RMD Taxes: How Required Minimum Distributions Affect Your Tax Bill
Updated: 1 day ago
Required minimum distributions (RMDs) can affect much more than the amount withdrawn from a retirement account. They may increase taxable income, change how much of your Social Security is taxable, affect Medicare IRMAA premiums, influence capital-gains taxation, and create an Arizona income-tax consequence for residents.
The important distinction is this: the amount you are required to withdraw and the amount of tax you owe are two different calculations.
RMDs are minimum withdrawals generally required from certain retirement accounts after the applicable starting point under federal law. The taxable portion is usually included in ordinary income, but there is no special federal “RMD tax rate.” The result depends on your entire tax return, not on the RMD amount alone.
For many retirees, the first RMD deadline may still be years away. That does not mean tax planning should wait. Reviewing pretax balances, Roth conversion possibilities, charitable giving, withholding, and future income before RMDs begin may provide more choices than waiting until the first distribution is required.
RMD Taxes: The Short Answer
Are RMDs taxable? Generally, the taxable portion of an RMD from a traditional pretax retirement account is included in ordinary income. However, several qualifications matter:
RMDs do not have a separate federal tax rate.
Not every dollar is necessarily taxable when after-tax basis exists.
RMD income can affect the taxation of Social Security benefits.
Higher income can contribute to Medicare IRMAA adjustments in a later year.
State tax treatment may differ from federal treatment.
The first RMD may have special timing rules.
An RMD generally cannot simply be converted to a Roth IRA.
A properly executed qualified charitable distribution (QCD) may count toward an RMD when all requirements are met.
Your filing status, other income, deductions, account history, state of residence, and timing all matter. A custodian’s RMD calculation can help determine the required withdrawal, but it does not determine your complete tax liability.
What Is a Required Minimum Distribution?
An RMD is the minimum amount federal tax law generally requires an account owner to distribute from certain retirement accounts for a particular year once the applicable requirements begin.
An RMD is not:
A penalty
A special type of tax
A requirement that you spend the money
You generally must take the required distribution, but what you do with the money afterward is a separate financial decision. This article focuses on the tax consequences rather than investment, spending, or portfolio recommendations.
Which Retirement Accounts Have RMDs?
RMD rules can apply to several types of retirement accounts, including:
Traditional IRAs
SEP IRAs
SIMPLE IRAs
Traditional 401(k) plans
403(b) plans
Certain governmental 457(b) plans
Other qualifying employer retirement plans
Under current law, Roth IRAs generally do not require lifetime RMDs from the original owner. Beginning in 2024, designated Roth accounts in qualified employer plans are also no longer subject to lifetime RMD requirements for the participant. Different distribution rules can apply after the account owner's death.
Inherited retirement accounts have separate distribution requirements and should not automatically be treated like accounts owned by the original participant. Beneficiary status, the date of death, the account type, and other facts can affect the applicable distribution rules.
What Age Do RMDs Start?
The age at which required minimum distributions begin depends on your birth year under current federal law. For many current retirees, the applicable RMD starting age is 73. Under SECURE 2.0, the applicable age increases to 75 for later birth cohorts.
Because prior versions of the law used ages 70½ and 72, older articles, retirement materials, and account documents may show different starting ages. Taxpayers should determine the rule that applies to their birth year and account type using current IRS guidance.
For an IRA owner subject to the current age-73 rule, the first RMD is generally for the calendar year in which the owner reaches age 73. The first distribution may generally be delayed until April 1 of the following year. Subsequent RMDs generally must be taken by December 31 each year.
Delaying the first RMD until the following year can result in two taxable RMDs being received in the same calendar year—the delayed first RMD by April 1 and the second RMD by December 31. That concentration of income may affect federal and state income taxes, Social Security taxation, Medicare IRMAA, and the tax treatment of other income.
The latest permitted deadline is not necessarily the lowest-tax choice.
How Is an RMD Calculated?
