How are RMDs taxed? A required minimum distribution from a traditional IRA or 401(k) is taxed as ordinary income at your regular federal rates, not at the lower capital gains rates (Source: IRS Publication 590-B, 2025). The distribution is stacked on top of your Social Security, pension, and other income, so the real question for most retirees is not whether tax is owed but how much to expect and how to pay it.
RMDs are taxed as ordinary income at your marginal federal rate, added on top of other income for the year (Source: IRS Publication 590-B, 2025). There is no separate flat RMD rate and no capital gains treatment. You pay the tax by electing withholding on the distribution (10% default, adjustable 0% to 100% on Form W-4R) or through quarterly estimated payments. A qualified charitable distribution, up to $111,000 per person in 2026, can satisfy the RMD tax-free.
How are RMDs taxed?
An RMD from a traditional IRA, 401(k), or similar pre-tax account is taxed as ordinary income in the year you take it, at your regular federal rates, never at capital gains rates (Source: IRS Publication 590-B, 2025). Because the money went in pre-tax and grew tax-deferred, the entire withdrawal is generally taxable and stacks on top of your other income before your bracket is figured.
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Why your RMD can push you into a higher bracket (and raise Social Security and Medicare IRMAA costs)
Because an RMD is stacked on top of your other income, a large distribution can push part of your income into a higher bracket and raise two costs tied to income: how much of your Social Security is taxable and what you pay for Medicare, a ripple often larger than the tax on the RMD itself.
Up to 85% of Social Security benefits become taxable as combined income rises (Source: IRS Publication 915, 2025). Medicare Part B and Part D premiums also carry an income-related monthly adjustment amount (IRMAA) that begins above $109,000 of modified AGI for a single filer and $218,000 for a joint filer, on a two-year lookback (Source: Medicare.gov, 2026; standard 2026 Part B premium $202.90), so an RMD spike can raise premiums two years later. A high-income year can also expose other income to the 3.8% net investment income tax above $200,000 single or $250,000 joint MAGI, though the RMD itself is not investment income.
The exceptions: return of basis, Roth IRAs (no lifetime RMDs), and Roth 401(k)/403(b) since 2024
Not every dollar of an RMD is taxable, and some accounts carry no lifetime RMD at all. Three exceptions matter here: a return of after-tax basis tracked on Form 8606, Roth IRAs held by the original owner, and designated Roth accounts inside workplace plans. Each one changes either the amount that is taxed or whether an RMD is required at all during the owner’s lifetime.
- Return of basis. If you made nondeductible (after-tax) contributions tracked on Form 8606, the portion of each distribution that represents that basis comes out tax-free (Source: IRS Publication 590-B, 2025).
- Roth IRAs. Roth IRAs owned by the original account holder are not subject to lifetime required minimum distributions, so there is no RMD to tax during the owner’s life (Source: IRS Publication 590-B, 2025).
- Roth 401(k) and Roth 403(b). Beginning in 2024, designated Roth accounts in workplace plans are no longer subject to RMDs during the owner’s lifetime, matching the Roth IRA rule (Source: SECURE 2.0 Act; IRS Notice 2024-2).
These exceptions are one reason many investors weigh moving pre-tax dollars to Roth earlier in retirement, covered in the Q3 Advisors Roth conversion planning overview.
How much tax will you actually pay on an RMD?
There is no flat rate on an RMD; the tax equals the distribution taxed at whatever marginal brackets it lands in once stacked on your other income (Source: IRS Publication 590-B, 2025). Because the RMD sits on top, it can straddle two brackets, with each layer taxed at its own rate.
Consider a married couple filing jointly, both over 65, whose taxable income is about $90,000 before any RMD. That sits inside the 12% bracket, because the 22% bracket does not begin until $100,800 for 2026 (Source: IRS Rev. Proc. 2025-32). They then take a $40,000 RMD:
| Layer of the $40,000 RMD | Bracket it lands in | Federal tax on that layer |
|---|---|---|
| First $10,800 (fills the 12% bracket up to $100,800) | 12% | $1,296 |
| Next $29,200 (from $100,800 to $130,000) | 22% | $6,424 |
| Total on the $40,000 RMD | Blended | $7,720 |
The $40,000 RMD adds about $7,720 of federal tax, a blended rate near 19%, even though the couple’s top bracket is 22% (Source: IRS Rev. Proc. 2025-32). The exact figure depends on your full return (the 2026 standard deduction is $32,200 for joint filers, plus $1,650 per spouse age 65 or older) and any effect on Social Security taxability. The RMD is layered, not taxed at one rate.
