Don't Just Take It, Manage It: Your 2026 RMDs

For many retirees, Required Minimum Distributions (RMDs) are viewed as a mandatory administrative chore — a box to be checked to satisfy the IRS. However, viewing your RMD solely as an obligation is a missed opportunity.

Whether you need the cash for living expenses or not, how and when you take your distribution can significantly impact your tax bill and investment longevity.

1. Market Performance

Most people automate their RMD to occur at the same time every year, but market performance should also impact your schedule.

• When Markets are Up: If your account value has risen significantly, consider accelerating your withdrawals or taking a lump sum early in the year to lock in gains at high share prices.
• When Markets are Down: Consider delaying your distribution until later in the year or spreading withdrawals over several months. This gives your portfolio time to potentially recover before selling assets.

2. Using RMDs for Withholding

One of the most underutilized strategies is using your RMD to manage your wider tax liability. Because RMDs are taxable income, you can earmark up to 100% of the distribution for federal and state tax withholding.

• Roth Conversions: If you plan to convert traditional IRA funds to a Roth IRA, you can use your RMD withholding to pay the tax liability. You must satisfy your RMD requirement before any Roth conversion can take place.
• Portfolio Income: If you have significant taxable income from capital gains, dividends, or interest, increasing the withholding on your RMD can help you avoid underpayment penalties.

3. The QCD Advantage

If you are charitably inclined and over age 70½, a Qualified Charitable Distribution (QCD) can be more tax-efficient than simply donating cash.

• You can direct up to $111,000 of your RMD directly to a qualified charity.
• Unlike a regular withdrawal, a QCD is excluded from your Adjusted Gross Income (AGI), which can positively affect Medicare premiums and tax credits.

4. Special Considerations for 2026

• Excess Cash Flow: If your RMD exceeds what you need for living expenses, consider transferring the net amount to a non-qualified brokerage account for reinvestment.
• Inherited IRAs: Non-eligible designated beneficiaries generally must withdraw the entire account balance within 10 years of the original owner’s death. Failing to plan for this can result in a massive tax balloon payment in year 10.