Worried that required minimum distributions (RMDs) will mess with your retirement finances? Use these 3 strategies.

Saving for retirement in a tax-advantaged account makes a lot of sense. Why not get some tax benefits while building a nest egg? These benefits could make it easier to fund your long-term savings in the first place.

The problem with this approach could come later in life in the form of required minimum distributions, or RMDs, which kick in at 75 for those born in 1960 or later. If you were born earlier, you may need to take your first RMD at 73.

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For some people, RMDs are not a problem. If your RMD for the year is $12,000, but you need $1,000 a month from your IRA or 401(k) plan to pay for your retirement expenses, then it’s no big deal — that’s money you you were going to remove them anyway.

RMDs only become a problem when you don’t need the money and don’t want to deal with the tax burden it creates. But with strategic planning, you can make sure RMDs don’t derail your retirement finances. Here’s how.

1. Save in a Roth retirement plan

The easiest way to avoid RMDs is to house your long-term savings in a Roth IRA or 401(k) instead of a traditional IRA or 401(k). While you’ll lose the tax break a traditional IRA or 401(k) gives you on your contributions, you’ll gain the benefit of keeping your money in the account for as long as you want.

If you’re nearing retirement and have never saved in a Roth account, it’s not too late. You can work with a professional to convert at least a portion of your traditional IRA or 401(k) to a Roth to avoid tax problems later.

2. Amplify your charitable giving

RMDs during retirement have the potential to increase your tax bill. If you don’t need the money you’re forced to take out of your retirement account, donating it to charity can help you avoid taxes on your RMDs.

It pays to set up a qualified charitable distribution (QCD), which allows you to distribute funds directly from your IRA or 401(k) to a registered charity. The QCD limit for 2024 is $105,000.

3. Plan to invest the money elsewhere

Because large penalties apply for missing RMDs, it’s important to take them when you’re due. If you can’t or simply don’t want to donate your RMD to charity, you may end up paying taxes on that withdrawal. But that doesn’t mean you can’t put the money to work.

There is no rule that says the money you take out of your retirement account as RMDs must be spent. You can invest this money in a tax-free account and let it generate returns to help your savings. You can also take your RMD and use it to invest in tax-advantaged assets such as municipal bonds.

RMDs can be a pain in retirement, but they don’t have to destroy your senior finances. If you can’t avoid them altogether, find ways to manage your mandatory withdrawals as strategically as possible.