Can you avoid taxes on RMDs?

You cannot avoid taxes on RMDs that are paid to you. RMDs are the required minimum distributions from your IRA or 401(k). The money went into the account before it was taxed, and the tax comes due when the money comes out. Two things are not taxed: a gift paid straight from the IRA to a charity, and any money in the account that you already paid tax on. Both are covered below. An RMD can be the largest addition to your income since you stopped working, and it is required whether or not you need the money to live on.

You can lower the tax an RMD adds. Most of what lowers it has to be done before the withdrawal, and some of it years before. This page explains how an RMD is taxed, what reduces the tax, what each of those choices costs, and what does not reduce it. The rules for the withdrawal itself, such as the starting age and the deadlines, are in our guide to RMDs.

Are RMDs taxable?

Yes. An RMD from a traditional IRA, a 401(k) or another pre-tax account is taxed as ordinary income in the year you take it. Ordinary income is taxed at the same rates as wages or interest. The only part that is not taxed is a return of money you already paid tax on, such as IRA contributions you did not deduct.¹

Roth accounts are different. A Roth IRA has no RMDs while its owner is alive.¹

Illinois does not tax an RMD. Illinois subtracts distributions from IRAs and workplace retirement plans when it figures state income tax, so the tax described on this page is the federal tax.²

How much tax do you pay on an RMD?

An RMD has no tax rate of its own. It is added to your other income for the year and taxed at your ordinary rates.¹

It can cost more than your tax bracket suggests. The added income can make more of your Social Security benefits taxable, because the taxable share of benefits is figured from your income. It can also raise your Medicare premiums two years later, because those premiums are set from the income on your tax return two years before.³

Here is a hypothetical example under the 2026 rules. A married couple, both 73, has $60,000 of Social Security, $40,000 of other income and $1,500,000 in IRAs. Their RMD is $1,500,000 divided by 26.5, the factor at age 73, which is $56,604. Without it, their federal income tax would be $2,060. With it, their tax is $11,516. The RMD adds $9,456 of tax, which is 16.7% of the RMD, though the couple's top bracket is 12%. The RMD costs more than 12% because it raises the taxable part of their Social Security from $28,100 to $51,000, which is $22,900 more.⁴ The full return is at the end of this page.

What reduces the tax on RMDs?

Four things can lower it. They are listed here by how early you have to act. Each one has a cost, and none of them fits everyone.

Roth conversions before RMDs begin. Many people have a few years between their last paycheck and their first RMD when their income is lower than it was and lower than it may be later. Money converted from a traditional IRA to a Roth IRA in those years is taxed in the year of the conversion. After that it has no RMDs during your life, so your later RMDs are smaller. The cost is the tax you pay now. A conversion tends to be worth it when the rate you pay now is lower than the rate you would have paid later. Our Roth conversion room calculator shows what a conversion of a given size would cost.

Withdrawals before you are required to take them. Some people take money from pre-tax accounts in their lower-income years, before RMDs begin, and leave other savings alone for longer. The pre-tax balance is then smaller when RMDs start. The cost is the same as with a conversion: you pay tax sooner. The order you draw from your accounts covers this choice.

Gifts to charity paid from the IRA. From age 70½, you can have your IRA pay an eligible charity directly. This is a qualified charitable distribution, or QCD. Up to $111,000 per person in 2026 is left out of your income, and once you have RMDs it counts toward them.⁵ In the example above, paying $20,000 of the RMD to charity takes $20,000 off the couple's income. Their taxable Social Security does not change, because it is already at the most that can be taxed. At their 12% rate, the gift lowers their tax by $2,400. They also have $20,000 less to spend, so a QCD helps only if you were going to give the money anyway. The QCD limit for 2026 explains the rules.

The timing of the first RMD. The amount for your first RMD year can be taken during that year, or as late as April 1 of the next year. Waiting puts two years' amounts on one tax return, which can cost more than taking each in its own year. Waiting can cost less when your income in the first year is unusually high, such as in a last year of work.⁶

One more rule delays RMDs without lowering the tax on them. If you are still employed by the company that sponsors your workplace plan, you can generally wait to start RMDs from that plan until the year you retire, unless you own more than 5% of the business. Your IRAs start at the regular age.¹

Can an RMD be converted to a Roth IRA?

No. The amount you are required to withdraw for the year cannot be converted to a Roth IRA, and it cannot be rolled over into another retirement account.⁷

You take the RMD first. After that you may convert more of what is left in the account. That conversion is taxed as income in the same year, on top of the RMD.

You can invest an RMD you do not need to spend in an ordinary taxable account. It cannot go back into the IRA as a rollover.⁷

Is it better to take an RMD monthly or once a year?

The federal income tax is the same either way, as long as the whole amount comes out in the same year. An RMD is one year's total. You can take it in one withdrawal or in several, and all of it is taxed in the year the money comes out.⁸

The differences are practical. Money you take late in the year stays in the account longer, and it can rise or fall in value while it is there. Money you leave until the last weeks of December is at risk of missing the December 31 deadline. Our RMD deadline calculator shows which year each withdrawal counts for.

Should you have tax withheld from an RMD?

Having tax withheld does not lower the tax. It pays part of the tax at the time of the withdrawal.

For a one-time withdrawal from an IRA, tax is withheld at 10% unless you choose a different rate. You choose the rate on Form W-4R, and it can be anything from 0% to 100%.⁹ The amount withheld still counts toward your RMD, because the RMD is the full amount withdrawn, before any tax is taken out.

The 10% default can be more or less than the tax the RMD adds. For the couple in the example, the RMD added 16.7%. If too little tax is paid during the year through withholding or estimated payments, a penalty can apply.⁹

What goes wrong with the tax on RMDs?

These are the mistakes we see most often.

People first think about the tax when the first RMD arrives, after the years when a conversion or an earlier withdrawal could have lowered it.

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People first think about the tax when the first RMD arrives, after the years when a conversion or an earlier withdrawal could have lowered it.

People leave the withholding at the 10% default. It turns out to be less than the tax the RMD adds, and they owe the rest in April.⁹

People who give to charity keep writing checks from their bank account. A gift paid from the IRA would have counted toward the RMD, so they can end up paying tax on money they then give away.⁵

People convert too much to a Roth IRA in one year. The conversion pushes part of their income into a higher bracket or raises their Medicare premium, and it can cost more than it saves.³

After one spouse dies, the survivor often has much the same RMD and files as a single person. The same withdrawal is then taxed at higher rates. The widow's penalty explains why.

People are surprised when an RMD raises their Medicare premium two years later.³

In each of these the RMD itself was taken on time. The extra cost came from the tax around it.

Where we fit in. We integrate tax considerations into your investment strategy and collaborate with estate attorneys and CPAs to ensure your plan is coordinated. We are not a law firm or accounting firm, so we do not provide legal or tax advice. Everything in this material is for educational purposes, based on primary sources. Before taking any action, please consult the appropriate professionals to apply these ideas to your situation.

The tax on an RMD is decided mostly by what is in your pre-tax accounts when RMDs begin. The years before that are when you have the most room to change it. If you would like to look at those years with someone, we are glad to have that conversation.