RMD Planning: What Cleveland Pre-Retirees Need to Know

Tom sat across from us in our Westlake office with a look of disbelief. At 74, the retired Beachwood attorney had just received his first Required Minimum Distribution notice. "You're telling me I have to withdraw $45,000 this year, whether I need it or not?" he asked. "And pay taxes on all of it?" When we calculated the total impact, including how the RMD would increase his Medicare premiums and push more of his Social Security into taxation, his tax bill jumped by nearly $18,000. The frustration in his voice was palpable: "I wish someone had told me about this five years ago."

Tom's story plays out in living rooms across Northeast Ohio every year. Required Minimum Distributions force retirees to withdraw money from their traditional retirement accounts, often pushing them into higher tax brackets and triggering a cascade of unintended financial consequences. The good news? With strategic planning that begins years before your first RMD, you can significantly minimize this impact.

This guide will walk you through everything Cleveland pre-retirees need to know about RMDs, from the basic rules to sophisticated strategies that can save you tens of thousands of dollars over your retirement. Whether you're approaching 73 or still in your early 60s, understanding RMD planning is crucial to protecting your retirement income and keeping more of your hard-earned money.

RMD Basics Every Pre-Retiree Should Understand

Required Minimum Distributions are exactly what they sound like: the minimum amount you must withdraw annually from your traditional retirement accounts once you reach a certain age. As of 2026, that age is 73. If you were born in 1960 or later, your RMD age will be 75 starting in 2033. The IRS created these rules to ensure that tax-deferred retirement accounts eventually get taxed. You've enjoyed decades of tax-deferred growth, and now Uncle Sam wants his share.

RMDs apply to most tax-deferred retirement accounts. Your traditional IRA is subject to RMDs. So is your 401(k), 403(b), 457 plan, and SEP IRA. Even Roth 401(k)s require RMDs, though this can be avoided by rolling the Roth 401(k) to a Roth IRA before RMDs begin. Inherited IRAs also have their own complex RMD rules that we'll touch on shortly.

The good news is that some accounts are exempt from RMDs during your lifetime. Roth IRAs never require distributions while you're alive, which makes them incredibly valuable for legacy planning and tax management. This is one of the key reasons why Roth conversions before RMD age can be so powerful. You're moving money from an account that will eventually force taxable distributions into an account that never will.

How are RMDs calculated? The IRS uses your account balance as of December 31 of the previous year and divides it by a life expectancy factor from their Uniform Lifetime Table. At age 73, that factor is 26.5. So if you have $500,000 in your traditional IRA, your first RMD would be about $18,868. As you get older, the life expectancy factor decreases, which means your RMD percentage increases each year. By age 85, you'll be withdrawing about 6.25% annually instead of the roughly 3.77% you started with at 73.

Miss your RMD, and the penalties are severe. The IRS can assess a 25% excise tax on the amount you should have withdrawn but didn't. If you catch the mistake and correct it quickly (before the IRS does), the penalty drops to 10%, but that's still painful. On a $20,000 missed RMD, you could be facing a $5,000 penalty plus the taxes you owe on the distribution itself. This is why setting up automatic systems and reminders is crucial once you reach RMD age.

The Tax Impact of RMDs

The tax consequences of RMDs often catch people by surprise, even when they understand the basic concept. It's not just the federal and Ohio state income tax on the distribution itself. RMDs create a ripple effect that touches multiple aspects of your tax situation, and these ripple effects compound year after year.

Let's start with the most obvious impact: RMDs get added to your taxable income. For many retirees, this pushes them into a higher marginal tax bracket than they expected. You might have planned your retirement around the 12% or 22% federal bracket, but a large RMD can bump you into the 24% or even 32% bracket. When you add Ohio's roughly 3% state income tax, you're looking at a significant chunk of your withdrawal disappearing to taxes.

But the tax hits don't stop there. RMDs can increase the taxation of your Social Security benefits. Many retirees don't realize that up to 85% of their Social Security can become taxable based on their "combined income." That combined income includes your adjusted gross income plus half your Social Security benefits. When RMDs increase your AGI, more of your Social Security benefits are subject to taxation. For a Cleveland couple receiving $40,000 in Social Security, a large RMD could cause an additional $10,000 or more of those benefits to become taxable.

Then there's Medicare IRMAA, the Income-Related Monthly Adjustment Amount. These surcharges kick in when your modified adjusted gross income exceeds certain thresholds. In 2026, for married couples filing jointly, the first IRMAA threshold is $212,000. Cross that line, and your Medicare Part B and Part D premiums jump significantly. The surcharges work on a sliding scale, and at the highest levels, a couple could pay over $10,000 more annually in Medicare premiums. Because IRMAA is based on your income from two years prior, you need to be thinking ahead about how your RMDs will affect your premiums down the road.