For many account owners, the annual RMD is generally calculated using this framework:
Prior year-end account balance ÷ applicable life-expectancy factor = RMD
The applicable factor usually comes from an IRS life-expectancy table. The table may depend on circumstances such as whether the account owner’s spouse is the sole beneficiary and more than 10 years younger. Other situations may involve a different table.
The commonly referenced tables include:
Uniform Lifetime Table
Joint and Last Survivor Table
Single Life Table in certain beneficiary situations
The account balance and the applicable factor determine how much must be distributed. They do not determine the tax rate. The tax result requires a separate review of the taxable portion and the taxpayer’s overall return.
For current worksheets and life-expectancy tables, see IRS Publication 590-B rather than relying on an older calculator, table, or online article.
Are RMDs Taxable?
The taxable portion of an RMD from a traditional pretax retirement account is generally included in ordinary income. However, it is too broad to assume that every dollar of every RMD is taxable.
If you have made nondeductible contributions to a traditional IRA or rolled after-tax amounts into one, you may have basis in your traditional IRAs. That basis generally represents amounts that have already been taxed and therefore are not taxed again when distributed. Form 8606 is generally used to track IRA basis and determine the taxable and nontaxable portions of distributions when basis exists.
When determining the taxable portion of a traditional IRA distribution, you generally cannot choose to withdraw only the after-tax basis from a particular IRA. The calculation generally considers your traditional, SEP, and SIMPLE IRAs together under the applicable IRA aggregation rules. Maintaining accurate records of nondeductible contributions, after-tax rollovers, and previously filed Forms 8606 can therefore be important.
Employer retirement plans can have different basis and distribution rules. Do not assume that the tax treatment applicable to traditional IRAs works identically for a 401(k), 403(b), or another employer plan.
The IRS specifically advises taxpayers to keep track of their traditional IRA basis because it is used to determine the nontaxable portion of future distributions.
What Is the RMD Tax Rate?
There is no special federal RMD tax rate. The taxable portion generally enters the ordinary-income tax system along with other taxable income.
Because federal tax rates are progressive, different portions of total taxable income may fall into different brackets. It is usually not accurate to calculate tax by multiplying the entire RMD by one bracket and treating that result as the tax owed.
A more useful conceptual comparison is:
Tax with the RMD – tax without the RMD = incremental tax attributable to the distribution
Even that incremental amount can be affected by other provisions of the tax return. The RMD may increase the taxable portion of Social Security, affect deductions or credits, change the tax environment for capital gains, or contribute to a later IRMAA determination.
How Much Tax Will I Pay on My RMD?
There is no universal answer. The result may depend on:
Filing status
Other ordinary income
Pension income
Taxable Social Security
Investment income
Capital gains
Deductions and credits
IRA basis
State residency
Other retirement distributions
For example, imagine a retiree who receives Social Security, a pension, investment income, and a $30,000 RMD. The RMD may be taxable as ordinary income, but its effect cannot be evaluated in isolation. It may also cause a larger portion of Social Security benefits to be included in taxable income or place more income into a higher marginal bracket.
The practical question is not simply “What percentage applies to my RMD?” It is “How does this additional income change my complete federal and state tax picture?”
RMDs and Social Security Taxes
An RMD can affect how much of your Social Security benefits is subject to federal income tax because taxable retirement distributions generally increase the income used in the Social Security taxation calculation.
The federal calculation considers your income from other sources together with a portion of your Social Security benefits. As income increases, a larger portion of Social Security may become taxable. Depending on filing status and total income, up to 85% of Social Security benefits can be included in taxable income. This does not mean Social Security is taxed at an 85% tax rate.
An RMD does not automatically cause 85% of your Social Security benefits to become taxable. The result depends on your filing status, Social Security benefits, other income, tax-exempt interest, and other applicable items. For additional information about the federal calculation, see IRS Publication 915.
Retirees receiving both Social Security and RMDs should therefore evaluate the two income sources together rather than viewing the tax on the RMD in isolation.
