RMDs Explained: When They Start and How to Reduce the Tax Hit

Required Minimum Distributions are one of the most misunderstood parts of San Diego retirement. Here is how they work — and how planning ahead can soften their tax bite. ## Key Takeaways - RMDs generally begin at age 73 (rising to 75 for people born in 1960 or later) from pre-tax retirement accounts. - RMDs are taxed as ordinary income and can push you into a higher bracket or raise Medicare premiums. - Roth conversions in earlier years and QCDs can reduce RMDs and their taxes. - Missing an RMD triggers a penalty — so the deadlines matter. In this article - What is an RMD and when does it start? - How are RMDs taxed? - How can you reduce RMDs and the taxes on them? - What accounts are subject to RMDs? - What happens if you miss an RMD? - How is your RMD amount actually calculated? - Can you reinvest or donate your RMD? - How do RMDs work for inherited accounts? - What if you are still working at 73? - How do RMDs fit into your overall plan? ## What is an RMD and when does it start? A Required Minimum Distribution is the amount the IRS requires you to withdraw each year from pre-tax accounts such as Traditional IRAs and 401(k)s. Under current SECURE 2.0 rules, RMDs generally begin at age 73, rising to 75 for people born in 1960 or later. Roth IRAs are not subject to RMDs during the owner’s lifetime. The required amount is calculated from your prior year-end balance and an IRS life-expectancy factor, so it rises as a percentage of your account as you age. The first RMD can be delayed slightly into the following April, but doing so stacks two distributions into one year — often a tax mistake. ## How are RMDs taxed? RMDs are taxed as ordinary income in the year you take them. Because they are mandatory whether or not you need the money, a large RMD can push you into a higher bracket, increase the taxable portion of your Social Security claiming through the "tax torpedo," and even raise your Medicare planning IRMAA premiums two years later. That ripple effect is why RMDs are not a problem to solve at 73 — they are a problem to plan for in your 60s. By the time the distributions are required, most of the best levers have passed. Coordinated tax planning looks ahead to keep the lifetime bill down. ## How can you reduce RMDs and the taxes on them? The most effective lever is acting before RMDs begin. Roth conversion in your lower-income years — often the "gap years" between retiring and starting RMDs and Social Security — shrink the pre-tax balance that future RMDs are based on, and move money into an account that is never subject to RMDs. Once RMDs have begun, Qualified Charitable Distributions let you give directly from your IRA and keep that amount off your tax return entirely. Thoughtful tax-efficient withdrawal sequencing across account types rounds out the strategy. ## What accounts are subject to RMDs? Traditional IRAs, SEP and SIMPLE IRAs, and most employer plans like 401(k)s and 403(b)s are subject to RMDs. Roth IRAs are not, during your lifetime — one of the reasons they are so valuable in a tax-diversified plan. Note that recent rules also eliminated lifetime RMDs from Roth 401(k)s. Inherited accounts follow their own rules, which changed significantly under the SECURE Act. Many non-spouse beneficiaries must now empty an inherited IRA within ten years, and some must also take annual distributions along the way. These rules are easy to get wrong, so they are worth reviewing carefully. ## What happens if you miss an RMD? Missing an RMD, or taking too little, triggers an IRS penalty on the shortfall. The penalty was reduced under SECURE 2.0 and can be reduced further if you correct the error promptly, but it is still a costly and entirely avoidable mistake. Tracking the December 31 deadline each year — across every account, including inherited ones — is essential. For our clients, monitoring and satisfying RMDs is simply part of the ongoing care we provide so nothing slips through the cracks. ## How is your RMD amount actually calculated? Your RMD for the year is your prior December 31 account balance divided by a life-expectancy factor from an IRS table. Because the factor shrinks as you age, the percentage you must withdraw rises over time — modest in your early 70s and considerably larger later in retirement. If you have multiple IRAs, the total RMD is calculated across them and can generally be taken from any one (employer plans like 401(k)s are usually calculated and taken separately). Getting this aggregation right avoids both shortfalls and unnecessary withdrawals. Because the calculation is mechanical and known in advance, RMDs are highly plannable. We project them years ahead so there are no surprises and so the years before they begin can be used strategically. ## Can you reinvest or donate your RMD? You must take the distribution, but you do not have to spend it. If you do not need the cash for living expenses, you can reinvest it in a taxable brokerage account — you will have paid the tax, but the money keeps working for you. If you are charitably inclined, a Qualified Charitable Distribution lets you send up to a generous annual limit directly from your IRA to a qualified charity. It counts toward your RMD and never appears as taxable income — often better than taking the RMD and donating cash separately. For many retirees, QCDs are the single most efficient way to give once RMDs begin, because they lower AGI — which can also help with Social Security taxation and Medicare premiums. It is a small lever with outsized effect.ts.

Inherited retirement accounts follow their own rules, which changed substantially under the SECURE Act. Many non-spouse beneficiaries must now empty an inherited IRA within ten years of the owner’s death, and in some cases must also take annual distributions during that window. Spouses generally have more flexibility, including the option to treat an inherited IRA as their own. The right choice depends on ages, account types, and your broader tax picture — and the wrong choice can trigger penalties or a needless tax spike. These rules are easy to get wrong and costly when missed. If you have inherited an account — or expect to leave one — it is worth planning the distribution strategy deliberately as part of estate planning.

If you are still employed at your RMD age and do not own more than 5% of the company, you can often delay RMDs from that employer’s plan until you retire — though RMDs from IRAs and former-employer plans still apply on schedule. This "still-working exception" can be a useful planning tool, but it has limits and details worth confirming for your specific plan. It does not pause RMDs across the board. As with everything around RMDs, the value is in planning ahead. Knowing the rules before you reach the age — and coordinating them with the rest of your income — is how you keep the taxes under control.

RMDs are not just a tax chore; they interact with everything else. They affect your taxable income, your Medicare premiums, the taxation of your Social Security, and how much you leave to heirs. Managing them well is really about managing your whole financial picture across decades. The retirees who handle RMDs best rarely think about them in isolation. They have a multi-year plan that uses the low-income years deliberately, coordinates conversions and charitable giving, and treats each year’s distribution as one piece of a larger strategy.

RMDs are predictable, which makes them very plannable. The work to soften their impact happens years earlier — so if you are in your 60s, this is the time to build the plan that keeps your future RMDs, and their taxes, under control. Want this applied to your numbers? Schedule a complimentary introductory call with a San Diego fee-only fiduciary. Schedule a Free Call