Let's look at a real example. Consider a Pepper Pike couple, both 74, with $800,000 in combined traditional IRA balances. Their first-year RMD is approximately $30,000. They also receive $45,000 in Social Security and have $20,000 in pension income. Before the RMD, their taxable income might have been around $40,000 (after the standard deduction), keeping them comfortably in the 12% federal bracket. Add that $30,000 RMD, and suddenly their taxable income jumps to $70,000. They're now in the 22% bracket, more of their Social Security is taxable, and they might be approaching IRMAA thresholds depending on other income sources.

Here's where the "RMD snowball" effect comes in. That $800,000 in IRAs isn't static. Assuming modest 5% growth, even after taking RMDs, their account balance continues to grow for many years. By age 80, they could be forced to withdraw $45,000 or more annually. By 85, it could be $55,000 or higher. Each year, the tax impact compounds because the distributions keep getting larger, and they're paying a higher effective rate on each dollar. Over a 20-year retirement, they could easily pay $200,000 or more in taxes on RMDs, much of which could have been avoided or reduced with proper planning.

Strategies to Minimize RMD Impact

The best RMD strategy is one that starts years before your first required distribution. By the time you're 73 and facing that first RMD, many of your best planning opportunities have already passed. Let's look at strategies for both before and after RMDs begin.

Pre-RMD Age Strategies

The most powerful tool in your arsenal is Roth conversions during your 60s and early 70s. Every dollar you convert from a traditional IRA to a Roth IRA is a dollar that will never be subject to RMDs. Yes, you'll pay taxes on the conversion, but if you're strategic about timing and amounts, you can do these conversions in lower tax brackets than you'll face when RMDs push you higher. We typically recommend that Cleveland pre-retirees consider converting each year to "fill their bracket" without spilling into the next one. Over five to ten years, you can move substantial amounts out of traditional accounts and dramatically reduce your future RMD obligations.

Strategic withdrawals before RMDs begin work on the same principle. If you're retired at 65 but don't need the money yet, consider taking distributions anyway. You might be in a lower bracket during these gap years before Social Security benefits start, giving you an opportunity to reduce your traditional IRA balance at favorable tax rates. Some of our Westlake clients use this strategy to fund several years of living expenses, effectively "banking" withdrawals in taxable accounts that can be accessed more flexibly later.

For those who are charitably inclined, Qualified Charitable Distributions can start as early as age 70½, even before RMDs kick in. If you have an inherited IRA, you can use QCDs to satisfy those required distributions while supporting causes you care about. This plants the seed for a powerful strategy that becomes even more valuable once your own RMDs begin.

After RMDs Begin

Once you reach RMD age, Qualified Charitable Distributions become one of the most tax-efficient tools available. You can donate up to $105,000 annually (as of 2024, adjusted for inflation) directly from your IRA to qualified charities. The distribution counts toward your RMD requirement but does not show up on your tax return as income. If you were planning to give to your church, alma mater, or local Cleveland charities anyway, why not do it with RMD dollars and avoid the tax hit entirely? For a couple in the 24% federal bracket plus Ohio state tax, a $20,000 QCD saves roughly $5,400 in taxes compared to taking the RMD and writing a check.

If you don't need your RMDs for living expenses, tax-efficient reinvestment becomes crucial. Take the distribution, pay the taxes, and immediately reinvest the remainder in a taxable brokerage account. Focus on tax-efficient investments like index funds, municipal bonds, or growth stocks that you won't sell frequently. Yes, you've paid tax on the RMD, but at least the future growth happens in an environment where you control when and how you realize gains. This is far better than leaving everything in the traditional IRA, where growth just increases future RMDs.

Bunching deductions in high-income years can help offset RMD taxes. If you have significant itemizable deductions (mortgage interest, property taxes, medical expenses, charitable giving), consider bunching multiple years of charitable contributions into years with large RMDs. Donor-advised funds make this strategy particularly effective. You can make a large charitable contribution in a high-RMD year, get the full deduction, and then distribute the funds to charities over subsequent years.

Asset location optimization is a more sophisticated strategy that pays dividends for decades. Keep high-growth, tax-inefficient assets in your Roth accounts where they'll never be taxed. Keep income-generating assets like bonds in traditional IRAs, where the income is already taxed (though it increases RMDs). Keep tax-efficient stock index funds in taxable accounts where you benefit from lower capital gains rates and a step-up in basis at death.

