This article is part of the Retirement Financial Life Equation (RFLE) series. It was initially published in October 2022 and updated in December 2025.
If you read much about retirement finance, you’ll see a lot of hyperbolic rhetoric about “Required Minimum Distributions,” or “RMDs.” You’d think RMDs are going to sneak up on you and devastate your financial plans in retirement.
Spoiler alert: they’re probably not.
Yes, RMDs will impact your savings, income, and taxes, but not as much as if you’re already withdrawing from your retirement savings before your RMDs kick in—which many retirees are doing. And even if you aren’t, if you understand and plan for them, the negative impacts can be minimized.
When I originally wrote this article in October 2022, I was approaching age 70 and facing the prospect of RMDs in a couple of years. Now, at age 73 in late 2025, I’ve been taking actual RMDs for over a year, and I can report from lived experience: they’re exactly as I predicted—not nearly as scary as the retirement media makes them out to be. For most retirees already withdrawing from their savings, RMDs simply formalize what you’re already doing.
The good news is that recent legislation has pushed back RMD ages even further. The SECURE Act of 2019 raised the age from 70½ to 72. Then the SECURE 2.0 Act of 2022 raised it again—to age 73 for those born between 1951-1959 (like me), and to age 75 for anyone born in 1960 or later. This gives younger retirees even more time before RMDs begin.
The “bad” news (though not really that bad): we’ll all eventually have to take RMDs if we have traditional tax-deferred IRA or 401(k) accounts. But as I mentioned, I’ve basically been taking voluntary RMDs as an integral part of my retirement income strategy since I retired, so the official RMD requirement hasn’t fundamentally changed my financial life.
Whether RMDs will have a negative impact on you depends greatly on your overall financial situation, mostly on potential income tax impacts and whether you actually need the money for living expenses.
RMD basics
If RMDs are something you’re not too familiar with, you should be. This IRS rule will affect a large number of retirees at some point in their retirement, so there are a few things you really need to know:
1) You’re required to take RMDs (and pay federal and state income taxes on them) on all employer-sponsored retirement plans, including:
- 401(k) plans
- Roth 401(k) plans (Technically, Roth 401(k)s that remain with your company are subject to RMDs. However, you can roll them into a Roth IRA, which is not subject to RMDs during the owner’s lifetime.)
- 403(b) plans
- 457(b) plans
2) RMD rules also apply to traditional IRAs and IRA-based plans, including:
- Traditional Individual Retirement Accounts (IRAs)
- SEPs
- SIMPLE IRAs
You can run, but you can’t hide (except in Roth accounts).
The RMD rules don’t apply to Roth IRAs while the owner is alive, but things change for their heirs. Anyone other than a spouse who inherits a Roth IRA from a parent eventually will have to take mandatory distributions.
3) The penalty for missing an RMD due date or withdrawing less than the correct RMD has been reduced to 25% (down from 50%) of the amount not withdrawn.
This is another helpful change from SECURE 2.0. Yes, it’s still a significant penalty, but it’s half what it used to be. If you realize the mistake quickly and correct it, the penalty can be reduced further to 10%. You’ll still owe ordinary income taxes on the money, just as you would with any IRA distribution, but the penalty is more forgiving than it used to be.
4) If you’re not already taking them, your first RMD will be due by April 1st of the year following the calendar year you reach your RMD age (73 or 75, depending on birth year).
After that, RMDs are due on December 31st every year.
I turned 73 in October 2024, which meant my first RMD was due by April 1, 2025. I actually took it in December 2024 to avoid having two RMDs in 2025 (one by April 1st for 2024 and another by December 31st for 2025), which would have created a larger tax bill in a single year. Most financial professionals recommend taking your first RMD in the year you turn 73 rather than waiting until the following April to avoid this “double RMD” tax bunching.
If it sounds like I’m not too concerned about RMDs, that’s because I’m not. After more than a year of taking them, I can confirm they’re simply part of the retirement income flow. But that doesn’t mean we shouldn’t all be well-informed. It’s essential to understand what they are, the IRS rules for them, and how they might impact our overall financial situation.
Why RMDs in the first place?
When Congress created the IRA in 1974 and the 401(k) in 1978, the proposition was very simple: Eligible workers could contribute a portion of their earned income to a qualified retirement savings account up to a specific limit and not pay income taxes on their contributions or their earnings until they withdraw the funds in retirement.
