Your RMD Is More Than a Withdrawal. Here’s How to Use It Wisely Before 2026 Ends

Key Takeaways

• Required minimum distributions (RMDs) carry a hard December 31 deadline, and missing it can trigger a 25% IRS penalty on the amount you should have taken
• Many retirees treat their RMD as a mandatory chore, though the fourth quarter is one of the best windows to make strategic decisions around it
• How you take your RMD, and what you do with the money, can have meaningful downstream effects on your tax bill, Medicare premiums, and estate
• Tools like qualified charitable distributions, Roth conversions, and strategic withholding can turn a required withdrawal into an active planning move
  
  

Many retirees approach their required minimum distribution (RMD) the same way they approach a dental cleaning: something they know they have to do, schedule it, get it done, and move on. That instinct is understandable. Take the distribution, pay the taxes, done.

That framework is not wrong, but it is incomplete. The mechanics of how you take your RMD, when you take it, what you do with the proceeds, and how it interacts with the rest of your financial picture create a surprisingly wide range of outcomes, and most of them close permanently on December 31. Retirees who treat the fourth quarter as a planning window rather than a deadline countdown often come out in a meaningfully better position than those who don’t.

When Is the RMD Deadline, and What Happens If You Miss It?

A required minimum distribution is the amount the IRS requires you to withdraw each year from most tax-deferred retirement accounts once you reach a certain age. Under current law, RMDs begin at age 73 for those born between 1951 and 1959, and at age 75 for those born in 1960 or later. The amount is calculated by dividing your account balance, as of December 31 of the prior year, by a life expectancy factor published in IRS tables.

The deadline is December 31 of each year, with one exception for a first RMD year, and missing it without a qualifying exception triggers a 25% IRS excise tax on the amount you should have withdrawn.

If this is your very first RMD year, you may delay until April 1 of the following year. Be cautious with that option, though, taking two RMDs in one calendar year can push you into a higher bracket and affect your Medicare premiums.

That 25% excise tax was reduced from 50% by the SECURE 2.0 Act, and it can be further reduced to 10% if corrected promptly, but none of those are outcomes worth engineering. The planning opportunity is before the deadline, not after it.

How Does an RMD Affect Other Areas of Your Tax Picture?

One of the most immediate impacts of RMs is ordinary income tax. Every dollar that comes out of a traditional IRA or 401(k) is added to your taxable income for the year. But the ripple effects extend further than many retirees realize.

• Social Security taxation. Up to 85% of your Social Security benefit can become taxable depending on your combined income. A larger RMD can push you over thresholds that cause more of your benefit to be subject to tax, a compounding effect that isn’t visible until you see the return.
• IRMAA surcharges. Medicare Part B and Part D premiums are income-based. If your modified adjusted gross income crosses certain thresholds, you pay more, sometimes significantly more. RMDs are a frequent trigger. The IRMAA calculation uses income from two years prior, so an elevated RMD this year can show up in your Medicare bill in 2028.
• Net Investment Income Tax. For higher-income retirees, the 3.8% net investment income tax can be triggered or worsened by RMD-driven income increases.

There are three specific moves worth evaluating before December 31 to manage these tax exposures: qualified charitable distributions, Roth conversions, and the strategic use of proceeds you may not need for living expenses.

What Is a Qualified Charitable Distribution, and How Does It Work?

If you are 70½ or older and charitably inclined, a QCD is one of the most tax-efficient moves available to you.

A qualified charitable distribution, or QCD, lets you transfer up to $111,000 per year directly from your IRA to a qualified charity, and that amount counts toward your RMD while being excluded from your taxable income entirely.

Compare that to the standard approach: take the RMD, pay ordinary income tax on it, then donate the after-tax remainder to charity and claim an itemized deduction, if you itemize at all. Many retirees don’t itemize, which means the charitable deduction provides no benefit. The QCD bypasses that problem completely. The money goes directly to the charity without ever appearing as income on your return.

For a retiree in the 22% or 24% bracket with a $20,000 RMD who was planning to give to their church, alma mater, or community foundation anyway, a QCD can help eliminate the tax on that entire amount.

One important rule: the distribution must go directly from the IRA to the charity. Taking the money yourself and then writing a check does not qualify.

How Does a Roth Conversion Interact With an RMD?

Your RMD and a potential Roth conversion are two separate decisions, but they interact, and the fourth quarter is the right time to evaluate them together.

A Roth conversion means moving money from a traditional IRA to a Roth IRA, paying income tax on the converted amount now in exchange for tax-free growth and tax-free withdrawals later. Roth accounts are also not subject to RMDs during the original owner’s lifetime, which reduces the size of future mandatory withdrawals.

If you are in a relatively lower income year, perhaps before a pension starts, before Social Security begins, or in a year when deductions are higher than usual, converting a portion of your traditional IRA can make long-term sense. And if current federal income tax rates are scheduled to change in the future, locking in today’s rates has additional appeal.

