How to Manage RMDs and Roth Conversions in the Same Year

You're dreading your 2026 required minimum distribution (RMD) because you know it's going to inflate your tax bill. But skipping it won't do you any good. Then, you'd face a 25% penalty on the untaken RMD.

You'd like a way to reduce your future RMDs, but doing a Roth IRA conversion could also raise your taxes. It might seem like an impossible bind, but the right strategy can help you fulfill your 2026 RMD and reduce your future RMDs without sending your tax bill sky-high.

Image source: Getty Images.

How to minimize taxes on your RMDs

Make sure you understand the rules on RMDs so you don't withdraw more than you need to. You don't have to take RMDs from Roth IRAs or 401(k)s, and you also don't have to take one from your current 401(k), provided you're still working and own less than 5% of the company. Skipping RMDs from these accounts can reduce your tax bill.

You might also consider doing a qualified charitable distribution (QCD) with some of your RMD funds. This is where you donate your RMD to a qualifying tax-exempt organization. It meets your RMD requirement with the IRS, and the donation amount won't count as taxable income for the year.

However, you must ensure that your plan administrator sends the funds directly to the charity. It cannot pass through your hands first, or it does not count.

You can do a QCD of up to $111,000 in 2026, which should be plenty for most people. If you have any questions about what you need to do, ask your plan administrator.

How to minimize taxes on your Roth IRA conversions

Roth IRA conversions are best done later in the year when you have a better idea of which tax bracket you'll fall into. Make sure you factor in your RMDs when estimating your taxable income.

Rather than converting a large sum to a Roth IRA at once, you may want to try a Roth IRA conversion ladder. This is where you convert just enough to take you to the top of your tax bracket this year, then do the same thing each year thereafter until you've converted all you want to. It spreads out the tax burden so you don't pay too much in any one year.

2026 is actually a great time to start Roth IRA conversions because the new senior tax deduction can reduce your taxable income by up to $6,000 this year. If you convert $6,000 of tax-deferred savings to a Roth account in 2026, it's effectively a wash. Your tax bill will be similar to what it was before the new senior deduction took effect, and you'll have more Roth savings and smaller future RMDs.

The deduction is set to remain in place through 2028 for now, so the next few years are a great time to chip away at your Roth IRA conversions if you were planning to do them. If you have any concerns about how this might affect your taxes, consult an accountant before proceeding.

The Motley Fool has a disclosure policy.