The intent was to defer taxes in the present to incentivize saving and help grow savings faster, then tax them at a later date. (In other words, taxes are deferred, not avoided.) It sounded like a good deal to most (including me), so I made tax-deferred contributions to my 401(k) and sometimes to an IRA for much of my working life.
But the story doesn’t end there. Decades later, in 1987, Congress realized that wealthier households might not spend down their taxable retirement accounts fast enough for the government to collect those deferred taxes. So they came up with RMDs to prevent taxes from being deferred for a lifetime.
The goal of RMDs is to ensure that most retirement account savings are actually withdrawn and taxes paid during retirement, even though the withdrawn funds don’t have to be spent. (They can instead be saved or re-invested in a non-retirement brokerage account.) That makes sense, I guess. I still don’t like the “have to pay taxes on it” part, but having now taken my first RMDs, I can tell you it’s not nearly as painful as I anticipated. It’s just another line on the tax return.
How are they calculated?
The math is pretty simple. RMDs are calculated by dividing your account balance as of December 31st of the previous year by a factor based on your current age from an IRS actuarial table. The result is your RMD amount (not percentage).
The challenge is that there are different tables, so you need to use the one that fits your situation (marital status, spouse’s age, etc.). For example, I use Appendix B. Uniform Lifetime Table III for Married Owners Whose Spouses Aren’t More Than 10 Years Younger:
As you can see, at age 73 (the new RMD starting age for those born 1951-1959), the factor is 26.5, which equates to an RMD of 3.77%. At age 75 (the starting age for those born in 1960 or later), the factor is 24.6, which is 4.07%. Interestingly, these percentages align closely with what many retirees are already withdrawing voluntarily—I was taking about 3.5-3.7% even before RMDs kicked in.
As you age, the factors decrease each year, so your yearly RMD percentage increases, as will the taxes due. If I live to age 90, my RMD for that year would be 8.2%—a very high percentage. However, in all likelihood, that higher percentage will be applied to a much lower account balance than I started with at age 73.
You may wonder, “what if I don’t need that much when I reach a certain age? Am I being required to withdraw more than I want to?” The answer is maybe. Yes, you may have to withdraw more than you need and pay the taxes. But just because you withdraw it doesn’t mean you have to spend it—you can save the money, invest it in a taxable brokerage account, or give it away if you want to. (You could even put the money back into an IRA if your earned income is at least equal to the contribution amount.)
An easier way to figure out your RMD is to use any of the many RMD calculators on the web. Fidelity, Vanguard, and Schwab all have calculators that will estimate your RMD at a future date based on your age, marital and account status, prior year balance, and estimated annual growth.
Your retirement account custodian’s website probably has one too. Remember to calculate the RMD for all retirement plans except Roth IRAs held with all custodians and withdraw their sum. (Consolidating accounts makes this easier.)
Even easier when the time comes is to sign up for an automatic RMD withdrawal service with your account custodian. All the major providers offer this service. They will withdraw the exact RMD by the required deadline and prevent you from making a costly mistake. I use automatic RMD withdrawals from Fidelity, and it works seamlessly—I never have to worry about missing a deadline or calculating incorrectly.
If you mess up (it happens), there are ways you can correct the error and possibly have the penalty fee waived or reduced under certain circumstances, especially under the new lower penalty structure from SECURE 2.0.
So how big a deal is it?
RMDs are a fact for most retirees with retirement savings unless they’re all held in Roth accounts. (Even then, RMDs will be required for heirs under certain circumstances—more on that later.) Because RMDs are taxable as ordinary income, they can impact your financial situation in a couple of ways:
1) RMDs may push you into a higher marginal tax bracket.
Let’s say you have Social Security and a pension, occasionally withdraw from your retirement savings, and take the standard deduction. Then, the year after you reach age 73 (or 75), you have to start withdrawing your RMD. That additional taxable income may or may not push you into a higher marginal tax bracket.
For example, if your Modified Adjusted Gross Income (MAGI) puts you in the 12% marginal bracket (meaning your MAGI is less than $96,950 for married couples filing jointly in 2025), and your RMD is large enough to bump you into the 22% bracket, you’ll pay 22% on the portion of your income above $96,950. If you didn’t really need all the RMD in the first place, that might not be too big a deal. You can pay the taxes and save the rest.
