Facing RMDs in Retirement? 2 Key Moves to Reduce Your Financial Stress.

There's a reason people are often advised to save for retirement in a Roth retirement account. Roth IRAs and 401(k)s do not come with required minimum distributions, or RMDs. Rather, your money is yours to withdraw as you please.

But if you have your retirement savings in a traditional IRA or 401(k), RMDs will begin at age 73 or 75, depending on your birth year. And those mandatory withdrawals could end up being a source of financial stress.

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That's why it's important to manage RMDs carefully. Here are two key moves that could make RMDs easier on you financially and logistically.

1. Automate withdrawals

The reason RMDs exist is simple. The money that goes into your traditional IRA or 401(k) gets tax-deferred treatment. But the IRS eventually wants to tax that money, which is why you'll be forced to withdraw from your savings eventually.

One problem with RMDs is that failing to take them can result in a harsh 25% penalty. To avoid losing money due to missing the deadline, which is Dec. 31 each year, it's a good idea to put your RMDs on autopilot.

Most financial institutions let you take automatic RMDs on a schedule that works for you. You may opt for quarterly distributions or a single lump sum each year. But setting up those withdrawals in advance could spare you from being late when life gets in the way, thereby keeping those steep penalties from creeping up on you.

2. Look at QCDs

Another issue with RMDs is that they're taxable. If you have large withdrawals you're forced to take, you could end up in a higher tax bracket than you want to be in. You might also end up getting taxed on your Social Security benefits and being charged more for Medicare because of a higher income, even if you'd rather not tap your IRA or 401(k).

That's what makes qualified charitable distributions, or QCDs, so valuable. QCDs allow you to donate funds from an IRA directly to a registered charity.

They don't add to your taxable income, but they do allow you to fulfill your RMD-related obligation. If you don't need your RMDs to cover bills and you like the idea of donating them, QCDs could be a great solution.

While RMDs can be a pain to deal with in retirement, there are steps you can take to make them less annoying. Ensuring you don't miss the deadline and getting out of RMD taxes are two moves that could reduce your financial stress on the whole.

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