Roth vs. Traditional IRAs—Understanding RMD Rules

When you save in a traditional IRA, the IRS eventually requires you to start taking money out. These withdrawals are called Required Minimum Distributions (RMDs) — and they begin when you reach age 73.

Each year after you reach the required age, you must withdraw at least a certain amount based on your account balance and life expectancy. Those withdrawals are included in your taxable income.

A Roth IRA works differently. The original account owner is not required to take distributions during their lifetime. That means your savings can stay invested and continue to grow tax-free for as long as you like.

If you pass a Roth IRA to someone else, the rules depend on who inherits it.

• A spouse can choose to treat the Roth IRA as their own and continue it without required withdrawals.

• A non-spouse beneficiary generally must withdraw the full balance within ten years, though there are a few exceptions for certain beneficiaries. In many cases, withdrawals are tax-free if the account meets IRS requirements.

If you are nearing retirement or managing multiple accounts, it is a good idea to review how RMD rules apply to each type with a financial advisor and a tax professional.

Each week, I share a clear, bite-sized tax insight straight from my continuing education so you can stay informed without sifting through tax changes.

Next week, we share how you may be eligible to convert a 529 Plan into an IRA.

Thanks for reading,

Brandy Sparkman, EA

I’ll keep learning so you can stay focused on what you do best.

See you next week for another Tax Minute.