RMDs and Withdrawal Order for Santa Clarita Retirees

When RMDs begin

Required minimum distributions are the annual withdrawals the tax code requires from most tax-deferred retirement accounts once you reach a specified age. The SECURE 2.0 Act raised that age in two steps, so the answer now depends on the year you were born.

A general summary of current federal rules. SECURE 2.0 contains a technical ambiguity for individuals born in 1959, and the 2024 final regulations reserved the issue. Confirm the starting age for your specific accounts with your CPA and your account custodian.

For many Santa Clarita households, the practical effect of the later starting age is a longer window between the end of employment and the first required distribution. For some retirees, the years between retirement and the beginning of RMDs may involve lower taxable income, potentially creating opportunities to evaluate Roth conversions, withdrawals, or other tax-planning strategies.

How the rules work

Each year's required amount is generally calculated by dividing the prior year-end account balance by a life expectancy factor published by the IRS. A few mechanics are worth knowing before the first one arrives.

• The first distribution can be delayed. It may be taken as late as April 1 of the year after you reach your RMD age. Every later distribution is due by December 31, so delaying the first one means taking two in the same tax year.
• IRAs can be aggregated. The required amounts for several traditional IRAs can generally be taken from any one of them. Employer plans such as 401(k)s are usually calculated and taken separately, plan by plan.
• Roth accounts are treated differently. Roth IRAs have no lifetime RMDs for the original owner, and since 2024 designated Roth accounts inside employer plans are also exempt.
• Still working can matter. If you remain employed and do not own a significant share of the employer, that employer's plan may allow RMDs to be deferred until you retire. The exception does not extend to IRAs.
• Missed distributions carry an excise tax. SECURE 2.0 reduced it to 25 percent of the shortfall, and to 10 percent if the error is corrected within the applicable correction window.

None of those mechanics is difficult on its own. The complication is that the required amount is added to whatever else you draw that year, and the combined figure is what determines your bracket, the taxable share of your Social Security benefit, and your Medicare premium tier two years later.

Qualified charitable distributions

A qualified charitable distribution is a transfer made directly from an IRA to an eligible charity. It is available from age 70½, which is earlier than the current RMD age, and the qualifying amount can count toward your required distribution for the year while being excluded from federal taxable income.

For an eligible retiree who already gives to charity and takes the standard deduction, a qualified charitable distribution may provide different tax treatment than making a charitable contribution from non-retirement assets, because an eligible distribution is generally excluded from federal taxable income rather than deducted afterward. Keeping adjusted gross income lower can in turn affect the taxable portion of Social Security and the Medicare premium tier.

• The distribution must go directly from the IRA custodian to the charity. A distribution paid to you first and then donated does not qualify.
• Donor-advised funds and certain other charitable vehicles are generally not eligible recipients.
• There is an annual limit per person, which is indexed and changes from year to year.
• The charity's acknowledgment should be kept with your records, and the reporting on your return has to be handled correctly.

Withdrawal order after retirement

Most retirement portfolios draw from three kinds of account, each taxed differently at the moment of withdrawal.

General treatment only. Basis, holding periods, and qualification rules affect the result in individual cases.

A common rule of thumb is to spend taxable assets first, tax-deferred assets second, and Roth assets last. While that can be a useful starting point, it may not produce the most tax-efficient result in every situation, because it can leave tax-deferred balances to grow into large required distributions that land in higher brackets later.

An alternative that many retirees model is drawing a measured amount from tax-deferred accounts each year to use up the lower brackets, even before RMDs require it, while funding the rest of spending from taxable or Roth money. Whether that helps depends on your current and expected brackets, the size of each account, your Social Security timing, and your heirs' tax situation. It is a modeling question rather than a rule.

California adds a specific wrinkle. Because the state does not tax Social Security but does tax IRA distributions and capital gains as ordinary income, the relative cost of each withdrawal source can differ from the federal picture alone. How California taxes retirement income covers the state rules in more detail.

The Medicare connection

Medicare Part B and Part D premiums include an income-related adjustment for higher-income beneficiaries, and that adjustment is based on the modified adjusted gross income reported on your tax return from two years earlier. A large taxable distribution, Roth conversion, or realized gain may therefore affect Medicare Part B and Part D premiums in a later year, generally based on income information from two years earlier.

The tiers work as thresholds rather than a gradual scale, so a modest amount of additional income can move a household into a higher premium bracket. That is one reason withdrawal decisions are worth modeling in advance with the premium tiers in view, rather than reconciled after the return is filed.

Where income fell because of a qualifying life-changing event such as retirement, the Social Security Administration has a process for requesting that a more recent year's income be used. Ask your CPA whether it applies to your situation.

Structuring income by time horizon

Some retirees find it helpful to organize the portfolio by when the money will be needed rather than by account type. A common version holds near-term spending in cash or short-term holdings, medium-term needs in more stable investments, and longer-term money in growth-oriented holdings that have more time to recover from declines.

The appeal is practical: in a falling market, near-term spending can be drawn from the stable portion rather than by selling growth assets at depressed prices. The trade-off is that holding more in cash and short-term investments can reduce long-run growth, and the structure has to be refilled deliberately as each portion is spent down.

A time-horizon structure and a tax-aware withdrawal order are not alternatives. The first decides which holdings to sell; the second decides which accounts to take them from. Both belong in the same annual review.

How Avinci approaches it

Avinci Wealth Management is a Registered Investment Adviser registered in California, Arizona, Illinois, Texas, and Nevada, firm CRD #327780, headquartered at 23929 Valencia Blvd, Suite 404 in Santa Clarita, with additional offices in Beverly Hills and Woodland Hills. When providing investment advisory services, Avinci Wealth Management is subject to its fiduciary obligations under applicable investment adviser law.

The Retirement Blueprint projects income and tax exposure year by year with the California layer included, so RMD timing, charitable distributions, and withdrawal order are modeled together rather than decided one at a time. Founder Lindahl Lucas personally oversees the development of each Retirement Blueprint. Tax scenarios are modeled in coordination with your CPA, who prepares the returns.

Avinci receives advisory fees for investment advisory services. Separately, insurance and annuity products may be offered through our affiliated insurance agency, Lucas Insurance Services, which may receive commissions from issuing insurance companies. This compensation arrangement creates a conflict of interest and is disclosed in our Form ADV. Related reading: Roth conversion planning and retirement health care before and after Medicare.