How Do RMDs Affect Your Taxes in Retirement?
Quick answer: Required Minimum Distributions (RMDs) are mandatory annual withdrawals from traditional IRAs, 401(k)s, 403(b)s, and similar tax-deferred retirement accounts that begin at the age specified in current tax law. RMDs are taxed as ordinary income at the federal level and generally subject to Ohio income tax as well. For Ohio retirees with significant tax-deferred balances, RMDs can become one of the largest sources of taxable income later in retirement — pushing income into higher tax brackets, increasing Medicare IRMAA premiums, and increasing the federally taxable portion of Social Security. The most effective RMD planning happens in the years before RMDs begin, when withdrawal strategies, Roth conversions, and charitable giving approaches can shape what the RMD picture eventually looks like. This article is educational; specific RMD advice requires a qualified tax professional.
Key Takeaways
- RMDs begin at the age specified in current tax law and are required annually from traditional retirement accounts.
- RMDs are taxed as ordinary income at both federal and Ohio levels.
- Roth IRAs do not have RMDs during the original account holder's lifetime, making them valuable for tax planning.
- The penalty for missing or under-taking an RMD is substantial under current law, though reduced under recent legislation.
- RMDs can affect Medicare IRMAA tiers, Social Security taxation, and tax bracket positioning.
- The most valuable RMD planning happens in the years before RMDs begin, not after they start.
- Qualified Charitable Distributions can satisfy RMDs without adding to taxable income, making them powerful tools for charitably inclined retirees.
Table of Contents
- What Required Minimum Distributions Are
- Which Accounts Are Subject to RMDs
- How RMDs Are Calculated
- How RMDs Are Taxed in Ohio
- The Penalty for Missing an RMD
- How RMDs Affect Other Parts of the Tax Picture
- Pre-RMD Planning Strategies
- Using Qualified Charitable Distributions
- Inherited RMD Rules
- Frequently Asked Questions
What Required Minimum Distributions Are
Required Minimum Distributions are the federal government's mechanism for eventually collecting tax on tax-deferred retirement savings. Money that went into a traditional IRA, 401(k), 403(b), or similar account on a pre-tax basis hasn't been taxed yet. RMDs force annual withdrawals — and the resulting tax payments — starting at a specified age, ensuring those balances don't grow tax-deferred indefinitely.
The mechanic in plain terms: starting at the age specified in current tax law, you must withdraw at least a minimum amount from your tax-deferred retirement accounts each year. The minimum is calculated based on your account balance and a life expectancy factor published by the IRS. The withdrawal is taxed as ordinary income in the year you take it.
A few structural points worth understanding:
RMDs are a floor, not a ceiling. The required minimum is the smallest amount you can take. You can always take more if it fits your tax plan, though additional withdrawals are also taxed as ordinary income.
Each tax-deferred account has its own RMD calculation, though for IRAs you can typically aggregate them and take the total from any one IRA. Employer-sponsored plans (401(k)s, 403(b)s) generally require separate RMDs from each plan.
RMDs cannot be rolled over to a Roth IRA. This is a common point of confusion. RMDs are required distributions, not eligible for conversion. You can convert additional amounts above the RMD, but not the RMD itself.
Roth IRAs have no RMDs during the original account holder's lifetime. This makes Roth balances valuable for income flexibility — they don't force you to take taxable income in any given year. Inherited Roth IRAs do have RMD requirements for beneficiaries, with rules that vary based on the relationship to the deceased.
The RMD age itself has changed in recent years under SECURE Act and SECURE 2.0 legislation. The current RMD age depends on your year of birth — consult IRS guidance for your specific RMD start date.
This article is part of my broader guide on how to plan a tax-efficient retirement in Ohio, which covers how RMDs interact with the rest of the retirement tax picture.
Which Accounts Are Subject to RMDs
Most tax-deferred retirement accounts are subject to RMDs:
Traditional IRAs — RMDs apply to all traditional IRA balances aggregated across accounts. The annual RMD can typically be taken from any single IRA or split across multiple, as long as the total RMD amount is satisfied.
