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Turning 73 can bring an important shift in how your retirement income is taxed. For many retirees, this is the year when new rules begin to apply — and understanding them can help you keep more cash in your wallet. However, the timing matters more than it may seem.
Required minimum distributions, or RMDs, can increase your taxable income and affect other parts of your financial picture. Without a plan, you could end up paying more in taxes than expected or triggering higher costs elsewhere. A few strategic moves can help you stay ahead of those changes.
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Decide when to take your first RMD
Under current law, most people must begin taking RMDs at age 73 (75 if born in 1960 or later).
You have the option to delay your first RMD until April 1 of the following year. However, doing so often means taking two distributions in the same calendar year — one for the prior year and one for the current year. That can push you into a higher tax bracket and increase your overall tax bill. For some retirees, taking the first RMD in the year they turn 73 may help avoid that issue.
Make sure your RMD is calculated correctly
RMD amounts are based on your account balance at the end of the previous year, divided by a life expectancy factor from the IRS uniform lifetime tables.
Even small errors in calculation can lead to incorrect withdrawals, which may create tax complications. Taking too little can trigger penalties, while taking too much could unnecessarily increase your taxable income. Double-checking your numbers — or working with a professional — can help ensure accuracy.
Use qualified charitable distributions to reduce taxes
If you are charitably inclined, a Qualified Charitable Distribution (QCD) can be a tax-efficient way to satisfy part of your RMD. In 2026, the IRS allows individuals age 70 1/2 and older to donate up to $111,000 directly from an IRA to a qualified charity.
These distributions are not included in taxable income, which can help reduce your overall tax liability. For retirees who already give to charity, this strategy can be especially effective. However, be sure to follow the rules carefully to ensure the distribution qualifies.
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Watch how RMDs affect Medicare and Social Security
RMD income doesn't just affect your tax return — it can also impact other parts of your finances. Higher income may increase your Medicare premiums through IRMAA, which is based on income from two years prior.
In addition, RMDs can increase the portion of your Social Security benefits that are taxable. Up to 85% of benefits may be subject to taxes depending on your combined income, according to the Social Security Administration. These ripple effects can make careful planning even more important.
Consider Roth conversions to manage future RMDs
Roth conversions can be a useful tool for reducing future RMD obligations. By converting funds from a traditional IRA to a Roth IRA, you pay taxes upfront but reduce the size of future required distributions.
This strategy can help smooth out your taxable income over time, especially if done before or early in the RMD phase. However, conversions increase taxable income in the year they occur, so timing is important. Evaluating this option with a financial advisor can help determine if it fits your situation.
Understand the penalty for missing an RMD
Failing to take your full RMD can result in a significant penalty, generally 25% of the amount not withdrawn. However, it can be reduced to 10% if corrected within two years.
This makes it especially important to track deadlines and ensure withdrawals are completed on time. Missing an RMD can be costly, but correcting the mistake quickly may help reduce the penalty. At the same time, staying organized can help you potentially avoid unnecessary expenses.
Bottom line
Turning 73 marks a key transition point in retirement planning, with new rules that can affect your taxes, income, and overall financial strategy. From timing your first RMD to managing its broader impact, each decision can influence how much you ultimately keep.
Taking a proactive approach — and working with a qualified professional — can help you stay on track and lower your financial stress as you navigate this important stage of retirement.
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