Bold takeaway: Retirees face a delicate balance with Required Minimum Distributions (RMDs), and timing, strategy, and future tax rates can dramatically alter your lifetime tax bill. Here’s a thoroughly rewritten, uniquely worded version that preserves all key information, explains concepts clearly for beginners, and expands with helpful context and examples.
Ed Slott: What Retirees Should Know About RMDs
Key Insights
- The majority of people opt to take RMDs later in the year, which often works well if other moves like qualified charitable distributions (QCDs) are in play.
- New RMD takers can delay their first distribution until April 1 of the year after they turn 73, but this generally isn’t advisable because it creates a double distribution in the following year.
- Once in RMD mode, attempting a conversion is costly because an RMD cannot be converted. Any conversion occurs only after all RMDs for the year have been satisfied across all IRAs.
- There are no income limits for traditional IRA contributions, yet Roth contributions have income limits. If those limits are exceeded, the backdoor Roth route becomes an option, especially if still working.
- A widely cited principle, the “always” rule, advocates paying taxes at the lowest possible rates across a lifetime, even if that means paying taxes in years when not strictly required, such as taking extra than the RMD.
Christine Benz: Hi, I’m Christine Benz from Morningstar. Investors have until December 31 to complete their 2025 RMDs. I’m joined by tax and retirement expert Ed Slott to answer common RMD questions. Ed, thanks for being with us.
Ed Slott: Happy to be here, Christine.
Should Retirees Time RMDs?
Benz: When it comes to RMD timing, is it better to take distributions earlier or later in the year? What’s your guidance?
Slott: It depends on your situation. Most people end up taking RMDs toward year-end, particularly if they also use QCDs—the charitable distributions from an IRA. A QCD reduces your taxable income by the amount given as a distribution, so if you use QCDs first, you might reduce or even avoid taking the later RMD. Some people prefer to complete the RMD early in January to get it handled, while others wait until year-end to let the account continue to grow tax-deferred. It’s a personal choice and even a psychological one: some are proactive, others prefer to react to year-end planning. Timing itself won’t beat market fluctuations, so don’t rely on timing to beat the market.
Why Should First-Time RMDs Not Be Delayed to April 1?
Benz: First-time RMDs can be delayed until April 1 of the year after the year you turn 73. Should new RMD takers choose this delay?
Slott: In most cases, no. Delaying creates a double RMD in the following year—twice the required amount—pushing up taxes sooner. It’s usually better to take the first distribution in the year you reach 73 (even if you could wait until April 1). This makes the two-year tax picture smoother: you take a smaller RMD in each year and avoid a big increase in the tax bill. There are exceptions, such as years with unusually low income or substantial deductions that could absorb a double RMD, but those are relatively rare and depend on individual circumstances.
Reducing RMDs: What Tools Work?
Benz: Reducing RMDs is a common goal. Beyond Roth conversions and contributing to Roth IRAs, what options exist once RMDs have begun?
Slott: The main tool is the qualified charitable distribution (QCD). Outside that, there’s little else that directly lowers RMDs once you’re in RMD territory beyond moving income with deductions or business losses. Importantly, converting to a Roth becomes expensive once RMDs have started because RMD dollars can’t be rolled over or converted. You must satisfy all your RMDs for that year across all your IRAs before any remaining funds can be converted. If several IRAs are involved, this means you’ll pay more tax on dollars that can’t be converted in that tax year.
Can RMDs Be Reinvested into a Roth IRA?
Benz: If still working and with earned income, could an RMD be directed into a Roth IRA, or is converting still restricted?
Slott: You can’t convert an RMD itself. However, after you’ve taken the distribution and paid the tax, you’re free to use those funds as you wish, including making a Roth contribution or funding a Roth conversion with the money you’ve received. If you have earned income, contributions into a traditional IRA or a backdoor Roth are possible routes; the backdoor Roth involves making a nondeductible traditional IRA contribution and then converting to a Roth.
Earned Income and IRA Contributions
Benz: If someone has earned income in retirement—though rare—do contribution limits apply to IRA contributions?
Slott: There are no income limits for traditional IRA contributions. Roth contributions, however, do have income limits. If those limits are exceeded, a backdoor Roth is an option: contribute to a traditional IRA (nondeductible) and then convert to a Roth. This strategy achieves a similar result to direct Roth contributions.
Accelerating RMDs: A Contrarian View
Benz: You sometimes argue that delaying RMDs isn’t always optimal and that accelerating them can be advantageous in some cases. Could you elaborate?
Slott: It’s a contrarian stance grounded in math. With tax rates historically low now and expected to rise in the future, maximizing Roth conversions or taking distributions while in lower tax brackets can reduce future tax exposure. The key idea is not to assume current low rates will persist. If an account balance is large, delaying distributions can push a significant amount into higher tax brackets later, especially under the Secure Act’s 10-year rule for inheriting IRAs. The goal is to blend today’s lower tax rates with future strategy, potentially paying some tax now to avoid a bigger bill later.
An “Always” Approach to Taxes
Slott: My guiding principle is the “always” rule: pay taxes at the lowest possible rates over a lifetime. This might mean paying taxes in years when RMDs aren’t due by converting or doing Roth contributions during periods of lower rates. Even for someone not yet at RMD age, starting conversions to Roth while rates are low can position a retiree for lower taxes when withdrawals begin.
Benz: There are many questions about RMDs. Thanks for sharing your insights.
Slott: My pleasure.
Benz: Thanks for watching. I’m Christine Benz from Morningstar.
Further Resources
- Ed Slott’s insights on optimizing charitable gifts for tax time can be found here: Morningstar’s interview with Ed Slott on Make Your Charitable Gifts Count at Tax Time.
Notes
- The authors do not own shares in any securities mentioned. For more on Morningstar’s editorial policies, see their policy page.
If you’d like, I can tailor this rewrite to a specific audience (new retirees, financial planners, or general readers), adjust the level of technical detail, or add practical examples and a brief FAQ for quick reference.
