The Retirement Tax Window: What Should You Do Before RMDs Begin?

Many people assume retirement tax planning begins when a large tax bill arrives. By then, several important choices may already have been made. A more useful approach is to identify the years when your taxable income is unusually low and decide whether to use that space intentionally.

This commonly happens after employment income ends but before required minimum distributions—often called RMDs—begin. Social Security may not have started yet, a pension may be modest, and much of the household’s savings may still sit inside tax-deferred retirement accounts.

Why this window exists

During your working years, wages may fill much of your tax bracket. Later in retirement, Social Security, pension income and mandatory withdrawals can create a new income floor. Between those stages, however, a household may temporarily control more of its taxable income.

The IRS generally requires traditional IRA owners to begin RMDs at the applicable starting age. Those withdrawals are generally included in taxable income, and the amount is based partly on the prior year-end account balance. Waiting for RMDs does not make the future tax obligation disappear; it may simply postpone the decision.

Five strategies worth comparing

1. Map future income before moving money

Start with a year-by-year projection of pensions, Social Security, investment income, planned spending and eventual RMDs. This helps reveal whether the current low-income period is temporary and which spouse’s accounts may create the largest future distributions.

2. Consider partial Roth conversions

A Roth conversion moves money from a tax-deferred account to a Roth account and generally creates taxable income in the conversion year. The useful question is not “Should we convert?” but “How much, in which years, and at what projected lifetime cost?”

Converting too little may waste a favorable window. Converting too much can push additional income into a higher marginal bracket and reduce the cash available for other goals. The tax should also be evaluated alongside the expected holding period, estate intentions and the source used to pay the conversion tax.

3. Use withdrawals to fund spending deliberately

The familiar rule “spend taxable accounts first, then tax-deferred accounts, then Roth accounts” is easy to remember but can be inefficient when applied blindly. A blended withdrawal strategy may use cash, taxable assets and selected IRA distributions in the same year to manage both current spending and future taxes.

4. Coordinate gains, losses and account location

Low-income years may also affect decisions in taxable investment accounts. Realizing a gain, harvesting a loss or changing which investments are held in taxable, traditional and Roth accounts can alter the household’s tax exposure. These choices should be modeled together rather than made by three different professionals in isolation.

5. Plan charitable giving before the deadline arrives

For charitably inclined households, the account used for a gift can matter. As eligibility rules and ages apply, qualified charitable distributions may allow certain IRA gifts to satisfy part or all of an RMD. The strategy is most useful when it supports giving the household already intended to do.

Questions to answer before taking action

• When will each spouse’s Social Security and pension income begin?
• How much of the portfolio is tax-deferred, taxable and Roth?
• What could the traditional accounts be worth when RMDs begin?
• Would a conversion be paid from outside funds or from the retirement account?
• How would the strategy change if one spouse died earlier than expected?
• Are charitable gifts and legacy goals already part of the plan?

The practical takeaway

The years immediately after retirement can look uneventful on a tax return. In reality, they may be among the most consequential planning years of retirement. A good strategy makes the future visible, compares multiple withdrawal paths and revisits the decision every year as tax rules, markets and family circumstances change.

Important information: This article is educational and is not individualized tax advice. Tax laws and individual circumstances can change. Review specific decisions with a qualified tax professional. Official reference: IRS required minimum distribution guidance.