Delay, Deter, Donate: 6 Tactics To Slash RMD Taxes

If you’ve been patiently waiting to crack open your nest egg, you’re not alone. Uncle Sam has also been biding his time until you turn 73 so he can finally collect his due.

What’s so special about that milestone birthday? That’s the age the IRS requires savers to begin withdrawing money annually from certain types of widely used retirement accounts, such as traditional IRAs and 401(k)s. These required minimum distributions (RMDs) are taxed as income, generating revenue for the government and — surprise! — a potentially huge tax bill for you.

But there are some things you can do to minimize taxes on RMDs leading up to and in retirement. 

What are RMDs?

The tax man always gets his due. RMDs make sure he does by forcing savers to start withdrawing previously untaxed money from certain types of retirement accounts to generate income the IRS can tax.

The tax-free ride was great while it lasted, right? As a reminder: When you contribute to a traditional IRA or workplace retirement plan, the IRS gives you two tax breaks — one upfront (pre-tax contributions lower your taxable income for the year) and another on investment growth (earnings aren’t taxed as long as the money remains in the account).

• RMDs apply to: Individual and employer-sponsored tax-deferred retirement accounts, including traditional IRAs, 401(k)s, 403(b)s, 457(b)s, SEP IRAs, SIMPLE IRAs and other defined contribution plans. Inherited Roth IRAs may be subject to RMDs depending on a number of factors, including the beneficiary’s relationship to the deceased and when the original account holder passed away.
• RMDs do not apply to: Roth IRAs, Roth 401(k)s (if you are the original owner) and Roth accounts inherited by a spouse and rolled into their own Roth.
• How withdrawal minimums are calculated: The IRS determines the amount each year based primarily on the year-end value of your account divided by your life expectancy. (See this RMD minimum distributions table for more details.) 
• When you have to start taking RMDs: The IRS requires savers to take RMDs at age 73. (You can delay your first payment, but that’s not always a good idea for reasons explained below.) In 2033, the RMD age will jump to 75.
• How RMDs are taxed: Withdrawals are taxed at your ordinary income tax rate.
• Penalty for missing the RMD deadline or not withdrawing the full amount: Either move buys you an additional 25 percent tax on the amount that should have been withdrawn. If you correct it quickly and refile your taxes, the penalty drops to 10 percent. 

Calculating RMDs is no cakewalk. A financial advisor can walk you through the complexities of figuring out how much to withdraw and from which accounts. 

6 ways to reduce your RMD tax bill

There is no way to completely avoid RMDs if you’ve saved money in a retirement account that’s subject to them. But you can lessen the impact of taxes you pay on withdrawals through a few strategic moves both before you reach the RMD age and after distributions kick in.

1. Draw money from tax-deferred accounts before age 73

You don’t have to wait until RMDs are triggered to tap into your retirement savings. In fact, drawing from tax-deferred accounts earlier in your retirement can lower your tax bill later on. Just don’t jump the gun too early (before age 59 ½) or you’ll pay an early withdrawal penalty on the distribution.

There are three benefits to drawing down RMD-able money before you’re forced to:  

• It lowers balances in accounts subject to future RMDs, thus reducing the amount you’re required to withdraw down the road.
• In years when your income is lower and you’re in a lower tax bracket, drawing from a taxable account (a traditional IRA versus a Roth where distributions aren’t taxed) helps minimize your tax liability.
• A side benefit of living off investment income in early years is that it may allow you to delay filing for Social Security, which boosts your monthly benefit.

2. Do a Roth conversion when you’re in the “retirement income valley”

A Roth conversion is a way to get money out of the crosshairs of IRS RMD rules. Roth conversion logistics are relatively simple — you’re simply moving money from a traditional IRA or old 401(k) into a Roth IRA. Once the money is in a Roth, it is no longer subject to RMDs.

The timing of this move is important because you’ll owe taxes on the amount you convert. That’s why financial pros recommend doing it during the “retirement income valley” — or the “golden window,” for those who prefer the more upbeat take. 

This period encompasses the years after you stop working but before you file for Social Security benefits, putting many retirees (especially previously high earners) in a lower tax bracket. It’s the ideal time to start doing Roth conversions since you’ll pay less in taxes on the money pulled out of tax-deferred accounts to make the move.

To avoid jumping into a higher tax bracket, consider spacing Roth conversions over several years. A financial advisor or CPA can calculate a conversion strategy that’s best for you.

3. Donate your RMDs directly to charity

Besides karma points and warm fuzzies, donating RMD money via a qualified charitable distribution (QCD) can spare you the pain of forking over a portion of your savings to the IRS.

QCDs (also known as IRA charitable rollovers) satisfy the RMD requirement. Also, because you’re donating the money, it is not counted as income, so you do not owe taxes. Just make sure you follow the rules: 

• There is a $108,000 annual per person cap on donations from an IRA for 2025. Married couples who are both subject to RMDs can donate up to $216,000 per year.
• Your donation must be made to a qualified charity.
• Transfers to eligible charities must be made directly from your account by your IRA custodian. 
• You cannot also claim IRA charitable rollovers as a charitable deduction on your tax return.

4. Delay RMDs by stashing money in a 401(k) — and keep working

Still spry and working well past your official retirement age? Does your employer offer access to a 401(k) plan? That’s your ticket to putting off RMDs for years to come, or at least as long as you keep punching the time clock.

The IRS gives workers over the age of 73 an RMD exception on money in an employer-sponsored plan as long as you are still working at the company that sponsors the plan and own less than 5 percent of the business. 

You may also be able to kick the RMD can down the road on money that’s not currently in your current employer’s plan. If your 401(k) allows transfers into the plan, moving money from IRAs or a former employer’s workplace plan into your current 401(k) will shield it from RMDs while you continue to work. Just remember, once you stop working and officially retire, the money in your 401(k) will be subject to minimum distribution rules. 

5. Lean on your (younger) spouse to lower your RMDs

If your spouse is at least 10 years younger than you, the IRS allows you to use a different formula to calculate your RMDs which can ease your household’s tax burden.

The Joint Life and Last Survivor Expectancy Table takes into account the combined life expectancy of you two love birds if your partner is named as the account’s sole beneficiary. Their youth adds years to the RMD timeline, which lowers the annual amount the IRS requires you to withdraw and, as a byproduct, reduces the income that is subject to tax. 

6. Don’t delay your first withdrawal

The IRS allows you to delay your first RMD up until April 1 of the year after you turn 73. Tempted? Think twice. Pushing off the task means you’ll have to take two RMDs in a single year, which could push you into a higher tax bracket. 

Bottom line

You spent a lifetime learning strategies for saving and investing for retirement. Then suddenly it’s time to crack open your nest egg, and there’s a whole new set of rules to learn. Understanding the rules around RMDs — either on your own or under the guidance of a financial advisor who knows the tax rules inside out — will help ensure that Uncle Sam doesn’t get any more of your retirement savings than is absolutely necessary.