Required Minimum Distributions for Banner Health Retirees
After decades of building wealth in your Banner Health 401(k) or 403(b), retirement can bring a new challenge: required minimum distributions, or RMDs. These mandatory withdrawals can have a major impact on your tax strategy and retirement income. Fortunately, with smart planning, you can protect your wealth and keep more of your hard-earned dollars.
What Are Required Minimum Distributions?
Required minimum distributions are funds you must withdraw from certain retirement accounts every year once you reach age 73. The IRS created these rules to ensure that money in tax-deferred accounts like your Banner Health 401(k) or 403(b) doesn't stay sheltered from taxes forever.
The concept of RMDs is straightforward. During your working years, you received tax deductions for contributions to your Banner Health 401(k), and your money grew tax-free. Now that you’re ready to retire, the IRS wants its share. RMDs require you to withdraw money and pay income taxes on those distributions, ensuring the government eventually collects taxes on your retirement savings.
When RMDs Begin and Age Requirements
For Banner Health retirees, RMDs begin the year you turn 73. The previous age for RMDs was 72, until the SECURE Act 2.0 added an extra year starting in 2023. This delay provides an additional year of tax-deferred growth for your Banner Health retirement accounts. Looking ahead, the RMD age will increase again to 75 in 2033, applying to all individuals born in 1960 or later.
Critical Deadlines You Cannot Miss
RMDs follow clear deadlines that Banner Health retirees must abide by to avoid penalties.
Your first RMD must be taken by April 1 of the year after you turn 73. This means if you turn 73 in June 2025, you have until April 1, 2026, to take your first required distribution.
Every subsequent RMD must be taken by December 31 of each year, with no exceptions for holidays or weekends.
Severe Penalties for Non-Compliance
The IRS takes RMD compliance seriously, and the penalties reflect this stance. If you fail to take your required minimum distribution by the deadline, you'll face a penalty of 25% of the amount you should have withdrawn. This represents one of the steepest penalties in the tax code.
Recent legislation provides some relief: If you correct the mistake by taking the missed RMD within two years, the penalty can be reduced to 10%. However, even with this reduction, missing an RMD is costly.
Which Banner Health Retirement Accounts Require RMDs?
Not all retirement accounts have RMDs. The key distinction is pre-tax versus Roth contributions.
Traditional contributions to your Banner Health 401(k) or Banner Health 403(b) are made with pre-tax money. They are removed from your taxable income for the year you make the contribution, and are tax-deferred until you are ready to withdraw the funds. Since the IRS wants to collect taxes on these accounts, they are subject to RMDs.
Roth contributions are made with after-tax dollars. When making Roth contributions, the taxes are taken upfront, and qualified withdrawals are tax-free in retirement. Roth funds are NOT subject to RMDs.
The same rules apply for traditional IRAs and Roth IRAs. Roth = no RMDs. Funds in your Banner Health HSA are also free from RMDs.
Summary of Banner Health Accounts and RMDs
Accounts Subject to RMDs:
Banner Health 401(k) plans (traditional pre-tax funds)
Banner Health 403(b) plans (traditional pre-tax funds)
Traditional IRAs you may have from previous employers or personal contributions
SEP and SIMPLE IRAs from any previous self-employment or small business work
Accounts NOT Subject to RMDs (while you're alive):
Roth funds in your Banner Health 401(k) or 403(b)
Roth IRAs
HSAs from your Banner Health benefits (these never have RMDs)
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Special Rules for Banner Health Employees Still Working
If you're still working at Banner Health past age 73, you have a unique advantage. The IRS allows employees to delay RMDs from their current employer's 401(k) or 403(b) plan until the year they actually retire, as long as they don't own 5% or more of the company (which doesn't apply to Banner Health employees anyway).
This means you can continue contributing to your Banner Health 401(k) or 403(b) without taking RMDs, and your account balance will continue growing tax-deferred. However, you still have to take RMDs from any IRA accounts or retirement plans you have from previous employers.
