RMDs Affect Social Security
If you’re retired or nearing retirement, understanding how Required Minimum Distributions (RMDs) impact your finances is crucial—especially when it comes to Social Security. While RMDs don’t directly reduce your Social Security benefits, they can increase your taxable income, which in turn may cause more of your Social Security income to become taxable.
What Are RMDs?
RMDs are mandatory withdrawals from tax-deferred retirement accounts such as traditional IRAs, 401(k)s, 403(b)s, and similar plans. The IRS requires you to begin taking these withdrawals by age 73 (or 75 if you were born in 1960 or later, under the SECURE Act 2.0). Because these withdrawals are considered ordinary income, they are included in your taxable income each year.
How Social Security Is Taxed
Not all Social Security benefits are taxable. Whether they are—and to what extent—depends on your “combined income,” which is calculated as:
Adjusted Gross Income (AGI) + nontaxable interest + 50% of your Social Security benefits
If your combined income exceeds certain thresholds, up to 85% of your Social Security benefits may be subject to federal income tax:
- Single filers:
- $25,000–$34,000: up to 50% of benefits taxable
- Over $34,000: up to 85% of benefits taxable
- Married filing jointly:
- $32,000–$44,000: up to 50% of benefits taxable
- Over $44,000: up to 85% of benefits taxable
The RMD-Social Security Connection
Since RMDs increase your AGI, they can push your combined income over these thresholds, triggering higher taxation on your Social Security benefits. For example, if your RMD is $20,000 and your other income is already near the threshold, that RMD could tip the scale, making a larger portion of your Social Security taxable.
Planning Tips
- Roth conversions before RMD age can reduce future RMDs, since Roth IRAs don’t have RMDs during the owner’s lifetime and withdrawals are tax-free.
- Qualified charitable distributions (QCDs) from IRAs can satisfy RMDs without increasing your taxable income.
- Tax-efficient withdrawals and proper timing can help reduce the overall tax impact.
Bottom Line
RMDs do not directly reduce your Social Security payments, but they can increase your taxable income and result in a larger portion of your Social Security benefits being taxed. With smart tax planning, you can minimize the impact and keep more of your retirement income.
Dimov Tax proudly assists clients with RMDs with more than a decade of expertise. Contact us today for professional assistance.