RMD basics, how the math actually works, and the three strategies - Roth conversions, QCDs, and QLACs - that can reduce the tax bite.
If you read much about retirement finance, you'll see a lot of hyperbolic rhetoric about "Required Minimum Distributions," or "RMDs." You'd think RMDs are going to sneak up on you and devastate your financial plans in retirement.
Spoiler alert: they're probably not.
Yes, RMDs will impact your savings, income, and taxes, but not as much as if you're already withdrawing from your retirement savings before your RMDs kick in, which many retirees are doing. And even if you aren't, understanding and planning for them can minimize the negative impacts.
There is some good news: recent legislation has pushed back RMD ages even further. The SECURE Act of 2019 raised the age from 70½ to 72. Then the SECURE 2.0 Act of 2022 raised it again, to age 73 for those born between 1951–1959, and to age 75 for anyone born in 1960 or later. This gives younger retirees even more time before RMDs begin. That's good news for those who don't need the income early in their 70s.
The "bad" news (though not really that bad): we'll all eventually have to take RMDs if we have traditional tax-deferred IRA or 401(k) accounts. But if you've been taking voluntary withdrawals as an integral part of your retirement income strategy since you retired, the official RMD requirement probably won't fundamentally change your financial life.
Whether RMDs will negatively affect you depends largely on your overall financial situation, especially potential income tax impacts and whether you actually need the money for living expenses.
If you're not very familiar with RMDs, you should be. This IRS rule will affect a large number of retirees at some point in their retirement, so there are a few things you really need to know.
You're required to take RMDs (and pay federal and state income taxes on them) on all employer-sponsored retirement plans, including 401(k) plans, 403(b) plans, and 457(b) plans. Roth 401(k) plans are the one exception among employer plans: since 2024, under the SECURE 2.0 Act, they're no longer subject to RMDs during the owner's lifetime, no rollover into a Roth IRA required, they're now treated the same way Roth IRAs already were.
RMD rules also apply to traditional IRAs and IRA-based plans, including SEPs and SIMPLE IRAs. You can run, but you can't hide, except in Roth accounts. RMD rules don't apply to Roth IRAs while the owner is alive, but they do apply to heirs. Anyone other than a spouse who inherits a Roth IRA must eventually take mandatory distributions.
If you hold more than one account, whether you can combine them matters, and it depends on account type. Traditional IRAs, including SEPs and SIMPLE IRAs, can be aggregated: calculate each one's RMD separately, then withdraw the combined total from any one of them, or split it however you like. Multiple 403(b) accounts get that same privilege among themselves, though not combined with your IRAs. A 401(k) doesn't get this flexibility at all, each plan's RMD has to be calculated and withdrawn directly from that specific plan, never satisfied by a withdrawal from an IRA, a 403(b), or a different 401(k). Get this wrong and it's a real compliance problem, not just paperwork.
One more product worth naming directly: any annuity purchased with Traditional IRA or 401(k) money, not just a QLAC. A fixed or indexed annuity bought for immediate income works the same way as one deferred for years, once it's actually paying you, those payments satisfy that specific contract's own RMD automatically. No separate balance-based calculation applies to it, and it doesn't get folded into the RMD math on your other accounts either, it's handled entirely on its own.
RetireFlow gives you the correct total RMD dollar amount across everything you hold, since the math is the same regardless of account type, but it doesn't track which specific account each dollar legally has to come from, that's still on you to work out, account group by account group. The Instructions page walks through exactly how that split works if you hold more than one type.
The penalty for missing an RMD due date or withdrawing less than the correct amount has been reduced to 25% (down from 50%) of the amount not withdrawn. This is a helpful change from SECURE 2.0. Yes, it's still a significant penalty, but it's half what it used to be. If you realize the mistake quickly and correct it, the penalty can be reduced further to 10%. You'll still owe ordinary income taxes on the money, just as you would with any IRA distribution, but the penalty is more forgiving than it used to be.
