How Can You Reduce Your Required Minimum Distributions?

You reduce required minimum distributions by shrinking the balance of your traditional retirement accounts before RMDs begin. Under current law, RMDs start at age 73 for those born between 1951 and 1959, and at age 75 starting in 2033 for those born in 1960 or later. The two most effective strategies are Roth conversions during low-income years before RMD age, and qualified charitable distributions (QCDs) from your IRA after age 70 and a half. Roth conversions permanently move money out of the RMD system. QCDs satisfy RMD requirements without adding to taxable income.

Key Takeaways:

– RMDs begin at age 73 for those born between 1951 and 1959, per the IRS.
– RMD age moves to 75 starting in 2033 for those born in 1960 or later.
– The penalty for missing an RMD is 25 percent of the missed amount, reduced to 10 percent if corrected within two years.
– Roth IRAs have no RMDs during the original owner’s lifetime.
– Each year an RMD is missed compounds the future tax problem.

What is a required minimum distribution?

A required minimum distribution (RMD) is the minimum amount the IRS requires you to withdraw each year from most tax-deferred retirement accounts once you reach a certain age. The withdrawal is taxed as ordinary income.

You can withdraw more than the minimum, but you cannot withdraw less without a penalty.

When do RMDs start in 2026?

Under current law, RMDs begin at age 73 for anyone born between 1951 and 1959. For those born in 1960 or later, the age moves to 75 starting in 2033.

The first RMD can be delayed until April 1 of the year after you turn 73. After that, all RMDs must be taken by December 31 of each year.

How is the RMD amount calculated?

Each year’s RMD equals the prior year-end account balance divided by a life expectancy factor from the IRS Uniform Lifetime Table.

The factor shrinks every year, meaning the RMD as a percentage of the balance grows.

Which accounts have RMDs?

RMDs apply to:

– Traditional IRAs
– SEP IRAs and SIMPLE IRAs
– Traditional 401(k), 403(b), and 457(b) plans

RMDs do not apply to:

– Roth IRAs during the original owner’s lifetime
– Roth 401(k), Roth 403(b), and Roth 457(b) accounts (RMDs eliminated as of 2024)

How do Roth conversions reduce RMDs?

A Roth conversion moves money from a traditional IRA to a Roth IRA. The converted balance no longer counts toward future RMDs.

A retiree with $2 Million in a traditional IRA at age 65 faces RMDs of roughly $75,000 in year one. The same retiree who converts $1 Million to Roth before age 73 faces RMDs of roughly $37,500 in year one, a $37,500 annual tax reduction that compounds for life. See https://creativefinancialgrp.com/when-should-you-do-a-roth-conversion/ for the full conversion framework.

What is a qualified charitable distribution (QCD)?

A QCD sends money directly from your IRA to a qualified charity. The amount counts toward your RMD but does not count as taxable income.

For 2026, the IRS allows up to $111,000 per person per year via QCD, up from $108,000 in 2025. Anyone over age 70 and a half is eligible.

For charitable retirees, QCDs are one of the most efficient tax tools available. A $40,000 QCD satisfies a $40,000 RMD without adding $40,000 to income, which also keeps MAGI lower for IRMAA purposes. See How Do You Avoid IRMAA in Retirement?.

Can you do RMDs before age 73?

You can withdraw from a traditional IRA before age 73 voluntarily, but it’s not an RMD. Strategic early withdrawals during low-income years can level out the lifetime tax bill by spreading income across more years.

This is different from a Roth conversion. An early withdrawal pulls money out of the retirement system entirely. A Roth conversion moves it to a different retirement account.

What is the penalty for missing an RMD?

The penalty is 25 percent of the missed amount, reduced to 10 percent if corrected within twoyears and Form 5329 is filed properly. This is on top of the regular income tax owed when the missed distribution is eventually taken.

Before SECURE 2.0, the penalty was 50 percent. The reduction to 25 percent applies to RMDs
missed in 2023 or later.

How do RMDs affect Social Security?

RMDs increase modified adjusted gross income, which affects:

– The taxable portion of Social Security benefits (up to 85 percent of Social Security can become taxable)
– IRMAA Medicare surcharges two years later
– The federal tax bracket on all other income
This is why RMDs are often the largest single tax problem in late retirement. See https://creativefinancialgrp.com/how-much-do-you-need-to-retire/ for the broader picture.

What about inherited IRAs?

Beneficiaries of inherited IRAs face their own RMD rules. Under the SECURE Act, most non-spouse beneficiaries must distribute the full account within 10 years of inheriting.

Spouses can roll an inherited IRA into their own IRA and use their own RMD schedule.

Common Mistakes:

1. Not converting to Roth during the low-income window before 73

2. Missing the first RMD deadline or doubling up in year two without planning the tax impact

3. Not using QCDs when charitable giving is already planned

4. Letting traditional balances grow uncontrolled until forced distributions begin

5. Failing to coordinate RMDs with Social Security and IRMAA planning