By Michael Henley, CFP®, CPWA®, CRPC®, RMA®

If you’ve spent decades building up retirement savings in tax-deferred accounts, Required Minimum Distributions (RMDs) can feel like an unwelcome surprise. Once they begin, they often increase your taxable income at a time when you were hoping for more control, not less. The impact of RMDs on retirement income can come as a surprise, particularly when it affects everything from tax brackets to Medicare premiums. The good news? With proactive planning,  you can ease the strain and take control of your future RMDs

What Are Required Minimum Distributions?

RMDs are the annual amounts the IRS determines you must withdraw from your traditional IRA, 401(k), and other tax-deferred plans once you reach a certain age. Under the SECURE Act 2.0, that age is now 73. (It was previously 70½, then 72.) Beginning in 2033, the RMD age will increase again to 75.

For individuals with large retirement accounts, a later RMD age allows for more tax-deferred growth. As a result, this can also lead to larger RMDs, which can create challenges when it comes to tax planning.

The Tax Implications of RMDs

RMDs are taxed as ordinary income and can significantly increase your taxable retirement income, potentially creating several financial challenges:

  • A higher tax bracket once RMDs begin
  • A higher capital gains rate on your after-tax investments as a result of higher overall income
  • Taxes on a higher portion of your Social Security benefit
  • Higher Medicare premiums from the Income-Related Monthly Adjustment Amount (IRMAA) surcharge
  • Potentially higher state income taxes

Strategies to Reduce RMD-Related Taxes

To help you keep more of your retirement income and preserve your wealth, you can consider several strategies.

Strategic Roth IRA Conversions

Converting your pre-tax IRA or 401(k) to a Roth IRA allows you to pay taxes at your marginal rate today, resulting in qualified withdrawals that are tax-free later in life. Low income years prior to RMDs begin are typically an opportunistic time for Roth conversions. By shifting assets from pre-tax to Roth accounts over time, you reduce the balances of those pre-tax accounts. In turn, this reduces the amount of future RMDs, since Roth IRAs are not subject to required distributions.

Make Qualified Charitable Distributions (QCDs)

If you enjoy supporting charitable causes, once you reach age 70½, you can donate up to $108,000 (2025) directly to a charity of your choice from your IRA. These donations, called Qualified Charitable Distributions (QCDs), can satisfy part or all of your RMD each year, reducing your taxable income. If the total of your annual charitable giving exceeds the QCD limit, aim to give the maximum QCD each year.

Consider this example: At age 73, you are required to take an RMD of $100,000, so you must pay ordinary income taxes on that amount. You also typically give $10,000 to your local United Way. Instead of the $10,000 coming out of your checking account, you instruct your IRA administrator (i.e., Fidelity) to make a $10,000 distribution from your IRA to the United Way. Your total RMD is $100,000, but by directing $10,000 as a QCD to your chosen charity, that portion of the RMD is satisfied tax-free. You would then only need to withdraw $90,000 more, reducing your taxable income.

Utilize a Donor-Advised Fund (DAF)

In high-income years, you can “bunch” your charitable donations and contribute a larger amount to a donor-advised fund (DAF). This can help you exceed the standard deduction, allowing you to itemize and maximize your tax benefit in the year of the donation. While QCDs from your IRA cannot be made directly to a DAF, you can still incorporate both into your RMD and charitable giving strategy. For example, you can use QCDs to satisfy part or all of your RMD, reducing your taxable income, and then make an additional contribution to your DAF from other funds to further support your charitable goals and potentially increase your itemized deductions.

Asset Location Optimization

In retirement, you can withdraw strategically from tax-advantaged and taxable accounts to help smooth out your taxable income and potentially reduce RMDs down the road. Strategic asset location can help reduce future RMDs by keeping faster-growing investments (like index funds or stocks) in Roth or taxable accounts and placing slower-growing, income-producing assets (like taxable bonds) in tax-deferred accounts, which limits how large your IRA or 401(k) grows over time. This approach, known as asset location, is a key strategy we use to help align investment growth with tax efficiency. Of course, it’s important to consider any upfront tax consequences, your future income needs, and your broader financial goals before making changes.

