If you think saving for retirement is complicated, try figuring out how to withdraw retirement funds while minimizing taxes.

“As much as 70 percent of your hard-earned retirement funds can be eaten up by income, estate and state taxes,” says IRA guru Ed Slott, author of the retirement-planning books “Fund Your Future: A Tax-Smart Savings Plan in Your 20s and 30s” and “The Retirement Savings Time Bomb … and How to Defuse It.”

That’s money that most people would prefer to keep in their own pockets. But how exactly can it be achieved?

Here are nine smart withdrawal strategies that will help you avoid costly tax traps and keep more of your retirement funds.

1. Follow the rules for RMDs

RMD stands for required minimum distribution, and once you hit age 73, you’ll have to start taking this minimum amount of money from many retirement accounts, such as a traditional IRA or 401(k) plans.

You must take RMDs annually by April 1 of the year after you turn 73 and by Dec. 31 in subsequent years. In other words, if you turned 73 in 2023, you have until April 1, 2024, to take your first RMD.

With the passage of the SECURE Act 2.0 in late 2022, the age when RMDs begin increased from 72 to 73 starting in 2023. If you had already started taking RMDs, you had to take them in 2023, but no one had to start taking RMDs in 2023. The age when RMDs begin increases again to 75 on Jan. 1, 2033.

The penalty for not following the rules is severe. Failure to make on-time RMDs triggers a whopping 25 percent excise tax. If you miss a RMD from an IRA,  correct the mistake quickly and refile your taxes, the penalty may be reduced to 10 percent.

That’s true if you underpay, too. Let’s say your RMD for the year is $20,000 but you take only a $5,000 distribution because of a miscalculation. The IRS will levy the 25 percent penalty — in this case $3,750, or one-quarter of the $15,000 you failed to withdraw.

When you calculate your RMD, be aware that it will change from year to year. That’s because it’s determined by your age, life expectancy (the longer it is, the less you have to take out) and account balance, which will be the fair market value of the assets in your accounts on Dec. 31 the year before you take a distribution.

Check out the “Uniform Life Table” in IRS Publication 590-B to help figure what you must withdraw from your account.

2. Withdraw from accounts in the right order

If you need retirement savings to get by and you’re wondering whether to take them from an IRA, 401(k) or a Roth account, don’t be tempted by instant gratification. Sure, a Roth IRA withdrawal will be tax-free, but you may wind up paying more in lost opportunity.

Instead, withdraw from taxable retirement accounts first and leave Roth IRAs alone for as long as possible.

Skeptical? Consider what happens if a 73-year-old person takes $18,000 out of a traditional IRA, while sitting in the 24 percent tax bracket: They’ll owe $4,320 in taxes. If they withdraw the same amount from a Roth, they won’t pay a dime. But if this person doesn’t have to take an RMD from a Roth IRA, and instead earns 7 percent annually on the account for another 10 years, it would grow to $35,409. Those earnings would also be tax-free when withdrawn from the Roth, whether by the person holding the account or their beneficiary.

3. Know how to take distributions

If you have several retirement accounts because of frequent job changes and you’re approaching retirement, you now have the task of figuring out how to withdraw the money.

Will you have to tap all of your accounts? Probably not.

If you own a handful of traditional IRAs, you can withdraw from each of them. But the more efficient move may be to add the assets from all your accounts and take one withdrawal from a single IRA.

Consolidating IRAs into a single account can simplify paperwork, make it easier to compute future withdrawals and gain greater control over your asset allocation, Slott says.

However, you can’t make withdrawals from an IRA to meet your RMD requirements for a 403(b), 401(k) or another plan.

It’s vital to note that 401(k) plans can’t be pooled to compute a single RMD, says George Jones, managing editor Wolters Kluwer Tax & Accounting. To streamline those, roll them into an IRA.

4. RMDs smaller for some married couples

If you have a significantly younger spouse who is expected to inherit your IRA, you may be able to reduce your required distributions, thereby trimming taxes and making your retirement funds last longer.

Remember that RMDs are calculated using factors that include your life expectancy as determined by the IRS. But if you’ve named a spouse as the sole beneficiary of your IRA and he or she is at least 10 years younger than you, then your RMD is computed using a joint-life expectancy table. That will reduce the amount you need to distribute in any given year.

For example, a single retiree who turns age 73 in the current year and who would have to take their first RMD by April 1 of the following year would have a life expectancy of 26.5 more years in the eyes of the IRS. So if that person’s IRA was worth $200,000, their first RMD would be $7,547.17 ($200,000 divided by 26.5).

