Skip to main content
Tax-Advantaged Accounts

How Do Required Minimum Distributions Affect Your Taxes?

Pomegra Learn

How Do Required Minimum Distributions Affect Your Taxes?

At age 73, the IRS requires you to withdraw a portion of your retirement accounts—traditional IRAs, 401(k)s, and similar accounts—each year. These required minimum distributions, or RMDs, are calculated as a percentage of your account balance based on your life expectancy. RMDs are taxed as ordinary income and can push you into a higher tax bracket, trigger taxes on Social Security benefits, increase Medicare premiums, and reduce eligibility for other tax credits. Unlike Roth IRAs, which have no RMD requirement, traditional accounts force distributions whether you need the money or not. Understanding RMD calculations, deadlines, and strategies to minimize their tax bite—such as qualified charitable distributions and Roth conversions—is critical for managing retirement income and taxes efficiently.

Quick definition: A required minimum distribution is a mandatory annual withdrawal from traditional retirement accounts starting at age 73, calculated as a percentage of your account balance, and taxed as ordinary income at your marginal rate.

Key takeaways​

  • RMDs begin at age 73 (age 72 for those who turned 72 before 2023) from traditional IRAs, 401(k)s, and other tax-deferred accounts
  • RMD calculation: divide your December 31 prior-year account balance by a life-expectancy factor from IRS tables
  • Missing an RMD triggers a 25% penalty on the shortfall (reduced to 10% if corrected within two years)
  • RMDs are fully taxable as ordinary income and can bump you into a higher tax bracket or increase Medicare premiums
  • Roth IRAs have no RMD requirement during the account holder's lifetime, making them tax-efficient for long-term wealth transfer
  • Strategies to reduce RMD tax impact include qualified charitable distributions (QCDs), Roth conversions, and timing of withdrawals from multiple accounts

What triggers RMDs and when they begin​

RMDs apply to most tax-deferred retirement accounts: traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and 457 plans. They do not apply to Roth IRAs (during the owner's lifetime), Roth 401(k)s, or taxable brokerage accounts.

The RMD age threshold is age 73, effective for distributions required in 2023 and later. (Prior rules required RMDs starting at age 72; the change came from the SECURE Act 2.0 in 2022.) You must take your first RMD by December 31 of the year you turn 73, and then every December 31 thereafter. A common error: mistakenly believing the deadline is April 15 of the following year. It's not—December 31 is the hard deadline.

The first RMD, taken by December 31 of the year you turn 73, can be deferred to April 1 of the following year (called the "grace period"). But taking the first RMD in April means you'll owe RMDs in both April (for the prior year) and December (for the current year), potentially bunching income. Most savers avoid the grace period for this reason.

Calculating the RMD​

The calculation is straightforward: divide your December 31 prior-year account balance by the "distribution period" from IRS tables. The distribution period reflects your life expectancy (and is updated periodically by the IRS).

Example: A 73-year-old has a December 31 balance of $500,000 in their traditional IRA. The IRS life-expectancy table for age 73 shows a distribution period of 25.5. The RMD is $500,000 ÷ 25.5 = $19,608. This must be withdrawn by December 31.

If you own multiple IRAs, you calculate the RMD on each account separately, then can aggregate the withdrawals and take them from any single IRA. This flexibility matters: if one IRA has low returns and another has high returns, you can withdraw from the one that minimizes forced selling of winners.

401(k)s, 403(b)s, and 457 plans are calculated separately and must be withdrawn from those accounts (aggregation with IRAs is not allowed). If you have multiple 401(k)s from different employers, calculate and withdraw from each separately.

Taxes on RMDs​

Every dollar of an RMD from a traditional account is taxed as ordinary income. This is the most significant tax impact. If you're in a 22% federal bracket and take a $50,000 RMD, you owe $11,000 in federal income tax. Add state tax (say, 5%), and the total is $13,500.

The larger problem is that RMDs can cascade into higher taxes in unexpected ways:

Bracket creep. Your RMD, plus other income (wages if still working, Social Security, capital gains, rental income), can push you into a higher tax bracket. A retiree with $40,000 in Social Security and a $30,000 RMD has $70,000 in taxable income, placing them in the 22% bracket. If they take an additional $10,000 RMD to cover healthcare costs, they're now in the 24% bracket. The marginal cost of that extra $10,000 is 24%, not 22%.

Social Security taxation. Provisional income (RMDs + wages + half of Social Security + tax-exempt interest + foreign earned income) determines whether your Social Security is taxable. If your provisional income exceeds $25,000 (single) or $32,000 (married), up to 85% of your Social Security is taxable. A $20,000 RMD that pushes you over the threshold can trigger taxation on an additional $15,000 in Social Security—an implicit tax rate far higher than the standard marginal rate.

