A Guide to RMDs: Tax Strategies & Wealth Management Considerations

For those with tax-deferred retirement accounts — like traditional IRAs or 401(k)s — it’s critical to understand how and when to begin withdrawing funds.

In this article from the wealth management team at PBMares, you’ll find information about required minimum distributions (RMDs) and related tax and wealth management considerations.

Key Takeaways:

• Basic info about required minimum distributions
• Tax considerations related to RMDs
• Common RMD mistakes
• Actionable RMD tax strategies
• Wealth management considerations when taking RMDs

Required Minimum Distributions (RMDs)

Upon reaching a certain age, you must take withdrawals, called RMDs, from certain tax-deferred retirement accounts. When and how you take your RMDs is an important component of comprehensive retirement planning.

Failing to take RMDs on time can trigger penalties. As of 2025, “on time” means that you must begin taking RMDs by the time you’re 73.

If you’re still working into your seventies, you may be able to delay taking RMDs from your current employer’s retirement plan. Be sure to discuss your specific situation with a trusted tax or wealth management advisor.

RMDs and Tax Considerations

Proper planning for RMDs and tax withholding can minimize your overall tax burden. The following tax considerations are an important part of planning for retirement:

• RMDs are generally considered taxable income. Because RMDs from traditional IRAs and 401(k)s are subject to ordinary income tax, they have the potential to bump you up into a higher tax bracket.
• Withdrawals aren’t required from a Roth IRA. RMDs from a Roth IRA are not required during your lifetime, but other tax considerations may apply if the funds are inherited.
• Are taxes withheld from RMDs? Some people opt to have federal and state taxes withheld from the distribution. If you haven’t opted for RMD withholdings, you may need to make estimated tax payments to avoid underpayment penalties.
• What about RMDs and state taxes? State tax treatment of RMDs depends on which state you live in. Check your state’s tax laws to understand how your RMDs will be taxed and whether you need to make estimated payments.
• When do I pay taxes on RMDs? Typically, taxes on RMDs will be due when you file your annual tax return. However, depending on your particular situation, you may be able to time tax payments to minimize tax impact and avoid overpayment.
• Do RMDs include taxes withheld? No, RMDs are calculated before tax withholding.

Common RMD Mistakes to Avoid

The easiest way to effectively manage RMDs is first to avoid common mistakes, including:

• Failing to take the full required RMD
• Missing deadlines for RMD withdrawals
• Errors related to RMD withholding
• Not realizing that retirement income typically doesn’t withhold taxes, so it’s your responsibility to pay estimated taxes throughout the year.

Tax Strategies to Effectively Manage RMDs

When taking RMDs, some strategic planning can help reduce your tax burden and make the most of your retirement savings.

• Time your withdrawals. To minimize the tax impact, consider other income sources coming your way as you time your RMDs.
• Consider tax-efficient giving strategies. For example, if you are 70½ or older, you can direct up to $100,000 per year from your IRA to a qualified charity. These distributions count toward your RMDs but aren’t included in taxable income.
• Think about Roth IRA conversion. As tax laws change, consider if and when you may want to convert traditional IRA funds to Roth IRAs. Spreading conversions over multiple years can optimize your tax bracket and long-term tax savings.
• Use RMDs to pay estimated taxes. Instead of making quarterly estimated tax payments, you can use withholdings from your RMD to cover your tax liability.

Wealth Management Considerations re: RMDs

Many tax considerations overlap with wealth management considerations. We’ve touched on Roth conversions and state tax considerations above, but let’s look at them now from a wealth management perspective.

• Leaving behind an IRA to a non-spousal beneficiary. Protect family wealth by ensuring your children understand inherited IRA rules. When you leave an IRA to your children, this often occurs during the highest-earning years of their careers. Due to the 10-year rule for inherited IRAs, the added RMDs can push them into higher tax brackets. Roth conversions can be an attractive wealth management strategy from a legacy-planning standpoint.
• Relocation considerations. Some states do not tax RMDs, while other states have special rules. If moving to another state in retirement, be aware of different tax laws regarding RMDs so you can optimize your withdrawals.
• Investment allocation considerations. Taking RMDs can disrupt your investment allocation. It’s important to consider rebalancing investments to align with your specific risk tolerance and retirement goals. A fiduciary can help you choose which assets to sell as you take RMDs to optimize your portfolio’s performance.

Learn More

Planning for RMDs is essential for maximizing retirement savings and minimizing unnecessary tax burdens.

At PBMares, our strongest motivation is to help our clients create the future they envision for themselves and their families.

As an independent registered investment advisory firm, our fiduciary standard of care requires us to make decisions in your best interest. Our evidence-based approach is informed by academic research. This enables us to properly diversify your assets, while keeping expenses and tax considerations in mind to ultimately support your objectives for the future.

Let us become part of your financial team. Our driving philosophy is to do what is best for you, your family, and your future.

Contact us today.

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