401(k)s — RMDs apply to each 401(k) separately. If you have multiple 401(k)s from previous employers, each one has its own RMD requirement.
403(b)s — Similar to 401(k)s. RMDs apply to each plan, though some 403(b) balances have special rules for amounts contributed before specific dates.
457 plans — Governmental 457 plans are subject to RMDs.
SEP IRAs and SIMPLE IRAs — Subject to RMDs like traditional IRAs.
Inherited IRAs — Have their own RMD rules, which differ significantly from owner-RMD rules and have been changed substantially by recent legislation.
Roth IRAs — No RMDs during the original account holder's lifetime. This is one of the most valuable features of Roth accounts from a tax planning perspective.
Roth 401(k)s — Recent legislation (SECURE 2.0) eliminated RMD requirements from Roth 401(k)s. Prior to this change, Roth 401(k)s did have RMDs, which led some retirees to roll Roth 401(k) balances to Roth IRAs to escape the requirement.
Working exception for current employer plans — If you're still working past RMD age and own less than 5% of the company, you can generally defer RMDs from that employer's plan until you retire. This doesn't apply to former employer plans or IRAs.
For Ohio retirees with assets across multiple account types, the practical implication is that the RMD calculation can become complex. Working through which accounts are subject to RMDs, which can be aggregated, and which require separate withdrawals is worth doing with a tax professional, especially in the years approaching RMD age.
How RMDs Are Calculated
The annual RMD calculation has two components: the account balance at the end of the previous year, and a life expectancy factor from IRS-published tables.
The formula: Previous year-end account balance ÷ life expectancy factor = current year RMD.
The life expectancy factor comes from IRS tables that are updated periodically. Most retirees use the Uniform Lifetime Table. Married retirees whose spouse is more than 10 years younger and is the sole beneficiary may use a different table that produces a smaller RMD.
The account balance is taken at the close of the previous calendar year. For an RMD in the current year, you look at the December 31 balance from last year.
Multiple accounts complicate the math:
- For IRAs (including SEP and SIMPLE), the RMD is calculated for each account separately, then the total can be taken from any single IRA or any combination.
- For 401(k)s, 403(b)s, and 457s, the RMD is calculated for each plan separately and must be taken from that specific plan — you cannot aggregate across employer plans the way you can across IRAs.
Timing within the year: The RMD must be taken by December 31 of the year it's required. There's a one-time exception for the first RMD year, which can be delayed until April 1 of the following year — though taking advantage of this delay means taking two RMDs in the second year, which can stack income and push you into higher tax brackets.
The IRS publishes the current life expectancy tables on its website. Working with a tax professional or financial advisor to verify your specific RMD amount each year is generally a good practice, particularly in the first year of RMDs and after significant account changes.
How RMDs Are Taxed in Ohio
For Ohio retirees, RMDs are taxed at multiple levels: federal, Ohio state, and potentially school district.
Federal taxation. RMDs are included in federal taxable income as ordinary income. They're taxed at your marginal federal rate where the RMD income lands in the bracket structure. Because RMDs add to all your other taxable income for the year, the marginal rate they face depends on what else is in your tax picture.
Ohio taxation. Because Ohio starts its income tax calculation with federal adjusted gross income, the RMD flows into Ohio AGI and is taxed at Ohio's regular rates. The Ohio retirement income credit may apply to a portion of the RMD if your income is low enough for the credit, though it phases out at higher income levels.
School district income tax. If you live in an Ohio school district that imposes income tax using the "traditional" tax base, the RMD may also be subject to school district tax. Districts using the "earned income" base generally don't include RMDs. Verify your district's treatment with the Ohio Department of Taxation or a tax professional.
Withholding on RMDs. Plan administrators handle RMD withholding differently. Some apply default withholding rates; others require explicit elections. The default withholding for traditional IRAs is typically 10% federal unless you elect otherwise. For 401(k) and similar plans, the default may be higher. Verify withholding on every RMD distribution to avoid a balance due at filing time.
