC ("SmartAsset"), a wholly owned subsidiary of Financial Insight Technology, is registered with the U.S. Securities and Exchange Commission as an investment adviser. SmartAsset’s services are limited to referring users to third party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States that have elected to participate in our matching platform based on information gathered from users through our online questionnaire. SmartAsset receives compensation from Advisers for our services. SmartAsset does not review the ongoing performance of any Adviser, participate in the management of any user’s account by an Adviser or provide advice regarding specific investments.
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Sources:
1. “Planning and Progress”, Northwestern Mutual (2023)
2 “The Value of a Financial Advisor: What’s It Really Worth?” SmartAsset (Nov. 2024)