If you're not already taking them, your first RMD will be due by April 1st of the year following the calendar year you reach your RMD age (73 or 75, depending on birth year). After that, RMDs are due on December 31st every year. Most financial professionals recommend taking your first RMD in the year you turn 73 rather than waiting until the following April, since waiting creates a "double RMD" year, one by April 1st for the prior year and another by December 31st for the current one, which can bunch two years of taxable income into one.
When Congress created the IRA in 1974 and the 401(k) in 1978, the proposition was very simple: eligible workers could contribute a portion of their earned income to a qualified retirement savings account up to a specific limit and not pay income taxes on their contributions or their earnings until they withdraw the funds in retirement.
The intent was to defer taxes now to incentivize saving and help savings grow faster, then tax them later. In other words, taxes are deferred, not avoided.
But the story doesn't end there. Decades later, in 1987, Congress realized that wealthier households might not spend down their taxable retirement accounts fast enough for the government to collect those deferred taxes. So they created RMDs to prevent taxes from being deferred for a lifetime.
The goal of RMDs is to ensure most retirement account savings are withdrawn and taxed during retirement, even though you don't have to spend the withdrawn funds. You can instead save or reinvest them in a non-retirement brokerage account.
The math is pretty simple. RMDs are calculated by dividing your account balance as of December 31st of the previous year by a factor based on your current age from an IRS actuarial table. The result is your RMD amount (not percentage).
The challenge is that different tables apply, so you need to use the one that fits your situation, marital status, spouse's age, and so on. At age 73 (the RMD starting age for those born 1951–1959), the factor on the standard Uniform Lifetime Table is 26.5, which equates to an RMD of 3.77%. At age 75 (the starting age for those born in 1960 or later), the factor is 24.6, which is 4.07%. Interestingly, these percentages may align closely with what many retirees are already withdrawing voluntarily.
As you age, the factors decrease each year, so your yearly RMD percentage increases, as will the taxes due. At age 90, the RMD factor is around 8.2%, a very high percentage. However, in all likelihood, that higher percentage will be applied to a much lower account balance than you started with at age 73.
You may wonder, what if you don't need that much when you reach a certain age? The answer is maybe. Yes, you may have to withdraw more than you need and pay the taxes. But just because you withdraw it doesn't mean you have to spend it; you can save the money, invest it in a taxable brokerage account, or give it away if you want to.
See it play out year by year. A single-year RMD estimate only tells you part of the story, since the percentage keeps climbing every year you're alive. RetireFlow calculates your actual RMD for every year of your plan, using the IRS Uniform Lifetime Table, and if you're married, it computes each spouse's RMD separately, based on their own age, the same way the IRS actually requires you do it, rather than one blended household number.
RMDs apply to most retirees with retirement savings unless they hold everything in Roth accounts. Because RMDs are taxable as ordinary income, they can impact your financial situation in a couple of ways.
Let's say you have Social Security and a pension, occasionally withdraw from your retirement savings, and take the standard deduction. Then, the year after you reach age 73 (or 75), you have to start withdrawing your RMD. That additional taxable income may or may not push you into a higher marginal tax bracket.
Most retirees probably won't be forced into a higher tax bracket because of RMDs, though they will pay more tax because they have more taxable income. To illustrate: a 73-year-old couple receiving $40,000 in Social Security (mostly taxable based on income) and $40,000 in pension benefits (fully taxable), plus a $30,000 RMD from $800,000 in tax-deferred savings, lands at roughly $104,000 in total income. After the standard deduction for a couple 65 and older, taxable income drops to around $71,700, keeping the marginal rate at 12% and the effective tax rate under 8% of total income. But keep in mind, tax laws are continually in flux depending on how the political winds blow.
