What Retirees Need to Know About Required Minimum Distributions

For many retirees, required minimum distributions—or RMDs—are an unavoidable part of managing retirement savings. But an RMD is more than a number you have to withdraw each year.

For individuals with substantial traditional IRA, 401(k), 403(b), or other tax-deferred retirement assets, RMDs can influence taxable income, retirement cash flow, charitable giving, Roth conversion strategies, and ultimately how much wealth may be available to pass on to the next generation.

And as we look toward 2027, the rules are different from what many retirees may remember.

Legislation enacted through the SECURE Act and SECURE 2.0 Act has pushed the RMD starting age higher for many Americans. For some retirees, that creates additional years to evaluate their tax situation and make strategic decisions before mandatory distributions begin.

At Agemy Financial Strategies, we believe retirement planning should be about more than meeting the minimum requirements. It should be about coordinating your income, taxes, investments, and legacy goals as part of a comprehensive wealth strategy.

Here is what retirees and pre-retirees should know about RMDs heading into 2027.

What Is an RMD?

A required minimum distribution is generally the minimum amount that must be withdrawn each year from certain tax-deferred retirement accounts once an account owner reaches the applicable RMD starting age.

RMD rules generally apply to traditional IRAs, SEP IRAs, SIMPLE IRAs and many employer-sponsored retirement plans, including 401(k), 403(b) and 457(b) plans.

The basic idea behind RMDs is tied to the tax treatment of these accounts.

Traditional retirement accounts generally allow contributions and investment growth to receive favorable tax treatment during the accumulation years. Eventually, the government requires distributions so that previously untaxed amounts can generally become subject to income tax.

That does not necessarily mean you need the money.

You may have sufficient income from Social Security, pensions, investments, or other sources and have no immediate need for an additional retirement distribution. Nevertheless, once RMD rules apply, you generally must take the required amount.

That is where proactive planning can become important.

When Do RMDs Begin in 2027?

One of the most significant changes to RMD rules in recent years has been the increase in the age at which many individuals must begin taking distributions.

Under current rules:

• Individuals born before July 1, 1949, generally have an RMD starting age of 70½.
• Individuals born July 1, 1949, through 1950, generally have an RMD starting age of 72.
• Individuals born in 1951 through 1959 generally have an RMD starting age of 73.
• Individuals born in 1960 or later generally have an RMD starting age of 75.

For someone approaching retirement, that distinction can be significant.

Consider an individual born in 1962. Under current law, that person generally does not reach the RMD starting age until 75.

That may provide additional years to evaluate tax diversification, Roth conversions, charitable giving, investment strategy, and the role of retirement accounts in an overall estate plan.

However, waiting until the RMD deadline to begin thinking about these issues could mean missing valuable planning opportunities.

When Is Your First RMD Due?

Your first RMD generally must be taken by April 1 of the year following the year in which you reach your applicable RMD age. After that, annual RMDs generally must be taken by December 31.

For example, suppose you reach your applicable RMD age in 2027.

You generally have until April 1, 2028, to take your first RMD.

But there is an important catch: your second RMD would generally still be due by December 31, 2028.

That means delaying your first RMD could result in two taxable distributions occurring in the same calendar year.

Whether delaying the first distribution makes sense depends on your circumstances. Taking the first RMD during the year you reach the applicable age could sometimes help spread taxable income across two calendar years, while delaying it could make sense in other situations.

The important point is that the decision should be considered as part of your broader tax and retirement-income strategy.

How Is an RMD Calculated?

Generally, an RMD is calculated using the retirement account’s balance as of December 31 of the preceding year divided by an applicable distribution period from the IRS life-expectancy tables.

This means your RMD is generally based on the prior year-end account value—not the account’s current value.

For example, if your traditional IRA has a significantly higher balance at the end of 2026, that higher balance may result in a larger RMD for 2027.

Market performance can therefore influence future RMD amounts.

The calculation can become more complicated when you have multiple retirement accounts, different types of retirement plans, or inherited retirement assets.

And while calculating the required amount is important, the more strategic question is often:

What should you do with the money once you are required to take it?

If you need the distribution for living expenses, the answer may be straightforward.

But if you do not need the money, the distribution could become an opportunity to evaluate reinvestment, charitable giving, tax planning, or other wealth-management strategies.

Do You Have to Take an RMD From Every Retirement Account?

Not necessarily.

The rules for aggregating RMDs depend on the type of retirement account involved.

