Many people spend decades building retirement savings without giving as much thought to how they will eventually withdraw that money.
That can become a concern once Required Minimum Distributions begin. Withdrawals from tax-deferred retirement accounts may increase taxable income, affect Medicare premiums, and leave you with less control over where your retirement income comes from.
Fortunately, you may have planning opportunities before and during your RMD years. Roth conversions and Qualified Charitable Distributions, commonly called QCDs, are two strategies that may help you manage taxable income, support organizations you care about, and make more deliberate decisions about the assets you may eventually leave to your family.
What Should Retirees Know About RMDs, Roth Conversions, and QCDs?
Each strategy serves a different purpose. The value comes from understanding how they may work together within your broader retirement plan.
What Is a Required Minimum Distribution?
Traditional IRAs and many workplace retirement plans allow taxes to be deferred while money remains in the account. Taxes are generally owed when those funds are withdrawn.
The IRS eventually requires account owners to begin taking annual distributions. RMDs currently begin at age 73 for many retirees, although the applicable starting age depends on your birth year. Roth IRAs do not require distributions during the original account owner’s lifetime.
An RMD is generally calculated using the account balance at the end of the previous year and an IRS life expectancy factor. It is the minimum amount that must be withdrawn. You may take more than the required amount, but an RMD itself cannot be converted to a Roth IRA.
Why can an RMD create an unexpected tax issue?
The concern is often not the withdrawal alone. It is what the additional income may affect.
- Increase your taxable income
- Cause more of your Social Security benefits to be taxable
- Push part of your income into a higher tax bracket
- Increase future Medicare Part B and Part D premiums
- Limit your ability to control how much taxable income you recognize
This is why it can be helpful to begin planning before the first RMD is due.
Should You Consider a Roth Conversion Before RMDs Begin?
A Roth conversion moves money from a traditional IRA or another eligible pre-tax retirement account into a Roth IRA. The amount converted is generally included in taxable income for that year.
In exchange for paying taxes sooner, the converted assets may continue growing in the Roth account. Qualified Roth IRA withdrawals are tax-free, and the original account owner is not required to take lifetime RMDs.
A Roth conversion may be worth evaluating if:
- You are considering the tax treatment of assets your beneficiaries may inherit
- Your current tax rate may be lower than you expect later
- Your income has declined since retiring
- You have several years before RMDs begin
- Your projected RMDs may exceed what you need for living expenses
- You want more flexibility when choosing where retirement income comes from
- You are considering the tax treatment of assets your beneficiaries may inherit
What could a Roth conversion look like?
Consider a couple who retire at 65 with a significant portion of their savings held in traditional IRAs. Their salaries have stopped, but their RMDs have not started.
The years between retirement and RMD age may provide an opportunity to convert portions of their IRAs over time. Rather than completing one large conversion, the couple could evaluate smaller annual conversions based on their income, deductions, tax bracket, available cash to pay the taxes, and potential Medicare implications.
A conversion is not automatically beneficial. Converting too much in one year could create a larger-than-expected tax bill, move income into a higher tax bracket, or affect Medicare premiums in a future year. The appropriate amount depends on the retiree’s full financial and tax picture.
What Is a Qualified Charitable Distribution?
A Qualified Charitable Distribution allows an IRA owner who is at least age 70½ to transfer money directly from an IRA to an eligible charitable organization.
When the applicable requirements are satisfied, a QCD may count toward part or all of the year’s RMD. The qualifying amount is generally excluded from taxable income rather than claimed as a charitable deduction.
That distinction may make a QCD useful even for someone who does not itemize deductions.
When might a QCD make sense?
A QCD may be worth discussing when:
- You already give to charitable organizations
- You are at least age 70½
- You do not need your full RMD for living expenses
- You claim the standard deduction
- You want to limit the amount added to your adjusted gross income
- You would like retirement assets to support causes important to you
The funds generally must be transferred directly from the IRA custodian to the eligible charity. If you take the IRA distribution personally and then write a check, the gift generally will not qualify as a QCD.
Not every charitable organization or account qualifies. Donor-advised funds generally are not eligible to receive QCDs. Before requesting a distribution, confirm the eligibility of the account, charitable organization, and transaction with your financial and tax professionals.
How Can RMDs, Roth Conversions, and QCDs Work Together?
These strategies address different parts of a retirement plan:
- RMDs determine the minimum amount you must withdraw from affected accounts.
- Roth conversions may reduce the pre-tax balance used to calculate future RMDs.
- QCDs may satisfy part or all of an RMD while directing money to an eligible charity.
Consider a retiree who gives to charity each year, holds a sizable traditional IRA, and does not need the entire RMD for living expenses.
The retiree might use a QCD to make planned charitable gifts and satisfy a portion of the RMD. The retiree and the planning team could then evaluate whether an additional Roth conversion makes sense based on the year’s income and tax situation.
Sequence matters. Because an RMD cannot be converted to a Roth IRA, the year’s required distribution, including any portion fulfilled through a QCD, generally must be completed before additional IRA dollars are converted.
This is not a formula that applies to everyone. These decisions should be coordinated with your income needs, tax situation, Medicare coverage, charitable intentions, and long-term family goals.
What Mistakes Should Retirees Avoid?
Waiting until RMDs begin
The years between retirement and RMD age may provide an opportunity to take planned withdrawals or complete Roth conversions while taxable income is lower.
Looking only at this year’s taxes
Minimizing taxes this year is not necessarily the same as managing taxes throughout retirement. A thoughtful analysis considers the potential effect of a decision over several years.
Converting too much at once
A Roth conversion can increase taxable income and potentially affect Medicare premiums. A larger conversion is not automatically a better conversion.
Taking the full RMD before arranging a QCD
If you withdraw your full RMD first, a later charitable gift cannot retroactively make that distribution a QCD. Planned charitable giving should be coordinated before IRA withdrawals are completed.
Leaving your family out of the conversation
You do not need to disclose every account balance, but family financial conversations can help clarify charitable intentions, estate planning priorities, and responsibilities that adult children may eventually assume.
For families focused on multigenerational planning, these conversations may also help beneficiaries understand why assets are held in different types of accounts and why those distinctions could matter later.
Questions to Discuss With Your Advisor and Tax Professional
Before making a decision, consider asking:
- What might my RMDs look like over the next several years?
- Do I have a lower-income planning window before RMDs begin?
- How would a Roth conversion affect my current tax bracket?
- Could a conversion affect future Medicare premiums?
- Would a QCD be more appropriate than giving from my checking account?
- How do these options align with my charitable and estate planning goals?
- What could these decisions mean for my beneficiaries?
The answers should be based on your complete financial picture, not one account viewed in isolation.
Plan Before the Decision Is Made for You
RMDs, Roth conversions, and QCDs are often discussed separately. In practice, they are connected by a larger question: How much control do you want over your retirement income and future tax decisions?
The earlier you begin considering that question, the more choices you may have.
If you are approaching RMD age or wondering whether a Roth conversion or QCD belongs in your plan, Aspire Wealth Group welcomes the opportunity to talk through the questions with you. We can also work alongside your tax and legal professionals so each part of your strategy reflects the same priorities.
Source: irs.gov
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Aspire Wealth Group and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.
Have questions about your financial plan?
Every financial situation is unique. If you’re wondering how the ideas in this article apply to your own goals, we’re here to answer your questions and discuss how we may be able to help.
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