Many US retirees are using 1 overlooked trick to turn required minimum distributions into a non-issue in 2026

Many US retirees are using 1 overlooked trick to turn required minimum distributions into a non-issue in 2026

Vishesh Raisinghani

Sun, January 25, 2026 at 7:45 AM EST

4 min read

If you’ve spent decades saving for retirement, your IRA and 401(k) balances probably feel like a financial safety net. Watching those accounts grow can be reassuring. But without careful planning, even healthy retirement savings can morph into a ticking tax bomb.

That’s because the Internal Revenue Service (IRS) mandates withdrawals from these retirement accounts once you turn 73 (1). If you have six- or seven-figure balances, these required minimum distributions, or RMDs, can have a noticeable impact on your tax bill every year.

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Here’s why this tax bomb matters andwhat you can do to diffuse it before it’s too late.

RMD tax bomb

What makes RMDs so frustrating is that they force you to reverse decades of good financial habits. After an entire career of saving, investing and deferring taxes, it can be difficult to switch gears and start selling assets, making withdrawals and triggering tax liabilities.

Failing to plan for RMDs can be expensive, especially if your retirement accounts have grown substantially.

RMDs are calculated using your age and your account balance as of December 31 of the previous year. According to Fidelity, the IRS applies a life expectancy factor to determine how much you must withdraw in a year (2).

For example, if your account balance is $100,000 the year before you turn 73, the IRS uses a life expectancy factor of 26.5. That results in a required withdrawal of about $3,773.60. With a $500,000 balance, the RMD jumps to roughly $18,867.90.

Higher balances trigger larger withdrawals, which can easily push you into a higher tax bracket. That extra income, combined with other sources, can increase the taxation of Social Security benefits or raise Medicare premiums through income-related monthly adjustment amounts (3).

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If you fail to withdraw the required amount by the deadline, the penalty is steep. The IRS can charge 25% of the amount you should have withdrawn. Many investment platforms now offer tools that automate RMDs, helping retirees avoid missed deadlines and complicated calculations (4).

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But if you want to eliminate this issue, there may be a way to defuse the tax bomb if you act early.

One hidden strategy to reduce the damage

For many retirees, RMDs can feel unavoidable. You’re often choosing between paying higher taxes now or higher taxes later.

But retiring in your early 60s and delaying Social Security can create a valuable planning opportunity.

For example, retiring at 63 and waiting until 70 to claim Social Security opens a seven-year window of relatively modest income. During this time, many couples find themselves in a lower tax bracket, creating an opportunity to withdraw money from retirement accounts more strategically.

By taking voluntary withdrawals from IRAs or 401(k)s in their 60s, you can smooth taxable income over time rather than letting it spike later. The goal isn’t to eliminate taxes. It’s to pay them at lower, more predictable rates.

Those withdrawals can be used to cover living expenses or converted into a Roth IRA. Roth conversions are taxed upfront, but future growth and qualified withdrawals are tax-free. Roth accounts are also not subject to RMDs during the owner’s lifetime.

This strategy can significantly reduce forced taxable income later in retirement while adding flexibility. In years with high expenses or market volatility, retirees can tap Roth funds without increasing their tax bill.

The key is planning ahead and starting early. This five- to 13-year window between retirement and age 73 is often your best chance to manage taxes and smooth over your total tax liability throughout your golden years.

Many US retirees are using 1 overlooked trick to turn required minimum distributions into a non-issue in 2026