For a detailed explanation of the federal calculation and how other retirement income can affect your benefits, see Is Social Security Taxable? How Federal Taxes on Benefits Work.
RMDs and Medicare IRMAA
IRMAA—the Income-Related Monthly Adjustment Amount—is not a tax. It is an additional amount that can increase Medicare Part B and Part D costs for beneficiaries whose income exceeds applicable thresholds.
RMD income can increase the modified adjusted gross income (MAGI) used to determine whether IRMAA applies. For IRMAA purposes, MAGI generally consists of adjusted gross income plus tax-exempt interest. Social Security generally uses tax-return information from two years before the Medicare premium year. For example, 2026 Medicare IRMAA determinations generally use income reported on the taxpayer's 2024 federal income tax return.
As a result, an RMD received in one year may create an income-tax consequence for that year and potentially affect Medicare premiums two years later. The effect depends on the taxpayer's total MAGI—not on the RMD amount alone.
Certain qualifying life-changing events, such as retirement or a reduction in work, may allow a Medicare beneficiary to request that Social Security use more recent income information when determining IRMAA. A higher RMD by itself, however, should not be assumed to qualify for this treatment.
Retirees should therefore consider potential Medicare effects when evaluating RMDs together with Roth conversions, capital gains, property sales, and other significant income events. IRMAA thresholds and premium adjustments can change from year to year, so the rules applicable to the particular Medicare premium year should be reviewed.
For a detailed explanation of the income calculation, two-year lookback, thresholds, and planning considerations, see Medicare IRMAA: How Income Can Increase Your Medicare Premiums.
RMDs and Capital Gains
RMD income is generally ordinary income, not capital gain. However, additional ordinary income can affect the overall tax environment surrounding long-term capital gains.
Potential interactions may include:
The taxable-income thresholds associated with capital-gains rates
The amount of gain taxed at a particular rate
Net investment income tax considerations where applicable
An RMD does not convert capital gains into ordinary income. The interaction occurs through the taxpayer’s overall income and tax calculations.
RMDs and Arizona Income Tax
For an Arizona resident, the federally taxable portion of a traditional IRA or other taxable retirement distribution will generally be included in Arizona income as well, subject to Arizona-specific subtractions, exclusions, and other adjustments. Arizona does not have a separate tax rate that applies specifically to RMDs.
The type of retirement income matters. Arizona provides specific tax treatment for certain categories of retirement income, but those rules should not be interpreted to mean that ordinary traditional IRA or 401(k) distributions are automatically exempt from Arizona income tax. The account type, federal tax treatment, applicable Arizona adjustments, and the taxpayer's overall return should be reviewed together.
For a broader explanation of how Arizona treats Social Security, IRA and 401(k) distributions, pensions, military retirement, Roth income, capital gains, and other retirement income, see Arizona Retirement Taxes: What Retirees Need to Know.
Why RMD Tax Planning Can Start Before RMDs Begin
A taxpayer may have several years between retirement and the beginning of required minimum distributions. Those years can provide an opportunity to evaluate future RMD exposure and compare tax-planning strategies before mandatory distributions begin.
Planning questions may include:
What could future pretax retirement-account balances and RMDs look like?
Would partial withdrawals or Roth conversions create a more favorable multi-year tax result?
How might future RMDs affect the taxation of Social Security benefits?
Could higher income from future RMDs affect Medicare IRMAA?
Would charitable giving plans make qualified charitable distributions relevant after the applicable eligibility age?
Could the timing of capital gains, property sales, or other significant income events change the analysis?
How might a change in residency affect state income tax on retirement income?Could a current or future move to another state affect the state-tax comparison?
The objective is not necessarily to minimize the current year's tax bill or eliminate future RMDs. In some circumstances, intentionally recognizing additional taxable income before RMDs begin—such as through a Roth conversion—can create a higher current tax bill in exchange for a different future retirement-income and tax profile.
