Key Points

Avoid delays when taking your RMD since the penalty can be significant.
Review the tax effects tied to your RMDs carefully.
Several steps exist that could help lower taxes related to RMDs.
The $23,760 Social Security bonus most retirees completely overlook ›

Anyone saving wisely for retirement in tax-advantaged accounts like IRAs and 401(k)s should understand Required Minimum Distributions (RMDs). This is because certain accounts mandate scheduled withdrawals, and missing them can trigger a steep penalty.

Specifically, withdrawals must begin annually from traditional IRAs, SEP IRAs, and SIMPLE IRAs after reaching age 73. (RMDs do not apply to Roth IRAs and Roth 401(k)s for the original account owners.)

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »

Image source: Getty Images.

It makes sense to view RMDs alongside other retirement accounts and income streams while choosing actions that cut taxes. Remember that an RMD counts as taxable income, which often raises your overall tax obligation and might shift you into a higher bracket.

Keep in mind that the first RMD can be taken as late as April 1 of the year after turning 73. Following that, all deadlines fall on Dec. 31. This means the second RMD must occur by Dec. 31 of the year you turn 74.

The penalty for missing an RMD deadline equals 25% of the undistributed amount. (A reduced penalty may apply if corrective steps are taken promptly after the deadline.)

Regarding taxes, consider these approaches:

Begin withdrawals early from accounts subject to RMDs to reduce future required amounts. This can start at age 59 1/2 without penalties. The approach may also support delaying Social Security claims to increase benefit sizes.
Pair your RMD with a Roth IRA conversion. This moves funds from a traditional IRA (subject to RMDs) into a Roth IRA (free of RMDs). Roth IRAs permit tax-free withdrawals later if rules are followed. The converted sum faces taxes, raising your bill, yet the RMD itself can cover that cost. A new senior tax deduction of up to $6,000 may also apply.
Alternatively, send part or all of the RMD straight from a traditional IRA to a qualified charity through a Qualified Charitable Distribution (QCD). This satisfies the RMD requirement without adding taxable income. (This option does not apply to 401(k)s, though conversion to an IRA can enable it.)
Apply the correct life expectancy table. If you are at least 10 years older than your spouse and that spouse is the sole beneficiary, the Joint and Last Survivor Life Expectancy table can be used. This incorporates your spouse's longer life span and often produces smaller RMD amounts.

Take time to study RMD rules and plan the most effective withdrawal strategy.

The $23,760 Social Security bonus most retirees completely overlook

If you are like many Americans, your retirement savings may be behind schedule. Yet several lesser-known Social Security strategies could increase your retirement income.

One simple method might deliver as much as $23,760 extra each year. Learning to optimize Social Security benefits can support a confident retirement with greater financial security. Join Stock Advisor to explore these approaches.

View the Social Security secrets »

The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.