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Discover 5 RMD strategies to save on taxes and minimize your financial impact.

5 RMD Strategies to Minimize Your Tax Burden

Disclaimer: This website and its content are for informational purposes only and is not financial advice.

Here are five effective RMD strategies that can help you reduce the tax impact of your required minimum distributions:

1. Qualified Charitable Distributions (QCDs)

One of the most powerful RMD strategies for those with a charitable inclination is the Qualified Charitable Distribution, or QCD. If you are 70 ½ or older, you can directly transfer up to $108,000 annually from your IRA to a qualified charity.

This amount counts towards your RMD and, crucially, is excluded from your taxable income. This means you satisfy your RMD requirement without increasing your adjusted gross income (AGI), which can have a ripple effect on other tax considerations, such as Medicare premiums.

The benefit of this RMD strategy is twofold: you fulfill your philanthropic goals and strategically lower your taxable income.

2. Strategize with Roth Conversions

Another excellent set of RMD strategies involves Roth conversions. While you'll pay taxes on the converted amount in the year of conversion, moving funds from a traditional IRA or 401(k) into a Roth IRA can be a highly effective long-term tax planning move.

The key benefit of Roth accounts is that qualified withdrawals in retirement are entirely tax-free, and most importantly, Roth IRAs are not subject to RMDs during the owner's lifetime. By converting funds to a Roth account, you reduce the balance in your tax-deferred accounts, thereby lowering future RMDs.

This RMD strategy is particularly appealing if you anticipate being in a higher tax bracket in the future or wish to leave a tax-free legacy for your heirs. Spreading conversions over several years can also help manage the immediate tax impact.

3. Implement Early Strategic Withdrawals

For some, one of the more proactive RMD strategies might involve taking strategic withdrawals from tax-deferred accounts before RMDs are even required.

By gradually drawing down these accounts in years when your income is lower, perhaps before you claim Social Security or when you have significant deductions, you can reduce the overall balance subject to RMD calculations later on.

This can effectively "smooth out" your taxable income over a longer period, potentially keeping you in lower tax brackets throughout retirement. This RMD strategy requires careful forecasting of your income and expenses to ensure it aligns with your overall financial picture.

Updated May 29th, 2025

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4. Leverage the "Still Working" Exception

If you find yourself still working past the age of 73 and participating in an employer-sponsored retirement plan, you might be able to utilize a valuable RMD strategy: the "still working" exception.

This rule allows you to delay taking RMDs from your current employer's plan until you actually retire, provided you don't own 5% or more of the company. This exception does not apply to IRAs, so you would still need to take RMDs from those accounts.

However, delaying RMDs from your workplace plan can be a significant advantage, allowing those funds to continue growing tax-deferred for a longer period and providing more flexibility in your overall RMD strategies.

5. Qualified Longevity Annuity Contract (QLAC)

A Qualified Longevity Annuity Contract, or QLAC, offers a unique approach among RMD strategies for deferring a portion of your RMDs. A QLAC is a specialized type of deferred annuity that allows you to use a certain amount of your retirement savings to purchase future income payments.

The key benefit is that the money used to fund a QLAC is excluded from your RMD calculation until you begin receiving the annuity payments, which can be delayed until as late as age 85.

This RMD strategy can help reduce your current RMD obligation and provide a guaranteed income stream later in life, offering a blend of tax management and longevity planning.

Key Takeaways

Navigating Required Minimum Distributions is a critical aspect of retirement planning, and employing sound RMD strategies can make a significant difference in your financial well-being.

It is always wise to consult with a qualified financial advisor or tax professional to determine which RMD strategies are best suited for your individual circumstances and to ensure compliance with all IRS regulations. Thoughtful planning today can lead to a more financially secure and tax-efficient retirement tomorrow.

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By Jordan McCaleb, Investment Researcher