4 Strategies for Avoiding Taxes on Your RMDs

Saving for retirement in a 401(k) at work or a traditional individual retirement account (IRA) can help you build wealth for the long term while enjoying some tax advantages. But you’re obligated to take taxable withdrawals from your retirement accounts at age 73 as part of what’s called required minimum distributions (RMDs). (The SECURE 2.0 Act, which went into effect Jan. 1, 2023, pushed back the RMD age from 72 and also scheduled more RMD delays over the next 10 years). If you’re wondering how to avoid taxes on RMD payouts, there are some strategies you can use to minimize them.

A financial advisor can help you build a retirement plan that is optimized to lower your tax liability. Speak with an advisor today.

What Are Required Minimum Distributions (RMDs)?

Required minimum distributions, or RMDs, are amounts you’re required to withdraw from certain tax-advantaged accounts upon reaching age 73 (age 75 if you were born in 1960 or later). Those accounts include many popular retirement accounts such as traditional IRAs and 401(k)s.

The amount you have to withdraw as a minimum distribution depends on your account balance, life expectancy, and other factors. The Internal Revenue Service uses a formula to determine how much individual taxpayers are required to withdraw, though it’s up to you to make sure that you’re withdrawing the correct amount. Your withdrawals would then be taxed at your ordinary income tax rate.

Failing to take required minimum distributions on time can be problematic, as it could trigger a large tax bill. In fact, the IRS can impose a penalty of 25% of the amount you didn’t withdraw if you fail to make your RMDs on schedule. You can, however, potentially lower this penalty to just 10% if you rectify the mishap within two years. Here are four common strategies to avoid or minimize taxes on your RMDs.

SmartAsset’s RMD Calculator can help you estimate how much you’ll need to withdraw from your retirement accounts once you reach RMD age.

Required Minimum Distribution (RMD) Calculator

Estimate your next RMD using your age, balance and expected returns.

Quickly estimate your RMDs and when to take them

RMD Amount for IRA(s)

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RMD Amount for 401(k) #1

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RMD Amount for 401(k) #2

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About This Calculator

This calculator estimates RMDs by dividing the user's prior year's Dec. 31 account balance by the IRS Distribution Period based on their age. Users can enter their birth year, prior-year balances and an expected annual return to estimate the timing and amount of future RMDs.

For IRAs (excluding Roth IRAs), users may combine balances and take the total RMD from one or more accounts. For 401(k)s and similar workplace plans*, RMDs must be calculated and taken separately from each account, so balances should be entered individually.

^*The IRS allows those with multiple 403(b) accounts to aggregate their balances and split their RMDs across these accounts.

Assumptions

This calculator assumes users have an RMD age of either 73 or 75. Users born between 1951 and 1959 are required to take their first RMD by April 1 of the year following their 73rd birthday. Users born in 1960 and later must take their first RMD by April 1 of the year following their 75th birthday.

This calculator uses the IRS Uniform Lifetime Table to estimate RMDs. This table generally applies to account owners age 73 or older whose spouse is either less than 10 years younger or not their sole primary beneficiary.

However, if a user's spouse is more than 10 years younger and is their sole primary beneficiary, the IRS Joint and Last Survivor Expectancy Table must be used instead. Likewise, if the user is the beneficiary of an inherited IRA or retirement account, RMDs must be calculated using the IRS Single Life Expectancy Table. In these cases, users will need to calculate their RMD manually or consult a finance professional.

For users already required to take an RMD for the current year, the calculator uses their account balance as of December 31 of the previous year to compute the RMD. For users who haven't yet reached RMD age, the calculator applies their expected annual rate of return to that same prior-year-end balance to project future balances, which are then used to estimate RMDs.

This RMD calculator uses the IRS Uniform Lifetime Table, but certain users may need to use a different IRS table depending on their beneficiary designation or marital status. It's the user's responsibility to confirm which table applies to their situation, and tables may be subject to change.

Actual results may vary based on individual circumstances, future account performance and changes in tax laws or IRS regulations. Estimates provided by this calculator do not guarantee future distribution amounts or account balances. Past performance is not indicative of future results.

SmartAsset.com does not provide legal, tax, accounting or financial advice (except for referring users to third-party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). Articles, opinions and tools are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. Users should consult their accountant, tax advisor or legal professional to address their particular situation.

