If you’ve saved much of your retirement assets in traditional IRAs or employer retirement plans, Required Minimum Distributions (RMDs) are likely to become part of your financial life at a point when you may already be thinking differently about the assets that will generate the income you live on for the rest of your life (both spouses). 

Once you reach the required age, the IRS determines the amount that must be distributed from these accounts each year, regardless of whether you need the money or not, using the IRS Uniform Lifetime Table. These withdrawals are usually taxed as ordinary income, which means they can impact your tax bracket, how much of your Social Security is taxed, and what you pay for Medicare. 

As Boston-based retirement planners, at Sherr Financial Associates (SFA), one of the most frequently asked questions about RMDs we receive from retirees is: 

How can I take required minimum distributions without increasing my taxes?

The concern usually isn’t that RMDs exist. It’s how they interact with your other retirement income and expenses, such as Social Security, Medicare premiums, pensions, charitable giving, and the other investment-related income streams you may have created. 

This article is written for you if you want a clearer understanding of how RMDs work, why they affect taxes the way they do, and what planning conversations often take place with retirees in the Boston area. Understanding how RMDs fit into your overall income picture helps you make more effective decisions about spending, saving, and taxes for all of your retirement years. 

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When Do RMDs Begin, and Why Does the First Year Matter for Your Taxes?

Required Minimum Distributions (RMDs) typically begin when you turn age 73. Your first RMD is generally due by April 1 of the year after you reach the required age, and every RMD after that must be taken by December 31 each year. Although the IRS gives you the option to delay that first withdrawal, the added flexibility often comes with a tradeoff that can affect how much income shows up in a single tax year.

By waiting, you may take two RMDs in one year, your first by April 1 and your second by December 31. The total amount withdrawn over time remains constant, but the amount of income reported on a single tax return does not.

Think of it like deferring a bill rather than eliminating it. The payment still comes due, and in this case, it can arrive alongside Social Security, pension income, taxable investment income, or even part-time earnings. When those income sources overlap, your tax picture can look very different from what you expected.

This is why our team of Boston retirement planners incorporates a tax plan that accounts for your first RMD year. It’s about choosing when income appears, so one year doesn’t carry more weight than it needs to, and your retirement income remains easier to manage.

Why Do RMDs Increase Taxes Even If You Don’t Need the Money?

Required Minimum Distributions (RMDs) increase taxable income because the money withdrawn from traditional IRAs and 401(k)s was originally contributed with pre-tax dollars. Those contributions lowered your taxable income at that time, which is one of the main reasons these accounts were so appealing while you were earning a paycheck.

RMDs are the other side of that tradeoff. The IRS allowed you to defer taxes for years, sometimes decades. Now that the money is being withdrawn, the IRS expects its share. Even if you don’t spend the withdrawal, the IRS treats it as ordinary income once it leaves the account.

Let’s look at a simple example of how an RMD can push you into a higher tax bracket:

Assume your retirement income before an RMD looks like this:

• Social Security benefits: $36,000
  • About $18,000 is taxable
• Retirement income: $28,000
• Interest and dividends: $14,000

Taxable income before RMD: $60,000

Now add a $32,000 RMD from a traditional IRA:

• Prior taxable income: $60,000
• RMD added: $32,000

New taxable income: $92,000

As you can see, the RMD doesn’t replace other income; it stacks on top of it. The result can be more income taxed at a higher marginal rate, a larger portion of Social Security becoming taxable, and a higher adjusted gross income that affects Medicare premiums.

For many retirees, this is why taxes rise even when income stays the same. The issue isn’t how much you’re using; it’s how many income sources are landing on the same tax return at the same time.

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What Commonly Goes Wrong With RMDs?

Most RMD problems are caused by timing and coordination issues, not a single bad decision or piece of advice. Treating RMDs as stand-alone withdrawals instead of part of a broader income plan often leads to higher taxes and avoidable complications, such as: 

• Setting tax withholding without considering the total annual income can result in either an unexpected balance due or unnecessary overwithholding.
• Missed RMDs or taking less than the required amount can also result in penalties and additional administrative work, problems most retirees don’t want to deal with after decades of saving.
• Equally important, many retirees tend to view each account separately. RMDs are often taken without considering taxable accounts, Roth balances, pensions, or Social Security. When withdrawals aren’t coordinated across all income sources, taxes tend to creep higher than they should. 

RMDs work best when they’re part of a single, organized income distribution plan rather than a series of disconnected decisions. The Sherr Financial Associates (SFA) team of financial planners can help you craft a retirement plan that addresses tax planning and withdrawals. 

How Can Qualified Charitable Distributions (QCDs) Change the Tax Conversation Around RMDs?

A Qualified Charitable Distribution (QCD) allows you to give directly from your IRA to a qualified charity, often keeping that amount out of taxable income while still counting toward your Required Minimum Distribution.

If charitable giving is already part of your life, QCDs can become one of the most practical tools available once you reach age 70½. Instead of taking an RMD, reporting the income, and then writing a charitable check, a QCD allows the money to move directly from your IRA to the charity. When done correctly, that distribution generally does not appear as a taxable distribution on your return.

A helpful way to think about a QCD is to consider it as a change in routing rather than a change in intent. The money leaves your IRA either way. The difference is whether it is included in your tax return before the distribution.

For many retirees, QCDs become a meaningful part of broader tax planning. The concept itself is straightforward, but execution matters. The transfer must be made directly from the IRA custodian to the charity. It must be coordinated with the rest of your retirement income so that it fits cleanly into the overall picture. 

How Are Roth Conversions Different From RMDs, and How Do Taxes Work?

Roth conversions and Required Minimum Distributions (RMDs) both generate taxable events, but the key difference lies in control. Roth conversions are voluntary and occur at your discretion, while RMDs are mandatory and are scheduled by the IRS.

With a Roth conversion, you choose how much you want to transfer from a traditional IRA to a Roth IRA and when. The converted amount is taxed in the year of the conversion, but once the money is in a Roth IRA, future qualified withdrawals are not subject to RMDs for the original owner.

The difference becomes most apparent in how taxes are managed over time. Let’s look at a hypothetical example:

Assume you’re retired, and your current taxable income from part-time work and investments is $70,000. You have not started RMDs yet. You decide to convert $30,000 from a traditional IRA to a Roth IRA.

• Taxable income without conversion: $70,000
• Roth conversion added: $30,000
• Total taxable income for the year: $100,000
  

While you pay tax on the conversion now, that $30,000 is no longer in a traditional account. Once you reach 73 and are eligible for RMDs to begin, that $30,000 portion will not be included in the RMD calculation.

Compare that to waiting. If that same $30,000 stays in a traditional IRA, it becomes part of future RMD calculations. When RMDs start, the IRS, not you, determines when that income appears on your return, and it is added to Social Security, pensions, and investment income.

In short, Roth conversions trade current, controlled taxation for future flexibility. RMDs do the opposite; they remove control and introduce mandatory income for taxation. Understanding how the two differ helps clarify why Roth conversions are often considered well before RMDs begin, when timing and income levels are still adjustable.

If you’re ready to have a meaningful discussion about your retirement planning needs and RMD planning, connect with our team of retirement planning specialists.