Recently, an AMAC member asked me a great question:
“Frank, I am 65 and retired. When do I have to start taking required minimum distributions (RMDs) from my IRA—and should I just wait until then to start drawing money out?”
This is an excellent question—and one I hear often.
When Do RMDs Begin?
Under current law (SECURE Act 2.0), RMDs generally begin
- at age 73 if you were born before 1960, or
- at age 75 if you were born in 1960 or later.
Once you reach your RMD age, the government requires you to withdraw a percentage of your traditional IRA each year—whether you need the money or not. Those withdrawals are typically taxed as ordinary income.
The “Defer, Defer, Defer” Trap
Many retirees think, “If I don’t need the money, I’ll leave it alone as long as possible.”
That sounds logical—but it often creates what I call the “defer, defer, defer” trap. By waiting until RMDs begin, you give up control over when and how much taxable income you must take. Once distributions start, they’re mandatory—beginning at around four percent and increasing over time—and that income can push you into a higher tax bracket even if your spending hasn’t changed.
These forced distributions can also trigger a cascade of other costs, including the following:
- More of your Social Security becoming taxable, reducing the benefit you actually keep
- Medicare Part B and Part D premiums increase due to income-based surcharges.
- You incur a larger overall lifetime tax burden, even if your spending never increases.
The key mistake isn’t deferring taxes—it’s deferring planning.
A Smarter Strategy: “Playing the Tax Bracket Game”
If you retire around age 65, you may have a valuable planning window before RMDs begin. During these years, many retirees fall into lower tax brackets because wages have stopped but required distributions haven’t started yet.
One strategy I often discuss is playing the tax bracket game—taking small, systematic IRA withdrawals to “fill up” your current tax bracket, paying a little tax now to help avoid paying much more later.
Connecting Back to Lifestyle vs. Legacy Assets
Traditional IRAs are often best viewed as taxable lifestyle dollars. Every withdrawal creates taxable income. By gradually reducing your IRA balances during lower-tax years, you may improve your tax efficiency and preserve more wealth for legacy goals, which are especially important under today’s inheritance rules.
Final Thought
Once RMDs begin, you’re reacting. Before RMDs begin, you’re planning. And planning is almost always better than reacting.
God Bless,
Frank Kestler
Financial Advisor, Rosemark Advisors
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