For Columbus-area retirees, the practical implication is that an RMD of $40,000 doesn't produce $40,000 of usable income — federal tax, Ohio tax, and potentially school district tax all apply. A coordinated withholding strategy ensures the tax is set aside as the RMD is distributed.
The Penalty for Missing an RMD
Missing or under-taking an RMD has historically been one of the more severe penalties in the tax code.
The penalty under current law is 25% of the missed RMD amount, reduced from the previous 50% level by SECURE 2.0 legislation. The penalty can be further reduced to 10% if the missed RMD is corrected within a specific timeframe and the IRS approves a waiver request.
What counts as missing an RMD:
- Failing to take any distribution by the deadline
- Taking less than the required amount
- Calculating the RMD incorrectly and taking too little
- Aggregating across the wrong account types (taking the IRA RMD from a 401(k), for example)
What to do if an RMD is missed:
The standard remedy is to take the missed RMD as soon as the error is discovered, then file IRS Form 5329 with the next tax return to request a waiver of the penalty. The IRS has historically been reasonable about granting waivers for honest mistakes, particularly when the missed RMD has been taken promptly.
Practical implication: Set up calendar reminders, automatic distributions through your custodian, or both. Many custodians offer automated RMD service that calculates and distributes the RMD by the deadline each year. For retirees with multiple accounts, this kind of automation reduces the risk of missing a distribution.
For Ohio retirees who realize after the fact that they've missed an RMD, work with a tax professional immediately. The penalty can be substantial, and prompt corrective action improves the chance of a waiver.
How RMDs Affect Other Parts of the Tax Picture
RMDs don't sit in isolation. They affect — and are affected by — several other parts of the retirement tax picture.
Tax bracket positioning. RMDs add to ordinary income for the year. For retirees with significant tax-deferred balances, RMDs can push income meaningfully higher than expected. A retiree who carefully managed tax brackets in early retirement may find RMDs forcing them into a higher bracket once distributions become mandatory.
Medicare IRMAA tiers. RMDs count toward income for Medicare IRMAA purposes. A large RMD can push you across an IRMAA threshold, increasing Medicare Part B and Part D premiums for the two-year lookback period. Both spouses' premiums can be affected for households filing jointly.
Social Security taxation. Federal taxation of Social Security depends on combined income. RMDs add to that combined income, potentially pushing more Social Security benefits into the taxable category — up to the maximum 85% federal taxation level.
Ohio retirement income credit. The credit phases out at higher income levels. Large RMDs can push retirees above the phase-out, eliminating the credit they may have been receiving.
Capital gains rates. The preferential federal long-term capital gains rates depend on your income level. RMDs can push you into a higher capital gains rate bracket as well.
Other credits and deductions. Various tax credits and deductions phase out at higher income levels. RMDs can affect eligibility for items like medical expense deductions, charitable deduction limits, and others.
The compounding effect matters. A single large RMD doesn't just cost you tax on the RMD itself — it can affect Medicare premiums two years later, increase Social Security taxation, eliminate the Ohio retirement income credit, and affect other tax positions. Multi-year RMD planning can sometimes manage these effects more efficiently than handling each year in isolation.
Pre-RMD Planning Strategies
The most valuable RMD planning generally happens in the years before RMDs begin. Once distributions start, the planning window for managing them has largely closed.
Strategy 1: Roth conversions in pre-RMD years. Converting traditional IRA balances to Roth in the years before RMDs begin reduces the future RMD amount (since converted dollars are no longer in the traditional account). The conversion is taxable in the year it occurs, but the long-term tax benefit can be significant. I cover this in detail in our piece on Roth conversion strategies for Ohio retirees.
Strategy 2: Strategic withdrawal sequencing. Some retirees benefit from drawing from traditional accounts in pre-RMD years even when they could draw from other sources. The reasoning: drawing voluntarily at lower tax brackets reduces future balances that would otherwise generate larger RMDs at higher brackets. The math depends on the specific situation.
Strategy 3: Pre-RMD charitable giving from a traditional IRA. Once you reach the age at which Qualified Charitable Distributions are allowed, you can satisfy charitable goals directly from your IRA — even before your formal RMD age. This reduces the future RMD-eligible balance.
