Retirement

Q&A: How to avoid or reduce taxes on required minimum distributions

October 13, 2025 By Liz Weston Leave a Comment

Dear Liz: I’m confused about required minimum distributions from my retirement accounts. I’d like to avoid taxes on my withdrawals, but it seems there is no way to avoid them. Please give me some guidance.

Answer: If you got a deduction for contributing this money, and you want to keep the funds you’re required to withdraw, then yes, you have to pay taxes on these distributions.

Required minimum distributions from retirement accounts currently have to start at age 73. There are a few exceptions. Roth accounts don’t offer deductions on contributions and also don’t have RMDs. You can postpone RMDs from a workplace plan such as a 401(k) or 403(b) as long as you’re still working for the employer that sponsors the plan, the plan offers this “still working” option, and you don’t own 5% or more of the company.

If you don’t need the money, you could consider donating your required minimum distribution to charity. Known as “qualified charitable distributions,” these donations can start as early as age 70½. As long as the money goes directly from an IRA to a qualified nonprofit, you can avoid paying taxes on the distribution. For 2025, the maximum qualified charitable distribution is $108,000 per individual. (You can’t make a qualified charitable distribution from a workplace plan, but you can roll some or all of the account into an IRA and make the donation from there.)

Sometimes RMDs can be large enough to catapult savers into a higher tax bracket and trigger higher Medicare premiums. If that’s the case, and you’re still a few years away from starting RMDs, consider talking to a tax pro about ways to manage the tax bill. Starting distributions early or converting some funds to a Roth IRA might be options.

Q&A: Yes, you can donate IRA money with a check–but should you?

August 25, 2025 By Liz Weston

Dear Liz: Please have another go with respect to answering a recent question about making qualified charitable distributions from an IRA using a debit card, which is something we have also wondered about. Several of the large mutual fund companies tell their customers that checks from their IRA account going to qualifying charities will qualify as QCDs, whether the checks are written by the company to the charity or by the individual to the charity. Hence, it would seem to be functionally equivalent whether one writes a check or uses a debit card. But your answer to the reader’s question seems to suggest something else.

Answer: You’re right that my answer fell short in explaining the problem.

The original letter writer wanted to be able to use a debit card to make qualified charitable distributions from her IRA to small art organizations that accept online donations, but apparently not paper checks. Qualified charitable distributions allow people to donate money from their IRAs to charity without the money being taxed.

Since IRA custodians typically don’t issue debit cards, the letter writer would have to first have the donation amount sent to her bank account or another account that offers such a card. But this transfer would make the distribution taxable, since qualified charitable distributions must be made directly to the charity without the money passing through the IRA account holder’s hands.

Checks drawn from an IRA account and made out to the charity, either by the account holder or the IRA custodian, are considered qualified charitable distributions as long as other rules are met. For example, the donation must be from a traditional IRA, the account holder must be at least 70-½ and the annual donation limit is $108,000 in 2025.

That said, sending checks through the mail is a risky way to transfer funds. Mail theft and related check fraud are soaring. Electronic payments are a far more secure way to send money, whether you’re paying bills or charities.

If you must send checks, use gel-based pens since their ink is harder to alter and go to your local post office, rather than leaving checks in an unsecured mailbox. Monitor every check you send and report any missing checks promptly to your bank or IRA custodian so they can stop payment.

Q&A: What can retirees do to deduct medical expenses?

August 5, 2025 By Liz Weston

Dear Liz: My wife and I, both in our early 90s, are fortunate to have good health insurance. However, we have significant expenses that are not covered. As you might expect, we are retired and receive income from Social Security, pensions, annuities and investments. Are we eligible to use flexible health accounts funded with pretax dollars? If so, what’s the best way to set that up and how would we pay those uncovered health bills?

Answer: Unfortunately, you don’t have access to pretax accounts that could help you pay medical bills.

Flexible spending accounts are offered by employers, and contributions are limited annually (in 2025, the limit is $3,300). Health savings accounts have higher limits but require you to have a qualifying high-deductible health insurance plan. Once you’re on Medicare, as you two presumably are, you are no longer allowed to contribute to an HSA.

You might be able to deduct medical expenses that exceed 7.5% of your adjusted gross income. To claim the deduction, you would need to have enough itemized expenses to exceed the standard deduction, which in 2025 is $34,700 for a married couple filing jointly who are 65 and older. (The standard deduction for a married couple filing jointly is $31,500, while people 65 and older get an additional deduction of $1,600 each.)

There’s also a new, temporary $6,000 deduction for people 65 and older that is available whether you itemize or take the standard deduction. This bonus deduction begins to phase out for adjusted gross income above $150,000 for married couples filing jointly and disappears at AGIs above $250,000. This deduction is set to expire after the 2028 tax year.

Q&A: Should I cash out my pension to pay off my home?

July 28, 2025 By Liz Weston

Dear Liz: I was recently and unexpectedly laid off. Money will be tight on Social Security alone. If I take the lump sum of my pension, the amount would be almost enough to pay off my home. Should I do that?

Answer: Pension payments typically continue for life and you can’t lose the money to fraud, bad investments or stock market downturns. If you had plenty of other assets and the pension was small, you might be fine cashing it out. Under the circumstances, though, consider hanging on to this valuable asset.

In general, you should be extremely wary about tying up a large sum in any one investment. That includes paying off a mortgage. You won’t have monthly loan payments anymore but you may have trouble accessing that cash again in an emergency.

Also be cautious about taking Social Security too early. Your benefits will be permanently reduced, which can have a huge effect on your future quality of life. While finding another full-time job can be extremely tough late in life, even a part-time job might be enough to help you delay filing.

You could benefit enormously from individualized financial advice. Consider reaching out to free or low-cost services, such as Advisers Give Back.