But let’s say this person designates their 56-year-old married partner to be the sole beneficiary of that retirement account. In that case, their joint life expectancy would be 31.7 years. So the first RMD would be trimmed to $6,309.15. The IRS provides a table for this situation in its Publication 590-B.

5. Make a charitable contribution

Have a worthy cause you want to donate to? If your dreams for a lifetime of savings include helping a charity, it may be worth using your retirement funds to make a difference.

This law lets individuals aged 70 1/2 or older make tax-free donations, known as qualified charitable distributions, of up to $100,000 annually directly from their IRAs to a charity as part of their required minimum distribution. Such a distribution doesn’t count as income, reducing any income tax liability to the donor. And if you file a joint return, your spouse can also make a contribution up to $100,000 each year.

But be aware that individuals who make tax-free charitable distributions from their IRAs won’t be able to itemize them as a charitable deduction.

“You get one or the other,” Slott says. “Whoever uses this strategy will pay less in taxes, so if you’re charitably inclined, it’s the best way to make donations.”

6. “In kind” withdrawals qualify as RMDs

Don’t want to sell your assets? It’s easier to take withdrawals in cash, but that doesn’t mean you have to — or should. So-called in-kind distributions are taken out in the form of stocks or bonds, and they may make more sense for people who want to keep assets for various reasons. You’ll simply move the assets from your IRA into a taxable account. These in-kind withdrawals will be assigned a fair market value on the date they are moved.

An in-kind withdrawal may be easier and less expensive than triggering fees by selling the securities in the IRA and buying them back in a brokerage account.

7. RMDs can be delayed for some workers

Putting off your retirement? If you’re still working at age 73 and continuing contributions into a 401(k) or 403(b), you’re entitled to an RMD reprieve – as long as you don’t own more than 5 percent of a company and your retirement plan lets you. If these conditions apply, you can delay the RMDs until April 1 after the year that you “separate from service,” at which point you’ll have to start taking withdrawals.

This is true as long as you work during any part of a year. So if you’re 73 ½ years old and thinking about retiring by the end of the calendar year, reconsider if you don’t want to make a withdrawal. If you keep working after Jan. 1 — even if it’s just a day — you’ll push off the date for taking that first RMD by one more year.

Keep in mind that the delay only counts for the 401(k) plan of the company you’re still working for. If you have other 401(k) plans from previous jobs, you’ll need to take distributions from them if you’re 73 or older.

8. Consider a Roth conversion

Tax professionals and retirement advisors often push clients to roll retirement accounts into Roth IRAs, where time and tax-free growth can work their magic. But it’s not a silver bullet, and the move may not make sense for some workers.

The conversion of a traditional 401(k) or traditional IRA to a Roth IRA will generally trigger a tax bill. However, once you make the move, all the funds grow tax-free and can remain untouched.

For example, let’s say a 43-year-old gets a new job and decides to move $150,000 from their 401(k) into a Roth IRA. If this person is in the 35 percent federal tax bracket, they’ll owe $52,500, which would be wise to pay with funds outside of the IRA. If the entire amount in the Roth remains untouched and it grows at an annual rate of 7 percent, it would be worth $1.14 million in 30 years.

What about someone who’s close to retirement or taking RMDs? If you need the retirement funds for yourself and don’t plan to pass them on to heirs, then it may be smart to leave them where they are.

“But if you want to preserve that retirement asset for heirs,” Slott says, “it’s a great move because it removes the uncertainty of what future taxes will be. Converting to a Roth is a great thing to do for the next generation.”

9. Do a Roth conversion during “semi-retirement”

If your career is winding down and you find yourself earning less income, it may be necessary to take distributions from your retirement plan. If you’re at least 59 ½ years old, you’ll be able to take distributions from retirement plans without getting hit with a 10 percent early withdrawal penalty.

It may also be an opportune time to convert a portion of your traditional IRA to a Roth IRA – especially if your marginal rate is lower than you expect it to be after you turn age 73, when you will be required to take minimum distributions. This strategy can also help you put off taking Social Security until a later age, when benefits will be bigger.

Discuss it with your tax accountant to see if this makes sense in your situation.

Bottom line

With a few deft moves and the knowledge of how to take distributions from retirement plans, you can minimize the government’s bite. But it’s a complex situation, and finding a financial advisor who will work in your best interest to help you navigate everything can easily pay for itself many times over. Here’s how to find a top-notch advisor.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.