Let me share a success story. David, a 68-year-old executive from Westlake, came to us with $1.2 million in traditional IRAs and concerns about future RMDs. Over five years before his RMDs began at 73, we helped him convert $250,000 to Roth IRAs through strategic annual conversions. We also implemented a plan where he took $30,000 annually from his traditional IRA to fund living expenses, even though he didn't technically need it, keeping him in the 22% bracket. When his RMDs finally began at 73, his traditional IRA balance was down to $750,000 instead of what would have been nearly $1.4 million. His first RMD was $28,000 instead of $53,000. That's a 47% reduction in his RMD burden, saving him over $6,000 in taxes in the first year alone. Over his lifetime, this strategy will save well over $150,000 in taxes.

Some Cleveland grandparents use their RMDs strategically to fund 529 plans for their grandchildren's education. If you don't need the money for living expenses but will owe taxes on it anyway, directing those after-tax dollars toward education costs can be a meaningful way to support the next generation while fulfilling your RMD obligation.

Special Situations

Several RMD scenarios warrant special attention because the rules differ from those in the standard situation. Understanding these nuances can help you avoid costly mistakes and may even provide planning opportunities.

The still-working exception is valuable if you're still employed past age 73. If you participate in your current employer's 401(k) and you don't own more than 5% of the company, you can delay RMDs from that specific 401(k) until after you retire. This doesn't apply to IRAs or 401(k)s from former employers, only the plan at your current workplace. For Cleveland professionals who want to keep working into their 70s, this can be a significant benefit. You can even roll old 401(k)s and IRAs into your current employer's plan (if they allow it) to shelter even more money from RMDs while you're still working.

Inherited IRA RMD rules changed dramatically with the SECURE Act and its updates. For most non-spouse beneficiaries who inherited IRAs after 2019, the "stretch IRA" is gone. Instead, you face the 10-year rule: the entire inherited IRA must be emptied by the end of the tenth year after the original owner's death. Recent IRS guidance has added complexity, requiring annual RMDs in years 1 through 9 for certain inherited IRAs. The rules differ depending on whether the original owner had already started taking RMDs and on the beneficiary's relationship to the deceased. Surviving spouses have different, more favorable options, including treating the inherited IRA as their own.

If you have multiple traditional IRAs, the calculation and withdrawal rules offer some flexibility. You must calculate the RMD separately for each IRA, but you can take the total amount from one IRA, split it among several, or take a portion from each. This flexibility allows you to make strategic decisions about which investments to liquidate. Maybe you want to take the distribution from your IRA holding bonds rather than the one with growing stocks. Or perhaps you want to rebalance by taking more from your overweighted positions. The same flexibility applies to 403(b) accounts, but not to 401(k)s. If you have multiple 401(k)s, you must take the RMD from each separately.

Your first RMD year presents a unique timing decision. While RMDs for every subsequent year must be taken by December 31, your very first RMD can be delayed until April 1 of the year after you turn 73. This sounds like a nice gift from the IRS, but it's actually a potential trap. If you delay your first RMD until April, you'll have to take two RMDs in the same calendar year: the first-year RMD by April 1 and the second-year RMD by December 31. This double distribution could push you into a much higher tax bracket and trigger all those cascading effects we discussed earlier. For most Cleveland retirees, it makes more sense to take that first RMD in the year you turn 73 and spread the tax impact over two years rather than stacking it all into one.

RMD Planning Timeline

Effective RMD planning isn't something you start the year you turn 73. It's a multi-year, even multi-decade process that evolves as you move through different life stages. Here's how to think about your planning timeline.

Ages 60-70: The Conversion Golden Years

This is your prime window for Roth conversions. You've likely retired or are winding down your career, your income has dropped, and you have a solid decade before RMDs begin. Focus on converting traditional IRA dollars to Roth IRAs, filling up your current tax bracket each year without spilling into higher ones. Model out different scenarios. How much can you convert annually while staying in the 22% bracket? What if you spread it over eight years instead of five? Run the numbers and commit to a multi-year strategy.

Ages 70-73: Last Call for Major Conversions

As you approach RMD age, your conversion window is closing but not yet closed. These are your final opportunities to make significant moves. At 70½, you can start using Qualified Charitable Distributions if you're charitably inclined, even though RMDs haven't started yet. This is a good time to practice the mechanics and establish relationships with charities. If you haven't done Roth conversions in your 60s, this is your last chance to make meaningful progress. Yes, you're a few years closer to RMDs, but converting $100,000 now is still better than paying RMDs on $100,000 (plus growth) for the next 20+ years.

Age 72: Set Up Your QCD Strategy

If charitable giving is part of your retirement plan, now's the time to formalize your QCD approach. Identify the charities you want to support. Work with your IRA custodian to understand their QCD process (it varies by institution). Consider setting up a schedule or system so these distributions happen smoothly every year. Some Cleveland retirees establish a pattern of monthly or quarterly QCDs to spread their charitable impact throughout the year while systematically reducing their RMD burden.

