5 Strategies to Help Manage the Tax Impact of Required Minimum Distributions

Required minimum distributions can lead to large tax bills or stiff penalties if they are overlooked. Start
with a few simple yes/no questions: what year were you born (SECURE 2.0 moved the baseline to age 73
for many), which account types you hold (traditional IRA, 401(k), 403(b), and similar plans), whether you
are still working and your employer’s plan allows a delay, and whether you own 5 percent or more of the
business sponsoring the plan.

What you need to know

Deadlines matter. The first required minimum distribution is due by April 1 of the year after you reach the
required age, and all subsequent RMDs are due by December 31 each year. Delaying the first distribution
can create the April 1 trap: two distributions in one calendar year can push taxable income into a higher
bracket, and missed or incorrect distributions risk an excise tax. Assemble the inputs you need before you
run the math so timing choices are deliberate.

Do you need to take an RMD this year?

Quick checklist:

• Born before July 1, 1949: RMD begins at age 70½ under the pre-SECURE rules.
• Born July 1, 1949–December 31, 1950: RMD begins at age 72 under the SECURE Act.
• Born January 1, 1951–December 31, 1959: RMD begins at age 73 under SECURE 2.0.
• Born on or after January 1, 1960: RMD begins at age 75 as phased in by SECURE 2.0.
• Which account types do you hold (traditional IRA, SEP or SIMPLE IRA, 401(k), 403(b), or another
• employer plan)?
• Are you still working and does your employer permit a delay for employees who remain employed?
• Do you own 5 percent or more of the business sponsoring the plan, which generally prevents a delay?

Generally, you can take your first RMD by April 1 of the year after you reach RMD age, or you may choose
to take it by December 31 of the year you reach that age to spread taxable income across two years.. If
you delay, you will also owe the 2027 RMD by December 31, 2027. Two distributions in the same calendar
year can raise taxable income enough to move you into a higher bracket, so weigh the timing decision
carefully.

Before you run any calculations, gather exact inputs: prior-year December 31 balances, birthdates for you
and your spouse, the types of plans, current beneficiary information, and any pending rollovers or
conversions. Custodians often provide year-end balances on request.

How to calculate your RMD, step by step

Use this formula for each account: divide the prior-year December 31 balance by the life-expectancy
factor for your age this year. The Uniform Lifetime Table applies to most account owners, while the Joint
and Last Survivor Table applies when your spouse is the sole beneficiary and more than ten years
younger. Life-expectancy factors change annually, so consult IRS Publication 590-B or a current life- expectancy table for authoritative factors.

1. Gather the prior-year December 31 balance for the specific account.
2. Determine which IRS life-expectancy table applies (Uniform Lifetime Table or Joint and Last Survivor
   Table).
3. Find the life-expectancy factor for your age this year on the appropriate table.
4. Divide the account balance by that factor to compute the RMD for the account.
5. Compute RMDs for each account separately, then aggregate where allowed (traditional IRAs may be
   aggregated; employer plans must be satisfied per plan). Schedule distributions and document
   instructions with custodians

Examples make the math concrete. For a 73-year-old with a year-end balance of $250,000 and a factor of
26.5, divide 250,000 by 26.5 for an RMD of about $9,434. For a 75-year-old with $500,000 and a factor of
24.6 the RMD is roughly $20,325, and for an 80-year-old with $300,000 and a factor of 20.2 the RMD is
about $14,851.

Calculate each account’s RMD separately, then decide how to take distributions. You may aggregate
distributions from traditional IRAs and take a combined total from a single IRA, but employer plans such
as 401(k)s must be satisfied separately for each plan. A calculation tool can pull year-end balances, apply
the proper table, and show per-account and aggregate totals.

Which accounts trigger RMDs and how inherited plans differ

Certain retirement accounts require withdrawals once you reach the required beginning age. Common
accounts that trigger required minimum distributions include traditional IRAs (including SEP and SIMPLE
IRAs) and workplace plans such as 401(k)s and 403(b)s. Confirm plan rules for profit-sharing and other
defined contribution arrangements.

An exception is the Roth IRA: the original owner does not take lifetime RMDs. However, Roth 401(k)
balances do require distributions unless rolled into a Roth IRA. If you plan to roll a Roth 401(k) into a Roth
IRA, confirm whether the receiving custodian accepts the rollover.

When someone inherits an account, distribution rules depend on the beneficiary type. Beneficiaries
generally fall into categories such as surviving spouse, eligible designated beneficiaries, and non-spouse
beneficiaries who are generally subject to the 10-year rule. A surviving spouse can treat the account as
their own, roll it into their own plan, or remain a beneficiary and delay required distributions until the year
the decedent would have reached the RMD age.

Inherited Roth IRAs still follow beneficiary distribution rules even though withdrawals may be tax free.
Consolidating legacy IRAs with a single custodian often simplifies year-end balance tracking and makes
qualified charitable distribution planning easier, but confirm whether the receiving employer plan accepts
rollovers before moving funds. Rollovers do not satisfy required minimum distributions, so plan timing
accordingly.

Missed distributions and penalties, plus how to fix them

Missing an RMD can trigger a steep excise tax. The penalty used to be 50 percent, and SECURE 2.0
reduced the excise tax to 25%, and to 10% if corrected within the applicable correction period as defined
by the IRS. Waiver of the penalty is subject to IRS approval based on reasonable cause.
To correct a missed RMD, calculate the shortfall, take the corrective distribution for that prior year, and
report it properly. File Form 5329 and attach a letter of explanation if you request abatement; the IRS can
waive the excise tax when you demonstrate reasonable cause and prompt action. Remember that a
corrective distribution for a prior year does not satisfy the current year’s required withdrawal, so plan for
both amounts if needed.