Allow Brandywine Oak Private Wealth to Help

Worried your retirement savings might come with a hidden tax bill? At Brandywine Oak Private Wealth, we take an integrated approach to managing wealth, bringing together in-house CPAs and our investment team to coordinate strategies that help reduce unnecessary tax burdens. We also work closely with your outside attorneys and accountants to align every aspect of your financial life.

Our firm was founded to serve successful families who often lack the time to manage the complexities of growing and protecting their wealth. Our team brings over 20 years of experience providing personalized planning to help clients retire with clarity, confidence, and a sense of control.

To schedule a meeting to discuss how we can help address your unique needs, call (484) 785-0050, email contact@brandywineoak.com, or get started online now. And if you’re curious about what our clients have to say about working with us, visit our client testimonials page to hear their stories.

Frequently Asked Questions Regarding RMDs 

When do RMDs start, and what happens if I miss the deadline?

For most traditional IRAs and employer-sponsored retirement plans, your first required minimum distribution (RMD) must be taken by April 1 of the year after you turn 73 (under SECURE Act 2.0; this age increases to 75 starting in 2033). After that, the annual RMD deadline is December 31.

Missing an RMD triggers a steep penalty, an excise tax of 25% on the amount not withdrawn. If you catch and correct the error in a timely manner, the penalty may be reduced to 10%.

In most cases, we don’t recommend delaying your first RMD to the following year. Doing so would require you to take two RMDs in the same calendar year, the deferred one by April 1 and the current year’s by December 31, which could push you into a higher tax bracket and increase your total tax liability.

How do RMDs affect my retirement income?

Required Minimum Distributions (RMDs) increase your taxable income once they begin, which can push you into a higher tax bracket, trigger higher Medicare premiums, and increase the portion of Social Security that’s taxed. If not planned for, RMDs can reduce the net income available during retirement.

What is asset location, and how does it relate to RMDs?

Asset location refers to placing specific investments in accounts based on their tax treatment. For example, tax-inefficient investments may be held in tax-deferred accounts, while tax-efficient investments are placed in taxable accounts. This strategy helps reduce taxable income and can lower the long-term impact of RMDs on retirement income.

About Michael

Michael Henley is the Founder and CEO of Brandywine Oak Private Wealth, a private wealth management and registered independent advisory firm headquartered in Kennett Square, PA. Over the course of his 20-year career, Michael has been dedicated to helping wealthy individuals and families plan and manage all aspects of their finances and investments. With a passion for helping others look behind the curtain and understand the complex world of finance, he develops close relationships with clients as he helps them progress toward their financial goals. Michael loves to provide clarity and alleviate financial anxiety, help prevent families from overpaying in taxes, and give wealthy families permission to enjoy their life savings. He says, “No work is more gratifying than giving families outcomes to what matters most to them.”

Michael holds the CERTIFIED FINANCIAL PLANNER®, Certified Private Wealth Advisor®, Chartered Retirement Planning Counselor℠, and Retirement Management Advisor® designations. Residing in Chadds Ford, PA, with his two children, he enjoys outdoor activities, particularly maintaining trails on his property, hiking with his dogs, and being an actively engaged dad, always taking his kids everywhere. Michael’s latest hobby is tennis and he recently started ice skating to join his daughter Savannah. He can also be found moving logs to the firepit with his son Maverick on the tractor. Michael serves on the board of United Way of Southern Chester County and loves mentoring younger advisors. Great mentors helped him succeed, and he’s convinced that every leader needs to both have mentors and be a mentor. To learn more about Michael, connect with him on LinkedIn.

Brandywine Oak Private Wealth is a registered investment adviser. Registration does not imply a certain level of skill or training. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.