RMDs Are Predictable. Your Tax Bill Doesn't Have to Be.

Required minimum distributions arrive on a schedule the IRS sets for you. What you pay in taxes on those distributions is something we can influence — if you plan before they begin.

What Required Minimum Distributions Mean for Your Retirement

Required minimum distributions are the annual withdrawals the IRS requires you to take from tax-deferred retirement accounts once you reach age 73 under the SECURE 2.0 Act. The amounts are calculated each year based on your account balance and your IRS life expectancy factor — and they are taxed as ordinary income in the year you take them. For many retirees, RMDs arrive as an unwelcome surprise: a forced distribution that can push household income into a higher tax bracket, trigger Medicare IRMAA surcharges, or reduce the assets available to pass on to heirs. The earlier you understand how RMDs work, the more options you have to manage them.

How Required Minimum Distributions Are Calculated and What the Rules Require

RMD rules are specific, and missing them carries a steep penalty. Here is what every pre-retiree and retiree needs to understand.

The RMD Age Threshold Under SECURE 2.0

The SECURE 2.0 Act raised the required beginning date for RMDs to age 73 for anyone born between 1951 and 1959, and to age 75 for those born in 1960 or later. If you turned 73 in 2024 or later, your first RMD must be taken by April 1 of the following year. Every year after that, the deadline is December 31. Taking two distributions in one calendar year because you delayed your first is a common planning mistake — and it creates a larger combined tax hit than most people expect.

How the Annual Distribution Amount Is Calculated

Each year, your RMD is calculated by dividing your account balance as of December 31 of the prior year by your IRS life expectancy factor from the Uniform Lifetime Table. As a practical illustration: a $1 million IRA at age 73 produces an RMD of approximately $36,496 in year one, using a life expectancy factor of 26.5. By age 80, that same account — even if it has grown — produces a larger required distribution because the divisor shrinks each year. The distributions do not stay flat. They increase as a percentage of the account over time.

Which Accounts Are Subject to RMD Rules

RMDs apply to traditional IRAs, rollover IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored plans including 401(k), 403(b), and 457(b) accounts. Roth IRAs are the notable exception — they are not subject to RMDs during the original owner's lifetime, which is one reason Roth conversions before age 73 are a meaningful planning strategy. If you have multiple IRAs, you can aggregate the total and take the RMD from any one of them. Employer plan accounts must each satisfy their own RMD separately.

The Penalty for Missing an RMD Deadline

Prior to SECURE 2.0, the penalty for a missed or insufficient RMD was 50 percent of the amount not taken. The law reduced that penalty to 25 percent — and in some cases to 10 percent if corrected within a two-year window. That is still a significant cost on top of the ordinary income tax owed. We track RMD requirements for our clients each year and coordinate distributions so that deadlines are never missed. This is part of our ongoing service, not an afterthought.

RMDs and Medicare Premium Surcharges

Many retirees focus on the income tax impact of RMDs and overlook the Medicare angle. If your modified adjusted gross income exceeds certain thresholds, you will pay higher Medicare Part B and Part D premiums through the Income-Related Monthly Adjustment Amount, commonly known as IRMAA. A large RMD in a single year can push income over an IRMAA threshold and increase your Medicare costs for the following year. RMD tax planning that accounts for Medicare exposure is a meaningful part of a complete retirement income strategy.

A Real-Dollar Look at How RMDs Grow Over Time

The numbers below illustrate how a $1 million IRA produces required distributions at different ages, using IRS Uniform Lifetime Table factors. These are approximate figures for illustration purposes only — actual RMDs will vary based on your account balance and applicable life expectancy factor.

 

  • Age 73: $1,000,000 ÷ 26.5 = approximately $37,736 required distribution
  • Age 75: $1,000,000 ÷ 24.6 = approximately $40,650 required distribution
  • Age 80: $1,000,000 ÷ 20.2 = approximately $49,505 required distribution
  • Age 85: $1,000,000 ÷ 16.0 = approximately $62,500 required distribution

 

The account balance changes each year based on growth and withdrawals, so the actual dollar amount fluctuates. But the pattern is clear: the percentage of the account you are required to distribute increases every year. For someone with a $2 million or $3 million IRA, the annual tax exposure compounds accordingly. Knowing your projected RMD trajectory before you reach 73 gives you time to act.

Strategies That Can Reduce Your RMD Tax Burden

RMDs are required. The taxes you pay on them are not fixed. Several planning strategies can reduce the taxable impact of required minimum distributions — but most of them require action before age 73.