1. Work Longer

One of the simplest ways to defer RMDs and the taxes on those withdrawals is to continue working. If you’re still working at age 73 or beyond and contributing to an employer’s 401(k), the IRS allows you to delay taking RMDs from those accounts.

Unfortunately, this only works for your 401(k) at your current employer. If you have a 401(k) from a previous employer, then the RMD rule would still apply. The same is true for any traditional IRAs that you contribute money to.

Do you need help figuring out your required minimum distributions? Try SmartAsset’s RMD calculator to learn more.

Whether it makes sense to continue working to delay RMD taxes depends on a variety of factors, including your health, retirement goals and overall financial situation. If you enjoy your job and have no serious health issues that prevent you from doing it, delaying retirement might make sense for you. However, you may want to first consult with a professional to help you make the right decision.

2. Donating to Charity

Another possibility for delaying or minimizing taxes on RMDs is donating some of your distributions to a qualified charity. Qualified charitable distributions, or QCDs, allow you to transfer money from an IRA to an eligible nonprofit organization without being taxed. While these distributions aren’t taxable they still count toward satisfying your required minimum distributions for the year. You can donate up to $108,000 from your IRA as a QCD in 2025 and up to $115,000 in 2026 to avoid taxes if:

Your IRA custodian agrees to transfer the funds to your chosen charity on your behalf. (You can’t donate directly.)
You don’t claim that donation as a charitable deduction on your taxes.

If you’re unsure whether a charity is qualified, the IRS has a tool you can use to check its status. Keep in mind that this tax-minimizing tactic only works for IRAs; you can’t use this strategy to donate RMDs from a 401(k).

3. Minimize RMD Taxes With a Roth Conversion

If you have assets in a tax-deferred account, you could avoid RMDs and their associated taxes by rolling the balance into a Roth IRA. This is done through a Roth conversion in which you essentially turn tax-deferred assets into tax-free ones. Roth IRAs can be an attractive option for saving for retirement if you want to minimize taxes. Qualified distributions from Roth IRAs are 100% tax-free and there are no required minimum distributions at all.

Your brokerage can help with a conversion, but you should keep in mind that converting a traditional IRA to a Roth IRA doesn’t mean you can escape taxes completely. You’ll owe ordinary income tax on any assets that you roll over. That could mean a large tax bill for the year you complete the conversion.

The benefit is that you wouldn’t have to take RMDs starting at age 73, so it may be a worthwhile trade-off. Your financial advisor can help you weigh the pros and cons of using a Roth conversion to minimize RMD taxes.

4. Consider an Annuity

A couple estimating how much they could owe in taxes for their RMDs.

Annuities can provide you with a guaranteed stream of income in retirement. When you purchase an annuity, you’re purchasing an insurance contract. You pay premiums to the annuity company, which then makes payments to you at a later date.

Qualified longevity annuity contracts (QLACs) are one possibility for deferring RMD taxes. You can use the money from your 401(k) or IRA to purchase the annuity, omitting that amount from your required minimum distribution calculations. The maximum amount you can contribute to a QLAC in 2025 is $210,000.

You don’t have to begin receiving payments from the annuity until age 85. At this point, they’d be subject to income tax. This strategy doesn’t eliminate the need to pay taxes on retirement income entirely but it can help you defer RMD tax payments for quite a while.

If you’re interested in a QLAC, it’s important to understand what you’ll pay and what your returns will look like. It’s also helpful to carefully research annuity company ratings. Choosing an annuity company that has questionable financials, for example, could backfire if the company isn’t able to make your annuity payments back to you when the time comes. This is something else you may want to discuss with your financial advisor if you’re unsure where an annuity might fit into your financial plan.

Bottom Line

RMDs can raise your tax liability in retirement, but careful planning may help reduce what you owe. Exploring strategies to minimize taxes on RMDs is a good starting point. It’s also important to consider other factors that could impact your taxes, like working while receiving Social Security benefits. Taking a broader look at your tax situation can help you better manage your retirement assets and income.

Tips for Retirement

A financial advisor can work with you to optimize your retirement plan for lower taxes. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you’re considering a Roth IRA conversion, make sure you’re observing the five-year rule. This rule states that your Roth IRA must be open for at least five years to avoid tax penalties. If you’re opening a Roth IRA for the first time to receive converted traditional IRA funds, make sure you won’t need to tap that money for at least five years. Otherwise, you could add to your tax liability rather than reduce it.