Baby Boomers and Taxes: Navigating Social Security, Required Distributions, and Roth Strategies
- Viktoriya Barsukova, EA, MBA
- Oct 29
- 24 min read
Social Security taxation, required minimum distributions (RMDs) and Roth conversions
Born between 1946 and 1964 (current age 61 to 79), baby boomers, often called boomers, represent the post–World War II generation, characterized by a dramatic rise in birth rates in the United States and elsewhere. Today, many boomers have built successful careers, raised families and shaped modern society. Among them are four U.S. presidents: Donald Trump (born 1946), Barack Obama (1961), Bill Clinton (1964) and George W. Bush (1964).
Although many boomers are approaching or enjoying retirement, this stage of life can also be a time of fresh beginnings. Colonel Harland Sanders didn’t start franchising KFC until his 60s, and Laura Ingalls Wilder was 65 when she published Little House in the Big Woods, launching her writing career.
These examples show us that it’s never too late to make significant choices, especially when it comes to securing your financial future.
For an example of the boomer generation, let’s turn our attention to the Johnson family.
The Johnson family
Jeff (64) and Sandy Johnson (66) are typical boomers charting their retirement path. Jeff, still working part-time, plans to retire within the next 18 months, while Sandy retired in 2024. The couple owns their home and continues to pay down their mortgage. Their two adult children, Sarah (Gen X) and James (millennial), are financially independent.
Jeff and Sandy encounter several tax-related concerns, much like many boomers approaching or experiencing retirement; they want to ensure a smooth financial transition as they begin this new chapter. These include Social Security taxation, RMDs and Roth conversions.
Social Security taxation
Baby Boomers and Taxes
Individuals can begin collecting Social Security retirement benefits as early as age 62, although they’ll only receive 100% of their benefit once they reach their full retirement age. If they delay claiming benefits past their full retirement age, up to age 70, their benefit amount will grow. Conversely, claiming Social Security benefits early permanently reduces an individual’s benefit by a small percentage each month before they reach full retirement age. To be eligible for monthly Social Security retirement benefits, an individual must be 62 and have worked for at least 10 years (or 40 credits).
The chart below shows the full retirement ages for workers and their spouses. For Jan. 1 birthdays, count the age as if the birthday fell in the previous year.
Individuals generally must include a portion (up to 85%) of their Social Security or Tier I Railroad Retirement Act benefits as gross income on their federal income tax return (§86). The amount depends on the level of the taxpayer’s other income and the amount of the benefits themselves.
Note: The Tier I component of a railroad retirement annuity comprises the Social Security equivalent benefit (SSEB) portion and the non-Social Security equivalent benefit (NSSEB) portion. An individual’s Tier I may comprise SSEB only, NSSEB only or both. The SSEB portion of Tier I is similar to a Social Security benefit and is treated as a Social Security benefit for federal income tax purposes.
Form SSA-1099, Social Security Benefit Statement, reports Social Security benefits, and Form RRB-1099, Payments By The Railroad Retirement Board, reports Tier I railroad retirement benefits. Each form shows the benefits paid and repaid (if any) in the current year. The forms also report any reduction in Social Security benefits, such as Medicare premiums.
This article will refer to regular Social Security benefits and the SSEB portion as Social Security benefits. Social Security benefits include monthly retirement, disability and survivors’ benefits paid by the Social Security Administration under the Social Security system. We are only discussing monthly retirement benefits.
Computing taxable benefits
If a taxpayer’s only income during the year was from Social Security, the benefits are generally not taxable, and the taxpayer is generally not required to file a federal tax return.
If the taxpayer had income in addition to Social Security benefits, it is necessary to determine if the taxpayer’s benefits are taxable. In general, if the taxpayer’s modified adjusted gross income (MAGI) plus half of the Social Security benefits received during the year exceeds the taxpayer’s base amount, some of the benefits are taxable.
MAGI is calculated without including any Social Security benefits in adjusted gross income (AGI). Calculate MAGI by starting with AGI and adding the following [§86(b)]:
• Tax-exempt interest
• Excluded interest from qualified U.S. savings bonds used to pay qualified higher education expenses
• Excluded employer-provided adoption benefits
• Student loan interest deduction
• Foreign earned income and housing exclusion, and exclusion of income earned by bona fide residents of American Samoa or Puerto Rico
Note: Because tax-exempt interest is included in the MAGI calculation to determine the taxability of Social Security benefits, some of the advantages of some tax-exempt investments will be lost.
The base amount is:
If the taxpayer’s filing status is MFJ, the spouses must combine their income and Social Security benefits to determine if any of their combined benefits are taxable. Even if the taxpayer’s spouse did not receive any benefits, use their combined income to figure out whether any of the taxpayer’s benefits are taxable.
Example: Social Security benefits are not taxable
Jeff and Sandy are filing a joint return. Disregarding any Social Security benefits, their income is $25,000, which consists of Jeff’s taxable wages. Their AGI is $25,000. During the current year, Sandy received Social Security benefits of $10,000, and they have no other income.
The couple’s MAGI is $25,000, and adding $5,000 (one-half of the $10,000 Social Security benefits) equals $30,000. No portion of the couple’s Social Security benefits is taxable because $30,000 is less than $32,000 (the base amount).
Example: Social Security benefits are taxable
Jeff and Sandy are filing a joint return. Disregarding any Social Security benefits, their income is $35,000, which consists of Jeff’s taxable wages. Their AGI is $35,000. During the current year, Sandy received Social Security benefits of $10,000, and they have no other income.
The couple’s MAGI is $35,000, and adding $5,000 (one-half of the $10,000 Social Security benefits) equals $40,000. Some of the couple’s Social Security benefits are taxable because $40,000 is greater than $32,000 (base amount).