Some (most?) retirees will not be forced into a higher tax bracket due to RMDs, though they will pay more tax because they have more taxable income. To illustrate with updated 2025 numbers:
- 73-year-old couple receives $40,000 in Social Security (likely 85% taxable based on income) and pension benefits of $40,000 (100% taxable)
- RMD of $30,000 from $800,000 in tax-deferred savings
- Total income: $104,000 ($34,000 taxable Social Security + $40,000 pension + $30,000 RMD)
- Standard deduction of $32,300 (2025, age 65+) reduces taxable income to $71,700
- Marginal tax rate remains 12%
- Taxes are approximately $8,204, which is an effective tax rate of 7.9% of total income
In this example, the couple is taking RMDs but remains in a 12% marginal tax bracket. And although they pay more in taxes (because their income is higher), their effective tax rate (the percentage they pay on their taxable income after deductions) remains relatively low under the current tax code.
What if the same couple is making annual withdrawals of 4% ($32,000) from their retirement savings instead of receiving a pension of $40,000? At age 73, their RMD is 3.77%, or about $30,000, so they’re already withdrawing slightly more than required. They will not see any significant change to their income or tax obligation when RMDs begin—they’re essentially already there.
This is exactly my situation. I’ve been withdrawing 3.5-4% annually since retirement, so when my official RMD kicked in at age 73, it was actually slightly less than what I was already taking voluntarily. The only practical difference is that now I’m required to take at least that much rather than it being optional.
2) More of your Social Security benefits may be taxed, possibly much more (sometimes called the “tax torpedo”).
Social Security benefits are taxable at one of three levels—0%, 50%, or 85%—based on your “combined income.” (“Combined income” is essentially half of your Social Security benefit plus your other gross income and any tax-exempt interest.)
Depending on your total income before taking RMDs, and the percentage of that income that comes from Social Security, you could end up with a much higher actual marginal tax rate, especially if you have above-average Social Security benefits.
If your RMDs cause more of your Social Security to be taxable, those in the 22% marginal tax rate, for example, could end up with an effective marginal tax rate as high as 40.7%. This happens because as your income rises, more of your Social Security becomes taxable, creating what’s called the “Social Security tax torpedo.”
Here’s how it works: If your ordinary marginal tax rate is 22% but your RMDs increase your combined income enough to make 85% (instead of 50%) of your Social Security benefits taxable, every additional dollar of RMD triggers $0.85 of previously untaxed Social Security to become taxable. So you’re effectively being taxed on $1.85 for every $1 of RMD: 22% × 1.85 = 40.7%.
This doesn’t mean you’ll pay 40.7% of your total income in taxes. It simply means that during the “torpedo zone” (where Social Security taxation increases from 50% to 85%), your marginal rate on additional income is much higher than your nominal bracket suggests. Once you’re fully into the 85% zone, your marginal rate returns to your actual bracket rate (12% or 22%).
If you’re in this group (or think you might be), you should talk with a financial planner or tax professional about managing your retirement income, expenses, and tax projections. The good news is that for many retirees, the Social Security tax torpedo doesn’t apply because they’re either below the threshold or already at the 85% taxation level before RMDs begin.
Can RMDs be avoided or reduced?
If you have retirement savings in traditional (tax-deferred) accounts, the simple answer is “no, there is no way to avoid RMDs.” That said, there are several strategies to reduce the taxes on RMDs:
1) Do a Roth conversion.
If you move money from “tax-deferred” (traditional) to “tax-free” (Roth) accounts, you may be able to reduce your RMDs (and your taxes) in the long run. (Remember, Roth accounts grow tax-free, and there are no RMDs during the owner’s lifetime.)
This requires you to execute a Roth conversion, and the converted amount is taxable in the year you do the conversion. However, the taxes owed at the time you convert may be lower than taxes on your tax-deferred accounts in the future, especially if you convert during years when your income is lower (perhaps between retirement and when Social Security or RMDs begin).
I’ve considered Roth conversions multiple times and run the numbers, but I haven’t done large conversions because I didn’t have enough non-retirement savings to pay the taxes comfortably in the years when it would have made the most sense. (If you use retirement savings to pay the taxes, the net benefit of doing the conversion is significantly reduced.) That said, I may still do small conversions in future years to gradually reduce my tax-deferred balance and lower future RMDs.
2) Charity-minded retirees can use Qualified Charitable Distributions (QCD) to reduce taxable income.
This is one of the best strategies available for those who give regularly to charity. Starting at age 70½ (note this is younger than the RMD age), you can instruct your IRA administrator to directly send distributions—up to $105,000 per year as of 2025 (increased from $100,000 due to inflation adjustments under SECURE 2.0)—to qualified 501(c)(3) charities.
