Reaching your 70s brings the wisdom of decades and the reward of retirement, but it also introduces a new financial reality for which many people aren’t prepared. One of them is required minimum distributions (RMDs). After years of watching your retirement accounts grow tax-deferred, the IRS now wants its share, and it’s not taking no for an answer. These mandatory withdrawals can create unexpected tax burdens and planning challenges that catch even sophisticated retirees off guard.
The good news is that with proper planning, RMDs don’t have to derail your retirement strategy or create unnecessary tax headaches. Understanding the rules, timing your distributions strategically, and implementing tax-smart withdrawal techniques can help you minimize the impact on your overall financial plan. The penalty for missing an RMD has been reduced from 50% to 25%, and further reduced to 10% if corrected within two years, but the best strategy is to plan ahead so you don’t face these penalties in the first place.
Understanding RMD Basics
When RMDs Begin
You must start taking required minimum distributions from traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored retirement plans beginning at age 73 (if you’re born in 1960 or later, you must begin RMDs beginning at age 75). This represents a recent change from the previous age of 72, giving you extra time to let your accounts grow before mandatory withdrawals begin.
For your first RMD, you have until April 1 of the year following the year you turn 73. This is called your required beginning date (RBD). However, this delay comes with a catch, because you’ll need to take two distributions in that second year, which could push you into a higher tax bracket and increase your overall tax burden.
How RMDs Are Calculated
The IRS calculates your RMD by dividing your account balance as of December 31 of the previous year by a life expectancy factor from their actuarial tables. The most commonly used table is the Uniform Lifetime Table, though different tables apply if your spouse is more than 10 years younger or for inherited accounts.
For example, if you’re 74 years old with a traditional IRA balance of $500,000, your distribution period would be 25.5 years. Your RMD would be approximately $19,608 ($500,000 ÷ 25.5). As you age, the distribution period decreases, meaning your RMDs will increase each year.
Strategic Planning for RMD Season
Pre-RMD Distribution Strategies
One of the most effective ways to manage RMDs is to start taking distributions before they’re required. If you’re already retired and in a lower tax bracket, consider making voluntary withdrawals from your tax-deferred accounts. This strategy can reduce your account balances, resulting in smaller mandatory RMDs later.
Roth Conversion Considerations
Converting traditional IRA assets to Roth IRAs before age 73 can be an excellent way to reduce future RMDs. While you’ll pay taxes on the converted amount in the year of conversion, Roth IRAs are not subject to RMD rules during your lifetime.
Consider implementing a systematic conversion strategy over several years to spread out the tax impact. This is especially valuable if you expect to be in the same or higher tax bracket during your RMD years.
Tax-Efficient Withdrawal Strategies
Qualified Charitable Distributions
If charitable giving is part of your financial plan, qualified charitable distributions (QCDs) offer an excellent way to satisfy RMD requirements while supporting causes you care about. For 2025, individuals can donate up to $108,000 directly from their IRA to qualified charities, and these distributions count toward your RMD requirement.
QCDs are particularly valuable because they’re not included in your taxable income, unlike regular RMDs. This can help you avoid higher tax brackets and reduce the impact on Social Security taxation and Medicare premiums.
Asset Location and Withdrawal Sequencing
The order in which you withdraw from different account types can significantly impact your tax burden. Generally, it makes sense to withdraw from taxable accounts first, then tax-deferred accounts, and finally tax-free Roth accounts. However, RMDs from traditional accounts are mandatory regardless of this sequence.
Consider the tax implications of your total retirement income, including Social Security benefits, pension payments, and investment income from taxable accounts. Sometimes taking slightly more than the minimum required can help manage your overall tax situation.
Managing Multiple Accounts
Aggregation Rules
If you have multiple IRAs, you can calculate the RMD for each account separately but take the total distribution from just one account. This flexibility allows you to choose which investments to liquidate based on market conditions and your overall portfolio strategy.
However, this aggregation rule doesn’t apply to employer-sponsored plans like 401(k)s. You must take separate RMDs from each 401(k) account, though you may be able to delay these distributions if you’re still working and don’t own 5% or more of the company.
Investment Strategy Considerations
As RMDs become a reality, your investment strategy may need to be adjusted. Consider keeping more liquid investments in accounts subject to RMDs to make withdrawals easier. Some retirees concentrate their growth-oriented investments in Roth accounts while keeping more conservative, income-generating assets in traditional accounts that are subject to RMDs.
Common Planning Mistakes to Avoid
The Double Distribution Trap
One of the most costly mistakes is delaying your first RMD until April 1 of the following year without considering the tax implications. This forces you to take two distributions in one year, potentially pushing you into a higher tax bracket and increasing the taxation of your Social Security benefits.
Forgetting About Inherited Accounts
If you’ve inherited retirement accounts, these may be subject to different and more aggressive RMD requirements. Under the SEURE Act, most non-spouse beneficiaries must empty inherited accounts within 10 years, and starting in 2025, annual RMDs are required if the original owner had already reached their required beginning date..
These inherited RMDs are in addition to your own RMDs, so factor them into your overall tax planning strategy.
Technology and Professional Help
Automation and Tracking
Many financial institutions offer automatic RMD services that calculate and distribute your required amounts each year. While convenient, make sure you understand how these distributions fit into your overall tax and financial strategy.
Consider working with professionals to model different distribution scenarios and their tax implications over time.
Professional Guidance
RMD planning involves complex interactions between tax law, investment management, and estate planning. Working with qualified professionals, including financial advisors, tax professionals, and estate planning attorneys, can help you develop and implement strategies that minimize taxes while meeting your retirement goals.
The complexity of RMD rules, combined with their significant tax implications, often justifies the cost of professional guidance for many retirees.
Looking Ahead
Future Rule Changes
Tax laws continue to evolve, and RMD rules have changed several times in recent years. The age for beginning RMDs is scheduled to increase to 75 starting in 2033, but other changes may occur before then.
Stay informed about potential changes and be prepared to adjust your strategy as needed. What works today may need modification as laws change or your personal circumstances evolve.
Legacy Planning Considerations
Remember that RMD planning affects not just your retirement income but also what you’ll leave to heirs. Strategies that reduce RMDs during your lifetime, such as Roth conversions or charitable giving, can also enhance the legacy you leave behind.
Consider how your RMD strategy fits into your overall estate plan and discuss these connections with your professional advisors.
Work With Us
Planning for required minimum distributions in your 70s requires more than just understanding the basic rules, it demands a comprehensive strategy that considers your unique tax situation, investment goals, and legacy objectives. From timing your first distribution to implementing tax-efficient withdrawal strategies like qualified charitable distributions and Roth conversions, every decision can have lasting implications for your retirement security and tax burden.
At Brogan Financial, we understand that RMD planning is just one piece of a complex retirement puzzle that includes tax management, investment strategy, and estate planning. Our experienced team helps clients develop personalized approaches to RMDs that minimize taxes, preserve wealth, and support their overall retirement objectives.
Whether you’re approaching age 73 or already dealing with mandatory distributions, we can help you implement strategies that turn this tax obligation into an opportunity for smarter financial planning. Contact Brogan Financial today to discuss your RMD strategy and learn how proper planning can reduce the tax impact of these required distributions, and don’t miss More Living with Jim Brogan every Saturday morning for ongoing insights into retirement tax planning and distribution strategies that can help you make the most of your retirement years.