Strategy 4: Plan for the first-year RMD timing decision. The first RMD year offers a choice: take the RMD by December 31 of that year, or delay until April 1 of the following year. The delay creates a "two RMDs in one year" scenario that can stack income inefficiently. For most retirees, taking the first RMD in the first year is preferable, but the right answer depends on the specific tax picture.
Strategy 5: Project RMDs across the retirement period. Modeling expected RMDs over 20-30 years — based on current balances, expected growth, and life expectancy factors — gives a clearer picture of when RMDs become a constraint and where pre-RMD planning can have the most impact.
For retirees in the 5-10 years before RMD age, this is one of the most leveraged areas of tax planning. Decisions made now compound across decades of mandatory distributions.
Using Qualified Charitable Distributions
Qualified Charitable Distributions, or QCDs, are one of the most powerful RMD planning tools available to charitably inclined retirees.
How QCDs work: A QCD is a direct transfer from a traditional IRA to a qualified charitable organization. The retiree must be at least the age specified in current tax law (currently 70½). The transfer goes directly from the IRA custodian to the charity — the retiree never takes possession of the funds.
The tax benefit:
- The QCD counts toward your RMD for the year (up to the annual QCD limit)
- The QCD is NOT included in taxable income
- This is different from taking the RMD as cash and then donating it — that approach includes the RMD in income (with the tax deduction available only if you itemize)
- For non-itemizers, QCDs are essentially the only way to get tax benefit from charitable giving from IRA assets
Why this matters for Ohio retirees:
- The QCD doesn't appear in federal AGI, which means it doesn't appear in Ohio AGI either
- It doesn't increase Medicare IRMAA tier positioning
- It doesn't push Social Security taxation higher
- It doesn't reduce eligibility for the Ohio retirement income credit
- It doesn't trigger Ohio school district income tax (where applicable)
The QCD effectively reduces taxable income for retirees who would otherwise be taking RMDs and supporting charities separately. For Ohio retirees who give regularly, QCDs are usually the most tax-efficient way to handle that giving.
There are annual limits on QCD amounts and rules about which organizations qualify. We cover QCDs and donor-advised funds in detail in our forthcoming piece on charitable giving strategies: QCDs and DAFs explained (coming soon in this series).
Inherited RMD Rules
Inherited retirement accounts have their own RMD rules, which have been changed significantly by recent legislation.
Spousal beneficiaries generally have the most flexibility. A surviving spouse can usually roll an inherited IRA into their own IRA, treating it as their own, with RMDs based on their own age. Spouses also have other options, including treating the inherited account as an inherited IRA with separate rules.
Non-spouse beneficiaries generally face stricter rules under the SECURE Act. Most non-spouse beneficiaries must withdraw the entire inherited account within 10 years of the original owner's death, with various rules about whether annual distributions are required within that 10-year window. The specific rules depend on the beneficiary's relationship to the deceased and the year of death.
Eligible Designated Beneficiaries — a specific category that includes minor children of the deceased, disabled or chronically ill individuals, and individuals not more than 10 years younger than the deceased — have different rules that may allow distributions over the beneficiary's own life expectancy.
The 10-year rule's tax implications: For non-spouse beneficiaries who inherit a traditional IRA or 401(k), the requirement to distribute the full balance within 10 years can create significant tax bracket pressure. Front-loading or back-loading the distributions within the 10-year window has tax implications that should be analyzed with a tax professional.
For Ohio retirees thinking about how their accounts will pass to heirs, the inherited RMD rules are an important consideration. Heirs in higher tax brackets than the retiree may benefit from receiving Roth assets (which generally don't produce taxable income on distribution) rather than traditional assets.
Frequently Asked Questions
At what age do RMDs start? The RMD age has changed in recent years under SECURE Act and SECURE 2.0 legislation. The current RMD age depends on your year of birth. Consult IRS guidance or a qualified tax professional for your specific RMD start date.
