A HNW Retiree's Guide To Navigating RMDs from Large IRA Accounts

Episode 9

A HNW Retiree's Guide To Navigating RMDs from Large IRA Accounts

Published on October 8th, 2025

In Episode 9 of Retirement Tax Matters we delve into the growing challenge of Required Minimum Distributions (RMDs) for high-net-worth retirees with substantial Traditional IRA balances, particularly those in the $2M-$8M range. We establish that a six-figure RMD (beginning at just $2.65 million in an IRA for a 73-year-old in 2025) is a realistic scenario that continues to grow, often exceeding actual spending needs. Our conversation centers on the core dilemma: taking out money you don't need, which becomes fully taxable and can push you into higher tax brackets. We outline three primary options for managing these mandatory withdrawals: (1) spending it, (2) reinvesting the after-tax portion in a brokerage investment account, or (3) utilizing Qualified Charitable Distributions (QCDs) for tax-free giving up to $108,000 per person in 2025. Crucially, the episode emphasizes that while these options treat the symptom, the true opportunity lies in proactive tax-return-driven financial planning long before RMDs begin. This involves leveraging your Golden Window between retirement and SS & RMD age to strategically implement Roth conversions, effectively shrinking the RMD base and minimizing lifetime tax burdens, including potential Medicare IRMAA surcharges.

Key Tax Planning Questions

Click Below To See The Answer

• Can my RMD push me into a higher tax bracket?

  Yes, it absolutely can, and this is a central planning concern for many HNW retirees.

  Required Minimum Distributions (RMDs) exist because the government requires you to start paying taxes on the money you've saved in pre-tax accounts (like a Traditional 401(k) or Traditional IRA) where it has grown tax-deferred for years. Once you reach your RMD age (currently 73 or 75, depending on your birth year), you are forced to withdraw a specific minimum amount each year.

  Crucially, every dollar of your RMD is taxed as ordinary income. This income is stacked on top of all your other income sources, such as Social Security, pensions, and investment income. If your existing income already fills up a lower tax bracket, your RMD can easily spill over and be taxed at the next, higher marginal rate.

  For HNW retirees with substantial Traditional IRA or pre-tax 401(k) balances, the RMD is often larger than their actual spending needs, creating a forced income situation that can unnecessarily push them from a 24% bracket into the 32% bracket or higher.

• What are my options for a large RMD I don't need?

  First, it’s important to understand that not taking your full RMD is not an option, as it can result in a significant IRS penalty. For a large RMD that exceeds your spending needs, you generally have three commmon options, which can also be mixed and matched.

  1. Spend It: The most straightforward option is to have the full RMD, less any tax withholding, sent to your bank account. You pay the ordinary income tax on the distribution and are free to spend, save, or gift the proceeds as you see fit. Maybe the RMD you don’t need is push you need to do the thing you’ve been putting off, or helping someone in your life.

  2. Reinvest the After-Tax Proceeds: If you don't need the income, you can take the full RMD, pay the associated income taxes, and then reinvest the net amount into a non-IRA brokerage account. The IRS's primary concern is that the tax is paid; what you do with the after-tax funds is up to you. This allows you to keep your capital invested and growing for the future.

  3. Donate It via a Qualified Charitable Distribution (QCD): If you are charitably inclined and over age 70 ½, a QCD may possibly be the most tax-efficient option. You can direct up to $108,000 (in 2025) per person from your Traditional IRA (or inherited IRA) directly to a qualified charity. This distribution is excluded from your taxable income, goes to the charity tax-free, and counts toward satisfying your RMD. If you are in a 32% or 35% marginal tax bracket, this strategy could provide a significant tax savings compared to writing a check from your bank account. If you're currently making charitable gifts from your checking account, you should strongly consider having a discussion with your financial planner or tax preparer about utilizing a QCD instead.

• I'm in my 60s with a multi-million dollar 401(k) and I'm worried about future RMDs; what proactive steps can I take now with tax projections and Roth conversions to reduce the size of those future mandatory withdrawals?

  While the details are important in every financial planning situation, the key in this scenario is to begin the practice of doing annual tax projections. This is one of the most valuable things a high-net-worth retiree can do to make a big difference in their long-term plan (including managing future RMDs).

  The process starts sometime in the fall, when you will want to sit down and itemize all the different types of income that will appear on your current year's tax return. While many income sources are known, waiting until the fall provides a clearer estimate of variables like investment dividends, interest, and capital gains. After accounting for your charitable giving and other deductions, you can build a decent projection of where your income will land for the year.

