Required Minimum Distributions: Smart Ways to Reduce Taxes

Retirement savings feel like a reward, the result of years of discipline finally paying off. However, required minimum distributions (RMDs) can turn that reward into an unexpected tax bill if you wait too long to plan for them.

The SECURE Act 2.0 pushed the RMD starting age to 73, with another increase to 75 coming in 2033. Many people heard that news and relaxed, assuming more time means less urgency. That assumption can be costly.

This article takes a closer look at how RMDs work, why delaying them without a strategy often backfires, and what practical steps you can take to minimize your tax burden.

What Required Minimum Distributions Actually Mean for Your Tax Bill

Traditional IRAs and 401(k) plans grow tax-deferred, which sounds great until retirement. At that point, every dollar withdrawn is taxed as ordinary income. That is exactly what RMDs force you to do: take money out on the IRS’s schedule, whether you need it or not.

The IRS calculates your annual RMD by dividing the December 31 balance of your tax-deferred accounts by a life expectancy factor from the Uniform Lifetime Table.

For example, at age 73, that factor is 26.5. If you have $400,000 in your traditional IRA, your first RMD would be roughly $15,094, and that entire amount is added to your taxable income for the year.

Additionally, RMDs do not exist in isolation. When they are added on top of Social Security benefits, pension income, or investment dividends, the combined total can push a retiree into an unexpectedly high tax bracket.

According to Charles Schwab’s RMD strategy guide, some retirees end up in a higher bracket during retirement than they were in while working, which is the opposite of what most people plan for.

The Shrinking Window Problem

Here is where the “extra time” from the SECURE Act can become a trap. When you delay taking distributions, you are not eliminating them; instead, you are compressing them into fewer years.

At age 75, the IRS life expectancy factor is 24.6. At 90, that number drops to just 12.2. Consequently, the required annual withdrawal grows larger every year, and someone who delayed for several years may face much bigger distributions and tax hits in their 80s.

The extra time Congress created is valuable, but only if it is used as a planning window, not an excuse to delay.

The Surviving Spouse Problem Nobody Talks About

Married couples who delay RMDs together face an additional risk that does not get enough attention. When one spouse passes away, the survivor must continue taking RMDs, but as a single tax filer. This often means the same income is subject to higher tax rates.

This shift can significantly increase the surviving spouse’s tax burden, especially if the estate consists mainly of tax-deferred accounts.

Three Strategies to Reduce Taxes on Your RMDs

The strategies below are not loopholes. They are legal, widely used approaches that work best when you start using them before RMDs become mandatory. The key is timing.

Strategy 1- Roth Conversions: Move Money Out of the Tax-Deferred Bucket

A Roth conversion means moving money from a traditional IRA or 401(k) into a Roth account. The converted amount is taxed as ordinary income in the year of conversion. After that, however, it grows tax-free, and Roth accounts have no RMD requirements.

The math works best when conversions happen during lower-income years. This is typically the window between retirement and age 73, before RMDs begin and earned income has stopped. Someone who retires at 62 and waits until 73 to start converting is leaving years of lower-tax conversions on the table.

Additionally, Roth conversions can protect against Medicare premium surcharges. Higher income in retirement can trigger the income-related monthly adjustment amount (IRMAA), which adds to Medicare Part B premiums. Unlike traditional IRA distributions, Roth withdrawals do not count toward the IRMAA income calculation, and spreading conversions over several years helps avoid moving into a higher tax bracket.

For example, a couple retiring at 64 with $800,000 in traditional IRAs has nine years before RMDs begin. By converting $30,000–$40,000 annually, they can shrink their tax-deferred balance, resulting in smaller mandatory withdrawals later. For a deeper look at advanced tax strategies around RMDs, Greenbush Financial Group breaks down the mechanics in useful detail.

Strategy 2 – Qualified Charitable Distributions: Give Directly, Pay Nothing

A qualified charitable distribution (QCD) allows people who are 70½ or older to send money directly from an IRA to a qualifying charity, and that amount will not count as taxable income. For 2026, each individual can direct up to $111,000 per year through a QCD.

The critical rule is that the money must go directly from the IRA to the charity. The account holder cannot receive the funds first and then write a check. As long as the direct transfer occurs, the distribution satisfies the RMD requirement while generating zero taxable income.

This strategy is particularly useful for retirees who already donate to charities. Instead of withdrawing funds, paying taxes, and then donating, a QCD allows the full pre-tax amount to go directly to the cause. The charity receives the same donation, but the retiree keeps more of their own income by avoiding the tax.

It is worth noting that QCDs only work from IRAs, not 401(k)s. As highlighted in this Nasdaq overview of RMD tax reduction moves, anyone wanting to use QCDs for their 401(k) funds must first roll the balance into an IRA.

Strategy 3 – Starting Withdrawals Early: Before the IRS Forces the Issue

One strategy that often surprises people is simply beginning voluntary withdrawals from tax-deferred accounts at age 59½, when the 10% early withdrawal penalty disappears. This is not about spending money prematurely; it is about managing the size of the tax-deferred account before RMDs force larger withdrawals.

By taking modest withdrawals in the years before age 73, you can gradually reduce your account balance. A smaller balance at your RMD age means smaller mandatory distributions and potentially a lower tax bracket. Lower taxable income during these early years also creates an ideal window for Roth conversions, which can compound the tax benefits.

The table below shows how the IRS distribution period shrinks as a person ages, which directly affects RMD amounts:

Age	IRS Distribution Period	RMD on $500,000 Balance
73	26.5	$18,868
80	20.2	$24,752
85	16.0	$31,250
90	12.2	$40,984
95	8.9	$56,180

Even with the same opening balance, the required withdrawal nearly triples between age 73 and 95. Starting earlier gives you real leverage over those numbers.

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Key Deadlines and Penalties Worth Knowing

Missing an RMD deadline is not a small mistake. The IRS charges a 25% penalty on the amount that should have been withdrawn but was not. In some situations, that penalty can be reduced to 10% if corrected within two years, but that is still a significant and avoidable penalty.

Here is a summary of the dates that matter:

• December 31: This is the annual deadline to take your RMD.
• April 1 of the following year: This one-time extension is available only for your very first RMD. However, using it means taking two RMDs in the same year, which could push you into a higher tax bracket.
• Age 70½: This is when Qualified Charitable Distributions (QCDs) become an option, even before RMDs begin.
• Age 59½: At this age, you can begin taking penalty-free withdrawals from IRAs and 401(k)s.

Additionally, people who are still working past age 73 may qualify for an exception if their retirement savings are in their current employer’s plan and they do not own 5% or more of the company. In that case, they can delay RMDs from that specific plan until they retire. However, this exception does not apply to old 401(k)s from previous employers or to any IRAs they hold.

A Conversation Worth Having Sooner Than Later

The extra time Congress built into the SECURE Act is genuinely useful, but it should be seen as a planning window, not a reason to wait. Navigating the tax side of RMDs is complex enough that working with a financial advisor and a CPA together tends to produce better outcomes.

Every low-income retirement year that passes without a strategic conversion or distribution is a missed opportunity to reduce a future tax obligation. The best time to act is always before the mandatory withdrawals start compounding the problem.

Retirement savings built over decades deserve a strategy just as thoughtful as the one that created them.

Watch this video to better understand required minimum distributions and smart ways to reduce taxes on them.

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