This provision can be particularly valuable for Banner Health employees who want to work a few extra years, as it allows continued tax-deferred growth of their largest retirement account.
How to Calculate Your Banner Health RMDs
RMDs are not a fixed amount. Instead, the IRS uses a formula to determine what your RMD should be. To determine this, you can take your account balance as of December 31 of the previous year and divide it by a "distribution period" factor based on your age.
The Basic Formula: RMD = Account Balance (Dec. 31 of previous year) ÷ Distribution Period Factor
For example, let’s say you turned 75 this year. At the end of last year, your Banner Health 401(k) pre-tax account balance was $800,000. The IRS distribution period factor for age 75 is 24.6. So, to calculate your RMD, the math would be $800,000 ÷ 24.6 = $32,520.
$32,520 is the amount you would have to withdraw to meet your RMD requirements.
As you get older, the distribution period decreases, meaning your RMDs will gradually increase each year.
Important Calculation Rules
You must calculate RMDs separately for each account type.
You can aggregate RMDs from multiple Banner Health 403(b) accounts and withdraw the total from one account.
You can aggregate RMDs from multiple traditional IRAs and withdraw the total from one IRA.
You cannot satisfy a 401(k) RMD with an IRA withdrawal or vice versa.
The Tax Implications of RMDs
For many Banner Health retirees, RMDs represent a significant portion of retirement income and can have substantial tax implications.
Pre-tax contributions from your Banner Health 401(k) or 403(b) are taxed as ordinary income. Any investment gains are also taxed as ordinary income. RMDs are added to your other income to determine your tax bracket, meaning that large RMDs could push you into a higher tax bracket, increasing your tax bill.
For example, let’s say Sarah retired from Banner Health with a $1.2 million 401(k) balance. At age 75, her RMD is approximately $48,780. Combined with Social Security and other income, this RMD pushes her into the 22% federal tax bracket, meaning she owes about $10,732 in federal taxes on her RMD alone.
RMDs can also affect Medicare premiums. If your income is above a certain threshold, your premiums will go up. RMDs could make your Social Security benefits taxable as well by increasing your annual income.
State income taxes may apply, depending on where you live during retirement.
Strategies to Minimize RMD Tax Impact
While RMDs can have an impact on your taxes, there are options to minimize the damage and keep more of your savings intact.
Strategy 1: Pre-RMD Withdrawals
If you retire before age 73, consider taking strategic withdrawals from your Banner Health 401(k) or 403(b) to reduce future RMD amounts. This can be especially effective if you're in a lower tax bracket immediately after retirement, want to manage your tax brackets more evenly over time, or have other income sources that allow flexibility in timing.
Strategy 2: Roth Conversions
Converting traditional Banner Health 401(k) or IRA funds to Roth accounts before RMDs begin can dramatically reduce future RMD requirements. While you'll pay taxes on the conversion amount, you will be able to avoid RMDs, since Roth accounts are exempt. The converted funds will also grow tax-free.
The best time for Roth conversions is usually the gap years between retiring and turning 73 (assuming you retire before then).
Strategy 3: Qualified Charitable Distributions (QCDs)
If you're charitably inclined, QCDs offer one of the most tax-efficient ways to handle RMDs. You can donate up to $108,000 annually (in 2025) directly from your IRA to qualified charities. This amount counts toward your RMD requirement, is not included in your taxable income, can help you stay in lower tax brackets, and may help avoid Medicare IRMAA surcharges.
For example, instead of taking a $30,000 RMD and then donating $10,000 to charity (paying taxes on the full $30,000), you could make a $10,000 QCD and only take $20,000 as taxable income.
Strategy 4: Asset Location Strategies
Asset location means choosing which types of investments to hold in different account types. Some investments generate lots of taxable income, while others are more tax-efficient.
Since RMDs will force you to withdraw money from your Banner Health retirement accounts, you may want to use those for investments that generate a lot of taxable income (like bonds that pay interest). That way, the income can grow tax-deferred.