  This projection is the tool that reveals your financial planning opportunity. For example, you might find you are halfway through the 24% marginal tax bracket but anticipate that future RMDs could push you into the 35% bracket. By seeing you still have room in the 24% bracket, you can consider a Roth conversion up to that limit, while also being cognizant of any Medicare IRMAA thresholds you might trigger. This allows a significant portion of your future RMD to be taxed at a lower rate today…or at least defer higher taxes for a few more years!

  The best approach is to make these projections year-by-year, using an annual tax projection to inform how much, if any, of a Roth conversion makes sense. Working with a financial planner or tax preparer who has the skill and capacity for this process can be of great benefit to your goal of minimizing lifetime taxes.

Full Episode Transcript

Adam: Good morning and welcome to Retirement Tax Matters. I'm Adam. This is Garrett Crawford, our local CFP here. And we are excited for a new episode of Retirement Tax Matters. Here we go! I was just telling Garrett, fall is in the air. We have leaves changing colors, slightly cooler temperatures. We have our jackets on this morning. Pumpkin spice lattes all over the place. And for many people, that means fall season. For us, that means RMD season. Let's go!

Garrett: Yeah, and I am excited. We have Adam here in the office. For listeners, he started with us in January of this year, and it is going to be nice to have somebody to help me lift the load this year with our existing clients. And so, I am excited to do RMD season with you this year. It might be better than Christmas, maybe.

Adam: It is always funny. You learn different kinds of seasons and times in your industry that you are just running towards the finish line, and it feels like RMD season is a sprint: if we can just get it all knocked out before December, we will be all right.

Garrett: I think a lot of people know their tax person in April is busy. Not everybody out there knows that October is the beginning of one of our busy seasons, just making sure all our clients are taken care of.

Adam: So it is good to be here. Well, let us jump into our topic for the day. I think we are going to be talking about some RMDs, right? It is fresh on our mind. The thumbnail, the title for this one is going to be "Six Figure RMD," and that seems crazy because that feels like one or two tax brackets there. So, is that click bait? Is that crazy? Is it realistic? What would a six figure RMD be like? Give me some more information about that.

Garrett: Yeah, let us jump in and do it. It is interesting. I started working here at Providence in 2013. It was my first job out of college. And it has just been interesting, even in my 12, 13 years of doing this, that the average IRA balance has almost doubled. I remember when I first started, a client that had $500,000 in a traditional IRA, that was quite a bit of money saved. If you had somebody that had a million dollars saved in a traditional IRA, that was, you know, they had saved well through their working career. And I have mentioned it a couple of times, but I feel, just with inflation, it seems like everybody that we are interacting with just has more money saved. And some of that is just the nature of who we work with. But the other part is that inflation has happened. I think people have got the messaging that they need to save in their 401ks, and a lot of people are doing 10%, other people are doing more, and we are seeing 401k balances and traditional IRA balances balloon. And when those balloon, it causes RMDs to get bigger and bigger. And so, I do not think it is clickbait, especially for the type of people listening to this podcast, because I have some numbers here that I will share in a second. But you can actually get to a six figure RMD pretty quick. If that sounds like a big number, stay tuned for the next one or two minutes while I share these numbers.

Adam: And I think the interesting thing too is, when I first got in the industry, I always thought, "Well, RMDs will just whittle away at your IRA. They will get smaller each year." But even if you are not starting at a six figure RMD, if you are not careful, if you have not prepared well or are not planning well, you can end up with that RMD just getting out of control. We met with somebody yesterday that was thinking, "Wow, this thing just keeps going. It just keeps growing." And he said, "Aren't we taking money out of this?" And it is, "Yeah, but it just keeps growing."

Garrett: Yeah. So let us share some numbers here. I printed some off this morning. To have a six figure RMD, if you have $2,650,000 and let us say you are turning 73 this year, that is the first year you turn RMD age. With $2,650,000, you will have a $100,000 RMD. And that is going to go up through retirement. So I thought that was an interesting number. I have never actually looked that up specifically.

Adam: With a lot of people working longer, I think that gives you a shorter window. When people retire at 62, 65, it seemed like you had a few years to kind of spin down before you got there. But if you have a 401k and you work to 70, let us say that 401k has $3 million in it. I mean, you only have three years to get things situated before you are right there in that situation.

