3 Ways to Reduce or Avoid Required Minimum Distributions (RMDs) in 2024 That Everyone Should Know

Saving money in a retirement account such as an IRA or 401(k) is a great way to grow your savings. The tax deduction you get upfront can help you save more today and build a big nest egg quickly.

But ultimately, the government wants its tax revenue. That’s why it imposes required minimum distributions (RMDs) on traditional retirement accounts. Seniors must begin withdrawing funds from IRAs, 401(k)s and other qualified accounts by April of the year after turning 73. Failure to do so comes with some stiff penalties, up to 25% of the amount you were supposed to withdraw. .

But there are a few ways to reduce the minimum required distribution. And with smart planning, you could significantly minimize the impact of RMDs on your taxes. Here are three ways to beat RMDs in 2024.

1. Roth conversions

Let me be clear, Roth conversions will not count toward your RMDs.

But what Roth conversions can do is lower your future RMDs. So even if you’re not yet subject to RMDs, we recommend that you consider making a Roth conversion now.

Your RMD amount is recalculated each year. It’s based on two numbers: your age and the balance in your accounts at the end of the previous year. If you do a Roth conversion, you will reduce your account balance, thereby reducing your future RMDs.

When you do a Roth conversion, you take assets from your traditional retirement account and transfer them to a Roth version of that account. You will be required to pay taxes on the amount you convert. But right now can be a great opportunity to pay taxes on Roth conversions.

The 2017 tax cuts are set to expire at the end of next year. At that time, tax rates could increase. As such, it may make sense for investors to lock in low tax rates by executing strategic Roth conversions today.

The early years of retirement are a great time to make Roth conversions, especially if you can delay Social Security. You can keep your total income in the lowest tax brackets, minimizing the amount you have to pay for conversions. But even if you take some extra cash on top of your RMDs this year and next year, it could prove a smart tax move down the road to lower your RMDs and overall tax bill.

2. Qualified Charitable Distributions

A qualified charitable distribution (QCD) is a special distribution from an IRA. Instead of withdrawing funds into your own bank account, the funds go directly to a non-profit organization. The distribution counts toward your RMDs, but it doesn’t count as income.

If you’re over 70 1/2, a QCD is one of the best ways to give to charity. This is because you can donate to charity and get all the tax benefits of the donation without having to itemize your deductions. It’s extremely tax-efficient, especially if you no longer have a mortgage or other large expenses to itemize.

QCDs are limited to $105,000 per person in 2024. This means a married couple could contribute up to $210,000 (split between their respective IRAs), reducing their RMDs by the same amount. Importantly, QCDs only apply to IRAs. Workplace retirement accounts are not eligible for the special distribution.

3. Keep working

Not everyone stops working at 70. And it might not be about the money. Staying mentally and physically active with work later in life is a great way to extend your life and improve your happiness — not to mention the benefits for your wallet.

One financial benefit for those who continue to work is that their employer’s 401(k) plan is likely exempt from requiring RMDs. (Most, but not all, plans offer this benefit, so please check with your human resources department.) Even if you’re 73 or older, you won’t have to withdraw a penny from your employer’s plan.

You may be able to take advantage of this by transferring assets from old workplace retirement plans or IRAs to your current employer’s 401(k), if the plan allows it. Otherwise, those accounts will still be subject to RMDs.

This hack can help you avoid RMDs entirely, but it won’t be for everyone. However, there are plenty of ways to plan ahead and reduce your RMDs and tax liability in the long run. Doing so could leave you with more money to enjoy in retirement, give to causes you care about, and leave more money for your heirs.