Required Minimum Distributions: What Investors Should Know for 2026

Investors facing Required Minimum Distributions (RMDs) in 2026 should be aware of potential tax implications and strategic decisions. RMDs are taxed as ordinary income and can affect other benefits, such as Social Security and Medicare.

The amount of an RMD for 2026 is determined by the year-end balance of an investment portfolio from the previous year. With many major investment types performing well in 2025, many RMD-subject investors may see higher withdrawal amounts. Additionally, withdrawal percentages increase with age, further contributing to higher sums unless the portfolio has decreased in value.

While RMDs start at a relatively low rate, around 3.77% of portfolio value at age 73, they increase significantly for older individuals. For instance, at age 85, the withdrawal rate can approach 6%. These percentages generally exceed the commonly advised 4% safe withdrawal rate, but analysts note that older individuals can safely withdraw larger portions of their portfolios due to their shorter investment horizons.

Investors have flexibility in how they use RMD funds. Although the money must be withdrawn and taxes paid, it can be reinvested, for instance, into a traditional IRA account (up to contribution limits if the individual has earned income) or a taxable brokerage account. Furthermore, RMD withdrawals can be strategically used to improve a portfolio by targeting specific, potentially overweighted holdings.

Strategies exist to reduce RMDs and their associated taxes. These include shifting funds to Roth IRA accounts, which do not have RMDs, or converting traditional accounts to Roth before RMDs commence. Additionally, Qualified Charitable Distributions (QCDs) allow for tax-free withdrawals directly to charity, which can satisfy RMD requirements and reduce future RMD balances.