Required Minimum Distributions

By Clay Koch, Wealth Advisor, Wagner Wealth Management

For investors entering their 70s, the focus shifts from making contributions to tax-deferred retirement accounts to taking mandatory withdrawals from them. That’s because the government requires retirees to take Required Minimum Distributions (RMDs) after a certain age. Since contributions to these accounts generally received tax advantages at the time they were made, the government eventually requires withdrawals so that the deferred income becomes taxable.

Under current law, individuals born between 1951 and 1959 generally begin taking RMDs at age 73. The age will increase to 75 beginning in 2033.

Understanding how RMDs work and incorporating them into a broader tax strategy can help preserve wealth and create more flexibility for both retirees and future generations.

Understanding the Deadlines: The annual deadline for most RMDs is December 31. However, there are two possible exceptions.

It’s your first RMD. Individuals taking their first-ever RMD may delay that distribution until April 1 of the year following their 73rd birthday. While this flexibility may sound attractive, it can create an unintended tax issue. Delaying the first RMD means taking two taxable distributions in the same calendar year, which could significantly increase your taxable income.

You’re still working. If you’re enrolled in your current employer’s qualified retirement plan, and you don’t own more than 5% of the business, you may be able to delay taking RMDs from the account until April 1 of the year after you retire. It’s important to check with your plan administrator to confirm. Also, note that you must still take RMDs from any other tax-deferred retirement accounts.

What Happens If You Miss an RMD? Missing an RMD can be expensive. Fortunately, the SECURE 2.0 Act reduced the penalty from the previous 50% level. Today, the penalty is generally 25% of the amount that should have been withdrawn. If corrected promptly, that penalty may be reduced to 10%.

When deciding how and when to take your withdrawals, use the opportunity to revisit whether your asset allocation is still in line with your overall financial plan and rebalance as needed. Working with a trusted wealth advisor can ensure you satisfy your RMDs for the year and align your portfolio with your long-term goals.

Managing RMD Taxes: In some cases, retirees may find that their RMDs provide more income than they need. Or, when combined with other income sources, their RMDs can push them into a higher income tax bracket, affecting the taxation of Social Security benefits and Medicare premiums. Working with a wealth advisor can help you identify tax-saving strategies and still provide you with the income you need. Here are a couple of examples of these strategies:

A Roth Conversion: One strategy to optimize your tax bracket and potentially reduce future RMDs is to convert some of your tax-deferred savings to a Roth IRA in the years leading up to your RMD age, since Roth accounts aren’t subject to RMDs. Instead of taking the pre-RMD withdrawals and investing the funds into a taxable account, you could use those funds for a Roth conversion each year until you reach your RMD age.

Note that this action incurs taxes on the converted amount in the year the conversion occurred, so this strategy is best suited for investors who expect their tax bracket in the future will be equal to or higher than it is currently. There are other rules involved with this strategy for which a wealth advisor or tax professional can provide specific guidance.

Qualified Charitable Distributions: For charitably inclined retirees age 70 and half or older, Qualified Charitable Distributions (QCDs) remain a powerful planning tool. A QCD allows individuals to transfer money directly from an IRA to a qualified charity. The distribution counts toward the year’s RMD but is excluded from taxable income.

For 2026, the annual QCD limit has increased with inflation to approximately $111,000 per person.

For many affluent households, QCDs can provide benefits beyond philanthropy by helping manage taxable income and Medicare premiums.

Planning Beyond the Minimum: Required Minimum Distributions are more than an annual compliance requirement. They represent an important component of retirement income, tax planning, charitable giving, and estate planning. When considering RMD strategies, personalized advice can make all the difference. Working with a trusted wealth advisor can help you anticipate potential challenges and consider how these strategies fit into your overall financial plan.