By Oscar Casas, CFP®, CRPC®, MPAS®, ABFP℠
As a financial advisor at Tranquility Path Investment Advisors, much of my focus is helping clients build retirement plans that reflect their goals and the life they’ve worked hard to create. Once clients reach their 70s, a new chapter begins: managing required minimum distributions, or RMDs.
I know the idea of mandatory withdrawals from your retirement accounts can feel confusing, maybe even a little unwelcome. But RMDs don’t have to be stressful. With the right guidance and planning, they can actually be a tool to strategically manage your retirement income and taxes.
In this article, we’ll look at how RMDs fit into your unique financial picture and explore ways to help keep your retirement income working for you, so you can enjoy the retirement you’ve been planning for without unnecessary worry.
What Are Required Minimum Distributions?
Let’s start with a simple definition.
The IRS defines required minimum distributions as the minimal amount you must begin taking out of your retirement funds after you turn 73. (Note: Under the SECURE 2.0 Act, that RMD age will rise to 75 in 2033.)
- IRAs
- 401(k)s
- 457 plans
- 403(b)s
- SEP IRAs
- SIMPLE plans
Since Roth IRAs are funded with after-tax money, they are the only account type exempt from RMDs. You must, however, withdraw funds from other types of Roth account types, like Roth 401(k)s.
How Much Do I Have to Withdraw?
The IRS uses a formula to calculate your RMD based upon your average life expectancy and the total money in your account on December 31st of the previous year. Since Calculating your RMD can be complicated for some, I always recommend working with a professional to ensure accuracy.
5 Things You Need to Know About RMDs
This article isn’t intended as an all-encompassing discussion of RMDs, but there are five core rules you need to know:
1. RMDs Must Be Taken by December 31st of Every Year
To avoid a penalty, you are required to take your annual RMD before December 31st of each year. If you miss this deadline, the IRS can penalize you up to 25% tax on the money you should have taken out.
2. You Must Take Your First RMD by April 1
Even though annual RMDs are due on December 31st, you can postpone your first RMD until April 1st of the following year. For example, if you turned 73 in 2025, you could postpone your first distribution until April 1, 2026.
However, waiting this long could potentially push you into a higher tax bracket. That’s because you would be taking two distributions during one year. So calculate exactly when it makes sense for you to take your first RMD.
3. You Could Defer RMDs if You’re Still Employed
The “still working” rule for 401(k)s exempts 73-year-olds who are not yet retired from taking RMDs.
Of course, there are exceptions:
- Only RMDs for your current employer-sponsored plan can be postponed.
- You must take withdrawals from any 401(k)s or IRAs you may have from prior workplaces.
- You cannot own more than a 5% stake in the company
4. You Can Reduce Your Taxes By Redirecting Your RMD to Charity
One excellent approach to give back and lessen your tax burden is to donate your RMD to a worthy cause. The tax code’s permanent inclusion of qualified charitable distributions (QCDs) in 2016 allowed RMD gifts to be excluded from taxable income on your tax return.
For example, that means you won’t be required to pay taxes in a given year if your RMD is $3,000 and you donate $3,000 to charity.
Remember, though, that not every retirement account is eligible to use its funds as a QCD. The retirement account has to be an IRA that is a traditional, rollover, inherited, inactive SEP, or inactive SIMPLE plan.
A SEP or SIMPLE is deemed dormant if no employer contribution has been made during the plan year that ends during the tax year in which the charitable contribution is made.
5. Know how RMDs Interact With Social Security Taxation and Medicare Premiums
Here’s something that catches many retirees off guard: your RMDs can affect both your Social Security taxes and your Medicare costs.
For Social Security, the IRS uses something called “provisional income” to determine if your benefits are taxable. This includes your RMDs plus half of your Social Security benefits plus other income. If this total exceeds certain thresholds up to 85% of your Social Security benefits could become taxable. At lower thresholds up to 50% of benefits become taxable.
Medicare premiums present another consideration. If your modified adjusted gross income (which includes RMDs) exceeds certain levels, you’ll pay Income-Related Monthly Adjustment Amounts (IRMAA) surcharges on your Medicare Part B and Part D premiums. These thresholds start at $106,000 for singles and $212,000 for married couples in 2025.
The good news is that both of these impacts can be managed with careful planning. Sometimes spreading income over multiple years or using strategies like qualified charitable distributions can help keep you below these thresholds.
Simplify Your RMDs and Shield Your Retirement
Many people have plenty of questions about RMDs, and it’s easy to see why—they can feel complicated and sometimes overwhelming. The key to turning this required distribution into a real opportunity is having the right information and guidance.
Our team at Tranquility Path Investment Advisors has the experience to help you navigate these decisions with confidence. We’re here to provide clarity, answer your questions, and help you make choices that support your long-term financial goals.
Schedule a no-obligation conversation or reach us at (732) 856-4324.
About Oscar
Oscar Casas is the chief executive officer at Tranquility Path Investment Advisors, an independent Registered Investment Advisor firm dedicated to putting their clients first, always. Oscar has over a decade of experience helping clients plan for a confident retirement. He is known for being an empathetic and compassionate listener and for prioritizing his clients’ needs and goals above all else. He acts as a coach, advising his pre-retiree and retiree clients through all the ups and downs on their financial journey. He loves that he has the opportunity to make a difference in people’s lives and take some of the stress off their shoulders.
Oscar has a bachelor’s degree in finance, a master’s degree in personal financial planning, and is a CERTIFIED FINANCIAL PLANNER®, Chartered Retirement Planning Counselor℠, Master Planner Advanced Studies℠ and Accredited Behavioral Finance Professional℠ professional. When he’s not working, you can find him enjoying the outdoors with his three children. He is an avid tennis player who also loves golf, the beach, snowboarding, traveling, and volunteering with the Scouts.