Medicare premium increases (IRMAA). Your Medicare Part B and Part D premiums are based on your modified adjusted gross income (MAGI) from two years prior. An unexpected RMD or large withdrawal in one year can raise your MAGI, triggering higher premiums the following year. For example, a couple with MAGI below $194,000 pays standard premiums. If a large Roth conversion or RMD pushes them to $210,000, they face IRMAA surcharges: an additional $65+ per month on Part B for each person, and extra Part D costs. This can cost $2,000–$3,000 per year.

Loss of tax credits. Certain credits (like the saver's credit for lower-income filers, or education credits) phase out above income thresholds. An RMD that crosses a threshold can eliminate these benefits entirely.

Strategies to minimize RMD taxes​

Several strategies help manage RMD tax impact. Understanding them helps you plan withdrawals proactively before you're forced to.

Qualified Charitable Distribution (QCD). If you're age 73+ and charitably inclined, a QCD lets you withdraw up to $100,000 per year from an IRA and donate it directly to a qualified charity without including the distribution in your taxable income. The withdrawal still counts toward your RMD, so it satisfies the requirement without raising your income or tax bracket. A $50,000 QCD eliminates $50,000 from your taxable income, saving roughly $11,000 in taxes (at a 22% rate). This is one of the most valuable RMD strategies.

Roth conversions before RMDs begin. Before age 73, you can convert traditional IRA balances to Roth and pay tax on the converted amount. By spreading conversions across multiple years in a low-income period (e.g., early retirement before Social Security kicks in, or before RMDs start), you can reduce your future RMD amount and lock in tax-free growth. A conversion in year 1 at a low rate saves taxes compared to withdrawing the same amount in year 10 at a higher rate due to RMDs and Social Security.

Strategic withdrawal ordering. If you have multiple income sources (taxable accounts, 401(k)s, IRAs, Roth accounts), withdraw in the right order to minimize total taxes. Take early withdrawals from taxable accounts (where you have already-paid tax), then RMDs from traditional accounts, then tap Roth accounts last. This minimizes the compounding tax drag from RMDs.

Delaying Social Security. If you're age 73 and taking RMDs, delaying Social Security (if possible) reduces your taxable income. Every year you delay increases the benefit by 8%, but more importantly, it lowers your provisional income, which determines whether your existing Social Security is taxable and what Medicare premiums you pay. Delaying Social Security to age 80 while taking RMDs and doing a few Roth conversions can save significantly.

Roth conversions in low-income years. If you've had a major income decline (job loss, business downturn), that year is ideal for a Roth conversion. You can convert a large chunk at a low rate and phase it back in with RMDs. For example, convert $100,000 to Roth in a year when your income is low, pay tax at 22%, then take RMDs starting at 73 from the remaining traditional balance, which is much smaller.

Real-world examples​

Example 1: QCD strategy. Maria is age 75 with a $1.2 million traditional IRA and $1 million Roth IRA. Her RMD from the traditional account is $47,000. She donates $47,000 to her favorite charity via a QCD. The withdrawal satisfies her RMD, but the $47,000 doesn't hit her taxable income. She saves ~$10,300 in federal tax (at 22% rate) compared to taking the RMD and donating separately.

Example 2: Roth conversion sequence. James is age 68, recently retired. He has $800,000 in a traditional IRA and $100,000 in a taxable account. He plans to claim Social Security at age 70 and will face large RMDs starting at age 73. Between age 68 and 73, his income is low (only taxable account withdrawals for living expenses). He converts $150,000 to Roth per year at a 22% rate (paying $33,000 in tax). By age 73, he's converted $750,000, reducing his traditional IRA to $50,000. His RMD at age 73 is tiny (~$2,000), and when he claims Social Security at age 70, his provisional income is lower because he has fewer RMDs. He saves tens of thousands in taxes compared to taking RMDs on the full $800,000 balance.

Example 3: Medicare premium impact. A retiree age 75 with a $600,000 traditional IRA has a calculated RMD of $23,500. His MAGI two years ago (the IRS lookback period) was $140,000. He's paid standard Medicare premiums. But last year, he took an extra $50,000 withdrawal to buy a rental property, pushing his MAGI to $190,000. This year, his Medicare premiums jump because of the IRMAA surcharges based on that $190,000 MAGI. He's paying an extra $100+ per month for Part B premiums. The extra $50,000 withdrawal cost him not just the ordinary income tax, but also $1,200+ in extra Medicare premiums over the year.

