Why you should take more than the RMD
Why Taking More Than the Required Minimum Distribution (RMD) Can Be a Smart Tax Strategy
When it comes to retirement planning, most people focus on taking only the minimum required distribution (RMD) from their retirement accounts. While that approach may seem tax-efficient at first glance, there are compelling reasons why withdrawing more than your RMD could actually improve your long-term financial position. Each persons situation is different and this post may not be applicable to everyone, but is here to shed light on strategies that are not commonly thought of. In this article, we’ll break down the strategic benefits of exceeding your RMD and how it can reduce lifetime taxes, protect your beneficiaries, and create more flexibility in your retirement income plan.
What Is an RMD?
A Required Minimum Distribution (RMD) is the minimum amount you must withdraw annually from certain retirement accounts, such as traditional IRAs and 401(k)s, once you reach a specific age, as mandated by the Internal Revenue Service. Failing to take your RMD can result in steep penalties, but taking only the minimum isn’t always the most tax-efficient strategy.
1. Taking More Than Your RMD Can Reduce Future Tax Burdens
One of the biggest advantages of taking more than your RMD is managing your tax liability over time. Traditional retirement accounts are tax-deferred, meaning every dollar withdrawn is taxed as ordinary income. If you only take the minimum each year, your account balance may remain high leading to:
Larger RMDs in later years
Higher taxable income
Potentially pushing you into higher tax brackets
The potential of tax changes that make your effective tax rate higher in the future
2. Minimize Medicare Premium Surprises
Your income in retirement doesn’t just impact taxes, it also affects your Medicare premiums through Income-Related Monthly Adjustment Amounts (IRMAA). Higher income from large RMDs later in life can increase your Medicare Part B and Part D costs. Strategically taking more than your RMD earlier can help you:
Stay below key IRMAA thresholds
Avoid unexpected healthcare cost increases
Maintain predictable retirement expenses
3. Create Opportunities for Roth Conversions
Taking more than your RMD can pair well with Roth conversion strategies. If you have room in a lower tax bracket, you might be able to take more than your RMD and convert what you do not need to a Roth account. In doing so you give yourself the flexibility to choose when you take money out of your account.
Before doing anything please consult with your CPA to ensure that this strategy is right for you. As always we are here to help!