4 Ways Retirement Savers Can Help Reduce Their RMDs
You're proud of the nest egg you've built in your IRA and 401(k), but are you prepared for the tax bill that will come with it when the time for required minimum distributions arrives? Here are four ways to ease that pain.


Required minimum distributions (RMDs) require special attention. The rules surrounding how and when to take them are complicated and arcane, and taking RMDs creates a ripple effect throughout your financial plan that could set you up for some unpleasant surprises.
Those who have a significant portion of their assets in tax-deferred accounts (like 401(k)s, 403(b)s and traditional IRAs) are especially at risk. If your RMDs are large, you may find that you have more income than you need. It sounds like a great problem to have — until you realize that your RMD may bump you up in to the next tax bracket.
That not only has implications for your immediate tax bill, it also could impact how your Social Security benefits are taxed. Increasing your income can make up to 85% of your Social Security benefits taxable.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
And to follow the ripple even farther downstream, since Medicare Parts B & D premiums are based on your adjusted gross income (AGI) from two years prior to the year in which you pay your premiums, a higher AGI caused from RMDs could mean higher Medicare premiums, as well.
Here are four ways to reduce RMDs so you can avoid the ripple effects of excess income.
Draw down on IRAs before age 70½.
Once you turn 59½, you can withdraw your IRA funds sans penalty, regardless of your working status. Spreading your withdrawals out between ages 59½ and 70½ means that you get to spend money when you need and/or want it, and you won’t have to withdraw huge chunks of money later in life when you may not need the additional funds. Keep in mind that “no penalty” isn’t the same as “no taxes” — you’ll still be required to pay tax on those withdrawals.
Of course, there are smart ways to spend these withdrawals, but there are also some not-so-smart ways. Make sure your spending objectives are in alignment with your retirement and lifestyle goals. Will you spend that money on travel while you’re still able-bodied? Will you use it to purchase long-term care insurance? You need to make the choice that best fits your own retirement picture.
Execute a Roth conversion.
A Roth conversion allows you to move money from a tax-deferred account to a tax-free Roth account. You’ll pay income tax on the amount converted, but you won’t ever have to take RMDs from the Roth (at least according to current tax law). By proactively making Roth conversions, you’re able to lock in the tax on your tax-deferred savings today, rather than potentially paying a higher rate (on a larger amount!) in the future.
For example, let’s say you’re a single filer with $60,000 in taxable income and $800,000 in a traditional IRA. It may be advantageous to convert up to $31,000 of your traditional IRA savings into a Roth IRA to “fill up” your 25% tax bracket. You’ll be taxed at the 25% ordinary income tax rate now, but since the converted amount is now in a Roth, it won’t be subject to RMDs in the future. And you’ll enjoy all the typical benefits of a Roth account: tax-free growth and distributions.
For those building their financial plans with estate planning in mind, remember that any non-spousal beneficiaries who inherit a Roth IRA are required to take RMDs (spouses can avoid RMDs depending on how they take them), typically over their lifetime. The good news is that RMDs will continue to be tax-free.
Move your money to an employer-sponsored plan.
Still working in your 70s? If you own less than 5% of the company where you work, you may be able to delay taking RMDs from your pretax employer-sponsored plan until April 1 of the year after you retire. This also may allow more time to make Roth conversions.
Bonus idea: The super-savvy among us may use this opportunity to roll over pretax funds from old IRAs or 401(k)s into their pretax company plan if the plan will accept this type of rollover. This strategy is commonly referred to as a “reverse rollover,” and it could save you a bundle.
Maximize charitable gifting.
If you planned on giving your RMDs to charity because you don’t need the excess income, consider doing a Qualified Charitable Distribution (QCD) from your IRA. This provision allows you to donate up to $100,000 annually from your IRAs to the charity of your choice. The QCD counts toward your RMD requirement and helps to avoid raising your AGI, which, as we previously discussed, can help avoid Medicare premium increases.
The QCD allows you to potentially avoid unnecessary taxation, and your favorite charity gets more money. It’s a win-win.
The Bottom Line
Planning for RMDs is rife with complication. Make one misstep and you could be setting yourself up for years of expensive consequences. The earlier you plan for future RMDs, the better.
Ask yourself and/or your adviser the following questions to help you determine if your RMD planning strategies are fully sound:
- Do you understand the projected size and impact of RMDs to your situation?
- How does your RMD plan integrate and/or support the pursuit of your financial goals and objectives?
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Brian Vnak is Vice President, Wealth Enhancement Group, advising clients on income, gift, trust and estate tax issues.
-
Kiplinger News Quiz, Sept 12 — What is the Taylor Swift Tax?
Quiz A multi-million-dollar Google lawsuit and "Taylor Swift tax" made Kiplinger headlines this week — but why? Test your knowledge of this week's financial news.
-
Back to Golf School — for Adults and Retirees
Elevate your game at these golf schools around the country. You'll learn from pros on top golf courses and with the latest tech. You may even make a new friend.
-
I'm an Investment Strategist: This Is How the Fed's Next Rate Move Could Impact Your Wallet
Interest rate cuts might be coming, which could affect everything from your credit card debt to your mortgage. It's smart to prepare now — here's how.
-
I'm a Retirement Planner: These Are Three Common Tax Mistakes You Could Be Making With Your Investments
Don't pay more tax on your investments than you need to. You can keep more money in your pocket (or for retirement) by avoiding these three common mistakes.
-
Want to Shave 10 Hours Off Your Workweek? A Startup Expert Shows How AI Can Help
Artificial intelligence is overhauling how companies operate, freeing up entrepreneurs and their workers to skip the menial stuff and get down to business.
-
Four Clever and Tax-Efficient Ways to Ditch Concentrated Stock Holdings, From a Financial Planner
Holding too much of one company's stock can put your financial future at risk. Here are four ways you can strategically unwind such positions without triggering a massive tax bill.
-
Beyond Banking: How Credit Unions Serve Their Communities
Credit unions differentiate themselves from traditional banks by operating as member-owned financial cooperatives focused on community support and service rather than shareholder profit.
-
Answers to Every Early Retiree's Questions This Year, From a Wealth Adviser
From how to retire in a crazy market to how much to withdraw and how to spend without feeling guilty, a financial pro shares the advice he's given this year.
-
The Risks of Forced DST-to-UPREIT Conversions, From a Real Estate Expert
Some new Delaware statutory trust offerings are forcing investors into 721 UPREIT conversions at the end of the hold period, raising concerns about loss of control, limited liquidity, opaque valuations and unexpected tax liabilities.
-
I'm a Financial Adviser: You've Built Your Wealth, Now Make Sure Your Family Keeps It
The Great Wealth Transfer is well underway, yet too many families aren't ready. Here's how to bridge the generation gap that could threaten your legacy.