A more useful comparison is often:
Current tax cost and current income interactions
versus
Projected future RMDs and their potential tax consequences
For a broader framework for coordinating retirement income, Social Security, Medicare, and future RMDs, see Retirement Tax Planning: What to Do Before You Retire.
One strategy that may be evaluated during the years before RMDs begin is a partial Roth conversion. For a detailed discussion of when a conversion may make sense and how the amount can be modeled, see Roth Conversion: When Does It Make Sense and How Much Should You Convert?
Florence Tax LLC approaches retirement tax planning as a year-round process. Tax Planning vs. Tax Preparation: What's the Difference? explains why reviewing a decision before it occurs can provide more planning options than discovering its consequences during tax preparation.
Roth Conversions Before RMDs
A Roth conversion generally moves eligible pretax retirement funds into Roth treatment and creates taxable income in the year of conversion. Converting part of a traditional retirement balance before RMDs begin may reduce the balance used to calculate future RMDs, all else being equal.
That does not mean a Roth conversion is appropriate for every retiree. The current tax cost should be compared with projected future RMDs and other potential effects involving Social Security taxation, Medicare IRMAA, state taxes, charitable plans, and available cash to pay the resulting tax.
The goal is not simply to reduce future RMDs. The relevant question is whether recognizing income through a conversion now produces a more appropriate multi-year tax result given the taxpayer's circumstances.
For a detailed discussion of conversion timing, tax consequences, and how much to convert, see Roth Conversion: When Does It Make Sense and How Much Should You Convert?
Can You Do a Roth Conversion After RMDs Begin?
Reaching RMD age does not prevent you from completing a Roth conversion. However, if you have an RMD for the year, the required distribution must generally be satisfied before additional eligible retirement funds are converted.
The RMD itself cannot be converted to a Roth IRA because required minimum distributions are not eligible rollover distributions. After the applicable RMD has been satisfied, however, additional eligible amounts may potentially be converted to a Roth IRA.
Any additional Roth conversion can create taxable income for the year, so the amount should be evaluated together with the RMD and other income. The combined income may affect federal and state taxes, Social Security taxation, Medicare IRMAA, and other income-sensitive provisions.
The important distinction is:
You generally cannot convert the RMD itself, but beginning RMDs does not necessarily prevent you from completing a separate Roth conversion.
For a detailed discussion of conversion timing and how much to convert, see Roth Conversion: When Does It Make Sense and How Much Should You Convert?
Qualified Charitable Distributions and RMDs
An IRA owner who is at least age 70½ when the distribution is made may be eligible to make a qualified charitable distribution (QCD) directly from an IRA to an eligible charitable organization. When the applicable requirements are satisfied, a QCD can generally be excluded from taxable income and may count toward all or part of the taxpayer's RMD for the year.
A QCD is different from taking an IRA distribution personally and then making a charitable contribution. To qualify, the distribution generally must be made directly from the IRA trustee to the eligible charitable organization. A QCD that is excluded from income also cannot be claimed again as a charitable contribution deduction.
Timing can be important. If a taxpayer plans to use a QCD to satisfy part or all of an RMD, the charitable transfer should be coordinated before simply taking the entire RMD personally. Money already distributed to the IRA owner generally cannot later be redesignated as a QCD.
QCD eligibility also depends on the type of retirement account, the recipient organization, the taxpayer's age when the distribution occurs, applicable annual limits, and other requirements. Because QCD dollar limits are indexed, the limit applicable to the particular tax year should be confirmed before completing the transfer.
For charitably inclined retirees, a QCD can therefore be relevant to both RMD planning and taxable-income planning, but the transaction should be structured correctly before the distribution occurs.
What If You Don’t Need the RMD Money?
Federal law generally requires the distribution, not that you spend it. After addressing taxes and other obligations, the money may be retained as cash, used for expenses, donated, or handled in another manner appropriate to the taxpayer’s circumstances.
The tax questions may include whether charitable giving should be coordinated with a QCD, whether withholding is sufficient, and whether the distribution affects future Medicare premiums. Decisions about securities or investment allocations are outside the scope of this article and may require another professional.
