Required Minimum Distributions don’t ask whether you actually need the money. Once you reach the applicable age, the IRS requires you to withdraw a set amount from your tax-deferred retirement accounts each year, whether that cash goes toward everyday expenses or just adds to your tax bill.
For many of the retirees we work with in Birmingham, the real challenge isn’t the withdrawal itself. It’s what that withdrawal does to the rest of the picture: higher tax brackets, higher Medicare premiums, and more of your Social Security benefit becoming taxable.
The good news is that RMDs aren’t something you have to simply absorb. With the right planning, often years in advance, you can meaningfully reduce their impact. Here’s what that planning can look like.
Why Large, Unplanned RMDs Create Problems
An RMD that’s bigger than expected doesn’t just add a number to your tax return. It can set off a chain reaction across your finances.
Higher tax brackets. A large distribution counts as ordinary income, and it’s added on top of everything else you’re already earning. That can be enough to push part of your income into a higher bracket than you planned for.
Medicare IRMAA surcharges. Medicare Part B and Part D premiums are based on your income from two years prior. A large RMD can trigger an IRMAA surcharge, meaning you pay more for the same coverage the following year, sometimes significantly more.
More Social Security taxation. Depending on your total income, up to 85% of your Social Security benefit can become taxable. A larger RMD can push more of that benefit into taxable territory than you’d expect.
None of these outcomes is guaranteed. They’re simply what happen when RMDs aren’t factored into your broader financial plan ahead of time. The strategies below are the ones we most often use to get ahead of them.
Qualified Charitable Distributions (QCDs)
If giving back is already part of your life, a Qualified Charitable Distribution is one of the most efficient tools available. A QCD allows you to send part or all of your RMD, up to the annual limit, directly to a qualified charity. That amount is excluded from your taxable income entirely, rather than simply being deducted after the fact.
For clients who don’t need the full distribution for living expenses, this turns a required withdrawal into something that reflects their values instead of just adding to their tax bill. It also tends to open up broader conversations about the legacy someone wants to leave, which is where legacy planning and estate and charitable planning fit naturally alongside a QCD strategy.
Roth Conversions
One of the most effective ways to reduce a future RMD is to shrink the account it’s calculated from before you ever reach that age. Converting a portion of a traditional IRA to a Roth IRA during lower-income years, such as early retirement before Social Security or a pension begins, moves money out of the pre-tax bucket permanently.
You’ll owe tax on the amount converted in that year, but it happens on your terms, often at a lower rate than you’d pay later. Once the money is in a Roth, it grows tax-free and isn’t subject to RMDs at all. For clients with several years of lower income ahead of them, this is frequently one of the highest-impact moves available.
Strategic Early or Partial Withdrawals
Similarly, taking voluntary withdrawals from a traditional retirement account before RMDs begin can reduce the balance on which those future required distributions are based. Rather than letting an account grow untouched until age 73 and then facing a larger mandatory withdrawal, some retirees choose to draw it down gradually and intentionally in the years leading up to that point.
This works best when it’s coordinated with your overall income picture, since taking money out earlier than required still creates taxable income now. The goal is spreading that tax impact across more years at a lower rate, rather than concentrating it later at a higher one.
Qualified Longevity Annuity Contracts (QLACs)
A QLAC allows you to move a portion of your retirement funds, up to a set limit, into a deferred annuity that’s excluded from RMD calculations until payments begin, which can be as late as age 85. That portion of your savings continues working for you without adding to your required withdrawal each year.
This strategy tends to appeal to clients who want guaranteed income later in retirement while also reducing their RMD in the years before it. It’s a good example of where retirement withdrawal planning, insurance and risk management overlap, since a QLAC is fundamentally an income protection tool as much as a tax strategy.
The Still-Working Exception
If you’re still employed and participating in your current employer’s retirement plan, you may be able to delay RMDs from that specific plan until you actually retire, even past the standard RMD age. This exception generally doesn’t apply if you own more than 5% of the company, and it only applies to the plan at your current employer, not to IRAs or old 401(k)s from previous jobs.
For clients balancing an active career with retirement accounts from earlier in their working life, this is worth reviewing closely. Our team also works with business owners directly on their employer retirement plans, so if you’re navigating this exception alongside plan design decisions of your own, that’s a conversation worth having together.
Coordinating Withdrawal Timing and Account Types
Most retirees hold a mix of account types: traditional IRAs, Roth IRAs, taxable brokerage accounts, and sometimes old employer plans. Which account you draw from first, and when, has a real effect on your total tax bill over time.
There’s no single order that works for everyone. Some years it makes sense to draw from taxable accounts first to let tax-deferred money keep growing. In other years, drawing more from a traditional IRA makes sense to fill up a lower tax bracket before it’s wasted. This is where reviewing your accounts together, rather than one at a time, matters most. It’s a central part of how we approach investment management and retirement planning for clients approaching or already in this stage of life.
Bringing It Together
None of these strategies work in isolation, and not everyone will apply to your specific situation. A QCD might make sense for you, but not a QLAC. A Roth conversion might be worth exploring years before your first RMD, while the still-working exception might only matter for a couple more years. The value comes from looking at all of them together against your actual accounts, income, and goals.
That coordinated approach is what we call the Financial Peace of Mind Blueprint™, and the RMD strategy is one of the pieces we review closely with every client approaching this stage of life. If your RMDs are on the horizon or already underway and you want a clearer sense of what applies to you, we’re glad to sit down and walk through it together.
This article is for educational purposes and does not constitute investment, tax, or legal advice. Investing involves risk; markets fluctuate, and outcomes are never guaranteed. Strategies should be tailored to your individual goals, timeline, and risk tolerance. Please consult a qualified financial, tax, or legal professional before making decisions based on this information.
This material is prepared by Midstream Marketing.
