How Can I Lower My Taxable Income Once I Start Taking Required Minimum Distributions (RMDs)?
- Adam Smith, CFP®
- Sep 17
- 7 min read
Once required minimum distributions (RMDs) begin, you can’t avoid them—but you can lower taxable income through strategies like Qualified Charitable Distributions (QCDs), Roth conversions, and Qualified Longevity Annuity Contracts (QLACs).
Done right, these moves can help reduce taxes, protect Medicare premiums from increasing, and keep retirement income more efficient.
Key Takeaways
RMDs typically begin at age 73, and failing to take them triggers steep IRS penalties.
QCDs are the most effective way to lower taxable income once RMDs start, especially for charitably inclined retirees.
QLACs allow you to move up to $210,000 (2025 limit) outside of RMD calculations until as late as age 85.
Roth conversions above the RMD amount can shrink future distributions and shift growth to tax-free accounts.
Tax-loss harvesting, asset location, and state-level strategies (like Virginia529 deductions) can fine-tune tax efficiency.
Timing matters—bracket management and Medicare IRMAA thresholds should guide your decisions.
Professional advice from a fiduciary firm like Covenant Wealth Advisors helps align strategies with your goals.
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The RMD Problem
Turning 73 triggers a new phase of retirement planning: required minimum distributions (RMDs). The IRS requires retirees to withdraw a set amount from traditional IRAs and most employer retirement plans each year, and every dollar is taxed as ordinary income.
For high-net-worth retirees, this can mean six-figure RMDs, pushing you into higher tax brackets, exposing more of your Social Security benefits to taxation, and increasing Medicare premiums.
In our experience, the first RMD alone can sometimes bump adjusted gross income (AGI) by 30% or more.
That’s why so many retirees ask: How can I lower my taxable income once I start taking required minimum distributions?
The good news: while you can’t avoid RMDs, you can strategically reduce their tax impact with proper planning. Let’s explore the most effective ways to do it under 2025 IRS rules.
Qualified Charitable Distributions (QCDs)
What it is: A Qualified Charitable Distribution allows you to transfer money directly from your IRA to a qualified charity once you reach age 70½.
Why it matters: QCDs count toward your RMD but do not show up in AGI. That means you reduce taxable income, avoid higher Medicare premiums (IRMAA), and can still support causes you care about.
Limits in 2025:
Up to $108,000 per person can be given as QCDs.
Married couples with separate IRAs can each contribute up to the limit.
A one-time option exists to fund a charitable gift annuity or CRT with up to $54,000.
What doesn’t qualify:
Most private foundations
Supporting organizations
“For charitably inclined retirees, QCDs are the cleanest and most powerful way to reduce taxable income after RMDs begin,” says Megan Waters, CFP®, lead advisor at Covenant Wealth Advisors in Richmond, VA.
Pro Tip: Consider processing your QCDs early in the year. Many custodians process these slowly, and waiting until December risks missing the IRS deadline.
Qualified Longevity Annuity Contracts (QLACs)
What it is: A QLAC is a deferred income annuity purchased inside your IRA or 401(k). The money used to buy the QLAC is excluded from your RMD calculation until the annuity begins paying (no later than age 85).
Why it matters: This directly reduces the size of your annual RMDs while also creating guaranteed income later in life.
Limits in 2025:
Maximum QLAC purchase: $210,000.
The old “25% of account balance” cap was removed by SECURE 2.0.
Pros:
Shrinks RMDs now.
Provides longevity insurance.
Predictable late-life cash flow.
Cons:
Irrevocable decision.
Payments taxed as ordinary income when they start.
Pro Tip: Run cash-flow projections before committing to a QLAC. It’s best suited for retirees who want to hedge against longevity risk and have other sources of liquidity.
Roth Conversions After RMDs Begin
Rule to remember: You cannot convert your RMD itself to Roth. You must first withdraw the RMD, then convert any additional pre-tax assets.
Why it matters: Conversions won’t lower this year’s taxable income, but they reduce future RMDs and shift growth to tax-free Roth accounts. This can be powerful if you expect higher tax rates later or want to leave Roth assets to heirs.