These distributions count toward your RMD requirement but are not reported as taxable income. This effectively reduces the taxes due on your RMDs. I plan to use QCDs extensively starting next year when I turn 70½, as my wife and I already give regularly to our church and several ministries.
Many readers of this blog are probably already giving to their church and other ministries and charities. If so, using QCDs for giving likely provides greater tax benefits than writing checks from your regular bank account, especially if you take the standard deduction (which most retirees do since the 2017 tax law changes).
That’s because QCDs reduce your Adjusted Gross Income (AGI), which is used in various tax calculations, including the taxable portion of your Social Security benefits. Regular charitable contributions only benefit you if you itemize deductions, and even then, they don’t reduce your AGI—they only reduce taxable income after AGI is calculated. QCDs are almost always the better approach for retirees who give regularly and have IRA assets.
Important note: The QCD must go directly from your IRA to the charity—you cannot take the distribution yourself and then donate it. Your IRA custodian will have a simple process for directing QCD payments.
3) Consider a Qualified Longevity Annuity Contract (QLAC).
A QLAC is basically a deferred annuity that meets specific IRS requirements. You can use money in an IRA to purchase a QLAC, which effectively reduces the amount of your tax-deferred savings subject to RMDs. (The assets in a QLAC are excluded from your RMD calculation up to certain limits.)
Under SECURE 2.0, you can now invest up to $200,000 (or 25% of your account balance, whichever is less) in a QLAC, up from the previous $145,000 limit. This can meaningfully reduce RMDs for those with larger IRA balances.
Because a QLAC is a deferred annuity, you typically wait many years before withdrawing from it, perhaps by “annuitizing” it into a stream of regular payments starting at age 80 or 85 that last for the rest of your life (which is why they’re called “longevity annuities”). Some see QLACs as a form of longevity insurance or even a replacement for Long Term Care (LTC) Insurance, since they provide guaranteed income in your later years when you might need care.
However, keep in mind that such distributions will be taxable when they are made. I’ve looked at QLACs but haven’t pulled the trigger yet. The decision to lock up a portion of your IRA until your 80s in exchange for future guaranteed income is a significant commitment that deserves careful analysis.
Get help
RMDs will not be that big a deal for most retirees because many people with retirement savings will need to withdraw from them for income anyway. Having taken my first RMDs, I can confirm this is exactly the case. The main difference between age 72 and age 73 for me was simply that the withdrawals shifted from “optional” to “required”—but the amounts, the taxes, and the cash flow remained essentially unchanged.
However, as we’ve seen, there could be significant tax implications in some cases, particularly around the Social Security tax torpedo or if you’re near the boundary between tax brackets. Therefore, if you have substantial retirement savings or complex income sources, these decisions probably need to be made in consultation with a financial planner or tax professional.
But keep in mind that the closer you get to your RMD age (73 or 75), the less flexibility you have to reduce future RMDs through strategies like Roth conversions. The best time to think about RMD management is in your 60s or early 70s, before they begin.
For most retirees, RMDs are simply formalized withdrawals you’d be taking anyway. For those already withdrawing 3-5% annually from retirement savings, the arrival of RMDs changes very little. And for those with more savings than they need for living expenses, RMDs provide an excellent opportunity for increased charitable giving through QCDs—turning a tax requirement into a blessing for kingdom work.
Bottom line
After living through my first year of actual RMDs, I can confidently say the retirement media’s ominous warnings are largely overblown. If you’re already withdrawing from retirement savings to fund living expenses, RMDs simply formalize what you’re doing. If you’re not yet withdrawing, RMDs force distributions that may exceed your needs—but the recent changes (higher starting ages, lower penalties, increased QCD limits) make them far more manageable than in years past.
The key is understanding the rules, planning ahead, and using available strategies (Roth conversions, QCDs, QLACs) to minimize taxes and maximize flexibility. With proper planning, RMDs become just another routine part of retirement income management rather than the financial disaster some make them out to be.
And remember: we’re called to “render to Caesar what is Caesar’s” (Mark 12:17). Paying taxes on money the government allowed to grow tax-deferred for decades is ultimately a fair arrangement, even if we’d prefer to keep more of it. The goal isn’t to avoid all taxes but to steward our resources wisely, honor our obligations, and give generously from what remains.