Ask the Tax Editor, November 13: Retirement Accounts and Tax Planning

Each week in our Ask the Tax Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions from readers on year-end tax planning strategies involving IRAs and other retirement accounts. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Late-year withholding from an IRA

Question: I am retired, and most of my income is from required minimum distributions (RMDs) from traditional IRAs and 401(k) plans, Social Security, and dividends and capital gains from taxable investments. I heard that I don't have to make quarterly estimated tax payments and that instead I can wait until year-end and ask my IRA custodian to withhold a lump sum amount of income tax from my year-end IRA distribution to satisfy my federal income tax liability for the year. Is that true?

Joy Taylor: Pretty much, yes. For federal income tax purposes, tax withheld at any point in the year is treated as if evenly paid throughout the year. Some retirees rely on this rule to have federal income taxes that they expect to owe for a year withheld from November and/or December RMDs from their traditional IRAs instead of making quarterly estimated tax payments.

For IRA distributions, federal law requires that the IRA custodian withhold 10% for federal income tax withholding unless you tell the custodian otherwise.
For example, you can tell your custodian you don't want any withholding, or you can request that as much as 100% be withheld.

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Kiplinger regularly suggests that retirees who are falling short on their federal income tax withholding for a year have more tax withheld from a year-end IRA payout. Read more in this Kiplinger article on avoiding tax payment in retirement with RMD withholding.

2. How to approach taking your first RMD

Question: I turned 73 earlier this year, and I have a large traditional IRA. I know I have to start taking RMDs this year, but my investment advisor said I can postpone my 2026 RMD until next year. How will this impact my taxes if I do this?

Joy Taylor: Individuals 73 and older must take annual RMDs from their traditional IRAs. (Note that starting in 2033, the beginning RMD age rises to 75.) Generally, the full RMD must be taken by December 31. However, since 2026 is your first RMD year, you have until April 1, 2027, to take your 2026 RMD.

If you opt to defer your first RMD to 2027, there will be tax consequences. Yes, you won't be taxed in 2026 on any RMD since you opted to defer it until 2027. But you will be taxed in 2027 on two RMDs — the deferred one for 2026 and the RMD for 2027. This will end up increasing your adjusted gross income (AGI) and taxable income in 2027.

3. How to use qualified charitable distributions

Question: I am 78 years old, retired and charitably inclined. I usually write checks from my bank account to the charities I support. My investment advisor suggests that if I use qualified charitable distributions from my traditional IRA to make my charitable gifts, I can save on taxes. Can you explain how this works?

Joy Taylor: For traditional IRA owners who are 70½ or older, a qualified charitable distribution (QCD) is a tax-smart way to give to charity. In 2026, you can transfer up to $111,000 from your traditional IRA directly to charity.

There are three main tax benefits of QCDs. First, they are not taxable to you. Second, they are not added to your AGI. Third, they can count against your annual RMD if you do the QCD before taking your full RMD for the year.

The QCD strategy is a good way to get tax savings from charitable gifts for taxpayers taking standard deductions instead of itemizing, and for taxpayers wanting to keep their AGI amounts down to qualify for various tax breaks and to mitigate Medicare premium surcharges.

4. What are the tax traps for Roth conversions?

Question: I am thinking about doing a Roth conversion this year. I know that I will owe income tax on the converted funds. Are there any other adverse tax impacts I should know about?

Joy Taylor: Roth conversions, if done right, can lower your tax bill over your lifetime. But they do pose traps, and the unwary can easily get caught.

You nailed the biggest income tax downside in your question on whether to convert all or part of a traditional IRA to a Roth IRA. The converted funds will be subject to income tax for the year of the conversion. And if your Roth IRA assets go down in value soon after the conversion, you cannot undo the conversion. So you are stuck with your original income tax bill from the conversion.

Note that the additional income from converting can trigger higher AGI on your 2026 tax return. A higher AGI could preclude you from taking deductions and breaks that have AGI threshold limitations. And there are lots of these types of tax breaks, including the $6,000 senior deduction for filers age 65 and older, the $40,000 cap on state and local tax deductions claimed by itemizers on Schedule A and much more. These all have AGI thresholds that are aimed at preventing individuals with higher income levels from using these breaks. A higher AGI could also impact your ability to deduct medical expenses if you itemize on Schedule A.

For Medicare recipients, the additional income from a Roth conversion can trigger higher Medicare premiums. Individuals with 2024 modified AGIs over $218,000 for joint filers and $109,000 for single filers pay a monthly surcharge in 2026 for Parts B and D coverage on top of their regular monthly premiums. These figures will be somewhat higher for 2026 modified AGI used for figuring 2028 monthly Medicare premium surcharges. Income from converting from a traditional IRA to a Roth IRA is included in the calculation of modified AGI.

Some retirement advisors say it’s best to look at Roth conversions as a multiyear planning tool and not as a one-time-only decision. Doing conversions in increments over time helps you space out the tax hit. Review your income and deductions each year and determine with your financial adviser the optimal amount of traditional IRA money to convert so that the conversion doesn’t move you into a higher tax bracket, cause you to lose out on tax breaks, or result in higher Medicare premium surcharges.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Read More

• Ask the Editor Archive
• Ask the Editor: Questions on QCDs
• Ask the Editor: QCDs and Tax Planning
• Ask the Editor: IRAs, 401(k)s and RMDs
• Ask the Editor: 10-Year Rule for Inherited IRAs
• Ask the Editor: Roth IRA Conversions
• Roth Conversions and Tax Planning
• Ask the Editor: Questions on IRAs
• Ask the Editor: Roth IRAs and the Five-Year Rule