Common mistakes​

Taking the first RMD too late. The December 31 deadline is hard. Missing it, even by one day, triggers a 25% penalty on the shortfall. A retiree who forgets and takes their first RMD on January 5 pays 25% penalty on the entire amount. Many wait until April (using the grace period) and forget the deadline is April 1 next year, not April 15. Check your calendar and set a deadline reminder.

Aggregating 401(k)s incorrectly. If you have IRAs and 401(k)s, you can aggregate IRA RMDs (withdraw the total from one IRA) but not 401(k) RMDs. A retiree with two 401(k)s incorrectly aggregates them and takes the full RMD from one plan, leaving the other short. The non-withdrawn plan triggers the 25% penalty. Always calculate 401(k)s separately and withdraw from each plan.

Underestimating IRMAA impact. Many retirees don't realize a large withdrawal (Roth conversion, business sale, RMD) affects Medicare premiums. They calculate the federal income tax but forget the extra Medicare costs. A $100,000 Roth conversion might cost $24,000 in federal tax but also trigger $2,000–$3,000 in IRMAA surcharges over the next two years.

Not coordinating with Social Security. Taking large RMDs before claiming Social Security can cause double taxation (the RMD itself plus hidden taxation on Social Security benefits). Delaying Social Security by a few years (if possible) can lower your provisional income significantly, reducing the net cost of RMDs.

Using QCDs incorrectly. The IRS requires QCDs to be made directly from the IRA to the charity, not taken as a distribution and then donated. If you withdraw the money and then donate it, you don't get the QCD benefit—you owe tax on the withdrawal and claim a charitable deduction, which often doesn't help (many retirees don't itemize). Always have the trustee send the check directly to the charity.

FAQ​

Can I avoid RMDs by not withdrawing from my 401(k)?​

No. RMDs are mandatory. If you don't take them, you owe a 25% penalty. However, there's an exception: if you're still working and don't own more than 5% of the company, you can defer RMDs from your current employer's 401(k) under the "still-working exception." This doesn't apply to IRAs, and it doesn't apply to former employers' plans.

What if I take more than the RMD in one year?​

Excess withdrawals above the RMD can be applied to future years. The IRS uses a "catch-up" system: if you take $60,000 but your RMD was only $45,000, the excess $15,000 offsets future RMD requirements. However, the penalty is calculated annually, so don't rely on catch-up for multiple years.

Do Roth 401(k)s have RMDs?​

Yes, while you're the account owner. Roth 401(k)s, unlike Roth IRAs, are subject to RMDs starting at age 73. However, you can roll a Roth 401(k) into a Roth IRA (which has no lifetime RMDs), eliminating the requirement.

Can I do a QCD if I'm not itemizing deductions?​

Yes, that's the advantage of QCDs. They're not subject to the standard deduction limit. Even if you take the standard deduction and can't deduct charitable donations as an itemized deduction, a QCD still saves taxes by excluding the distribution from income.

What happens to my spouse's RMD if I die?​

Your spouse can roll your IRA into their own IRA and treat it as their own, deferring RMDs until their own RMD age (73). Non-spouse beneficiaries must withdraw the entire balance within ten years (under SECURE Act 2.0 rules), triggering a large income tax bill.

Can I take my RMD as a loan instead of a distribution?​

No. An RMD is a distribution, not a loan. You must withdraw the funds from the account. If you borrow against a retirement account through a plan loan (which some 401(k)s allow), the loan balance doesn't count toward the RMD; the RMD is a separate requirement.

RMD calculation and tax impact flow​

Summary​

Required minimum distributions are mandatory annual withdrawals from traditional retirement accounts beginning at age 73, calculated as a percentage of your prior-year account balance divided by an IRS life-expectancy factor. RMDs are fully taxable as ordinary income and can trigger cascading taxes: higher federal income tax, taxation of Social Security, and Medicare premium increases (IRMAA). Missing an RMD triggers a 25% penalty on the shortfall. Roth IRAs have no lifetime RMD requirement, making them superior for long-term wealth accumulation and transfer. Strategies to minimize RMD tax impact include qualified charitable distributions (QCDs), Roth conversions before RMDs begin, strategic withdrawal ordering, and delaying Social Security. Planning before age 73 is critical: conversions and careful withdrawals in low-income years can reduce RMD burden substantially. As of the mid-2020s, the RMD age is 73; rules and IRS tables change periodically, so consult the IRS website or a tax professional for current information.

Next​

→ Understanding Early-Withdrawal Penalties and Exceptions