How do you pay the tax? The two payment methods
You pay tax on an RMD in one of two ways, and many retirees blend them: withholding tax directly from the distribution, or sending quarterly estimated payments to the IRS. Both routes aim at the same target, staying inside the underpayment safe harbor so no penalty applies (Source: 2025 Instructions for Form 2210).
| Feature | Withholding from the RMD (Form W-4R) | Quarterly estimated payments (Form 1040-ES) |
|---|---|---|
| How it works | Custodian withholds federal tax from the distribution and remits it for you | You send four payments to the IRS across the year |
| Default rate | 10% on a nonperiodic IRA distribution unless you elect otherwise (Source: IRS Pub 575, 2025) | No default; you calculate the amount owed |
| Adjustable? | Yes, 0% to 100% on Form W-4R line 2 | Yes, any amount each quarter |
| Timing of credit | Treated as paid evenly across all four periods (Source: 2025 Form 2210 Instructions) | Credited on the date each installment is actually paid |
| Typical fit | Retirees who want one less deadline to track | Retirees managing uneven income across the year |
Option A: withholding from the distribution (Form W-4R)
Withholding lets your custodian send federal tax to the IRS at the moment you take the RMD, handling the tax without a separate payment. The default rate on a nonperiodic IRA distribution that is not an eligible rollover distribution is 10%, unless you elect a different rate on Form W-4R (Source: IRS Publication 575, 2025; Form W-4R, 2026).
On Form W-4R line 2 you can enter any rate from 0% to 100%, including “0” for nothing withheld (Source: Form W-4R). Setting it above 10% can cover the full liability from that one withdrawal and skip a separate estimated-payment schedule.
The safe-harbor timing advantage of withholding
Withholding carries a timing benefit that estimated payments do not: for federal income tax that is withheld, you are treated as having paid one-fourth of the total on each of the four due dates, regardless of when it was actually withheld (Source: 2025 Instructions for Form 2210). Almost no one plans around this, and it can rescue a year-end shortfall.
Because of that rule, tax withheld from a December RMD counts as if it were paid evenly across all four quarters. A retiree who discovers late in the year that they are under-withheld can take an extra distribution with heavy withholding, or raise withholding on the year-end RMD, and retroactively cure an underpayment that a late estimated payment could not fix.
Option B: quarterly estimated payments (Form 1040-ES) and the annualized method
Estimated tax is the do-it-yourself route: you calculate the tax on your RMD and other income and send it to the IRS in four installments using Form 1040-ES. Under the regular method, each required installment is generally one-fourth of the required annual payment (Source: IRS Publication 505, 2026; Form 1040-ES, 2026).
Unlike withholding, each estimated payment is credited on the date you make it, so missing an early installment can trigger a penalty even if you catch up later. Retirees whose income lands unevenly, such as a large mid-year distribution, may use the annualized installment method to match payments to when the income was received and reduce or avoid a penalty (Source: IRS Publication 505, 2026).
Staying inside the underpayment safe harbor (90% / 100% / 110%)
The safe harbor is what keeps you penalty-free. No underpayment penalty applies if your withholding plus timely estimated payments equal at least the smaller of 90% of the current-year tax or 100% of the prior-year tax (Source: 2025 Instructions for Form 2210). That prior-year figure rises to 110% if your prior-year adjusted gross income was over $150,000 (Source: IRS Topic No. 306).
- Estimate the year’s total tax, including the RMD as ordinary income.
- Compare it against 100% (or 110% if prior-year AGI topped $150,000) of last year’s tax, and take the smaller safe-harbor target.
- Subtract expected withholding from pensions, Social Security, and the RMD itself.
- Divide any remainder across the four Form 1040-ES installments, or shift it to year-end withholding to use the even-payment timing rule.
Do you pay state taxes on your RMD?
Most states tax an RMD as part of ordinary income, but the treatment varies sharply, and the way you have state tax withheld differs from the federal process. Some states impose no income tax at all; others fully exempt retirement-account income; the rest tax the RMD in whole or in part.
| State treatment of RMD income | Examples |
|---|---|
| No state income tax | Florida, Texas, Tennessee, Nevada, Washington, Wyoming, South Dakota, Alaska, New Hampshire |
| Income tax, but broad retirement-income exemptions | Illinois and Pennsylvania generally exempt qualified retirement plan and IRA distributions |
| Taxes RMD as ordinary income | Most remaining states, often with an age-based or dollar-capped deduction |
The mechanics also differ from federal withholding. There is no national state-tax default; on many custodians’ distribution forms you opt in to state withholding on the same request, while some states require a separate election form and set their own minimum rate. Because state rules change and depend on residency, confirm your state’s current treatment and withholding form before you take the distribution.
How do you reduce or avoid the tax on an RMD?
You cannot skip an RMD once it is required, but you can reduce or remove the tax on it. Two common approaches are a qualified charitable distribution (QCD), which excludes the amount from income, and shrinking future RMDs ahead of time through Roth conversions in your 60s.
