Required Minimum Distributions

Summary of Required Minimum Distributions

by DIY Money

17m•September 23, 2026
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Overview of DIY Money — Required Minimum Distributions

This episode tackles a high-income retirement planning question: should a 29-year-old maxing out a 401(k) keep contributing pre-tax to lower today’s taxes, or switch to Roth contributions to reduce future required minimum distributions (RMDs)? Howard and Allie explain how RMDs work, how to estimate the tax impact, and why the best answer depends on current vs. future tax brackets, cash flow, and long-term flexibility.

Main Question from Isaiah

Isaiah, a 29-year-old in Indiana, asked whether he should:

  • Keep contributing to a traditional 401(k) and take the tax deduction now
  • Or switch to a Roth 401(k) to reduce future RMDs

He noted:

  • He maxes out his 401(k)
  • His employer contributes 20% of something related to his contribution
  • He projects having around $4 million by age 59½
  • He’s currently in the 22% federal tax bracket
  • He wants to know the most tax-efficient approach

What RMDs Are and Why They Matter

Allie gave a simple explanation of required minimum distributions:

  • RMDs are the IRS’s way of getting tax revenue later after giving you a tax break during your working years
  • They apply to tax-deferred accounts like traditional 401(k)s and IRAs
  • After retirement, the IRS requires you to begin taking money out at a certain age
    • The discussion referenced age 73 currently, with a likely future age of 75 for some people
  • The amount is based on:
    • The account balance at the end of the prior year
    • An IRS life expectancy factor

Example Used in the Episode

If someone had $4 million in a retirement account and the IRS life factor were 26.5, the RMD would be roughly:

  • $4,000,000 ÷ 26.5 = $150,943

That amount is taxable income for the year and generally increases over time as:

  • The account grows
  • The life expectancy divisor shrinks

Traditional vs. Roth: The Core Tradeoff

Howard and Allie framed the decision around tax rates now vs. later.

Traditional 401(k)

Pros:

  • Lowers taxable income today
  • Useful if your current tax rate is relatively high

Cons:

  • Future withdrawals, including RMDs, are taxable
  • Large balances can create large RMDs and push you into a higher tax bracket in retirement

Roth 401(k)

Pros:

  • No tax on qualified withdrawals later
  • Reduces future taxable account size and can help lower RMDs
  • Gives more flexibility in retirement planning

Cons:

  • You pay tax now
  • Less immediate tax savings during your earning years

Howard and Allie’s Take

Howard’s View

Howard initially leaned toward staying traditional because:

  • Isaiah is already in a 22% federal bracket, which is not trivial
  • He likely still benefits from the deduction today
  • He may have time and flexibility later to do Roth conversions before RMDs begin

Allie’s View

Allie leaned more toward Roth contributions, especially if Isaiah can afford them, because:

  • He may face a similar or higher tax bracket in retirement once RMDs and Social Security are included
  • Large balances can create large mandatory taxable withdrawals
  • It often makes sense to use Roth while it’s still “not painful”

Her rule of thumb:

  • “Do the Roth until it’s painful.”
  • If contributing Roth becomes too much of a cash-flow burden, then switch to traditional

Important Planning Concepts Mentioned

1. RMDs Can Stack on Top of Other Retirement Income

Allie pointed out that future taxable income may include:

  • RMDs
  • Social Security
  • Pensions or other income sources

That can push retirees into higher brackets than expected.

2. Roth Conversions Can Help, But Need a Plan

Howard noted that Roth conversions between retirement and RMD age can reduce future taxable balances, but only if:

  • You have room in lower tax brackets
  • You have cash flow or outside assets to pay the tax bill
  • You plan ahead

3. Future Tax Brackets Matter

The episode emphasized comparing:

  • Your current marginal tax rate
  • Your likely retirement tax rate

That comparison helps determine whether the tax deduction today is worth more than tax-free treatment later.

Key Takeaways

  • RMDs are taxable withdrawals the IRS requires from traditional retirement accounts later in life
  • A large balance, like $4 million, can create meaningful taxable income in retirement
  • If you expect a high future bracket, Roth contributions can be attractive
  • If today’s tax bracket is high and Roth contributions would hurt cash flow, traditional may still make sense
  • Roth conversions later can be a useful middle-ground strategy
  • There is no one-size-fits-all answer; this is a “run the numbers” decision

Action Items / Practical Advice

  • Compare your current tax bracket to your expected retirement tax bracket
  • Estimate future RMDs based on projected account balances
  • Consider whether you’ll have other income sources in retirement
  • Evaluate whether Roth contributions are affordable now
  • Work with a CPA or advisor if you want a personalized projection

Closing Thought

The episode’s broader message was simple: build wealth by living on less than you make, investing the rest, and giving it time. For Isaiah’s situation, the hosts agreed that the best answer depends on the math, but they leaned toward using Roth strategically if he can afford it and wants to reduce future tax exposure.