5 things to know about required minimum distributions in 2026
Required minimum distributions are unwelcome for many high-income retirees because of the implications for their tax bills. RMDs are taxed as ordinary income and can have knock-on tax effects, leading to more tax on Social Security benefits and higher Medicare costs . The good news is that the RMD starting age has been sliding upward. It was stuck at 70.5 through 2019, but the original Secure Act…
1. Required minimum distributions (RMDs) are tax implications for high-income retirees. They are taxed as ordinary income and can affect Social Security benefits and Medicare costs. The starting age for RMDs has been increasing, from 70.5 in 2019 to 75 in 2033 through the Secure Act and Secure 2.0.
2. For the 2026 tax year, RMD amounts for investors were calculated using December 31, 2025, portfolio balances. Since 2025 was a good year for investments, RMD amounts are expected to be higher than the previous year's, except if the portfolio lost value.
3. Retirees should not be afraid of RMDs causing them to spend down their portfolios too quickly. The starting RMD rate at age 73 is 3.77%, and it increases steadily with age, reaching 6% by age 85. However, older adults can afford to spend a higher percentage of their portfolios without running out of money. The recommended safe withdrawal rate for 75-year-olds is 5.3%, and for 80-year-olds, it's nearly 7%.
4. RMDs do not need to be spent; they can be reinvested in a tax-deferred account, such as an IRA, up to the contribution limit or earned income, whichever is lower. If not employed, the funds can be placed in a taxable brokerage account. Additionally, RMDs can be used to improve a portfolio by targeting specific holdings for withdrawals, reducing overconcentration in asset classes, sectors, or holdings.
5. Strategies to reduce RMDs or the taxes owed on them include directing new contributions to Roth accounts, which have no RMDs, or converting traditional IRA assets to Roth during pre-RMD years when incomes are low. Retirees can also use qualified charitable distributions (QCDs) to donate up to $111,000 per person in 2026 to a qualified charity, satisfying RMD obligations and reducing future RMD-subject balances, without incurring taxes on the QCD amount.
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