Many retirees want to reduce taxable income in retirement. One way to do this is to delay taking Required Minimum Distributions, also known as RMDs. The tax code provides several legal methods that allow people to postpone these withdrawals without penalties. Understanding these options can help you manage your retirement income more efficiently.
Delay Your First RMD Until April 1 of the Following Year
The first year you must take an RMD is the year you turn 73. The law allows you to postpone that first withdrawal until April 1 of the following year. This option gives you a little extra time before the first distribution is required. However, if you delay the first RMD you will take two RMDs in that next year. The total of both withdrawals will increase your taxable income.
Use the Still Working Exception
Many people continue to work past the age of 73. If you remain employed and do not own five percent or more of the company where you work, you can delay RMDs from that employer sponsored retirement plan until you actually retire. This rule applies to plans such as a 401k or a 403b that your current employer offers. It does not apply to traditional IRAs. If you have IRAs you must still begin taking distributions in the year you turn 73 even if you keep working.
Move Old 401k Plans Into Your Current Employer Plan
If your employer plan accepts rollovers, you can combine old employer retirement accounts with your current one. When you do this and you qualify for the Still Working Exception the combined account follows that exception. This choice allows you to delay RMDs on those old accounts until you retire.
Convert Funds to a Roth IRA Before RMDs Begin
A Roth IRA does not require RMDs during the account owner’s lifetime. If you convert funds to a Roth IRA before RMDs begin, you can reduce the balance that will later require distributions. You cannot convert an RMD itself, but you can convert any additional funds after the RMD is taken. This approach can lower future tax obligations and increase long term flexibility.
Use a Qualifying Longevity Annuity Contract
Some retirees choose to purchase a Qualifying Longevity Annuity Contract known as a QLAC. A QLAC allows you to move a portion of your IRA or 401k into an annuity that begins paying income later in life. The value used to buy the QLAC is excluded from RMD calculations until payments begin. This feature gives you the ability to delay part of your RMDs until as late as age 85.
What You Cannot Do to Delay RMDs
Some strategies may seem helpful but they do not delay required distributions. Rolling an old 401(k) or an IRA into another IRA will not postpone your RMD. A charitable distribution from an IRA can satisfy an RMD but it does not delay it. Converting funds after RMD age does not allow you to skip the required distribution for that year.
RMD rules contain more flexibility than many people realize. You can delay the first RMD until April 1 of the following year. You can take advantage of the Still Working Exception if you remain employed. You can move old employer accounts into your current plan. You can shift money into a Roth IRA before RMDs begin. You can use a QLAC to defer part of your required distributions until later in life. Each method serves a different purpose, and the right approach depends on your retirement timeline, employment status, and tax planning goals.
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