Family Update
This is one of those seasons that sneaks up on you and then arrives all at once. Our oldest just left for Gainesville to start her junior year at the University of Florida, and next week Chris heads out to his freshman year at Southeastern University in Lakeland. In the middle of all that, Jesse turned 14. So we've gone from four kids under one roof to a house that's suddenly a lot quieter, with two still at home, back in high school.
I'm not someone who's good at waxing poetic about watching kids grow up, so I'll let my grandfather say it better than I can. He used to say these profound words of wisdom: A kid goes from 'Daddy, watch me!' to 'Dad, stop looking at me."
That's about the size of it. It's a strange thing to watch a kid who physically looks like a grown adult and realize he's still an adolescent on the inside. It's easy to expect things from him that aren't fair yet. He may look old enough to do his own taxes, but that doesn't mean he actually is.
So that's where we are. Grateful, a bit disoriented, watching four kids step into different stages of growing up all at the same time. It's hard to watch them go, but at the same time, it's exciting to see what the next steps of their life will look like.
By the way, when I started doing these Family Updates, my youngest was four, and my oldest was going into second grade.
I sat down with a client last month who had never taken a distribution from his IRA in his life. Thirty years of contributions, thirty years of growth, and he'd never touched a dime of it. He looked at me and said, "Dave, I don't need this money. Why is the IRS making me take it?"
Good question. So this week, let's talk about Required Minimum Distributions (RMD’s). What they are, why they exist, and when they hit.
Why RMDs exist in the first place
When you put money into a traditional IRA or 401k, you got a tax deduction. The government let you skip paying tax on that money the year you earned it. At the time, it saved you a ton of money in taxes and allowed the money to grow tax-deferred (which is a big deal when overall returns are concerned).
The problem, from the government's point of view, is that some people would just never pull the money out. They'd let it grow, pass it to their kids, and the IRS would never collect. The RMD rule exists to close that door. At some point, you have to start taking the money out and paying the tax, whether you need the cash or not.
An important note that most people forget. If you have more than one IRA, you need to add them all up and take the distribution from the total amount. You can take it all from one IRA or split it among them all. Some people forget this, and they have an IRA hanging out there and do not take enough RMD.
If you die with money in a traditional IRA or 401(k) and leave it to your adult kids, the federal government gets them with a 10-year rule: the whole account has to be emptied by the end of the tenth year after your death.
When they start and how much
Right now the RMD age is 73. If you were born in 1960 or later, that age moves to 75. Your very first RMD has a quirk worth knowing: you're allowed to delay it until April 1st of the year after you turn 73. Sounds nice, except it means you'd be taking two RMDs in that same calendar year, both taxed as ordinary income. For most of my clients, that's a bad idea. Take the first one in the year you turn 73 and keep your income smooth.
The amount you're required to take isn't arbitrary. The IRS publishes life expectancy tables, and that determines how much you must take out. It starts at around 5% of the account value and increases as you get older. Make sure you pay it, or it hits you with a pretty steep penalty.
An important strategy some don’t know about
Here's the one I bring up with almost every client who's charitably inclined. It's called a Qualified Charitable Distribution, and it is one of the single most underused tools in retirement tax planning.
If you're 70 and a half or older, you can send money directly from your IRA to a qualified charity, and that money never shows up as income on your tax return. Not a deduction you have to itemize to claim. It simply never counts as income in the first place. And once you're subject to RMDs, a QCD counts dollar for dollar toward satisfying that year's requirement.
This is technical but very important. Compare that to the old way of doing it, where you take the RMD, pay tax on it, then write a check to your church or your favorite charity and hope you have enough itemized deductions to get credit for it. Most retirees take the standard deduction these days, which means that check to charity is doing you zero good on your tax return. A QCD skips all of that. The money goes straight from custodian to charity, your AGI stays lower, and lower AGI has ripple effects I'll get to in a second.
How RMDs and IRMAA collide
IRMAA stinks. It stands for Income Related Monthly Adjustment Amount, and it's the extra surcharge Medicare tacks onto your Part B and Part D premiums once your income crosses certain thresholds.
For 2026, the first IRMAA threshold kicks in at $109,000 of income for a single filer and $218,000 for a married couple filing jointly. Cross that line by even a dollar, and you don't pay a little more; you jump into the next full tier. It's a cliff, not a slope. And RMDs are one of the most common things that shove people over that cliff because it adds income to your tax return.
I added the 2026 IRMAA Surcharges at the bottom.
The bigger picture
RMDs aren't a punishment. They're just the other half of a deal you made decades ago when you got that tax deduction.
As the great Benjamin Franklin famously said, "In this world, nothing can be said to be certain, except death, taxes, RMDs, and Medicare surcharges."
Be Blessed,
Dave
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Medicare Surcharges
Single filers income
Up to $109,000: no surcharge, Part B stays at $202.90
$109,000.01 to $137,000: Part B rises to $284.10 (add $81.20), Part D adds $14.50
$137,000.01 to $171,000: Part B rises to $405.80 (add $202.90), Part D adds $37.50
$171,000.01 to $205,000: Part B rises to $527.50 (add $324.60), Part D adds $60.40
$205,000.01 to $499,999.99: Part B rises to $649.20 (add $446.30), Part D adds $83.30
$500,000 and up: Part B rises to $689.90 (add $487.00), Part D adds $91.00
Married filing jointly (per person, so double it if both spouses are on Medicare)
Up to $218,000: no surcharge, Part B stays at $202.90
$218,000.01 to $274,000: Part B rises to $284.10 (add $81.20), Part D adds $14.50
$274,000.01 to $342,000: Part B rises to $405.80 (add $202.90), Part D adds $37.50
$342,000.01 to $410,000: Part B rises to $527.50 (add $324.60), Part D adds $60.40
$410,000.01 to $749,999.99: Part B rises to $649.20 (add $446.30), Part D adds $83.30
$750,000 and up: Part B rises to $689.90 (add $487.00), Part D adds $91.00
A Sad Story
A reader wrote me last month. Her dad passed with $400,000 untouched, sick with worry the whole last decade that he'd run out. He never took the grandkids to Disney. Stayed at home, scared. This kind of stuff breaks my heart.
If this reminds you of someone, tell them about me.