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I Turn 73 This Year. How Do I Avoid RMD Taxes?


The IRS allows workers to put aside pre-tax earnings in traditional Individual Retirement Accounts, 401(k) and similar workplace accounts, and for all the money to grow – tax-deferred – to give you cash for retirement. But the national tax collector only waits so long to collect, and once you turn 73, the law forces retirees to take required minimum distributions and start paying tax.

These distributions – RMDs, for short – often aren’t a problem for anyone already taking withdrawals to cover their living expenses. But if you’ve gotten along without tapping retirement accounts, coughing up the tax money is something you want to avoid – or at least delay as long as you can.

Speak to a financial advisor about the best way to set up your retirement accounts.

How Your RMD Is Calculated

The amount of your RMD is based on your account balance at the end of the previous year and the tax agency’s life expectancy tables. The tables are designed to withdraw all your account assets by the estimated end of your life. If you turn 73 in 2024, your life expectancy would be 26.5 years. If you had an IRA with a balance of $500,000 on Dec. 31, you’d divide the balance by your life expectancy and find that your RMD was $18,868 for the year, which would be added to your ordinary income for the year, and taxed accordingly.

There are a few tactics you can use to sidestep or minimize RMDs.

Draw Down Your Tax-Deferred Assets

By postponing the start of any pension or Social Security payments early in retirement, you can draw down the balances of accounts that will be subject to RMDs later. This also allows you to maximize your Social Security benefit, which increases by 8% each year between your full retirement age and when you turn 70.

Don’t Pay If You Don’t Have to

RMDs are required on the total of all your tax-deferred accounts but, in the case of IRAs, can be paid from any one of the accounts. RMDs for 401(k)s and similar plans must be calculated and paid from each account, which prompts many retirees to consolidate them all into a rollover IRA. But if you’ve got a younger spouse, don’t include their account balances in your RMD calculation. Otherwise, you’ll be taking RMDs and paying taxes too early on those accounts.

Remember: The “I” in IRA stands for “individual,” so each individual has to manage RMDs on their own accounts separately from a spouse’s accounts.

A financial advisor can guide you through the best ways to structure your retirement income.

Be Charitable

If you don’t need RMD cash for living expenses you can donate some or all of the money to a qualified charity. Under a Qualified Charitable Distribution, the money goes directly from the IRA custodian to the charity and you don’t pay income tax on the amount donated. Just be aware that you can’t take the cash out and donate it yourself: Once the money comes to you, it’s taxable. You also can’t deduct a qualified charitable distribution as a charitable deduction. Finally, make sure the charity you choose is considered qualified by the IRS, or you’ll still end up paying taxes.


You can convert tax-deferred IRAs to Roth IRAs partly or whole, pay taxes on the distribution now and then never pay taxes on any money withdrawn from the Roth – even your investment gains. You can manage this conversion over time, adjusting your other income and then taking just enough out of a tax-deferred account to avoid going into a higher tax bracket. An added bonus is that, as long as the Roth has been open for at least five years, your heirs won’t pay any taxes on the inherited Roth account, either.

For help with minimizing taxes on your retirement income, talk to a financial advisor today.

Pay Your Other Taxes

This is a bit of a mental trick that doesn’t necessarily reduce your tax bill but does make it simpler and helps ensure that you don’t overpay estimated or withheld taxes on other income. If you’re receiving pension payments or other income, you’re supposed to have a portion withheld for taxes or pay quarterly estimated taxes on your own. However, distributions from IRAs are “ratable” – paid evenly throughout the year – no matter when the payment is made. As long as your estimated and withheld tax payments equal 90% of your tax bill or 100% of your previous year’s tax, you face no underpayment penalty. This allows you to collect all your other income during the year, create an accurate total in December, then take an RMD that covers the entire tax bill and have that entire RMD amount withheld for taxes.

Remember, the punishment for failing to take an RMD during the required period is a hefty one – up to 50% of the missed RMD amount. For more help with RMDs, consider matching with a financial advisor.

Bottom Line

How to manage your RMDs – and all the other many tax questions that can arise in retirement – can be complicated. Take the time to estimate your retirement taxes before you start collecting pensions, Social Security and withdrawals from retirement accounts.

Tips for Retirement Planning

  • Balancing taxes and retirement income – and figuring out how to minimize taxes in retirement – is a crucial issue. A knowledgeable financial advisor can help you decide how to structure and coordinate these payments over the span of your retirement.
  • Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three 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

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