Required Minimum Distributions (RMDs): How They’re Calculated and 7 Ways to Potentially Reduce Them
For many retirees, reaching age 73 brings a new retirement planning challenge:
Required Minimum Distributions (RMDs).
If you’ve spent decades saving in tax-deferred retirement accounts like IRAs and 401(k)s, the IRS eventually wants its share. That means you can’t simply leave the money untouched forever—at some point, you must begin withdrawing a minimum amount each year and paying taxes on those distributions.
One listener recently wrote in and asked:
“I have $1 million in my IRA and I’m turning 73 this year. What will my RMD be?”
It’s a great question—and one many retirees are asking.
In this article, we’ll break down:
What RMDs are
When they begin
How they’re calculated
What happens if you miss one
Seven strategies that may help reduce future RMDs and the taxes they create
This article is based on Episode 307 of the Retire With Ryan podcast.
What Is a Required Minimum Distribution (RMD)?
A Required Minimum Distribution (RMD) is the minimum amount the IRS requires you to withdraw each year from certain tax-deferred retirement accounts once you reach a specific age.
These withdrawals are generally taxed as ordinary income.
The reason?
You received a tax deduction (or tax deferral) when the money went into the account—and eventually, the IRS wants to collect taxes on it.
What Accounts Are Subject to RMDs?
RMDs generally apply to:
Traditional IRAs
Rollover IRAs
SEP IRAs
SIMPLE IRAs
401(k)s
403(b)s
457 plans
Profit-sharing plans
What Accounts Are NOT Subject to RMDs?
Generally:
Roth IRAs (during the original owner’s lifetime)
Roth 401(k)s
Taxable brokerage accounts
This distinction is important because it can create more tax flexibility in retirement.
What Age Do RMDs Begin?
Under current law:
If you were born between January 1, 1951 and December 31, 1959 → RMD age is 73
If you were born January 1, 1960 or later → RMD age is 75
How Are RMDs Calculated?
RMDs are based on:
Your retirement account balance as of December 31 of the prior year
An IRS life expectancy factor
The IRS provides tables that determine the percentage you must withdraw.
Most retirees use the Uniform Lifetime Table.
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Example: $1 Million IRA at Age 73
Let’s assume:
IRA balance on December 31 = $1,000,000
IRS factor at age 73 = 26.5
Calculation:
$1,000,000 ÷ 26.5 = $37,736
Required minimum distribution:
$37,736
That works out to approximately:
3.77%
RMD Percentages Increase Over Time
As you age, the IRS distribution factor gets smaller—meaning your required withdrawal percentage gets larger.
Approximate examples:
AgeIRS FactorApproximate RMD %7326.53.77%7524.64.07%8020.24.95%8516.06.25%9012.28.20%
In other words:
The longer you live, the more the IRS requires you to withdraw.
What If Your Spouse Is More Than 10 Years Younger?
If your spouse is:
More than 10 years younger
And is the sole primary beneficiary
You may qualify to use a different IRS table:
Joint and Survivor Life Expectancy Table
This often results in:
Lower RMD percentages
Smaller required withdrawals
Lower taxable income
When Is the First RMD Due?
Your first RMD can generally be delayed until:
April 1 of the year after your first RMD year
However…
That creates a catch.
You would then need to take:
Your delayed first RMD
Your second RMD in the same tax year
This could push you into a higher tax bracket.
So delaying is not always beneficial.
What Happens If You Miss an RMD?
If you fail to take the required amount:
The IRS can impose a:
25% penalty
This can potentially be reduced to:
10%
if corrected within two years.
That’s a painful mistake—and one retirees should work hard to avoid.
How Are RMDs Taxed?
RMDs are generally taxed as:
Ordinary income
This means they can:
Increase your tax bracket
Cause more of your Social Security to become taxable
Trigger Medicare IRMAA surcharges
Reduce tax planning flexibility
For many retirees, RMDs create a tax surprise later in retirement.
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7 Ways to Potentially Reduce Future RMDs
1. Diversify Where You Save
Instead of putting everything into pre-tax retirement accounts, consider balancing savings among:
Traditional retirement accounts
Roth IRAs / Roth 401(k)s
Taxable brokerage accounts
This can create more flexibility later and reduce future RMD exposure.
2. Build an Optimized Retirement Income Plan
Many retirees wait until RMDs arrive and simply react.
A proactive income plan can help determine:
Which accounts to withdraw from first
How to smooth taxes over time
How to reduce future RMDs
Tax-efficient withdrawal planning matters.
3. Consider Roth Conversions During Lower-Income Years
One of the most effective strategies for some retirees is a Roth conversion.
This involves:
Moving money from a traditional IRA
Paying tax now
Converting it to a Roth IRA
Potential benefits:
Reduces future RMDs
Creates tax-free future growth
Provides more tax flexibility later
This can be especially attractive in:
Early retirement
Before Social Security starts
Before RMD age
4. Delay Social Security Strategically
Some retirees delay Social Security and use those lower-income years to perform Roth conversions.
Benefits may include:
Larger future Social Security benefits
More room in lower tax brackets
Lower future RMDs
This strategy should always be modeled carefully.
5. Work Longer (In Certain Cases)
If you continue working past RMD age and:
You’re participating in an employer retirement plan
You are not a more-than-5% owner
You may be able to delay RMDs from that employer plan until retirement.
This doesn’t apply to IRAs—but it can help in certain cases.
6. Make Sure You’re Calculating RMDs Correctly
Common mistakes include:
Using the wrong IRS table
Forgetting inherited account rules
Under-distributing
Over-distributing and paying unnecessary taxes
Retirees with multiple accounts often benefit from professional guidance here.
7. Use Qualified Charitable Distributions (QCDs)
If you are:
Age 70½ or older
You may be able to send IRA money directly to charity using a Qualified Charitable Distribution (QCD).
Benefits:
Counts toward your RMD
Reduces taxable income
Supports charitable causes
This can be especially powerful for charitably inclined retirees who don’t itemize deductions.
Common RMD Planning Mistakes
Retirees often make mistakes such as:
Waiting too long to plan
Ignoring tax bracket impacts
Missing Roth conversion opportunities
Forgetting Medicare IRMAA consequences
Taking too much or too little
Overlooking QCD strategies
A little planning can go a long way.
Final Thoughts
Required Minimum Distributions are one of the most overlooked tax issues in retirement planning.
They may seem simple at first:
Take out a percentage and pay taxes.
But in reality, RMDs can affect:
Tax brackets
Social Security taxation
Medicare premiums
Estate planning
Long-term retirement income sustainability
The earlier you plan, the more strategies you may have available to reduce the tax burden later.
If you’re approaching RMD age—or already taking RMDs—it may be worth reviewing your strategy before the IRS makes the decisions for you.
Have a great week—and I’ll talk to you next Tuesday.
Written by Ryan Morrissey CFP®, CLU®, CHFC®, CMFC
Founder & Principal Advisor of Morrissey Wealth Management
Host of the Retire with Ryan Podcast