Garrett: Yeah. And it really is, not everybody has a $2.65 million-dollar IRA, but the type of people that we are helping, we see those a lot. So I just thought for kicks, I would go through each one of these million-dollar levels in an IRA, and you could begin to see what the required minimum distribution of these six figure RMDs would be. But I would say the target niche of this podcast would be these types of people. If you have $3 million in a traditional IRA in your first year, if you are turning 73, the RMD would be approximately $113,000. A $4 million IRA would be right at $150,000. A $5 million traditional IRA, your first RMD would be about $188,000. A $6 million traditional IRA would be about $226,000. So we are climbing up. A $7 million traditional IRA would be $264,000. Then an $8 million traditional IRA, you eclipse the $300,000 mark in your first year. So those are some mammoth numbers. And so, is it a problem? No. It is not a problem for a lot of people, but it is a challenge. And I think it is a financial planning challenge because I see this all the time, where people that have IRAs this big, they usually have other assets. They have other income sources. They have social security, they have different types of investment accounts. They might have rental properties, they might have a business. And I would say when those IRA balances climb, not all of those people need all of those required minimum distributions. They just do not need the income. And so it becomes a financial planning challenge because let us say your RMD is $150,000, but you only need $60,000. You are having to take an extra $90,000 out. And people are like, "What do I do with it? What is the best thing to do?" And that enters into our conversation today.

Adam: Well, with us about to call clients and do some of these things, people that work with advisors, maybe they are about to get calls. Maybe people are do-it-yourselfers, and they are thinking through, "Hey, I want to get this all knocked out before family is in town for Thanksgiving." Give me really quickly, what are the things you can do with your RMD just in general? And then maybe give me a deeper dive into, now what would you do if you saw yourself with a six figure RMD? Are there perhaps more efficient ways to do things? But maybe first, what are the couple of things we can do just off the bat with an RMD, and then more specifically to a larger RMD? What would you think through?

Garrett: I think I have this conversation, it seems, dozens and dozens of times a year, and you are going to have that this fall dozens and dozens of times. But I like to pitch it as, when it comes to required minimum distributions, you really have three common major options. The first one is the most intuitive. The government says, or the IRS says, you need to take $100,000 out of your traditional IRA. You have to pay the tax. You distribute that, and you can just put it in your bank. You can spend it, you can buy a car or whatever you want, but take that RMD, pay the tax, it adds to your taxable income, and you just spend it. It is actually a pretty common way to handle a required minimum distribution. The second option is if you do not want to use all of that income. Maybe you need some of it, but not all of it. What you can do is you can pay the tax, and let us just say, for example, you are in the 32% tax rate. You could take that $100,000. All the government cares is that you pay your 32% tax rate on that required minimum distribution. So you send 32% of it to the IRS, and the remaining balance, you can just reinvest it in the stock market if you want. So a lot of our clients will have a brokerage account, an individual or a joint investment account with the spouse, and they will take whatever is left after taxes. They will reinvest it just like it was in the market, and now it is going to continue to grow the rest of their life. And I think that is a really common option. People do not need the money, pay the tax, reinvest it. And then the third option needs to be on most people's radar. We just did an episode, I think it is Episode 8. If you have not listened to that, you should go back on our website and check it out. But qualified charitable distributions are one of the best ways to give money to charities from your traditional IRA. And so a qualified charitable distribution would be your third option, where if you had a $100,000 required minimum distribution, and maybe you only needed $60,000 of it, and you are charitably inclined, maybe you give to your church or the United Way or something, you could do your annual giving from the balance of what you needed for income and the required minimum distribution. And you can give up to, I think it is $108,000 in 2025 per person from your IRA. Why is that good? Let us say you did a $40,000 QCD. That money would go to the charity tax free. It does not count as taxable income to you. And that is a great deal. And so, a qualified charitable distribution. The last bonus option is, it does not have to be any one of those three. You can mix and match. You could take some, send it to your bank, you could reinvest some, and then you could do your annual giving from that QCD. So those are the most common options. And I would just say the second part of your question is, okay, let us say somebody is a high net worth retiree. Is there anything really unique in that kind of $2 million to $8 million range? I am going to say those three options are still going to be the three things that we are talking about, but there is just going to be more money there that retirees just do not need. And so they are going to be looking at, "I need X amount of that RMD for income." And then they may be a giver, charitably inclined. They may not be, but their question is going to be, "What do I do with the rest of this money so that I minimize taxes over a lifetime?" And I think anytime we are doing charitable giving, we need to be thinking about Roth conversions. We need to be thinking 10 years down the road, what is your tax situation going to be? And we have another whole episode called "The Golden Window of Retirement." The space between when you retire and when social security starts is a great time to be thinking about these required minimum distributions.