Can You Take More Than the RMD?
Generally, a taxpayer can take more than the required minimum. However, an extra distribution does not generally reduce a future year’s RMD dollar-for-dollar as though RMDs can be prepaid. Future RMDs are calculated under the rules applicable to the future year.
Taking more than the minimum can also create additional taxable income and may affect Social Security, IRMAA, capital gains, and state tax.
The First RMD Deadline: Should You Delay?
The first RMD generally has a special timing rule that may allow the distribution to be delayed until April 1 of the following calendar year. However, delaying the first RMD does not eliminate it. The next RMD is generally still due by December 31 of that same year, which can result in two RMDs being received during one calendar year.
Whether delaying the first RMD makes sense depends on the taxpayer's broader income and tax circumstances. Before deciding, consider how each option could affect:
Federal taxable income
Marginal tax brackets
The taxable portion of Social Security benefits
Medicare IRMAA
Capital-gains taxation
Arizona or other applicable state income taxes
Withholding and estimated tax payments
For example, taking the first RMD during the first eligible calendar year may spread retirement income across two tax years. Delaying it until the following year may be useful when income is unusually high in the first year, but it can also concentrate two RMDs—and potentially other retirement income—in the following year.
The decision should therefore be based on a comparison of the taxpayer's projected tax returns and other income-sensitive consequences for both years, rather than simply choosing the latest permitted deadline.
The latest permitted RMD deadline is not necessarily the lowest-tax choice.
RMDs From Multiple Accounts
If you own multiple traditional IRAs, the RMD generally must be calculated separately for each IRA. However, you may generally add those RMD amounts together and withdraw the total required amount from one or more of your traditional IRAs. You do not necessarily have to take a separate distribution from each IRA.
For example, if the calculated RMDs from three traditional IRAs are $5,000, $3,000, and $2,000, the total IRA RMD is $10,000. Subject to the applicable rules, that $10,000 could generally be withdrawn from one of those IRAs or divided among them.
A similar aggregation rule generally applies to multiple 403(b) accounts: the RMD must be calculated for each 403(b) account, but the total may generally be withdrawn from one or more of the taxpayer's 403(b) accounts.
Do not assume that rule applies to every type of retirement plan. RMDs from other employer plans, such as 401(k) and 457(b) plans, generally must be calculated and satisfied separately for each plan. A distribution from an IRA also cannot simply be used to satisfy an RMD required from a 401(k), and vice versa.
Inherited accounts can also have different aggregation rules. Whether distributions can be combined depends on factors such as the account type, whether the taxpayer owns the account or holds it as a beneficiary, and—in the case of inherited accounts—the identity of the original account owner. Those situations should be reviewed separately rather than applying the general owner-IRA aggregation rule automatically.
What If You Are Still Working?
Continuing to work does not automatically delay RMDs from every retirement account. Traditional IRAs, SEP IRAs, and SIMPLE IRAs generally remain subject to the applicable RMD starting rules even if the account owner is still employed.
For certain employer-sponsored retirement plans, however, the required beginning date may be delayed until after the participant retires if the plan permits it. This exception generally does not apply to an employee who is a 5% owner of the business sponsoring the plan, and the terms of the employer's plan can also affect when distributions must begin.
For someone who is still working after reaching the applicable RMD age, each account should therefore be evaluated separately. An RMD may be required from an IRA while an RMD from a current employer's qualifying workplace plan may potentially be delayed.
RMD Withholding and Estimated Taxes
Federal income tax can generally be withheld from a taxable RMD. The appropriate amount depends on the taxpayer's projected total tax liability, not simply on the size of the RMD.
A retiree's tax payments during the year may come from several sources, including:
Pension withholding
Social Security withholding
RMD or other retirement-distribution withholding
Wage withholding, if applicable
Estimated tax payments
For federal tax purposes, withholding and estimated tax payments are both part of the pay-as-you-go tax system. If projected withholding will not be sufficient to cover the taxpayer's required payments for the year, estimated tax payments may also be necessary. For additional guidance, see IRS Publication 505, Tax Withholding and Estimated Tax.