What if the same couple is making annual withdrawals of 4% ($32,000) from their retirement savings instead of receiving a pension? At age 73, their RMD is 3.77%, or about $30,000, so they're already withdrawing slightly more than required. They won't see any significant change to their income or tax obligation when RMDs begin; they're essentially already there. That's exactly the situation many retirees who've already been withdrawing 3.5–4% annually find themselves in: when the official RMD kicks in, it's often slightly less than what they were already taking voluntarily. The only practical difference is that now it's required rather than optional.
Try your own version of this scenario. The above example – Social Security, a pension, and an RMD landing at a particular tax bracket – is exactly the kind of thing worth running with your own numbers. The tool handles pension income (with its own survivor rules, separate from Social Security's), calculates federal tax brackets and the standard deduction year by year, and shows you the actual bracket and effective rate your RMD lands you in.
Social Security benefits are taxable at one of three levels, 0%, 50%, or 85%, based on your "combined income" (essentially half of your Social Security benefit plus your other gross income and any tax-exempt interest).
Depending on your total income before taking RMDs, and the percentage of that income that comes from Social Security, you could end up with a much higher actual marginal tax rate, especially if you have above-average Social Security benefits.
If your RMDs cause more of your Social Security to be taxable, those in the 22% marginal tax rate, for example, could end up with an effective marginal tax rate as high as 40.7%. Here's how: if your ordinary marginal tax rate is 22% but your RMDs increase your combined income enough to make 85% (instead of 50%) of your Social Security benefits taxable, every additional dollar of RMD triggers $0.85 of previously untaxed Social Security to become taxable. So you're effectively being taxed on $1.85 for every $1 of RMD: 22% × 1.85 = 40.7%.
This doesn't mean you'll pay 40.7% of your total income in taxes. It simply means that during the "torpedo zone," where Social Security taxation increases from 50% to 85%, your marginal rate on additional income is much higher than your nominal bracket suggests. Once you're fully into the 85% zone, your marginal rate returns to your actual bracket rate.
If you're in this group, or think you might be, you should talk with a financial planner or tax professional about managing your retirement income, expenses, and tax projections.
If you have retirement savings in traditional (tax-deferred) accounts, the simple answer is no: you can't avoid RMDs unless you convert everything to a Roth. That said, several strategies can reduce RMD taxes.
If you move money from tax-deferred (traditional) to tax-free (Roth) accounts, you may be able to reduce your RMDs and your taxes in the long run, since Roth accounts grow tax-free and have no RMDs during the owner's lifetime.
This requires you to execute a Roth conversion, and the converted amount is taxable in the year you convert. However, the taxes owed at the time you convert may be lower than taxes on your tax-deferred accounts in the future, especially if you convert during years when your income is lower, perhaps between retirement and when Social Security or RMDs begin.
Roth conversions deserve serious consideration, but they're a big decision with major trade-offs, particularly whether you have enough non-retirement savings to pay the conversion taxes comfortably without eating into the benefit.
This is one of the best strategies available for those who give regularly to charity. Starting at age 70½ (younger than the RMD age itself), you can instruct your IRA administrator to directly send distributions to qualified 501(c)(3) charities. The IRS limits on QCDs increase each year with inflation.
These distributions count toward your RMD requirement but are not reported as taxable income. This effectively reduces the taxes due on your RMDs. If you already give regularly to your church and other ministries, using QCDs likely provides greater tax benefits than writing checks from your regular bank account, especially if you take the standard deduction, which most retirees do.
That's because QCDs reduce your Adjusted Gross Income (AGI), which is used in various tax calculations, including the taxable portion of your Social Security benefits. Regular charitable contributions only benefit you if you itemize deductions, and even then, they don't reduce your AGI; they only reduce taxable income after AGI is calculated. QCDs are almost always the better approach for retirees who give regularly and have IRA assets. Important note: the QCD must go directly from your IRA to the charity; you cannot take the distribution yourself and then donate it.