Important: your RMD must be satisfied before any Roth conversion in the same year. The IRS does not allow you to convert your RMD. It must come out as a taxable distribution first. Only the amount above your RMD is eligible for conversion.

What Can You Do With RMD Proceeds You Don’t Need to Live On?

Many retirees, particularly those with pensions, Social Security, and other income sources, don’t need their RMD to cover living expenses. If that describes you, what you do with the distribution matters as much as the distribution itself.

A few options worth considering:

• Reinvest in a taxable brokerage account. The money has now been taxed. Placing it in a taxable account gives you full flexibility: no required distributions, no contribution limits, and assets that receive a step-up in basis at death, which can help reduce capital gains taxes for your heirs.
• Fund a 529 account. If you have grandchildren, RMD proceeds can be gifted into a 529 education savings plan. Contributions aren’t federally deductible, but the growth is tax-free when used for qualified education expenses.
• Use it for annual gifting. The annual gift tax exclusion allows you to give up to $19,000 per person per year without gift tax implications. RMD proceeds are a natural source of funds for those transfers, helping reduce the size of a taxable estate in the process.
• Direct it toward a QCD first. As covered above, if charity is part of your giving plan, the QCD is almost always the more efficient execution path than taking the cash and donating separately.

Planning Questions to Consider Before December 31

• Have you calculated your 2026 RMD, and have you confirmed the deadline applies to all your accounts, including inherited IRAs?
• Does your RMD push your income into a range that affects Social Security taxation, IRMAA thresholds, or the net investment income tax?
• Are you charitably inclined and at least 70½? If so, have you considered a QCD instead of a standard distribution?
• Is this a year where a partial Roth conversion, taken above and beyond your RMD, makes sense given your current bracket?
• If you don’t need the RMD income to live on, do you have a plan for where those dollars go?

Need Help with Your RMD Strategy?

At Prosperity Capital Advisors, we treat your retirement income, tax management, and legacy planning as connected decisions, because a move you make in one area routinely affects the others.

The RMD deadline on December 31 is fixed. How you approach it between now and then is not. Working with a fiduciary advisor across all Five Pillars of Holistic Wealth Management can help you turn this year’s required distribution into next year’s advantage, before the window closes.

Frequently Asked Questions About Required Minimum Distributions

What is the RMD deadline for 2026?
For most retirees, required minimum distributions for 2026 must be taken by December 31, 2026. The one exception is for those taking their very first RMD, they may delay until April 1 of the following year. However, delaying your first RMD means taking two distributions in one calendar year, which can have significant tax consequences and should be evaluated carefully with an advisor.

What happens if I miss my RMD deadline?
The IRS imposes a 25% excise tax on the amount you were required to withdraw but did not. Under SECURE 2.0, this penalty can be reduced to 10% if the shortfall is corrected within a specific window. Neither outcome is favorable, the better path is ensuring the distribution is taken on time.What is the RMD deadline for 2026?
For most retirees, required minimum distributions for 2026 must be taken by December 31, 2026. The one exception is for those taking their very first RMD, they may delay until April 1 of the following year. However, delaying your first RMD means taking two distributions in one calendar year, which can have significant tax consequences and should be evaluated carefully with an advisor.

Do I have to take an RMD from every retirement account I own?
RMDs apply to traditional IRAs, rollover IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored plans including 401(k)s. Roth IRAs are not subject to RMDs during the original owner’s lifetime. Inherited IRAs, whether inherited from a spouse or a non-spouse, have their own separate rules that were significantly changed by the SECURE Act and SECURE 2.0, and should be reviewed with a qualified financial advisor.

Can I take more than my RMD?
Yes. The RMD is a minimum, not a maximum. You may always withdraw more than the required amount. Excess withdrawals do not reduce future RMDs; each year’s calculation is based on that year’s starting balance and life expectancy factor.

Can I make a Qualified Charitable Distribution (QCD) from a 401(k), or only an IRA?
A QCD must come directly from an IRA. Funds in a 401(k) do not qualify, even if you are charitably inclined and otherwise eligible. If most of your retirement savings sit in an employer plan, you may be able to roll those funds into a traditional IRA first, then direct the QCD from there once the funds have settled. This is worth planning ahead of the December 31 deadline, since a rollover takes time to process and a QCD cannot be executed until the money has landed in an eligible IRA.

Does my RMD affect my Medicare premiums?
It can. Medicare Part B and Part D premiums are determined by your modified adjusted gross income from two years prior. If an RMD pushes your income above certain IRMAA thresholds, you may owe income-related premium surcharges. This is one of several reasons why coordinating your RMD strategy with your broader tax plan, ideally well before year-end, is worth the effort.

Financial Planning and Advisory Services are offered through Prosperity Capital Advisors (“Prosperity”), an SEC registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training. Prosperity does not provide tax or legal advice. For more information, please visit www.adviserinfo.sec.gov.