RMD withholding can sometimes provide additional flexibility when a retiree discovers later in the year that previous tax payments may be insufficient. Federal withholding is generally treated as having been paid throughout the year for estimated-tax purposes unless the taxpayer elects to have it applied based on the actual withholding dates.
That does not mean there is one appropriate withholding percentage for every RMD. The amount should be coordinated with the taxpayer's other income, deductions, credits, withholding, estimated payments, and projected federal and state tax liability.
Florence Tax LLC can help project the total tax liability and coordinate withholding and estimated payments rather than choosing a withholding percentage based solely on the RMD amount.
What Happens If You Miss an RMD?
If an RMD is not taken in full by the applicable deadline, the amount that should have been distributed but was not may be subject to a federal excise tax.
Under current law, the excise tax is generally 25% of the RMD shortfall. The rate may be reduced to 10% if the shortfall is corrected within the applicable correction window and the requirements for the reduced rate are satisfied.
For example, if a taxpayer was required to take a $20,000 RMD but distributed only $15,000, the potential excise tax is based on the $5,000 shortfall, not the entire $20,000 RMD.
Form 5329 is generally used to report the additional tax associated with an RMD shortfall. The applicable form and procedures should be reviewed for the tax year in which the RMD was required.
The IRS may also waive part or all of the excise tax if the taxpayer can establish that the shortfall resulted from reasonable error and that reasonable steps are being taken to correct it. A taxpayer requesting this relief generally must file Form 5329 and provide an explanation supporting the waiver request. The waiver is not automatic.
If an RMD may have been missed, the issue should be investigated and corrected promptly rather than waiting until the next tax-preparation season.
Practical Examples
The following simplified examples illustrate why the tax impact of an RMD depends on more than the distribution amount alone.
Example 1: Fully Pretax Traditional IRA
Suppose a retiree has a $900,000 traditional IRA consisting entirely of deductible contributions and tax-deferred earnings. If the retiree has a $35,000 RMD for the year, the full $35,000 would generally be included in taxable income.
The ultimate tax cost, however, depends on the retiree's filing status, Social Security benefits, pension income, investment income, deductions, credits, and other tax items.
The RMD amount and the tax owed on the RMD are therefore two different calculations.
Example 2: Traditional IRA With Nondeductible Basis
Suppose another retiree has made nondeductible contributions to traditional IRAs in prior years and has properly tracked that basis.
An RMD from those IRAs may consist of both taxable and nontaxable amounts. The retiree generally cannot simply designate the distribution as coming entirely from the after-tax portion of one IRA. The taxable and nontaxable amounts are determined under the applicable IRA basis rules.
This is why maintaining accurate Form 8606 records can be important when calculating the taxable portion of retirement distributions.
Example 3: Delaying the First RMD
Suppose a retiree is permitted to delay the first RMD until April 1 of the following year.
If the retiree delays that first distribution, the second RMD will generally still be due by December 31 of the same year. That could result in two taxable RMDs being received during one calendar year.
Whether delaying is beneficial depends on the taxpayer's income in both years and the potential effects on federal and state income taxes, Social Security taxation, Medicare IRMAA, capital gains, and other income-sensitive provisions.
Example 4: Using a QCD Toward an RMD
Suppose an IRA owner who meets the QCD age requirement is charitably inclined and has an RMD for the year.
Instead of receiving the entire RMD personally and then making a charitable contribution, the IRA owner may be able to direct part of the IRA distribution to an eligible charitable organization as a qualified charitable distribution. When the applicable requirements are satisfied, the QCD can generally be excluded from income and can count toward all or part of the RMD.
This illustrates why charitable planning and RMD planning may be more effective when coordinated before the distribution is made.