Year Before RMDs: Final Planning Review

The year before you turn 73 is your last opportunity to make adjustments without the pressure of required distributions. Review your complete financial picture with your advisor. Run projections for what your RMDs will look like over the next decade. Are there any final conversions that make sense? Should you adjust your asset allocation to be more tax-efficient? Do you need to update beneficiary designations? Make sure your withdrawal strategy for all your accounts is coordinated and optimized.

First RMD Year: Establish Your Withdrawal Schedule

This is when theory becomes practice. Decide whether you'll take your first RMD in the year you turn 73 or delay until April of the following year (though as we discussed, delaying is rarely optimal). Set up a systematic withdrawal schedule. Many of our Westlake clients prefer monthly or quarterly RMD distributions to create consistent cash flow, rather than taking one lump sum in December. Work with your custodian to automate as much as possible. The last thing you want is to forget an RMD and face that 25% penalty.

Every Year After: Review and Adjust

RMD planning isn't set-it-and-forget-it. Every year, you should review your strategy with your advisor. Has your balance grown significantly? Are tax laws changing? Did you have unexpected income or expenses? Should you do QCDs this year or take the full distribution? Are you on track with the reinvestment strategy for unneeded RMDs? Your plan should evolve as your life and the tax landscape evolve.

Working with a Fiduciary Advisor

RMD planning exemplifies why working with a fee-only fiduciary advisor is so valuable. The decisions you make about RMDs cascade through your entire financial life for decades. Getting it right requires sophisticated modeling, coordination across multiple account types, and integration with your broader tax and estate planning strategies.

Proper RMD planning requires multi-year tax projections. You can't just look at this year's tax return and make decisions based on it. You need to model out what your tax situation will look like at 75, 80, 85, and beyond. How will RMDs interact with Social Security? When do IRMAA surcharges kick in? What happens if tax brackets change? How do different Roth conversion scenarios today affect your RMD burden fifteen years from now? This level of analysis requires specialized software and expertise that goes well beyond typical financial planning.

Coordinating tax strategy with investment management is equally important. Your RMD strategy should influence how your portfolio is constructed and where different assets are located. High-growth investments belong in Roth accounts. Income-generating assets might be better suited for traditional IRAs, where you're taking RMDs anyway. Tax-efficient stock funds work well in taxable accounts. A comprehensive advisor coordinates all these pieces rather than treating them as separate silos.

The real value of professional guidance shows up in the difference between proactive and reactive planning. Reactive planning is showing up at age 73, seeing your first RMD notice, and scrambling to figure out what to do. Proactive planning starts at age 60, developing a decade-long strategy, executing Roth conversions in low-income years, optimizing asset location, establishing QCD relationships, and arriving at age 73 with a plan that's already in motion. The tax savings difference between these two approaches can easily exceed six figures over a retirement.

For Cleveland-area pre-retirees evaluating advisors, ask specific questions about their RMD planning process. Do they have software that can model multi-year tax scenarios? How do they coordinate with CPAs? Can they show you examples of RMD reduction strategies they've implemented? How do they stay current on changing RMD rules and tax law? Do they proactively reach out about planning opportunities, or do they wait for you to ask? A qualified fiduciary advisor should have detailed answers and be able to walk you through real examples of client situations similar to yours.

Take Control of Your RMD Future

RMD planning isn't something that starts when you turn 73. It starts in your early 60s, or even sooner if you're paying attention. The families we work with in Westlake, Beachwood, Pepper Pike, and throughout Northeast Ohio who plan ahead consistently see better outcomes, lower lifetime taxes, greater flexibility in retirement, and more wealth preserved for their heirs.

The key insight is this: every dollar you proactively address before RMDs begin is a dollar that won't force you into higher tax brackets later. Whether through Roth conversions, strategic early withdrawals, or coordinated planning across all your accounts, you have more control than you might think. But that control diminishes every year you wait.

Your situation is unique. The optimal RMD strategy for a retired Cleveland Clinic physician with $2 million in traditional IRAs looks very different from that of a Pepper Pike small business owner with $500,000 across multiple accounts. There's no one-size-fits-all answer, which is exactly why personalized planning is so crucial.

If you're between the ages of 60 and 75, now is the time to get serious about RMD planning. The window for your best strategies is open, but it won't stay open forever. The decisions you make in the next few years will echo through the rest of your retirement.

Ready to develop your personalized RMD strategy? Schedule a comprehensive planning review with our Cleveland-area team. We'll analyze your complete situation, model different scenarios, and create a multi-year plan designed to minimize your lifetime tax burden.