Required Minimum Distributions: What They Are and How to Plan Ahead
Required Minimum Distributions (RMDs) are mandatory withdrawals from certain tax deferred retirement accounts, including Traditional IRAs, Traditional 401(k)s, and 403(b)s. The IRS requires these distributions because contributions to these accounts were made on a pretax basis, allowing you to defer taxes for many years. Eventually, the government expects its share!
When Do RMDs Begin?
Your RMD start age depends on your year of birth:
- Age 73 if you were born between 1951 and 1959
- Age 75 if you were born in 1960 or later
Your first RMD must generally be taken by April 1st of the year following the year you reach your RMD age. Every subsequent RMD must be taken by December 31st. While delaying your first RMD is allowed, doing so can result in two taxable distributions in the same year, which may significantly increase your tax bill.
RMDs Can Be a Bigger Deal Than Expected
Many retirees know RMDs are coming, but may underestimate their impact. If you’ve been a disciplined saver, your retirement balances may be larger than anticipated. While that’s certainly a positive outcome, it can also mean that your RMDs may exceed your actual spending needs.
Excess income from RMDs can create several ripple effects, such as:
- Being pushed into a higher tax bracket
- Owing taxes on a higher percentage of your Social Security benefits
- Paying higher Medicare premiums through Income Related Monthly Adjustment Amount (IRMAA) surcharges
What Happens If You Miss an RMD?
Skipping an RMD is not something to take lightly. The IRS may assess a penalty of up to 25% of the amount you failed to withdraw. However, the penalty may be reduced to 10% if corrected within two years by filing paperwork with the IRS. The best strategy is simply to plan ahead and avoid missing required distributions altogether.
Strategies to Reduce the Impact of RMDs
Proactive planning, often years in advance of reaching RMD age, can significantly reduce future RMDs and their tax consequences. Here are a few strategies we use commonly with our clients:
- Roth Conversions
Roth conversions involve moving funds from a pretax retirement account into a Roth IRA. While the converted amount is taxable in the year of conversion, future growth in the Roth account is tax free, and Roth IRAs are not subject to RMDs during your lifetime. Conversions can be especially effective during years when your income is temporarily lower.
- Qualified Charitable Distributions (QCDs)
Once you reach age 70½, you can donate up to $111,000 per year (for tax year 2026, indexed annually for inflation) directly from your IRA to qualified charities. Not only do these donations count toward satisfying your RMD, but they are also excluded from your taxable income. This can help reduce your adjusted gross income, potentially helping you avoid IRMAA surcharges and higher Social Security taxation.
- Strategic Withdrawals in Your 60s
Many retirees experience a lower income window after retiring but before Social Security and RMDs begin. Taking strategic withdrawals during this period can help reduce future account balances and smooth lifetime tax liability.
The Bottom Line
Although RMDs are unavoidable, they don’t have to derail your retirement income plan. With a proactive approach, it’s often possible to reduce taxes, optimize cashflow impacts, and avoid unpleasant surprises later in retirement.
At Legacy, we help clients model RMDs years in advance, evaluate tax-smart withdrawal strategies, and build retirement income plans designed for long-term efficiency. Reach out if you’re curious about how to navigate your personal RMD strategy. We’re here to help!