Key considerations:
Watch your marginal tax bracket—don’t convert blindly.
Track nondeductible contributions (Form 8606) to avoid double taxation.
Conversions increase AGI now, which may temporarily raise Medicare premiums.
“Roth conversions after RMD age can still make sense—but only when bracket management and estate goals align,” notes Scott Hurt, CFP®, CPA, a financial planner at Covenant Wealth Advisors in Richmond, VA.
The “Still Working” Exception for Employer Plans
If you’re still employed at age 73 and not a 5% owner, you can delay RMDs from your current employer’s plan until you retire.
This doesn’t apply to IRAs, and it won’t help business owners. But if your plan allows roll-ins, you may consolidate old IRA accounts into the active retirement plan, such as a 401 (k) to reduce RMD exposure.
Portfolio and Taxable Account Strategies
Beyond retirement accounts, you can use other levers to lower taxable income:
Tax-loss harvesting: Use realized losses in taxable accounts to offset gains and up to $3,000 of ordinary income annually.
Asset location: Keep tax-inefficient assets (like REITs or bonds) in IRAs and growth assets in Roth accounts to slow RMD growth.
In-kind RMDs: Transfer securities instead of cash to meet RMD requirements. This doesn’t reduce AGI, but it gives you a new cost basis in taxable accounts.
Virginia-Specific Deduction Opportunity
For residents of Virginia: contributions to Virginia529 plans are deductible from state income taxes. Normally capped at $4,000 per account per year, the rule changes once you’re 70 or older. At that age, you can deduct the full contribution amount made during the year.
While this doesn’t lower federal taxable income, it can significantly reduce your Virginia tax bill.
Concerned About Creating Sustainable Income in Retirement? We Can Help You Plan With Confidence
RETIREMENT INCOME PLANNING - Estimate when you might retire and what lifestyle your current savings could support.
TAX PLANNING FOR RETIREMENT - Identify ways to reduce taxes in retirement, including Roth conversions and RMD strategies.
INVESTMENT MANAGEMENT - See how a tailored portfolio can align with your retirement goals and risk tolerance.
Pro Tips for RMD Planning
Coordinate QCDs with your charitable giving plan—don’t double dip with a separate deduction.
Consider doing partial Roth conversions even in RMD years to manage future tax brackets.
Use professional software to test Medicare IRMAA thresholds before making large moves.
Keep meticulous records: custodians rarely code QCDs correctly on 1099-Rs.
FAQs
Q: Can QCDs satisfy my entire RMD? Yes. If you donate up to the annual QCD limit directly from your IRA, it fully counts toward your RMD and is excluded from taxable income.
Q: Can I do a QCD from my 401(k)? No. QCDs are only available from IRAs. You may roll 401(k) assets into an IRA to enable QCDs.
Q: What is the maximum I can put into a QLAC in 2025? The inflation-indexed limit is $210,000 per person. This amount is excluded from RMD calculations until income starts.
Q: Do Roth 401(k)s still have RMDs? No. Since 2024, designated Roth accounts in employer plans have no pre-death RMDs, aligning them with Roth IRAs.
Q: What happens if I miss an RMD? The IRS penalty is 25% of the amount not withdrawn (reduced to 10% if corrected quickly). Always work with your custodian early to avoid mistakes.
Conclusion
Lowering taxable income once RMDs start is less about avoidance and more about smart redirection. Tools like QCDs, QLACs, Roth conversions, and tax-aware portfolio design help manage income, protect Medicare premiums, and keep your wealth working for you.
At Covenant Wealth Advisors, we help affluent retirees navigate these complexities with strategies tailored to their financial goals.
Want to find out how to reduce your taxable income in retirement? Contact us for a free retirement assessment today!
About the author:
Senior Financial Advisor
Adam is a Senior Financial Advisor with Covenant Wealth Advisors and a CERTIFIED FINANCIAL PLANNER™ practitioner. He has over 17 years of experience in the financial services industry in the areas of financial planning for retirement, tax planning, and investment management.
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