QCDs are built into RetireFlow. Enter an amount in the QCD section, and the tool applies the same mechanics described above based on current tax law: the distribution offsets your RMD without ever counting as taxable income, and it correctly stays out of the calculation that determines how much of your Social Security gets taxed.
A QLAC is basically a deferred annuity that meets specific IRS requirements. You can use money in an IRA to purchase a QLAC, which effectively reduces the amount of your tax-deferred savings subject to RMDs, since the assets in a QLAC are excluded from your RMD calculation up to certain limits.
Under SECURE 2.0, you can invest up to $210,000 (the 2026 inflation-adjusted limit, up from the original $200,000 base) into a QLAC, with no percentage-of-balance restriction — a married couple can each fund their own, sheltering up to $420,000 combined from RMDs.
Because a QLAC is a deferred annuity, you typically wait many years before withdrawing from it, perhaps by annuitizing it into a stream of regular payments starting at age 80 or 85 that last for the rest of your life, which is why they're called "longevity annuities." Some see QLACs as a form of longevity insurance or even a replacement for Long Term Care insurance, since they provide guaranteed income in your later years when you might need care. Keep in mind, though, that such distributions will be taxable when they are made. Once those payments actually begin, they satisfy the RMD requirement for that contract automatically, no separate balance-based calculation kicks back in; the deferral simply ends and ordinary annuity taxation takes over. The decision to lock up a portion of your IRA until your 80s in exchange for future guaranteed income is a significant commitment that deserves careful analysis.
Model a QLAC before you commit. The tool's QLAC section lets you set a premium, a payout rate, and a starting age, sourced from your core bond fund, and shows you exactly how it reshapes your RMDs and your year-by-year cash flow, so you can see the real trade-off before locking up a portion of your IRA for a decade or more.
RMDs will not be that big a deal for most retirees, because many people with retirement savings will need to withdraw from them for income anyway. The main difference between the year before and the year RMDs start is simply that the withdrawals shift from "optional" to "required," but the amounts, the taxes, and the cash flow remain essentially unchanged for anyone already withdrawing near that level.
However, as we've seen, there could be significant tax implications in some cases, particularly around the Social Security tax torpedo or if you're near the boundary between tax brackets. If you have substantial retirement savings or complex income sources, these decisions probably need to be made in consultation with a financial planner or tax professional.
Keep in mind that the closer you get to your RMD age, the less flexibility you have to reduce future RMDs through strategies like Roth conversions. The best time to think about RMD management is in your 60s or early 70s, before they begin.
For most retirees, RMDs are simply formalized withdrawals you'd be taking anyway. For those already withdrawing 3–5% annually from retirement savings, RMDs change very little. And for those with more savings than they need for living expenses, RMDs offer an excellent opportunity to increase charitable giving through QCDs, turning a tax requirement into a blessing for kingdom work.
The retirement media's hyperbolic warnings are sometimes overblown. If you're already withdrawing from retirement savings to fund living expenses, RMDs simply formalize what you're doing. If you're not yet withdrawing, RMDs force distributions that may exceed your needs, but the recent changes- higher starting ages, lower penalties, increased QCD limits- make them far more manageable than in years past.
The key is understanding the rules, planning ahead, and using available strategies, Roth conversions, QCDs, and QLACs, to minimize taxes and maximize flexibility. With proper planning, RMDs become just another routine part of retirement income management, not the financial disaster some make them out to be.
And remember: we're called to "render to Caesar what is Caesar's" (Mark 12:17). Paying taxes on money the government allowed to grow tax-deferred for decades is ultimately a fair arrangement, even if we'd prefer to keep more of it. The goal isn't to avoid all taxes but to steward our resources wisely, honor our obligations, and give generously from what remains.
Ready to see your own numbers? Head to the Tool and enter your actual balances, Social Security, and any QCDs, QLACs, or pension income you're working with. You'll see your real RMD trajectory, your real tax brackets, and exactly when, if ever, a shortfall shows up.