A QCD counts toward your RMD and is excluded from gross income, so the amount given this way is not taxed (Source: IRS Publication 590-B, 2025). The money must go directly from an IRA (not a 401(k)) to a qualified charity, and the owner must be at least age 70 1/2 on the date of the gift. Because a QCD lowers AGI rather than acting as an itemized deduction, it can also ease income-linked costs such as Medicare IRMAA surcharges.
| QCD limit | 2025 | 2026 |
|---|---|---|
| Annual per-person exclusion | $108,000 | $111,000 |
| One-time split-interest (CRT/CGA) election | $54,000 | $55,000 |
Each spouse has a separate limit (Sources: IRS Publication 590-B, 2025; IRS Notice 2025-67). A longer-term approach is to reduce the balance that future RMDs are calculated from, before age 73. Converting pre-tax dollars to Roth in your 60s can trim future RMDs, and a Roth conversion break-even analysis and a look at how much to convert to Roth can frame the timing. This page stays on the taxation mechanics and how to pay.
Does the 10% early-withdrawal penalty apply to RMDs?
No. The 10% additional tax on early distributions applies only to withdrawals taken before age 59 1/2, and RMDs do not begin until age 73 (age 75 for those born in 1960 or later), so an RMD is always past that threshold (Source: IRS Publication 590-B, 2025). Only ordinary income tax applies to a required minimum distribution, never the early-withdrawal penalty.
A separate penalty runs the other way: failing to take a full RMD triggers an excise tax of 25% of the shortfall, cut to 10% if corrected within the correction window (Source: SECURE 2.0 Act; IRS Publication 590-B, 2025). The calculation, ages, and life expectancy tables are covered in the Q3 Advisors required minimum distributions 2026 guide.
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Frequently asked questions
How much tax do you pay on an RMD?
An RMD is taxed as ordinary income at your regular federal rates, so the amount depends on your total taxable income and bracket for the year (Source: IRS Publication 590-B, 2025). There is no flat RMD tax rate; the distribution is stacked on your other income and can straddle two brackets. Any portion that is a return of basis or a qualified Roth distribution is tax-free.
How do I avoid paying taxes on my RMD?
One direct way is a qualified charitable distribution, which counts toward your RMD and is excluded from income, up to $111,000 per person in 2026 (Source: IRS Notice 2025-67). The IRA owner must be at least 70 1/2 and send the funds directly to a qualified charity. Converting pre-tax dollars to Roth before age 73 can also shrink future RMDs.
Are RMDs taxed as ordinary income or capital gains?
RMDs are taxed as ordinary income at your marginal federal rate, never at the lower long-term capital gains rates (Source: IRS Publication 590-B, 2025). This is because contributions and growth in a traditional IRA or 401(k) were never taxed, so the full withdrawal is treated as ordinary income when it comes out, regardless of how the account was invested.
What is the default tax withholding rate on an RMD?
The default federal withholding rate on a nonperiodic IRA distribution that is not an eligible rollover distribution is 10%, unless you elect a different rate on Form W-4R (Source: IRS Publication 575, 2025; Form W-4R). On Form W-4R line 2 you can choose any rate from 0% to 100%, including zero if you plan to pay through estimated taxes instead.
Should I have taxes withheld from my RMD or pay estimated taxes?
Both methods satisfy the IRS. Withholding is treated as paid evenly across all four periods, which can cure a late-year shortfall (Source: 2025 Instructions for Form 2210). Estimated payments are credited when made and suit uneven income. Many retirees combine them to hit the underpayment safe harbor. The right mix depends on your circumstances and often benefits from professional review.
Do you pay state taxes on RMDs?
Usually, but it depends on where you live. Nine states levy no income tax, and a few others (such as Illinois and Pennsylvania) generally exempt qualified retirement-plan and IRA distributions. Most remaining states tax the RMD as ordinary income, often with an age-based or capped deduction. State withholding is separate from federal and may need its own election form.
At what age do RMDs stop being taxed?
They do not stop being taxed at any age. An RMD is taxed as ordinary income every year you take one for life, whether you are 73 or 93 (Source: IRS Publication 590-B, 2025). The only ways to remove the tax are a qualified charitable distribution or holding the money in a Roth account, which has no lifetime RMD for the original owner.
Sources
IRS Publication 590-B (2025), Distributions from IRAs: https://www.irs.gov/publications/p590b
IRS Publication 575 (2025), Pension and Annuity Income: https://www.irs.gov/publications/p575
IRS Publication 915 (2025), Social Security and Equivalent Railroad Retirement Benefits: https://www.irs.gov/publications/p915
IRS Form W-4R (2026): https://www.irs.gov/pub/irs-pdf/fw4r.pdf
IRS Publication 505 (2026) and Form 1040-ES (2026): https://www.irs.gov/publications/p505
2025 Instructions for Form 2210, Underpayment of Estimated Tax: https://www.irs.gov/pub/irs-pdf/i2210.pdf
IRS Topic No. 306, Penalty for Underpayment of Estimated Tax: https://www.irs.gov/taxtopics/tc306
IRS Rev. Proc. 2025-32 (2026 inflation adjustments): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
IRS Notice 2025-67 (2026 retirement and IRA amounts): https://www.irs.gov/pub/irs-drop/n-25-67.pdf
Medicare.gov, 2026 Part B premiums and IRMAA: https://www.medicare.gov/basics/costs/medicare-costs