Florence Tax LLC’s RMD Tax Review
A practical RMD review may include:
Identify RMD-subject accounts. Review account types, ownership, employment status, beneficiary status, and the applicable RMD starting rules.
Calculate required distributions. Review prior year-end account balances and apply the appropriate IRS life-expectancy factors.
Determine the taxable amounts. Identify pretax amounts, IRA basis, prior nondeductible contributions, Form 8606 history, and other information that may affect how much of a distribution is taxable.
Build the complete retirement-income picture. Coordinate RMDs with Social Security, pensions, investment income, capital gains, rental or business income, and other retirement distributions.
Model federal and state tax effects. Evaluate how RMD income may interact with federal income taxes, Social Security taxation, Medicare IRMAA, capital gains, and Arizona or other applicable state taxes.
Evaluate planning opportunities. Depending on the taxpayer's circumstances, this may include first-RMD timing, qualified charitable distributions, pre-RMD Roth conversions, and the timing of other significant income events.
Coordinate tax payments. Review federal and state withholding and determine whether estimated tax payments may also be necessary.
Project future years. RMD planning should not end after one distribution. Account balances, future RMDs, tax laws, income sources, charitable goals, and retirement circumstances can change, making periodic review important.
Common RMD Tax Mistakes
Common RMD planning mistakes include:
Assuming every RMD is fully taxable. Traditional retirement distributions are often fully taxable, but IRA basis or other after-tax amounts can affect the taxable portion.
Losing records of nondeductible IRA contributions. Missing Form 8606 history can make it more difficult to establish IRA basis and correctly determine the taxable portion of distributions.
Assuming RMDs have a special tax rate. Taxable RMD income is generally included with other ordinary income rather than being taxed at a separate RMD-specific rate.
Looking at the RMD in isolation. Additional retirement income can affect Social Security taxation, Medicare IRMAA, capital gains, state taxes, and other income-sensitive provisions.
Waiting until the first RMD year to begin planning. The years before RMDs begin may provide opportunities to evaluate Roth conversions, withdrawals, charitable planning, and other multi-year strategies.
Assuming everyone starts RMDs at the same age. The applicable starting age depends on current law, birth year, account type, and potentially employment status.
Using outdated RMD rules or life-expectancy tables. RMD laws and calculation rules have changed over time, making current IRS guidance important.
Applying IRA aggregation rules to every retirement account. Multiple traditional IRA RMDs can generally be aggregated for withdrawal purposes, but the same rule does not apply to every employer-sponsored retirement plan.
Assuming continued employment delays every RMD. A still-working exception may apply to certain current-employer plans, but continuing to work generally does not postpone RMDs from traditional IRAs.
Confusing original-owner and inherited-account rules. Inherited retirement accounts can have different distribution requirements and should be analyzed separately.
Trying to convert the RMD itself to a Roth IRA. An RMD is not an eligible rollover distribution. A separate Roth conversion may still be possible after the applicable RMD has been satisfied.
Taking the full IRA distribution before considering a QCD. A taxpayer who is eligible and charitably inclined may want to evaluate a qualified charitable distribution before receiving the entire RMD personally.
Delaying the first RMD without modeling both years. Delaying the first RMD until the following year can result in two RMDs being received in one calendar year, potentially increasing other income-related tax consequences.
RMD Tax FAQs
Are RMDs taxable?
Generally, the taxable portion of an RMD from a traditional pretax retirement account is included in ordinary income. If the account contains after-tax basis, however, part of the distribution may be nontaxable.
Are all RMDs 100% taxable?
No. Although an RMD from an entirely pretax traditional retirement account may be fully taxable, nondeductible contributions or other after-tax basis can affect the taxable amount.
What is the tax rate on an RMD?
There is no separate federal RMD tax rate. The taxable portion of the distribution is generally included with your other taxable income and taxed under the ordinary federal income-tax rules that apply to your return.
At what age do RMDs start?
