Why Delaying RMDs Matters

About 80% of retirees don’t touch their retirement accounts before RMD age. And once those RMDs start, 84% only withdraw the minimum amount required. Delaying the RMD age to 75 means most retirees will enter their withdrawal years with larger account balances than previous generations. That sounds like a win but larger balances also mean larger forced withdrawals, which can have significant consequences for taxes, Social Security taxation, and Medicare premiums. Spending patterns may also shift. Many retirees scale down spending in their early 70s, but with RMDs starting later, some may delay major withdrawals and potentially face higher tax bills later.

The Benefits of a Higher RMD Age

There are real advantages to this policy change. First, giving your retirement account two extra years to grow without withdrawals can result in noticeably higher balances. Second, expanding the tax-planning window creates more opportunities especially for Roth conversions. Retirees in their late 60s and early 70s often have unusually low taxable income, making it an ideal time to convert pre-tax dollars into Roth accounts at favorable rates. The new rules also make charitable giving strategies more valuable. You can still make Qualified Charitable Distributions (QCDs) starting at age 70½, which means you have several years when QCDs can reduce future taxable RMD amounts. And delaying RMDs may keep you from being forced to sell investments during a bad market.

The Drawbacks You Need to Prepare For

The benefits come with trade-offs. Larger account balances mean larger RMDs sometimes pushing retirees into higher tax brackets overnight. Another issue is the “two RMD trap,” which happens when someone delays their first RMD and ends up taking two distributions in the same calendar year. That scenario can spike taxable income, affect Medicare IRMAA surcharges, and trigger higher tax rates. Additionally, delaying withdrawals during your lifetime may shift the tax burden to your heirs. With the 10-year inherited IRA rule, your kids could face substantial tax bills trying to empty a larger account in a compressed window. And if retirees continue withdrawing only the minimum amount, as most do, these larger balances can snowball into even bigger tax problems later in life.

Why Congress Made This Change

Congress didn’t randomly decide to push RMDs back. Part of the motivation is recognizing that people are living longer and working later in life, so retirement rules needed modernizing. But the other side of the coin is fiscal reality. While delaying RMDs reduces short-term tax revenue, the government may benefit long-term. Larger account balances lead to larger future RMDs, and inherited accounts taxed under current rules may generate far more revenue than smaller withdrawals earlier in life. The age-75 RMD rule came packaged with several revenue-raising measures under recent legislation, signaling that this change was part of a larger strategic tax plan.

Smart Strategies for Navigating the New RMD Rules

If you want to maximize the benefits and reduce the downsides of the new RMD age, there are several strategies worth considering. Diversifying your retirement buckets traditional, Roth, and taxable gives you more control over your tax bill each year. Using the expanded RMD delay window for Roth conversions can help keep future tax brackets lower. Planning your withdrawals with Social Security timing and Medicare premiums in mind can also prevent costly surprises, since RMD income can push you into higher IRMAA brackets. And because rules and personal circumstances change over time, reviewing your retirement plan annually is one of the most powerful tools you have.

All writings are for educational and entertainment purposes only and does not provide investment or financial advice of any kind.

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