RMDs are the government’s way of ensuring they get their tax revenue from all those years your money grew tax-deferred in accounts like IRAs and 401(k)s. Once you hit age 73, you’re required to take out a certain percentage of your balance each year. Skip it, and you could face penalties which used to be a whopping 50%, though they’ve recently been reduced.

The key thing to remember is that you can’t convert an RMD to a Roth IRA in the same year it’s taken. The first dollars that come out of your IRA each year are always considered your RMD and that portion is ineligible for conversion. If your RMD is $150,000, and you only need $90,000 to cover your expenses, you can’t roll the extra $60,000 straight into a Roth. Instead, you can move it into a brokerage account to keep it invested and liquid.

If your goal is to reduce future RMDs, Roth conversions can still play a big role just make sure to do them after you’ve satisfied your RMD for the year. Converting additional funds can help you manage future taxes, but it’s important to watch your income brackets, especially if you’re near thresholds that impact Social Security taxation or Medicare premiums.

One of the simplest but most important tips I share with clients is to keep your RMD withdrawals and Roth conversions as separate transactions. Combining them can confuse the IRS and make tax reporting a nightmare. And if you’re charitably inclined, consider using a Qualified Charitable Distribution (QCD). This allows you to send up to $105,000 (in 2025) directly from your IRA to a qualified charity, satisfying your RMD without increasing your taxable income. Just note that QCDs can’t be used from a 401(k) only IRAs.

It’s also important to know that RMD rules differ between accounts. For IRAs, you can aggregate the total RMD amount across multiple accounts and take the withdrawal from just one. But 401(k) plans are different you must take the RMD separately from each account. That’s a key reason why consolidating old 401(k)s into an IRA can simplify your retirement income plan.

At the end of the day, RMDs don’t have to derail your retirement strategy but they do require planning. Taking the time to understand how they fit into your income, tax, and investment picture can help you keep more of your money working for you while staying compliant with the rules.

If you’re approaching RMD age, talk to a financial professional who can help you build a strategy that coordinates withdrawals, taxes, and conversions. Done right, RMDs aren’t just a tax obligation they can become a tool for smarter income planning.

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

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