Adam: And I think that kind of is where we will land the plane today. RMDs are something that happens. Once it starts, it does not stop. And once you get into it, you have less flexibility, less opportunity. You have these tools you just talked about, but really there is no way to plan them away at that point. There is just a way to treat the symptom, treat the wound, and kind of hang on tight. So what can somebody, let us say somebody is 55, 65, they are looking towards the future. Shocking, if you are watching us, have been following us along, planning, projecting out, that is what we are always talking about. What can somebody do that has a 10, 15 year runway, a 20 year runway maybe? What can they do now in the meantime to try to set themselves up well for when this RMD season starts at 73, which may change in the future, but for now, 73.

Garrett: So I think, again, I would highlight, we have a whole episode called "The Golden Window of Retirement." We have another one called "The Number One Mistake High Net Worth Retirees Make." Both of those in conjunction are probably 30, 40 minutes of content about this question. But I think you and I really believe in this idea of having your tax return driving the financial planning for high net worth retirees. And so I think we are going to begin to incorporate that language more and more into what we are doing, but "tax return driven financial planning." And I say that because if you are 55, maybe you do not have a $2 million IRA yet, maybe you do not have an $8 million IRA yet, but you are looking into the future, you are still working, you are contributing the maximum amount into your 401k. You are not a big spender, you are still saving, but you can anticipate if the market grows 7%, 8%, 9% on average for the next 10, 15 years, you might actually be in a situation where this is going to be a problem, and there is no better time than right now. You know, no better time to plant a tree than today. There is no better time than today to do one of these tax return driven projections to try to figure out where your income is going to be at the end of this year. And so I just did one yesterday for a high-net-worth retiree, and the exercise is the same every single year. It is, let us get a copy of your 2024 tax return. We look through it, we review it, we try to make sure we understand where all the income sources came from last year. We have a 30 minute conversation about this upcoming 2025 year. Did anything change? Did you buy a house? Did you sell a house? Did you start a business? A lot of times the answer is no. It is very similar to last year, but we have got to figure out where you are going to end up income-wise at the end of the year so that we can make a tactical financial planning decision. If you have $65,000 left this year in the 24% tax bracket, you have RMDs that are going to be a six figure RMD. Let us start doing some pre-planning now. Let us take what we know about your current situation. Take what we know about where we think you might be in 15 years, and one of financial planners' best tools are Roth conversions. Let us get out the tax return, do a projection. See if a Roth conversion could make sense up to your top of your current bracket. Or maybe you are in the 22% and, like my appointment yesterday, we need to go really to the top of the 24% because the jump from 24% to 32% is a big deal. So I would just say that we need to leverage the amount of time between today and when your required minimum distributions kick in to minimize taxes at an aggregate lifetime level. And so we have said this before, sometimes we can be myopic. We can only concentrate on our taxes this year. We want to keep those as low as possible. But the trick with an IRA is you have taken a tax deduction, but that IRA is going to continue to grow each year. Somebody is going to pay taxes on that IRA money. You may do it now through a Roth conversion. You may postpone it later and take income later and you will pay taxes. Or you may never pay the taxes, but your beneficiaries will ultimately pay the tax. And so it is not a matter of, "Do I pay tax or not?" It is a matter of, "Who is going to pay the tax and when?" And I think there is a lot of opportunity for people if they will do the work of those tax projections during the year, to take out some of the bite, some of the sting of required minimum distribution.

Adam: And I think that is the tension we want to help people understand, see, learn about. This tension of, "Hey, I do not want to just beat myself over the head this year in taxes, but also over my lifetime. I want to balance these out, make them work well. Set my beneficiaries up well. Set all these different things." It is kind of funny. There are a ton of different moving parts. They are all working together to make a successful financial plan. And that is one of the fun things for us in the problem solving, but also one of the headaches maybe for somebody that is watching our videos and trying to learn. And so I think all the more reason to keep following along with us, hanging out, and checking us out in different places: Apple Music, Spotify, YouTube here. And I think a final plug is RetirementTaxMatters.com is a great spot. You can sign up for our newsletter, get some information there. Our goal really is to add value to every email you get from us, one a week, and just get more information about RMDs, QCDs, all the different acronyms, different things that need to be on your radar, deadlines coming up, things that are important for you as you plan for the future. So appreciate you sticking around with us today, and hope you keep tuning in in the future. I am Adam, and this is Garrett. Retirement Tax Matters.

Garrett: See you next time.