Are RMDs taxed in Ohio? Yes. RMDs are included in federal adjusted gross income and flow into Ohio adjusted gross income. They are taxed at Ohio's regular rates and may also be subject to school district income tax in districts using the traditional tax base.
Do I have to take an RMD from a Roth IRA? No. Roth IRAs do not have RMDs during the original account holder's lifetime. This makes Roth accounts particularly valuable for tax flexibility in retirement. Inherited Roth IRAs do have RMD requirements for beneficiaries.
What happens if I miss an RMD? Missing an RMD triggers a penalty under current law — recently reduced to 25% of the missed amount, with further reduction to 10% possible if corrected promptly and the IRS approves a waiver. The standard remedy is to take the missed RMD immediately and file Form 5329 to request a waiver.
Can I delay my first RMD? Yes. The first RMD can be delayed until April 1 of the year following the year you turn the RMD age. However, this creates a "two RMDs in one year" scenario the following year. Most retirees benefit from taking the first RMD in the first year rather than delaying.
Can I take more than the RMD? Yes. The RMD is the minimum required, not the maximum. You can take more if it fits your plan. Additional withdrawals are also taxed as ordinary income.
Can I convert my RMD to a Roth IRA? No. RMDs themselves cannot be converted to a Roth IRA. You can convert additional amounts above the RMD, but the RMD itself must be distributed and reported as taxable income.
Do RMDs affect Medicare premiums? Yes. RMDs count toward income for Medicare IRMAA purposes. Large RMDs can push you into a higher IRMAA tier, increasing Medicare Part B and Part D premiums for the two-year lookback period.
What is a QCD? A Qualified Charitable Distribution is a direct transfer from a traditional IRA to a qualified charity for retirees who meet the age requirement. The QCD counts toward the RMD for the year but is not included in taxable income, making it one of the most tax-efficient ways to satisfy charitable giving from IRA assets.
Plan for RMDs Before They Plan for You
Required Minimum Distributions are one of the most predictable features of retirement tax planning — and one of the most consequential. For Ohio retirees with significant tax-deferred balances, RMDs can become the largest single source of taxable income later in retirement, with effects on tax brackets, Medicare premiums, Social Security taxation, and various other tax positions.
The most valuable RMD planning happens in the years before RMDs begin. Roth conversion strategy in pre-RMD years, careful withdrawal sequencing, charitable giving through QCDs once available, and multi-year tax modeling can all reduce the eventual RMD impact. Once RMDs start, options narrow considerably.
For the bigger picture of how RMDs fit into the broader retirement tax planning framework, see my pillar guide on how to plan a tax-efficient retirement in Ohio.
At Blue Advisors, we work with Columbus-area retirees and pre-retirees to coordinate RMD planning alongside their CPA or tax professional. We work in partnership with our clients' tax professionals, not in place of them.
Schedule a conversation: If you're an Ohio retiree or pre-retiree thinking through RMD planning, you can book an introductory call here: calendly.com/jimblue/blue-advisors-meeting.
By James Blue, Fee-Only Advisor | Blue Advisors
James Blue is the founder of Blue Advisors, a fee-only registered investment advisory firm based in Columbus, Ohio, serving retirees, pre-retirees, and busy professionals across Central Ohio and nationally.
This content is provided for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. RMD rules have been changed multiple times in recent years by SECURE Act and SECURE 2.0 legislation, and may continue to change. Tax laws and rules vary, and individual tax situations vary significantly. The views expressed are those of the author as of the date published and are subject to change without notice. Blue Advisors is a fee-only registered investment advisory firm and is not a tax preparation firm or law firm. Readers should consult a qualified tax professional, the IRS, the Ohio Department of Taxation, and where applicable an attorney before making tax or financial decisions. Advisory services are offered only pursuant to a written advisory agreement and to clients in the State of Ohio, the Commonwealth of Pennsylvania, and other jurisdictions where Blue Advisors is properly registered or exempt from registration. Past performance is not indicative of future results. Specific RMD ages, penalty percentages, and dollar thresholds have been kept general — consult current IRS guidance for specific figures.