Many US retirees are using 1 overlooked trick to turn required minimum distributions into a non-issue in 2026

If you’ve spent decades saving for retirement, your IRA and 401(k) balances may feel like a financial safety net. Watching these accounts grow can be reassuring. But without careful planning, even healthy retirement savings can turn into a ticking tax bomb.

That’s because once you turn 73(1), the IRS mandates withdrawals from these retirement accounts. If you have a six- or seven-figure balance, these required minimum distributions (RMDs) can have a significant impact on your annual tax bill.

Here’s why this tax bomb matters, and what you can do to neutralize it before it’s too late.

What makes RMDs so frustrating is that they force you to reverse decades of good financial habits. After an entire career of saving, investing, and deferring taxes, it can be difficult to switch gears and start selling assets, making withdrawals, and triggering tax liabilities.

Failing to set up an RMD plan can be costly, especially if your retirement account grows significantly.

RMDs are calculated based on your age and your account balance as of December 31 of the previous year. According to Fidelity, the IRS uses a life expectancy factor to determine the amount you must withdraw in a year(2).

For example, if your account balance was $100,000 one year before age 73, the IRS uses a life expectancy factor of 26.5. This results in approximately $3,773.60 needing to be withdrawn. With a balance of $500,000, the RMD jumps to approximately $18,867.90.

Higher balances trigger larger withdrawals, which can easily push you into a higher tax bracket. This additional income, combined with other sources, can increase taxes on Social Security benefits or increase Medicare premiums through an income-related monthly adjustment amount (3).

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If you fail to withdraw the required amount by the deadline, the penalties are severe. The IRS can charge 25% of the amount you should withdraw. Many investment platforms now offer tools to automate RMDs, helping retirees avoid missed deadlines and complex calculations (4).

But if you want to eliminate the problem, there may be a way to defuse the tax bomb if you act early.

For many retirees, RMDs are inevitable. You often have a choice between paying higher taxes now or paying higher taxes later.

But retiring in your early 60s and delaying Social Security can create a valuable planning opportunity.

For example, retiring at age 63 and waiting until age 70 to collect Social Security would open a seven-year window of relatively modest income. During this time, many couples find themselves in lower tax brackets, creating opportunities to withdraw funds from retirement accounts more strategically.

By taking voluntary withdrawals from IRAs or 401(k)s in your 60s, you can smooth your taxable income over time rather than letting it balloon later. The goal is not to eliminate taxes. is to pay them at a lower, more predictable rate.

These withdrawals can be used to pay for living expenses or converted to a Roth IRA. Roth conversions are taxed upfront, but future growth and qualified withdrawals are tax-free. Roth accounts are also not subject to RMDs during the owner’s lifetime.

This strategy can significantly reduce mandatory taxable income in retirement while increasing flexibility. In years with high fees or market volatility, retirees can tap into Roth funds without increasing their tax bill.

The key is to plan ahead and start early. This 5- to 13-year window between retirement and age 73 is typically your best opportunity to manage taxes and smooth your total tax liability throughout your golden years.

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IRS (1); Fidelity (2), (4); Content Management System (3).

This article provides information only and should not be considered advice. It is provided without any warranty of any kind.