The IRS requires withdrawals from pre-tax retirement accounts once you reach a certain age, known as Required Minimum Distributions (RMDs). RMDs are calculated based on your age and account balance using life expectancy tables. For example, a 78-year-old with $735,000 in a 401(k) would have an RMD of $33,409.

RMDs apply to pre-tax accounts like 401(k)s and traditional IRAs, but not taxable investment accounts or Roth IRAs. You can delay your first RMD until April 1 after turning 73, but then you’ll need to take two distributions in the same year. RMDs must be taken by December 31 each year.

To calculate the tax impact of an RMD, consider the example of a 75-year-old with a $1 million 401(k). The RMD of about $40,650 is subject to federal income tax at rates of 10% and 12%, resulting in roughly $4,640 in federal tax. This reduces the amount available for spending or reinvestment.

If you want to avoid penalties, ensure you’ve taken the correct RMD amounts in past years. Consider your priorities, whether it’s covering expenses, reducing taxes, leaving money to heirs, or converting funds to a Roth account, to guide how you structure withdrawals. Consult a financial advisor for personalized guidance.

If you’re over 73, managing RMDs involves confirming past withdrawals, aligning future distributions with your goals, taxes, and income needs. A financial advisor can help you assess your retirement savings and recommend strategies to preserve and grow your nest egg. Use SmartAsset’s free RMD calculator for estimates.

Considering Roth conversions after RMDs can reduce future taxes or leave tax-free assets to heirs. Conversions increase current-year income, possibly moving you into a higher tax bracket. Calculate the tax impact of conversions to understand the implications on your overall tax liability and savings growth potential.

Read more at Yahoo Finance: I’m 78 With $735k in my 401(k). How Should I Handle My RMDs?