Understanding Required Minimum Distributions (RMDs)

What is an RMD?

A Required Minimum Distribution (RMD) is the minimum amount you must withdraw from your tax-deferred retirement accounts each year, starting when you turn age 73. The IRS mandates these withdrawals to ensure that tax-deferred savings are eventually taxed as ordinary income.

Who must take RMDs?

Under current tax law, you generally must begin taking RMDs if you own any of the following accounts:

• Traditional IRAs

• SEP IRAs

• SIMPLE IRAs

• 401(k), 403(b), and 457(b) plans

Note: Roth IRAs do not require lifetime RMDs. Designated Roth accounts in employer sponsored plans (like Roth 401(k)s) are also exempt from lifetime RMDs. However, Inherited retirement accounts may still be subject to mandatory annual distributions for beneficiaries. These required amounts depend on specific variables, including the original owner's age at death and the total number of designated beneficiaries.

What’s the deadline for taking an RMD?

RMDs must typically be withdrawn by December 31 each year. However, first-time participants may defer their initial distribution to April 1 of the year after you turn 73. If you choose this delay, you must take two distributions in that same calendar year, which could push your taxable income into a higher bracket.

What happens if you miss the deadline?

Failing to withdraw the full RMD amount by the deadline results in an IRS excise tax penalty.

• The standard penalty is 25% of the amount that should have been withdrawn but was not.

• The penalty may be reduced to 10% if the error is corrected within 2 years.

Speak to your tax advisor for more information.

Do you have to take your RMD if you are still working?

Employment past age 73 does not exempt personal IRAs from RMD rules. However, you may delay distributions from your current employer's plan, such as a 401(k), 403(b), or small business account, if:

• You remain actively employed by the company sponsoring the plan.

• You do not own more than 5% of the business.

• Your employer's specific plan document allows for this deferral.

If you meet all of these criteria, you may be able to delay taking your RMD from the account until April 1 of the year after you retire. This exception does not apply to personal IRAs or retirement accounts from previous employers.

What options do you have for using your RMD?

Even if you do not need retirement distributions to cover daily costs, the IRS still requires you to take them. Proper planning can help manage how these funds can be used:

• Reinvest It: Transfer your distribution directly into a taxable brokerage account which may allow for continued market exposure. You can reinvest the cash according to your risk tolerance or opt for an in-kind distribution of existing shares.

• Spend It: You can use your distributions to fund your everyday living expenses or spend it as you see fit.

• Gift It: This may help support charitable giving and may help reduce taxable income, depending on your individual tax situation, by using a Qualified Charitable Distribution (QCD) to send funds directly from your IRA to an eligible charity. For the 2026 tax year, the IRS caps individual QCDs at $111,000, while married couples can contribute up to $222,000 ($111,000 from each separate IRA). Because the money moves directly to the charity, it is excluded from your taxable income.

How will RMDs be taxed and what can you do?

Required Mandatory Distributions are taxed as ordinary income and thus are generally subject to federal and state tax rules. Postponing your initial distribution to April 1 requires executing two RMDs in one year, which can inadvertently inflate your annual taxable income and marginal tax rate.

If you are between the ages of 59½ and 73, you may have a valuable planning window that may help minimize your future tax burden. For individuals anticipating RMDs due to large tax-deferred account balances, you may want to speak with your financial or tax adviser to discuss available options.

John P. Freund is registered with and securities are ocered through Kovack Securities, Inc. Member FINRA/SIPC. 6451 N. Federal Highway, Suite 1201, Ft. Lauderdale, FL 33308 (954) 782-4771 Investment Advisory services are ocered through Kovack Advisors, Inc. Naples Financial Solutions, LLC is not aciliated with Kovack Securities, Inc. or Kovack Advisors, Inc. Naples Financial Solutions does not provide legal or tax advice. The information herein is for educational and informational purpose only and is not a recommendation regarding any security or investment strategy. This should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Naples Financial Solutions cannot guarantee that the information herein is accurate, complete, or timely. Naples Financial Solutions makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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