5 Strategies to Limit Your RMD Distributions
Saturday, Jan 4, 2025 9:37 am ET
Required Minimum Distributions (RMDs) are an inevitable part of retirement planning, but they don't have to dictate your financial future. By implementing strategic planning and investment decisions, you can minimize the impact of RMDs on your portfolio and tax situation. Here are five effective strategies to help you limit your RMD distributions:
1. Maximize Roth Contributions
- Contribute to Roth IRAs or Roth 401(k)s, which allow tax-free withdrawals in retirement.
- The maximum contribution limit for Roth IRAs in 2023 is $6,500 (or $7,500 for those aged 50 or older).
- For Roth 401(k)s, the limit is $20,500 (or $27,000 for those aged 50 or older).
- By maximizing contributions to these accounts, you can reduce the amount of taxable income you'll have to withdraw in retirement, minimizing the impact of RMDs.
2. Tax-Loss Harvesting
- Sell losing investments in taxable accounts to offset gains from winning investments.
- This can help lower your taxable income and reduce the impact of RMDs on your overall portfolio.
- For example, if you have a $10,000 gain from a winning investment and a $5,000 loss from a losing investment, you can sell the losing investment to offset $5,000 of the gain, reducing your taxable income to $5,000.

3. Asset Location
- Strategically place assets in different types of accounts based on their tax implications.
- Tax-efficient investments like municipal bonds or index funds can be held in taxable accounts, while tax-inefficient investments like actively managed funds can be held in tax-advantaged accounts like IRAs.
- This can help minimize the impact of RMDs on the overall portfolio.
4. Charitable Giving
- Donate appreciated assets directly to charity, avoiding capital gains tax and potentially reducing the impact of RMDs on your portfolio.
- For example, if you have a $10,000 gain from an appreciated stock, you can donate the stock directly to charity, avoiding the $1,500 capital gains tax you would have owed if you sold the stock and donated the cash.
5. Inherited IRAs
- Beneficiaries of inherited IRAs can choose to take distributions over their lifetime, which can help spread out the taxable income and minimize the impact of RMDs.
- For example, if a beneficiary inherits a $500,000 IRA, they can choose to take distributions over their lifetime, which would be less than the 5-year rule that applies to non-spouse beneficiaries.
By implementing these strategies, you can optimize your portfolio allocation to maximize after-tax returns and minimize the impact of RMDs. It's important to consult with a financial advisor or tax professional to determine the best strategies for your specific situation.