The applicable RMD starting age depends on your birth year and current federal law. For many current retirees, the starting age is 73, while SECURE 2.0 increases the applicable age to 75 for later birth cohorts. Account type and certain employment circumstances can also affect when distributions must begin.
Can RMDs make more of my Social Security taxable?
Yes. Taxable RMD income can increase the income used in the federal Social Security taxation calculation. Depending on your filing status and overall income, up to 85% of Social Security benefits can be included in taxable income.
Can RMDs increase Medicare premiums?
Potentially. RMD income can increase the modified adjusted gross income used to determine Medicare IRMAA. Because IRMAA generally uses tax-return information from two years earlier, an RMD received this year may potentially affect Medicare premiums two years later.
Does Arizona tax RMDs?
The federally taxable portion of a traditional IRA or other taxable retirement distribution will generally be included in income for an Arizona resident, subject to applicable Arizona-specific adjustments. Arizona does not provide a blanket exclusion simply because a distribution is an RMD.
For more detail, see Arizona Retirement Taxes: What Retirees Need to Know.
The Best Time to Plan for RMD Taxes May Be Before RMDs Begin
A useful RMD tax-planning process can be organized around three time periods:
Before RMDs Begin
Project future RMDs based on current retirement-account balances.
Evaluate whether partial Roth conversions or other distributions may make sense before mandatory distributions begin.
Coordinate retirement-account decisions with Social Security, Medicare, charitable giving, capital gains, and state-tax considerations.
Preserve records of nondeductible IRA contributions and other after-tax basis.
Review whether future qualified charitable distributions may fit your charitable plans.
During the First RMD Year
Confirm the applicable RMD starting age and deadline.
Calculate the required distribution using current IRS rules.
Determine whether taking the first RMD in the first eligible year or delaying it until the following year produces the more appropriate overall tax result.
Coordinate the RMD with other income and significant financial transactions.
Review federal and state withholding or estimated tax requirements.
After RMDs Begin
Recalculate the RMD each year using the applicable account balances and current rules.
Review how the distribution affects taxable income, Social Security taxation, Medicare IRMAA, and state income taxes.
Consider qualified charitable distributions when appropriate.
Evaluate whether additional Roth conversions or other retirement-account strategies remain appropriate.
Update multi-year projections as account balances, tax laws, income, and retirement circumstances change.
RMD planning is not simply about taking the required amount by the deadline. It is about coordinating required distributions with the rest of your retirement tax picture.
Get Help With RMD Tax Planning
Required minimum distributions can affect more than the tax on the distribution itself. RMDs may also interact with Social Security taxation, Medicare IRMAA, capital gains, charitable giving, Roth conversions, and state income taxes.
Florence Tax LLC helps retirees evaluate these decisions as part of a broader, multi-year tax-planning strategy. Whether you are approaching your first RMD or already taking required distributions, we can help you understand how those distributions fit into your overall tax picture.
Florence Tax LLC serves retirees in Prescott, Yavapai County, throughout Arizona, and nationwide through our virtual-first practice.
Disclaimer: This article is for general educational and informational purposes only and does not constitute individualized tax, legal, accounting, financial, investment, retirement, Medicare, Social Security, or estate-planning advice. Required minimum distribution rules and tax consequences depend on factors including account type, ownership, age, employment status, beneficiary status, IRA basis, filing status, income, state residency, charitable plans, and other individual circumstances.
Federal and state tax laws, RMD starting ages, distribution requirements, life-expectancy tables, excise-tax rules, QCD provisions, Social Security taxation rules, Medicare IRMAA thresholds, forms, and administrative guidance may change. Florence Tax LLC does not guarantee that a particular distribution strategy, Roth conversion, QCD, withholding election, or RMD timing decision will reduce taxes, Medicare premiums, or produce any particular result.
Retirement-account decisions may also involve investment, legal, estate-planning, and financial-planning considerations outside the scope of tax preparation and tax planning. Those matters should be coordinated with the appropriate qualified professionals. Reading this article or using information provided on this website does not create a professional-client relationship with Florence Tax LLC.
