How Retirees Can Reduce the Tax Bite of Required Minimum Distributions

A retiree who no longer needs the cash may still be forced to take it out, pay ordinary income tax on every dollar, and possibly face higher Medicare premiums later. A few legal strategies can ease the impact, though each has trade-offs.

Imagine someone who spent years building up a 401(k), moved it into a traditional IRA, and expected to live mainly on Social Security and modest withdrawals. Then a statement arrives showing a required withdrawal far larger than the household budget, and the IRS demands the money be taken out whether it is needed or not, with every dollar taxed as ordinary income.

That mandated withdrawal is known as a required minimum distribution, or RMD. A large one can push a retiree into a higher tax bracket, make more of Social Security benefits taxable, and increase Medicare premiums. Several legal methods can reduce RMDs or soften their effect.

How the IRS Calculates the Required Withdrawal

The current reference is IRS Publication 590-B for tax year 2025. Anyone who reaches age 72 after December 31, 2022 must begin RMDs by April 1 of the year after turning 73. Each later RMD is due by December 31.

Waiting to take the first withdrawal has a cost. If nothing is taken in the starting year, two years’ worth of required distributions must be taken in the following year, according to IRS Publication 560. That can put two RMDs on one tax return.

The amount is determined by formula. The account balance at the end of the prior year is divided by a factor from an IRS life-expectancy table. Most owners use the Uniform Lifetime Table, which has divisors that shrink with age: 26.5 at age 73, 20.2 at age 80, and 12.2 at age 90. The smaller the divisor, the larger the percentage of the account that must be withdrawn.

If an RMD is missed, the retiree may owe a 25% excise tax on the amount not taken. That penalty falls to 10% if the missed amount is withdrawn and the tax is reported within the correction window, according to Publication 575 for tax year 2025.

Why One Large RMD Can Create Three Tax Problems

Tax brackets. For tax year 2025, joint filers pay 12% on taxable income from $23,851 to $96,950 and 22% from $96,951 to $206,700. Single filers move from 12% to 22% above $48,475. The higher rate applies only to income above those levels, but an RMD is added on top of all other income.

Social Security. The IRS adds half of Social Security benefits to other income and compares the total with a base amount: $25,000 for individuals and $32,000 for joint filers in tax year 2025. Above $34,000, or $44,000 for married couples filing jointly, as much as 85% of benefits can become taxable. RMDs count as other income.

Medicare. The income-related monthly adjustment amount, or IRMAA, is a premium surcharge for higher-income beneficiaries. In 2026, the standard Part B premium is $202.90 a month for individuals with modified adjusted gross income up to $109,000 and for joint filers up to $218,000. Going even $1 over the limit raises the premium to $284.10, and a separate Part D surcharge is added on top. Medicare bases the surcharge on tax returns from two years earlier, so a large RMD can affect premiums later.

Roth Conversions Can Lower the Future Balance

Moving money from a traditional IRA to a Roth IRA reduces the balance on which future RMDs are based. Roth IRAs do not have RMDs while the owner is alive, according to Publication 17 (2025).

The catch: Publication 590-B treats the converted amount as gross income in the year of conversion. The most useful window is usually the years between retirement and the first RMD, when earned income has ended but Social Security and RMDs have not yet begun. The idea is to convert just enough to fill a lower tax bracket without crossing an IRMAA threshold.

Charitable Giving Can Be Used to Satisfy RMDs

A qualified charitable distribution, or QCD, sends money directly from an IRA trustee to an eligible charity and keeps it out of taxable income. The account owner must be at least 70½ when the distribution is made, and the maximum annual exclusion is $108,000 for tax year 2025.

The catch: The transfer must go directly from the trustee to the charity, and ongoing SEP and SIMPLE IRAs do not qualify. The donation also cannot be claimed as a deduction. Any deductible IRA contributions made after age 70½ reduce the amount that can be excluded.

Longevity Annuities Can Delay Part of the Balance

A qualified longevity annuity contract, or QLAC, is a deferred annuity purchased inside an IRA or workplace plan that begins paying later in life. Money placed in a QLAC generally is not counted in the balance used to calculate RMDs until payments begin.

The catch: Federal rules limit how much can be invested, and the limit changes each year. The money is also locked up, and the annuity payments are taxable once they start.

If You Keep Working at 73, an Employer Plan May Wait

Workplace plans can postpone RMDs until April 1 of the first year after the later of the year you reach age 73 or the year you retire from that employer, according to Publication 560 for tax year 2025.

The catch: The delay does not apply to someone who owns 5% of the employer, and a plan may still require RMDs at 73. Traditional IRAs follow the age-73 schedule regardless. The exception applies only to the current employer’s plan.

Taking Withdrawals Earlier Can Reduce the Future Spike

Taxable withdrawals taken after retirement but before age 73, when other income is lower, can fill up the cheaper brackets and leave a smaller balance for later RMDs.

The catch: Taking more than the minimum in one year does not count toward future RMDs, according to Publication 590-B. Every additional dollar also affects the income used in the Medicare and Social Security formulas.

No single strategy works for everyone. QCDs may suit retirees who already give to charity, the still-working exception helps those who remain on payroll past 73, and the years before RMDs begin are often the best time for Roth conversions. Because brackets, Social Security, and IRMAA can interact in complicated ways, it is wise to review the options with a qualified tax professional before the first RMD arrives.