How We Approach RMD Strategy at Xexis Private Wealth

Roth Conversions Before RMD Age

Converting a portion of your traditional IRA to a Roth IRA in the years before RMDs begin reduces the balance subject to future required distributions. Every dollar moved to a Roth is a dollar that will not generate a taxable RMD later. The conversion itself is taxable income in the year it occurs, so the strategy requires careful bracket management — converting too much in a single year can create a larger tax bill than the one you are trying to avoid. We model multi-year Roth conversion scenarios as part of our retirement tax planning process to identify the right conversion amount each year.

Qualified Charitable Distributions

If you are 70½ or older and charitably inclined, a Qualified Charitable Distribution allows you to direct up to $105,000 per year directly from your IRA to a qualified charity. The distribution counts toward your RMD for the year but is excluded from taxable income entirely. For clients who give regularly to charitable causes, a QCD is often the most tax-efficient way to satisfy a required distribution. It reduces adjusted gross income, which can also help with IRMAA thresholds and the taxation of Social Security benefits.

Strategic Withdrawal Sequencing Before RMDs Begin

One of the most underused strategies in pre-retirement planning is drawing down traditional IRA balances intentionally in the years before RMDs begin. If you retire at 62 and have low taxable income in your early retirement years, those years represent an opportunity to take distributions at a lower tax rate — voluntarily — before the IRS requires them at age 73. Coordinating Social Security timing, pension income, and early IRA withdrawals to fill lower tax brackets is part of what we mean by a structured retirement income plan.

RMDs as an Estate Planning Consideration

For retirees who do not need their RMD funds for living expenses, those distributions can quietly erode the wealth intended for heirs. Unmanaged, a large IRA generates growing taxable distributions year after year — and when the account eventually passes to non-spouse beneficiaries, current rules generally require them to distribute the entire inherited balance within 10 years. Coordinating RMD strategy with legacy goals is an area where retirement planning and estate planning overlap directly. We work alongside estate attorneys and coordinate with your legal team to make sure your distribution strategy reflects your full picture.

Ongoing RMD Tracking and Annual Coordination

RMD requirements change each year as account balances fluctuate and life expectancy factors shift. We track RMD calculations annually for our clients, coordinate timing with other income sources, and flag years where a distribution could create a bracket or IRMAA problem. Managing the calendar is part of the service — you should not have to monitor IRS tables and account balances on your own to avoid a penalty.

Common Questions About Required Minimum Distributions

  • How do I reduce my required minimum distributions in retirement?

    The most effective strategies are Roth conversions before age 73, which reduce the balance subject to future RMDs, and Qualified Charitable Distributions for clients who give to charity. Strategic withdrawal sequencing in early retirement — drawing down traditional IRA balances while income is low — can also reduce the account size before mandatory distributions begin. Most of these strategies require planning before RMDs start, not after.

  • What happens if I don't take my RMD?

    If you miss an RMD deadline or take less than the required amount, the IRS assesses a penalty of 25 percent of the shortfall — reduced to 10 percent if corrected within a two-year window under SECURE 2.0. You also owe ordinary income tax on the amount that should have been distributed. The penalty is in addition to the tax, not instead of it. Missing an RMD is avoidable with proper tracking and planning.

  • How are required minimum distributions calculated?

    Your RMD for a given year is calculated by dividing your account balance as of December 31 of the prior year by your IRS life expectancy factor from the Uniform Lifetime Table. For example, at age 73 the factor is 26.5, so a $1 million IRA produces an RMD of approximately $37,736. The factor decreases each year, meaning the required percentage of the account grows over time even if the balance stays flat.

  • Can I reduce taxes on required minimum distributions?

    Yes, though the most powerful options require action before RMDs begin. Roth conversions reduce the future taxable RMD base. Qualified Charitable Distributions exclude up to $105,000 per year from taxable income while satisfying the RMD requirement. Careful income planning in early retirement can also reduce the account balance before mandatory distributions start. Once RMDs are already underway, the options narrow — which is why earlier planning produces better outcomes.

  • At what age do required minimum distributions start?

    Under the SECURE 2.0 Act, RMDs begin at age 73 for individuals born between 1951 and 1959, and at age 75 for those born in 1960 or later. Your first RMD must be taken by April 1 of the year following the year you reach the applicable age. All subsequent RMDs are due by December 31 of each year. Delaying your first distribution means taking two in the same calendar year, which can increase your tax burden for that year.

Start Planning Your RMD Strategy Before the IRS Sets the Terms

The years between 60 and 73 are the most valuable window for RMD planning. Once distributions begin, your options to reduce them narrow significantly. If you are approaching retirement or already in it, we can model your projected RMD trajectory, identify the strategies that apply to your situation, and build a plan that keeps more of your savings working for you — and for the people you want to leave it to.