RMD Strategies: Managing Required Minimum Distributions
Starting at age 73, you must take Required Minimum Distributions from your traditional IRA and 401(k). Miss one, and you'll pay a 25% penalty. Here's how to plan for RMDs and minimize their tax impact.
When RMDs Begin
Under SECURE 2.0, RMDs now start at age 73 (for those born 1951-1959) or age 75 (for those born 1960 or later). Your first RMD must be taken by April 1 of the year after you turn the applicable age. After that, RMDs are due by December 31 each year.
First-year trap: If you delay your first RMD to April 1, you'll have to take two RMDs in the same year—potentially pushing you into a higher tax bracket.
How RMDs Are Calculated
Your RMD is calculated by dividing your account balance (as of December 31 of the prior year) by a life expectancy factor from IRS tables:
| Age | Life Expectancy Factor | RMD % of Balance |
|---|---|---|
| 73 | 26.5 | 3.77% |
| 75 | 24.6 | 4.07% |
| 80 | 20.2 | 4.95% |
| 85 | 16.0 | 6.25% |
| 90 | 12.2 | 8.20% |
Accounts Subject to RMDs
- Traditional IRAs: Yes
- 401(k), 403(b), 457: Yes (with some exceptions if still working)
- SEP and SIMPLE IRAs: Yes
- Roth IRAs: No RMDs during owner's lifetime
- Roth 401(k): No RMDs starting 2024 (thanks to SECURE 2.0)
Still working exception: If you're still working at 73+ and don't own more than 5% of the company, you may delay 401(k) RMDs from your current employer's plan until you retire.
Strategies to Reduce RMD Impact
1. Roth Conversions Before RMDs Begin
Convert traditional IRA money to Roth during lower-income years (ages 60-72). Every dollar converted is a dollar that won't generate RMDs later.
2. Qualified Charitable Distributions (QCDs)
If you're 70.5 or older, you can donate up to $105,000 directly from your IRA to charity. QCDs satisfy your RMD but don't count as taxable income. You can't itemize the deduction, but the income exclusion is often more valuable.
3. Consider the Net Unrealized Appreciation Strategy
If your 401(k) holds appreciated company stock, you may be able to transfer it to a taxable account and pay capital gains rates instead of ordinary income rates on the appreciation.
4. Use RMDs for Roth Conversions
While you can't convert your RMD directly, you can take the RMD, pay the tax, and use other funds to do a Roth conversion. This accelerates the shift to tax-free money.
Common RMD Mistakes
- Forgetting inherited IRAs: Inherited IRAs have their own RMD rules, separate from your personal accounts
- Not aggregating correctly: You can take IRA RMDs from any IRA, but 401(k) RMDs must come from each 401(k) separately
- Waiting until December: If the market drops, your RMD is based on last year's higher balance
- Ignoring state taxes: RMDs are taxable income in most states
How Talk Through Wealth Helps
Plan for RMDs across your entire retirement:
- Project RMDs year by year based on your account balances
- Model the tax impact of RMDs combined with Social Security
- Compare Roth conversion strategies to reduce future RMDs
- Identify QCD opportunities to minimize taxes
- See how RMDs affect Medicare IRMAA thresholds