Introduction

Required Minimum Distributions (RMDs) are one of the most common—and most misunderstood—sources of tax risk in retirement. For many high-income professionals and long-term savers, RMDs don't arrive as a welcome income stream. Instead, they show up as forced taxable income, often at a point in life when income is already high from Social Security, pensions, or portfolio assets.

The challenge isn't simply that RMDs exist—it's that once they begin, your ability to control taxable income is reduced. The most effective strategies to mitigate RMD-related risk must be implemented well before distributions are required.

This article explains how RMDs work, why they can become problematic for high earners and strong savers, and how planning tools—particularly Roth conversions—can help reduce unnecessary RMD exposure over time.

What Are Required Minimum Distributions (RMDs)?

RMDs are the minimum amounts the IRS requires you to withdraw each year from certain tax-deferred retirement accounts, including Traditional IRAs and most pre-tax employer retirement plans. These withdrawals are taxed as ordinary income.

The intent behind RMDs is simple: tax-deferred accounts cannot remain tax-deferred forever. Once RMDs begin, the IRS requires that a portion of the account be distributed annually and included in taxable income.

When Do RMDs Begin?

Recent legislation has pushed the RMD starting age later, creating additional planning opportunities. Many retirees now begin RMDs at age 73, with a scheduled increase to age 75 for younger cohorts in the future.

While this delay provides welcome flexibility, it does not eliminate the issue. In fact, delaying RMDs can allow retirement accounts more time to grow—potentially increasing the size of future required distributions if no planning occurs in the interim.

How Are RMDs Calculated?

RMDs are calculated by dividing the prior year-end balance of a retirement account by a life expectancy factor published by the IRS. As a result, the larger the account balance, the larger the required distribution.

For individuals who accumulated substantial pre-tax retirement savings, this can lead to significant mandatory withdrawals later in retirement—often at a time when income is already elevated from other sources.

Why Can RMDs Create Problems for High Earners and Strong Savers?

For many retirees, RMDs represent income they do not actually need. This is especially common among:

• High-income professionals who consistently maximized retirement plans
• Individuals who built substantial non-qualified (taxable) investment accounts
• Tech professionals with meaningful equity compensation and stock vesting history

In these situations, RMDs can:

• Push taxable income into higher brackets
• Reduce flexibility to manage income year by year
• Increase exposure to secondary costs tied to income levels

Rather than supporting lifestyle needs, the distribution may simply be reinvested in a taxable account—turning tax-deferred dollars into assets that now generate ongoing taxable income.

What Risks Do RMDs Introduce Beyond Income Taxes?

While income taxes are the most visible impact, RMDs can also influence other areas of retirement planning. One notable example is Medicare premiums, which can increase as income rises.

Higher taxable income from RMDs can contribute to Medicare surcharges through IRMAA, effectively increasing healthcare costs in retirement. While IRMAA is a separate planning topic, it underscores an important point: RMDs can trigger consequences beyond the tax return itself.

Can RMD Risk Be Reduced—or Is It Unavoidable?

RMDs themselves are unavoidable, but their impact is often highly manageable with proactive planning. The key is addressing the size of tax-deferred accounts before RMDs begin, rather than reacting after distributions are mandatory.

Effective RMD mitigation focuses on reducing future required distributions, smoothing taxable income over time, and increasing flexibility in how retirement income is sourced.

How Do Roth Conversions Help Mitigate RMD Risk?

Roth conversions are one of the most powerful tools available for managing future RMD exposure. By converting pre-tax retirement assets to Roth accounts, individuals can:

• Reduce the balance subject to future RMD calculations
• Shift growth into accounts that are not subject to lifetime RMDs
• Improve tax diversification and income flexibility later in retirement

While Roth conversions increase taxable income in the year they are executed, they can significantly reduce forced income later—particularly when implemented gradually over multiple years.

When Are Roth Conversions Most Effective?

Roth conversions are often most effective during periods of temporarily lower income, such as:

• The years between retirement and the start of Social Security
• Years before RMDs begin
• Periods when tax brackets are lower than expected future rates

These windows allow individuals to proactively "fill" tax brackets on their own terms rather than allowing RMDs to dictate income later.

Are Roth Conversions the Only Way to Manage RMDs?

No. While Roth conversions are a cornerstone strategy, effective RMD planning often includes:

• Intentional withdrawal sequencing across account types
• Charitable strategies for those who are philanthropically inclined
• Ongoing coordination between taxable and tax-deferred assets
• Long-term tax modeling to evaluate tradeoffs over time

The most successful plans are not built around a single tactic, but around a coordinated, multi-year approach.

Why Does RMD Planning Need to Start Well Before RMD Age?

Once RMDs begin, flexibility decreases. The account balance is already established, income is forced annually, and opportunities to reshape the outcome are limited.

By contrast, planning years—or even decades—before RMD age allows:

• Gradual reduction of future required distributions
• Better control over lifetime tax exposure
• More adaptability as tax laws and personal circumstances change

In many cases, the difference between proactive planning and reactive planning can mean hundreds of thousands of dollars in additional lifetime taxes.

Conclusion: RMDs Are Predictable—Your Response Doesn't Have to Be Reactive

RMDs are not a surprise. The rules are known, the timelines are clear, and the math is transparent. What often goes wrong is not the existence of RMDs, but the absence of a long-term plan to address them.

Proactive strategies—such as Roth conversions and coordinated withdrawal planning—can significantly reduce the impact of RMDs when they are implemented early and thoughtfully. The earlier the planning begins, the greater the flexibility and potential benefit.

DISCLOSURE: Securities and Investment Advisory Services are offered through Osaic Wealth, Inc., member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Osaic Wealth does not offer tax or legal advice. RMD ages and rules are subject to change based on current legislation. Roth conversions result in taxable income in the year of conversion and are not appropriate for everyone. This material is for general informational purposes only and is not intended to provide specific tax or legal advice. We suggest that you discuss RMD planning and Roth conversion strategies with a qualified tax professional before making any decisions based on this information.