Meanwhile, investments that are naturally tax-efficient (like growth stocks that don't pay much in dividends) can be held in taxable accounts where you have more control over when to realize gains. This strategy helps minimize the overall tax impact when you start withdrawing RMDs from your retirement accounts.
A fiduciary financial advisor can help you make the best choices for your investment strategy.
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Planning for the Future: RMDs in Later Years
As you age, your RMDs will increase both because your distribution factors decrease and (hopefully) because your account balances continue to grow. Planning for this progression is important:
Age 75-80: RMDs typically represent 4-5% of account balances
Age 80-85: RMDs increase to 5-6% of account balances
Age 85+: RMDs can reach 7-8% or more of account balances
This increasing percentage means that without proper planning, RMDs can force you to withdraw more than you want to spend, potentially pushing you into higher tax brackets just when you want to preserve wealth for healthcare costs or legacy planning.
RMDs Don’t Have to Sabotage Your Plans
Required minimum distributions don't have to be a burden. With proper planning and strategic implementation, you can:
Minimize the tax impact of your withdrawals
Coordinate RMDs with your broader retirement income strategy
Preserve more wealth for your later years and your heirs
Turn a requirement into an opportunity for smart financial management
Remember that your Banner Health retirement benefits represent decades of hard work and smart savings decisions. Don't let poor RMD planning diminish the value of what you've built. Start planning early, understand your options, and implement strategies that align with your overall retirement goals.
Ready to Optimize Your Banner Health RMD Strategy?
Navigating required minimum distributions requires careful planning and plenty of know-how. At TrueWealth Financial Partners, we specialize in helping retirees like you maximize their retirement income while minimizing tax burdens.
Our fiduciary financial advisors understand the unique aspects of Banner Health retirement benefits and can help you:
Develop tax-efficient RMD withdrawal strategies
Coordinate RMDs with Social Security, Medicare, and other retirement income sources
Implement Roth conversion strategies to reduce future RMD burdens
Plan qualified charitable distributions (if charitable giving aligns with your goals)
Create comprehensive retirement income plans that integrate all your Banner Health benefits
Don't let RMD requirements derail your retirement strategy or cost you unnecessary taxes.
Schedule your free consultation today, and we can get to work on taking your retirement plans to the next level.
FAQs
Does my Banner Health 403(b) have RMDS?
Yes, if you have a 403(b), RMDs apply the same as for a 401(k).
What happens if I'm still working at Banner Health when I turn 73?
You can delay RMDs from your current Banner Health retirement plan until you actually retire. However, you still need to take RMDs from any IRAs or retirement accounts from previous employers.
Can I use my RMD to contribute to a Roth IRA?
No, RMDs cannot be rolled over or contributed to any retirement account, including Roth IRAs. However, you can invest your RMD in a taxable brokerage account or use it for living expenses.
If I have both traditional and Roth money in my Banner Health 401(k), do I take RMDs from both?
No, RMDs only apply to the traditional (pre-tax) portion of your account. The Roth portion is not subject to RMDs during your lifetime.
What if I forget to withdraw my RMD?
You'll face a 25% penalty on the amount you should have withdrawn. However, if you take the missed RMD within two years, the penalty can be reduced to 10%. File Form 5329 and attach a letter explaining the mistake.
Can I take my entire RMD at the beginning of the year?
Yes, you can take your full annual RMD amount at any time during the year, as long as it's by the December 31 deadline (or April 1 for your first RMD).
Can I donate my RMD to charity to avoid taxes?
Yes, through Qualified Charitable Distributions (QCDs). You can donate up to $108,000 annually (2025 limit) directly from your IRA to qualified charities. The donation counts toward your RMD but isn't included in your taxable income.
Can I reinvest my RMD if I don't need the money?
Yes, after taking your RMD and paying any taxes owed, you can invest the remaining money in taxable investment accounts, though it won't have the same tax advantages as retirement accounts.
How do I actually take my RMD from my Banner Health account?
Contact Fidelity or log into netbenefits.com/BannerHealth to set up your distribution. You can arrange for automatic annual distributions or take them manually each year.
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