RMDs Arrive When You Least Need the Money

For people born in 1960 or later, Required Minimum Distributions start at age 75. For everyone else it's 73.

At 73, the required withdrawal is only about 3.8% of the account. But the percentage rises with age. At 80, it is closer to 5%.

For someone with a $2 million traditional IRA, assuming for simplicity that the balance somehow stayed at exactly $2 million, the required distributions would look roughly like this:

Age	Distribution Requirement	Approximate RMD on $2 Million
73	3.8%	$75,000
77	4.4%	$87,000
80	5.0%	$100,000
85	6.3%	$125,000
90	8.2%	$164,000

A 90 year old is required to take 8.2% of their portfolio balance.

This presumes that the portfolio is flat, net of distributions taken out by the retirees, and net of inflation. In reality, though, the RMDs might be even higher when when lifelong savers struggle to spend as much of their money as they are allowed to. 

Why Do You Need to Take RMDs?

Traditional retirement accounts give you a tax deduction on the way in and tax-deferred growth along the way. This was set up to give people an incentive to save more for retirement, and to make it easier for their money to grow.

But once you're successfully retired, the government wants to collect the income tax that has been deferred.

An RMD doesn't require you to spend the money, though. As long as you've recognized the income, the government doesn't really care what you do with it.

You can take $100,000 out of an IRA, pay the tax, and reinvest whatever you don't need in a taxable brokerage account. Doing so will satisfy the RMD, even if it makes your portfolio less tax efficient.

The bigger problem is when RMDs impact the rest of your tax situation. If you enter your 70s with a large traditional IRA, those distributions can stack on top of Social Security, pensions, interest, dividends, and other income, and push you into higher tax brackets. 

More of Your Social Security May Become Taxable

As your income rises, more of your Social Security benefits can become taxable, up to 85% of the benefit. This can create a strange effect where an additional dollar withdrawn from an IRA causes more than a dollar of income to become taxable, temporarily increasing your effective marginal tax rate.

Medicare Can Get More Expensive

Medicare Part B and Part D premiums are income-tested. As a result, higher income can push retirees into higher IRMAA brackets, increasing Medicare premiums.

RMDs Aren't Eligible for Roth Conversions

You might think, "since I have to pay the tax anyway, why not just convert it to a Roth?" Well, you can't. At least not with the specific money needed for an RMD. If your RMD is, say, $60,000 you have to take $60,000 out as an RMD. You can do Roth conversions on distributions done in addition to that $60k, but the $60,000 generally has to go into a taxable account of some kind, whether a brokerage or checking account. Only once that's done can your 60,001st dollar get converted to a Roth account.

The better option is to take distributions or do Roth conversions well before you turn 75 (or 73). You'll want to look ahead at what your tax rate will be in the future to decide how much it makes sense to do, keeping in mind the thresholds for higher IRMAA premiums. But when you have a long runway, you have much better options for reducing or avoiding unwanted RMDs.

Spending More Can Be a Tax Strategy Too

There is another option that doesn't get discussed nearly as much:

Spend the money.

If you are 65, have things you genuinely want to do, and can afford to do so, taking an extra distribution from an IRA is not a bad idea.

Especially if you're going to pay tax on that money eventually anyway, there is an argument for using more of it while it has the greatest potential to improve your life. Especially if you can do so at a similar or lower tax bracket than you'll face later with RMDs.

So have some fun! Improve the house you're going to live in for the next 20-30 years. Help your kids when the money would actually make a difference. Buy a camper. Go see Italy!

Legacy Planning

RMD planning becomes even more important when a retiree expects to leave a substantial estate.

Under current rules, many non-spouse beneficiaries must empty an inherited retirement account within 10 years. This is a problem because their children usually inherit the account in their 50s, in their peak earning years. 

Imagine inheriting a $2.5 million traditional IRA while you're in your 50s and still working. Even ignoring investment growth, spreading that account evenly over 10 years would mean another $250,000 of annual ordinary income.

Leave more of it until the final years, and the tax problem can become even larger.

Essentially, the parents may have spent years trying to avoid paying tax in the 24% bracket, only for their children to inherit the account during their peak earning years and pay 35% or 37% on some of the distributions.

Had that money been in a Roth, the 10-year rule could actually become an opportunity rather than a tax time-bomb. In many cases, the heir can leave the inherited Roth invested for most or all of the 10-year period, allowing it to continue compounding tax-free before distributing the account by the deadline.

This is where multi-generational planning can really pay off.

Lastly, QCDs: The RMD Release-Valve

For people who are charitably inclined, there is another alternative to RMDs: Qualified Charitable Distributions.

Beginning at age 70½, money can be transferred directly from an IRA to an eligible charity. A QCD can count toward an RMD without increasing taxable income.

For someone who already intends to give money away, that can be considerably more useful than taking an RMD, reporting the income, and then writing a personal check to charity. Particularly if they wouldn't otherwise itemize on their taxes.

For 2026, the annual QCD exclusion limit is $111,000 per individual.

Now, QCDs aren't an excuse to avoid planning ahead. If your RMD is $100,000 but you only need $60,000, you might not want to give away $40,000 just to save on taxes. Feel free, but I don't think it's most people's first choice.

I'd instead advocate treating QCDs as a tool to supplement your normal giving. QCDs can reduce RMDs at the margins, but it won't solve the problem if your RMDs are double what you can realistically enjoy spending.