People who are planning for their retirement need to develop a game plan for required minimum distributions, or RMDs, if they want to maximize the amount of savings they keep in their pockets, writes Glenn Ruffenach for The Wall Street Journal.

RMDs are annual withdrawals that people in their early 70s are required to take from their savings. However, recent changes in the tax rules could force some retirees and later their beneficiaries to take out more money at a faster pace than they previously planned from their tax-deferred retirement accounts.

For example, a $1 million IRA that could have provided a retired couple and their family with payouts for 40 or 50 years until recently now might have to be emptied in half that time. A smaller window means bigger required withdrawals each year, which translates into bigger taxes.

Additionally, with the elimination of the so-called stretch IRA, many beneficiaries who previously had decades to make withdrawals and taxes from their inherited IRAs now have to empty these accounts within 10 years.

All of this points to the necessity of RMD planning: anticipating how retirees’ and beneficiaries’ taxes could be affected by required withdrawals. Fred Hubler, CEO and Chief Wealth Strategist for Creative Capital Wealth Management Group, which specializes in retainer-based planning and alternative investment strategies, stated “a big part of our job is planning the sustainable distribution strategy, especially in volatile markets.

According to Hubler, the IRS required distribution doesn’t care if your retirement account is down 20%, so you don’t want to be forced to liquidate from a down account. “We set up accounts specifically to support the RMD,” said Hubler, “and clients like having that setup ahead of time.”

For people who have IRAs or 401(k)s that amount to six figures or more, it is crucial to stop looking at required distributions simply as an annual task. This means that people need to start steadily taking money out of their tax-deferred accounts to reduce to a minimum required distributions and associated taxes in retirement.

“A good tax projection looks out years in advance for key events,” says Martin E. James, a certified public accountant.

Other possibilities include moving to contributing to Roth IRAs and Roth 401(k)s instead of tax-deferred accounts early in retirement planning and shifting funds from tax-deferred accounts to tax-free accounts.

Read more about RMDs in The Wall Street Journal.

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