Understanding required minimum distributions under the new tax law
Real-world strategies retirees can use to lower taxes
KEY POINTS
- Techniques like auto saving, cash stuffing and zero-based budgeting help make saving a consistent habit.
- The 70/20/10 rule and CD laddering offer structured ways to prioritize savings and grow your money.
- Starting with one strategy and building over time can lead to long-term financial stability.
The One Big Beautiful Bill Act (OBBBA), passed in July 2025, introduced sweeping changes to the U.S. tax code. While it didn’t raise or lower the age for required minimum distributions (RMDs), it reshaped the tax environment in ways that retirees and near-retirees should pay attention to.
If you’re planning on drawing income from your retirement accounts, this law makes it even more important to think ahead, said Brendan Burke, a financial planner at BOK Financial®.
What are RMDs?
RMDs are the required withdrawals you must take each year from traditional IRAs, 401(k)s and other tax-deferred retirement accounts once you reach:
- Age 73 if you were born before 1960.
- Age 75 if you were born in 1960 or later.
The amount you’re required to withdraw depends on how much you have saved. If you don’t withdraw the correct amount, the IRS can hit you with steep penalties. How you take those withdrawals—and how you plan around them—can make a big difference for your taxes, your Medicare premiums and what you leave behind to your family.
"RMDs are one of the most neglected parts of retirement planning," said Burke. "People often wait until they’re forced to take them, but the best strategy happens years in advance."
Here’s what you need to know about RMDs and how the new tax law might shape your strategy.
Mind the tax gap: Lower tax brackets extended
If you’re between retirement and your RMD age, often referred to as the “tax gap,” this is a critical time, Burke said. The OBBBA extended the lower tax brackets from the 2017 tax law, meaning you have more time to take withdrawals at the lower rate. This will reduce the size of your tax-deferred accounts, ultimately lowering future RMDs and reducing taxable income in later years.
One strategy Burke recommends is taking out just enough money from your qualified retirement plan to “fill up” your current tax bracket first instead of pulling money for living expenses from your cash or taxable investments.
By pulling from tax deferred accounts before RMDs begin, you pay the tax in the year of the distribution, but you also allow your taxable investments to grow untouched, he explained. “In addition to maximizing your lower income years, you have the potential to reduce the balance of the tax deferred asset which could reduce the amount of the RMD and potentially keep you from moving into the next income tax bracket once you have to start withdrawing from the account.”
For example, let’s say you’re in the 12% tax bracket and you still have room before you hit the 22% bracket. You withdraw enough from your IRA to use up the rest of that 12% bracket and rely on it for living expenses.
This way, you’re paying taxes at the lowest rate available to you right now, instead of deferring withdrawals until later when you might be forced to take more (through RMDs) and possibly pay higher taxes.
"By intentionally withdrawing money before RMDs begin while making sure to stay at a lower tax bracket, you’ll shrink future RMDs and keep yourself in a better tax position," explained Burke.
More time for Roth IRA conversions
The extended lower brackets also give retirees more time to convert traditional IRA assets into a Roth IRA. Roth IRAs don’t have RMDs, so this can be a powerful way to reduce taxable income later in life, Burke said.
Here’s an example of what this might look like.
- Mary is 66, retired, and is in the 22% tax bracket. She has $900,000 in a traditional IRA.
- At 73, her RMD will be a little over $35,000 a year. Combined with her Social Security and other savings withdrawals, her RMD pushes her into a higher tax bracket and raises her Medicare costs.
Mary decides to do Roth conversions now:
- She converts $40,000 a year for 7 years, paying tax at today’s lower rate, making sure to stay within her 22% tax bracket.
- By 73, her traditional IRA is much smaller, so her RMDs drop to about $23,000 a year, allowing her to stay at a lower tax bracket.
- The Roth money grows tax-free and doesn’t require RMDs.
In the end, Mary pays some tax early at lower rates and avoids larger tax bills, higher Medicare premiums and bigger RMDs later.
Mary's example strategy*
| Strategy | Begin RMD distribution at age 73 with no changes | Begin Roth conversion plan at age 66 (7 years before RMD distribution age of 73) |
| Tax bracket when RMDs begin | 22% | 22% |
| Traditional IRA value | $900,0003 | $620,0003 (after conversions) |
| Roth IRA approach |
No conversion |
Converts $40,000/year for 7 years (Once converted, grows tax-free, no RMDs) |
| RMD amount | $35,000/year | $23,000/year |
| Result | Larger tax bills, higher Medicare premiums, larger RMDs later | Some taxes paid during conversion process but reduce going forward |
*Note this is an illustrative example only, based on hypothetical circumstances. Example assumptions: 1. Mary is filing a single tax return. 2. Another source of income does not begin around the same time as RMDs. 3. Example represents minimal account value growth, but in reality, IRA value would be expected to grow over time.
Impacts on Social Security and Medicare
Since RMDs add to your taxable income, they can increase the taxes you pay on Social Security benefits and even raise your Medicare premiums by triggering Income-Related Monthly Adjustment Amount (IRMAA) surcharges on your Medicare Part B and Part D premiums. Reducing RMDs through Roth conversions or charitable giving can help keep these costs under control.
Extra deductions for seniors
The OBBBA kept and, in some cases, expanded deductions for people over 65. These include a larger standard deduction and valuable deductions for medical expenses and charitable giving.
In addition to the current standard deduction, seniors get an additional $6,000 or $12,000 for married couples. The deduction phases out for taxpayers with modified adjusted gross income over $75,000 or $150,000 for joint filers.
Charitable giving with QCDs
Another often overlooked strategy is the Qualified Charitable Distribution (QCD). If you’re 70½ or older, you can donate up to $108,000 a year starting in 2025. (The amount jumps to $216,000 for married couples if both people donate from their individual IRAs.) This counts toward your RMD but doesn’t add to your taxable income. In addition to not adding to a person’s taxable income, the charity won’t pay any tax either.
“QCDs are a powerful tool for those who want to give back while also reducing tax exposure,” said Burke.
Estate planning considerations
It’s also worth considering how the OBBBA affects your estate planning. The OBBBA raised the estate tax exemption to $15 million per person. This means most families won’t face estate taxes. However, heirs who inherit traditional IRAs still must deplete them within 10 years. For this reason, reducing those balances while you’re alive—through Roth conversions or strategic withdrawals—can make things much easier for your heirs.
“Children inheriting qualified assets from their parents may be in the highest earning years of their careers and may be subject to higher tax rates once they have to start withdrawing from inherited IRAs,” said Burke.
The bottom line? “RMDs may be mandatory, but how you prepare for them isn’t,” Burke said. “Working with a financial advisor who can help you map out a multi-year strategy that coordinates withdrawals, tax brackets, Social Security, Medicare and charitable goals for your personal circumstances will help you make the most of today's tax rules, avoid unnecessary taxes and preserve more for the people and causes you care about.”