For example, a $4,000 missed RMD would have carried a 25 percent penalty of $1,000 under the prior rate, while the reduced 10 percent penalty would be $400. Prevent misses with concrete controls: set calendar reminders for December 31 and April 1, authorize your custodian to make recurring year-end distributions, use automated monitoring tools with alerts, and have an advisor review your withdrawal plan annually.

Five tax-smart strategies and how bucket planning reduces RMD spikes

When you face required minimum distributions, the goal is to thoughtfully manage the timing and
character of taxable income based on your individual circumstances.. These strategies may help manage
the tax impact of RMDs and, depending on your broader income picture, may also affect Medicare
premium surcharges (IRMAA) and the taxation of Social Security benefits.

Qualified Charitable Distributions (QCDs)

1. Make direct IRA-to-charity transfers to satisfy RMDs without generating taxable income. QCDs are
available beginning at age 70½, must be sent directly from the custodian to a qualified public charity,
and cannot fund donor-advised funds or private foundations. Use QCDs in years when you plan to give
to reduce taxable income. For practical steps on charitable giving from retirement accounts, see our
post: STOP WRITING CHECKS TO CHARITY! Willow Financial

2. Targeted Roth conversions before RMD. Convert traditional IRA dollars to a Roth in lower-income years
to remove that money from future RMD calculations. If you’re subject to an RMD for the year, you
generally need to satisfy the RMD requirements first before completing certain transactions (including
some conversions). Confirm the ordering rules with your custodian and tax professional.. Conversions
increase current-year taxable income, so model the tax cost and sequence conversions to avoid
pushing you into a higher bracket. Conversions can shift when taxes are paid and may reduce future
RMD amounts, but they increase taxable income in the year of conversion.

3. Plan rollovers. Rolling IRAs into an employer 401(k) can delay RMD treatment if the plan permits, while
rolling Roth 401(k) balances into a Roth IRA can eliminate lifetime RMDs for the original owner. Confirm
plan rules and timing before executing a rollover because employer plans differ.

4. Timing and sequencing. Avoid creating two large distributions in the same calendar year and sequence
withdrawals across accounts to smooth taxable income. Use low-income years for conversions and
spread withdrawals to limit bracket creep and the income-related monthly adjustment amounts
(IRMAA) for Medicare premiums. Model different sequences to see how they affect taxes over time.

5. Bucket planning and account sequencing. Separate near-term cash, intermediate taxable investments,
and long-term tax-advantaged growth so you can draw from the most tax-efficient source each year.
Hold taxable assets for early needs, convert modest IRA amounts in low-tax years, and reserve IRA-to charity transfers for years when you plan to give. This approach is designed to help manage liquidity so
that RMDs may be funded from more stable assets during market downturns, depending on portfolio
structure and market conditions.

Practical RMD checklist, timeline, and when to call an advisor

Turn strategy into routine with a calendared workflow. In January gather prior-year statements, note
December 31 balances for each account, and slot time to discuss Roth conversion ideas with your tax
professional. Document beneficiary designations and confirm plan rules so year-end work is straightforward.

In spring decide whether to take your first required minimum distribution in the year you reach RMD age or delay to April 1 of the following year, and mark both deadlines on your calendar. If you delay, model how two distributions in one year affect taxable income and Medicare premiums. Schedule distributions early to avoid processing delays.

In summer run tax projections to evaluate tradeoffs of partial Roth conversions or additional withdrawals
across different years, recognizing that outcomes depend on future tax rates and individual
circumstances. Copy this checklist into your calendar or share it with your custodian.

• Confirm eligibility and your required beginning date. Check plan documents and custodian guidance for employer-specific rules.
• Gather December 31 balances for every retirement account. Request year-end statements from custodians to ensure accurate inputs.
• Verify beneficiary ages and plan rules for each account. These details determine which life-expectancy table applies and affect inherited-plan outcomes.
• Calculate amounts or have your advisor run the numbers. Compute each account's RMD using the prior-year balance divided by the life-expectancy factor and run tax projections to see the broader impact on income.
• Decide on charitable transfers or Roth conversions and their timing. Model the tax cost of conversions and lock in custodian instructions for QCDs before year-end.
• Schedule distributions with each custodian and save confirmations. Keep records of all transfers and tax reporting forms for your files and your tax preparer.

For additional reading and step-by-step resources, explore our Financial Planning collection for practical
checklists and guides. Call your custodian or a fee-only advisor when plan rules are unclear, you hold
accounts at multiple institutions, or inherited accounts use different payout tables. Reach out before a
large Roth conversion or qualified charitable distribution, or if projected withdrawals push you into a
higher tax bracket.

Required minimum distributions don't have to create surprise tax bills. Confirm whether you must take an
RMD this year and compute each amount using the prior-year December 31 balance divided by the life expectancy factor for your age. Keep in mind that different account types and inherited plans change the
calculation and timing.

Take the next step: pull last year’s December 31 statements for each retirement account and calculate
your RMDs, or schedule a consultation to discuss your situation and determine whether planning
strategies may be appropriate for you.. To book a focused 30-minute RMD planning session, schedule a
meeting to discuss your situation and determine whether certain planning strategies may be appropriate.
We can review assumptions and coordinate with your tax professional.