For example, IRA owners generally can calculate the required distributions from their IRAs and take the total amount from one or more of those IRAs.

Employer-sponsored plans can have different rules. RMDs generally must be calculated and satisfied separately for each applicable plan, although specific rules vary by plan type.

This distinction can matter for retirees who have accumulated retirement assets across multiple employers over the course of their careers.

If you have several retirement accounts, it may be worthwhile to review whether consolidating accounts or changing the way assets are positioned could make future RMD management easier.

Any consolidation decision, however, should take into account investment options, fees, plan provisions, creditor considerations, tax consequences and other individual circumstances.

What Happens If You Miss an RMD?

Missing an RMD can have significant tax consequences.

Under current law, the excise tax on an RMD shortfall is generally 25% of the amount that should have been distributed but was not. In certain circumstances, the excise tax can be reduced to 10% if the shortfall is corrected within the applicable correction period. The IRS may also waive the excise tax in certain cases involving reasonable error when appropriate corrective steps are taken.

That makes administrative planning important.

If you have multiple accounts, changing financial institutions, or complicated income sources, your RMD should not be treated as something to check once a year at the last minute.

A proactive retirement plan can help identify the amount that must be distributed, when it must be distributed, and how the distribution fits into the rest of your financial strategy.

RMDs and Taxes: Why Planning Ahead Matters

An RMD is generally taxable income when it comes from a traditional, pre-tax retirement account, subject to the applicable tax rules and any basis considerations.

That does not make the RMD itself a penalty or an additional tax.

The planning concern is what the additional taxable income does to your overall tax picture.

A substantial RMD could increase your taxable income and potentially affect your marginal tax bracket and other income-based calculations.

For retirees with significant retirement assets, this can make the years before RMDs begin particularly important.

Rather than waiting until mandatory distributions start, you may want to evaluate how your retirement assets are distributed among taxable, tax-deferred, and tax-free accounts.

This concept is sometimes referred to as tax diversification.

Having different types of accounts can potentially provide greater flexibility when determining where retirement income comes from and how taxable income is managed.

Could Roth Conversions Help Before RMDs Begin?

One strategy that may deserve consideration during the years before RMDs begin is a Roth conversion.

A Roth conversion generally involves moving assets from a traditional IRA or other eligible retirement account into a Roth IRA. The taxable portion of the conversion is generally included in income for the year of the conversion.

Once assets are held in a Roth IRA, the original owner generally does not have lifetime RMDs.

That can make Roth conversions an attractive planning consideration for some retirees—but they are not appropriate for everyone.

A large conversion can create significant taxable income in the year it occurs. It can also affect other aspects of your financial picture.

For that reason, the question should not simply be:

“Should I do a Roth conversion?”

A better question may be:

“Would a Roth conversion, in this amount and in this year, improve my long-term tax and retirement strategy?”

For some individuals, strategically spreading conversions over multiple years may be more appropriate than completing one large conversion.

The years between retirement and the beginning of RMDs can potentially provide an opportunity to evaluate these decisions before mandatory distributions enter the picture.

What About Roth IRAs and Roth 401(k)s?

Roth accounts receive different treatment under the RMD rules.

The original owner of a Roth IRA generally does not have to take lifetime RMDs.

In addition, designated Roth accounts in employer-sponsored plans generally are not subject to lifetime RMDs for the original account owner under the current rules.

This distinction can be valuable when thinking about retirement-income flexibility and legacy planning.

For example, a retiree with both traditional and Roth assets may have more options when deciding which accounts to draw from and when.

That does not mean Roth assets should automatically be left untouched or that traditional assets should always be spent first.

The appropriate strategy depends on your income needs, tax situation, investment objectives and estate-planning goals.

Don’t Overlook Inherited Retirement Accounts

RMD planning does not end when an account owner dies.

Beneficiaries of retirement accounts are subject to a separate set of rules, and the applicable distribution requirements can depend on several factors—including the beneficiary’s relationship to the original owner, whether the beneficiary qualifies as an eligible designated beneficiary and whether the original owner died before or after their required beginning date.

For many non-spouse beneficiaries, the SECURE Act’s 10-year rule is particularly important.

In general, certain designated beneficiaries who are not eligible designated beneficiaries must completely distribute an inherited account by the end of the 10th year following the account owner’s death. However, the annual distribution requirements can differ depending on the circumstances, particularly when the original owner had already reached their required beginning date.

