Retirement Tax Planning for RMDs and Roth Conversions

Plenty of people save for decades and then find the tax bill on the way out is a bigger unknown than the market. Three moments tend to matter most: when required withdrawals begin, whether to convert pre-tax money to a Roth while income is low, and how to handle an inherited retirement account. Each one comes with deadlines and real money attached. Get the timing right, and less of what you saved goes to taxes.

Know When Required Withdrawals Start

Required minimum distributions, or RMDs, now start at an age that depends on when you were born. The starting age is 73 if you were born from 1951 through 1959, and 75 if you were born in 1960 or later. Traditional IRAs and 401(k)s are subject to RMDs, and the amount is based on your prior year-end balance and an IRS life expectancy table.

Your first RMD is due by April 1 of the year after you reach your starting age. Every RMD after that is due by December 31. That creates a trap: if you wait until April 1 for the first one, you take two RMDs in the same tax year, which can push you into a higher bracket. Taking the first one in the year you reach the age avoids the pile-up. RMDs from 401(k)s must be figured and taken from each plan separately, so consolidating accounts can make the yearly math much simpler.

Plan Roth Conversions with the Right Timing

A Roth conversion moves money from a pre-tax account into a Roth, and the amount converted is taxed as ordinary income in that year. That makes low-income years the best window, such as the early years of retirement before RMDs and Social Security begin. Converted money then grows tax-free, and it lowers the balance that future RMDs are based on.

A few rules keep conversions from backfiring:

• Take your RMD for the year first. The RMD itself cannot be converted.

• Check what the added income does to your Medicare premiums and to how much of your Social Security is taxed.

• Pay the tax from outside the account if you can, through withholding or estimated payments.

Conversions cannot be undone, so the decision comes down to comparing the tax you would pay now with the tax you expect to pay later. Roth IRAs have no RMDs during the owner’s lifetime, and starting in 2024, Roth accounts inside employer plans no longer have them either.

Treat Inherited Retirement Accounts Carefully

If the original owner died after 2019, most non-spouse heirs must empty an inherited retirement account by the end of the tenth year after the owner’s death. Some heirs get more flexibility: a surviving spouse, the owner’s minor children, disabled or chronically ill beneficiaries, and anyone not more than 10 years younger than the owner.

One detail is easy to miss. If the owner had already started taking RMDs, the heir usually has to take yearly withdrawals during years one through nine, and then empty the account in year ten. If the owner had not started RMDs, the heir can choose the timing within the 10 years. In both cases, spreading withdrawals over several years usually beats one lump sum, because a single large withdrawal can push income into a much higher bracket.

Put Assets in the Right Account at the Right Time

Where money sits can matter as much as how much you have. Each account type is taxed differently:

• Traditional 401(k)s and IRAs: withdrawals are taxed as ordinary income, and the owner must take RMDs.

• Roth IRAs: qualified withdrawals are tax-free, with no RMDs during the owner’s life.

• Roth accounts in employer plans: no RMDs for the owner starting in 2024.

• Taxable brokerage accounts: flexible, but you owe tax on dividends and interest each year, and on gains when you sell. Gains on investments held longer than a year are generally taxed at lower rates than ordinary income.

Because of that, the order you draw from these accounts changes your tax rate on each dollar. Because conversions, RMDs, and withdrawals all land on the same tax return, tax planning works best when they are mapped out together instead of one at a time.

Watch Withholding and Estimated Taxes

A Roth conversion, a large RMD, or an inherited account distribution can create a tax bill that your paycheck withholding never planned for. Underpaying during the year can bring a penalty, even if you pay everything at filing time.

You have two main fixes. You can make quarterly estimated payments, which are normally due in April, June, September, and the following January. Or you can have tax withheld from the IRA or 401(k) distribution itself. Withholding from a distribution is treated as paid evenly throughout the year, even if it comes late in December, which makes it a useful clean-up tool. Check the current IRS safe harbor rules each year to see how much you need to pay to avoid a penalty.

What to Do This Month

1. Pull last year’s tax return and your latest account statements to estimate this year’s taxable income.

2. Find your RMD starting age based on your birth year, and set a calendar reminder for your first deadline.

3. If you own old 401(k)s, list them and decide whether to roll them into one account.

4. If you are weighing a Roth conversion, price out a partial conversion in a low-income year before committing to a larger amount.

5. If you inherited an IRA, find out whether the 10-year rule applies and whether yearly withdrawals are required.

6. Check whether any of these moves could change your tax bracket, and decide how the extra tax will be paid.

Schneider Financial helps individuals and families time withdrawals, conversions, and inherited accounts so less of the money goes to taxes. Schedule a free meeting before the year ends to map out your next twelve months.

Schneider Financial Management LLC

1585 Springfield Ave | Maplewood, NJ 07040

1099 Mount Kemble Ave | Morristown, NJ 07960

Check the background of your financial professional on FINRA’s BrokerCheck.

The Financial Advisor(s) associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state. Please check BrokerCheck for a list of current registrations.

Securities offered through Kestra Investment Services, LLC, (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC, (Kestra AS), as affiliate of Kestra IS. Schneider Financial is not affiliated with Kestra IS or Kestra AS. Investor Disclosures: https://www.kestrafinancial.com/disclosures

Information presented on this site is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any product or security.

Copyright 2025 Schneider Financial

Phone: (973) 683-1100

info@schneiderfinancial.com