If you’ve spent decades saving diligently in your 401(k) or traditional IRA, you are carrying a substantial “tax debt.” The government will eventually force you to withdraw those funds and pay taxes on them. Beginning at age 73, the IRS requires you to withdraw a minimum amount from most tax-deferred retirement accounts each year. This is known as your Required Minimum Distribution, or RMD.
Because those withdrawals are taxed as ordinary income, a large RMD can push you into a higher tax bracket, increase your Medicare premiums, and even make a larger share of your Social Security benefits taxable. The good news? With some thoughtful planning, ideally starting well before age 73, you may be able to substantially reduce the tax bite of your RMDs.
Start Roth conversions before RMDs begin.
A Roth conversion involves moving money from a traditional IRA into a Roth IRA and paying income tax on the converted amount. Once converted, those funds grow tax-free, and qualified withdrawals are tax-free as well. Roth IRAs are also not subject to RMDs during your lifetime.
By strategically converting portions of your traditional IRA each year, filling up lower tax brackets without tipping into the next one, you can meaningfully shrink your future RMD obligations and the tax bill that comes with them. This strategy takes careful planning but is one of the more powerful tools in the retirement tax playbook. It’s most beneficial if you start early, particularly during the “gap years” between retirement and age 73.
Use Qualified Charitable Distributions (QCDs).
If you are charitably inclined, this strategy is a win-win. Once you reach age 70 ½, you can direct up to $111,000 per year (2026 limit) from your traditional IRA directly to a qualified charity. A QCD satisfies your RMD requirement, but the distributed amount is excluded from your taxable income.
If you already give to your church, community organizations, or other causes, redirecting that giving through a QCD is one of the simplest and most impactful tax moves you can make.
Be strategic about timing and income bunching.
The year you turn 73, you actually have until April 1 of the following year to take your first RMD. However, if you delay that first distribution, you’ll need to take two RMDs in year two, which could push you into a significantly higher tax bracket.
For most people, taking that first RMD in the calendar year you turn 73 is the better approach. Think carefully about how your RMD interacts with your other income sources like pensions, Social Security, part-time work, and investments so that you can time your withdrawals to stay within the most favorable tax bracket possible.
Offset RMD income with deductions and credits.
Even if you can’t avoid the RMD, you can reduce its tax impact by capturing every deduction available to you. Consider whether it makes sense to group charitable contributions, medical expenses, or other deductible items into a single tax year so you can exceed the standard deduction threshold and itemize.
Donor-advised funds can be especially powerful here. You can make a large charitable contribution in one year, claim the deduction, and then distribute those funds to your chosen charities over several years. This strategy pairs well with years where your RMD income is particularly high.
RMDs don’t have to derail your retirement tax plan. The key is to start planning early, understand how each strategy interacts with your full financial picture, and revisit your approach each year as tax laws and your personal circumstances evolve. If you’d like to talk about how these strategies may benefit you and your family, we’re always here to help.
Frequently asked questions:
When is the best time to consider a Roth conversion?
Often during the years between retirement and age 73, when income may be lower. Converting portions of a traditional IRA during these “gap years” can reduce future RMDs and create tax-free income later in retirement.
Why use a Qualified Charitable Distribution instead of donating cash?
A QCD sends money directly from your IRA to a charity, and the amount is excluded from your taxable income. This can lower your adjusted gross income and reduce the overall tax impact of your RMDs, something a standard cash donation doesn’t accomplish.
Should I delay my first RMD until the following year?
In many cases, no. Delaying means taking two RMDs in the same year, which can significantly increase your taxable income and potentially push you into a higher tax bracket.
How can deductions help reduce the tax impact of RMDs?
By “bunching” deductions, such as charitable gifts or medical expenses, into a single year, you may be able to exceed the standard deduction threshold and itemize. This can offset some of the additional taxable income generated by your RMDs.
Disclaimer: The information above is for general educational purposes only and should not be considered financial, tax, or legal advice. Always consult with a qualified professional regarding your specific situation. You should consult with your CPA and/or attorney before implementing any estate planning, gifting, or tax-related strategy.