Eligible designated beneficiaries—including certain surviving spouses, minor children, disabled or chronically ill individuals and individuals who are not more than 10 years younger than the original owner—can have different options.

The result is an important estate-planning consideration:

Who inherits your retirement accounts—and how they inherit them—can matter almost as much as how much they inherit.

Beneficiary designations should therefore be reviewed as part of an overall estate and retirement plan.

RMDs and Charitable Giving

For retirees who regularly give to charity, qualified charitable distributions, or QCDs, can be another consideration.

A QCD generally allows an eligible IRA owner to direct a distribution from an IRA to a qualifying charitable organization, subject to IRS requirements and applicable annual limits.

One potential advantage is that a qualifying QCD can generally be excluded from taxable income rather than treated simply as a charitable deduction.

The QCD rules have specific eligibility requirements, and the annual exclusion limit is subject to inflation adjustments. Because applicable limits can change from year to year, the current IRS guidance should be reviewed when planning a QCD.

For charitably inclined retirees, coordinating charitable giving with RMD planning may provide an opportunity to align tax planning with philanthropic goals.

RMD Planning Is About More Than RMDs

The most important takeaway for retirees may be this:

An RMD should not be viewed in isolation.

It is one piece of your larger financial plan.

Your RMD strategy may need to be coordinated with:

• Social Security benefits
• Pension income
• Investment income
• Roth conversions
• Tax-bracket management
• Charitable giving
• Portfolio withdrawals
• Estate planning
• Beneficiary designations
• Healthcare costs
• Long-term care planning
• Legacy goals

For individuals with significant retirement assets, these decisions can become increasingly interconnected.

A larger RMD could affect your taxable income. Taxable income can influence other areas of your financial picture. The way you structure withdrawals can affect how much remains invested. And the way retirement accounts are ultimately distributed can affect the tax burden experienced by beneficiaries.

That is why RMD planning can be an important component of a broader wealth-preservation strategy.

What Should You Do Before Your RMDs Begin?

If you are approaching your RMD starting age, consider using the years beforehand as a planning window.

A proactive review might include:

1. Review your projected RMDs

Estimate how large your future RMDs could be based on your retirement account balances and expected growth.

2. Evaluate your tax diversification

Look at how much of your wealth is held in traditional, Roth, and taxable accounts and consider how each may fit into your future income strategy.

3. Consider whether Roth conversions fit your plan

If appropriate, evaluate potential conversion opportunities before RMDs begin and consider the tax implications of different conversion amounts.

4. Review charitable giving strategies

If philanthropy is part of your financial plan, consider whether QCDs or other charitable strategies could complement your retirement-income and tax strategy.

5. Review beneficiaries

Make sure beneficiary designations on retirement accounts reflect your current estate-planning goals.

6. Coordinate your retirement-income sources

Consider how RMDs will interact with Social Security, pensions, investment income and other sources of cash flow.

7. Think beyond your lifetime

If leaving assets to children, grandchildren or other beneficiaries is important to you, consider how retirement accounts may be taxed and distributed after your death.

The Bottom Line: Don’t Wait for Your RMD to Start Planning

RMD rules may appear straightforward: reach the applicable age, calculate the required amount and take the distribution.

For many retirees, however, the real planning opportunity comes before the first RMD is due.

The increase in the RMD starting age gives some individuals additional time to evaluate tax diversification, Roth conversions, charitable giving, retirement-income strategies and estate planning.

That time can be valuable.

At Agemy Financial Strategies, we believe retirement planning should not stop once you reach retirement. Your financial strategy should evolve as your circumstances, goals and the tax landscape change.

If you are approaching your RMD starting age—or already taking required distributions—consider whether your current strategy is designed simply to satisfy the rules or to support your broader goals for retirement and wealth preservation.

The right RMD strategy is not necessarily about taking the minimum. It’s about understanding how required distributions fit into the bigger picture.

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Important Disclosure

This material is provided for general informational and educational purposes only and is not intended to provide individualized investment, tax or legal advice. Tax laws, regulations and retirement-plan rules are subject to change, and future changes may affect the information presented. Individual circumstances vary, and strategies discussed may not be appropriate for every individual. Before implementing any retirement, tax, Roth conversion, charitable giving or estate-planning strategy, consult with qualified tax and legal professionals regarding your specific circumstances. Agemy Financial Strategies does not provide tax or legal advice. Information in this article reflects rules and IRS guidance available as of the date of publication and should not be relied upon as a guarantee of future law or tax treatment.