Financially Savvy Ways to Use Your RMDs

Required minimum distributions may create a tax bill, but they can also create new financial opportunities.

Once RMDs begin, smart planning can help turn mandatory withdrawals into a financial advantage. evan_huang/Shutterstock

When you reach age 73, you’ll need to start taking required minimum distributions (RMD) from accounts like traditional IRAs and 401(k)s. RMDs are specific amounts of funds you must withdraw from these accounts every year, starting from that age.

The RMD will be treated as taxable income and can even bump you into a higher tax bracket. And if you fail to take your RMD, you could face a 25 percent excise tax on the amount not withdrawn.