Note: Most professional tax software can calculate if the taxpayer’s benefits are taxable. The IRS also has an online tool for calculating how much of a Social Security benefit is taxable (https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable).
If the taxpayer repays Social Security benefits they previously received, they can subtract the repaid amount from the total Social Security benefits reported for the year [§86(d)].
Example: repayment
A taxpayer received $5,000 of Social Security benefits in 2024 and $3,500 in 2025. In April of 2025, the Social Security Administration notifies the taxpayer that they should have received only $4,000 of benefits in 2024. The taxpayer repays $1,000 of the year 2024 benefits in 2025. The taxpayer is considered to have only received $2,500 ($3,500 - $1,000) of benefits in 2025.
Note: If the repayment amount exceeds the benefits paid, the excess is treated as a repayment of income received in an earlier year under a claim of right.
The taxable amount must be calculated once it is determined that Social Security benefits are taxable.
In general, up to 50% of the benefits are taxable. However, up to 85% can be taxable if either of the following applies: the total of one-half of the taxpayer’s benefits and all other income is more than $34,000 ($44,000 MFJ), or the taxpayer is MFS and lived with their spouse at any time during the year. The $34,000 ($44,000 MFJ) is often referred to as the adjusted base amount.
Social Security taxation is a complicated calculation with a tiered structure. If a taxpayer’s income exceeds the base amount, up to 50% of Social Security benefits may be taxable. If their income exceeds the adjusted base amount, up to 85% may be taxable; however, there is a formula to limit the taxable amount. The base amount and the adjusted base amount are not adjusted for inflation.
To add to the calculation’s complexity, if the taxpayer made contributions to a traditional IRA for the year and the taxpayer (or spouse) was covered by a retirement plan through work or self-employment, the taxpayer must apply special rules to determine whether any Social Security benefits are taxable and to determine the IRA deduction.
Professional tax software can make these calculations. Worksheets in Publication 915, Social Security and Equivalent Railroad Retirement Benefits, Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), and Form 1040, U.S. Individual
Income Tax Return (and Form 1040-SR, U.S. Income Tax Return for Seniors).
Below is a chart summarizing how Social Security benefits are taxed based on combined income. Combined income is AGI plus nontaxable interest (and the other additions noted above) plus one-half of Social Security benefits.
The percentages refer to how much of a taxpayer’s benefits may be included in taxable income, not the tax rate applied. These are thresholds for the maximum taxable amounts, not what the taxpayer will pay. For example, if a taxpayer is single and has $38,000 in combined income, they are above the $34,000 threshold. Up to 85% of their Social Security benefits may be taxable. However, depending on their specific tax situation, the actual taxable portion could be less than 85%. Worksheets may need to be used to calculate the actual taxable portion.
Example: amount of taxable Social Security benefits
Jeff and Sandy are filing a joint return. Disregarding any Social Security benefits, their income is $35,000, which consists of Jeff’s taxable wages. Their AGI is $35,000. During the current year, Sandy received Social Security benefits of $10,000, and they have no other income.
The couple’s MAGI is $35,000, and adding $5,000 (one-half of the $10,000 Social Security benefits) equals $40,000. A portion of the couple’s Social Security benefits is taxable because $40,000 is greater than $32,000 (base amount).
How much is taxable? Using the Social Security worksheet, 40% of the total benefits ($10,000 × .40 = $4,000) received are taxable.
What would be the impact if Jeff’s taxable income were $85,000 instead of $35,000? In that case, 85% of Sandy’s benefits or $8,500 ($10,000 × .85), as illustrated in the following example.
Example: amount of taxable Social Security benefits
Jeff and Sandy are filing a joint return. Disregarding any Social Security benefits, their income is $85,000, which consists of Jeff’s taxable wages. Their AGI is $85,000. During the current year, Sandy received Social Security benefits of $10,000, and they have no other income.
The couple’s MAGI is $85,000, and adding $5,000 (one-half of the $10,000 Social Security benefits) equals $90,000. A portion of the couple’s Social Security benefits is taxable because $90,000 is greater than $32,000 (base amount). Also, because one-half of Sandy’s benefits and all other income is more than $44,000, up to 85% of Sandy’s benefits can be taxable.
Using the Social Security worksheet, it is determined that 85% of the total benefits are taxable. (See Figure 2 on the next page.)
Note: The One Big Beautiful Bill Act (OBBBA) did not change anything with the taxation of Social Security income. The OBBBA provides a $6,000 deduction for seniors aged 65 and older for tax years after 2024 and before 2029. The deduction phases out for individuals whose MAGI exceeds $75,000 ($150,000 MFJ). In our example of the Johnsons, only Sandy would qualify for a senior deduction in 2025, since she is the only person at least age 65. Even then, a requirement for the senior deduction is that the Johnsons file a joint return (MFJ) even though there will only be one party in the couple benefiting from this temporary deduction in 2025.
After navigating Social Security taxation, we now turn our attention to RMDs. Staying on top of these withdrawals helps boomers avoid costly penalties.
"Baby Boomers and Taxes: Navigating Social Security, Required Distributions, and Roth Strategies"
RMDs
RMDs must be taken from traditional IRAs, including SEP and SIMPLE IRAs, during a taxpayer’s life [Reg. §1.408-8]. They also must be taken from qualified plans, such as §401(k), §403(b) and §457(b) plans, profit-sharing plans and other defined contribution plans [§401(a)(9)]. Lifetime RMDs do not have to be taken from Roth IRAs [§408A(c)(4)]. In addition, for tax years beginning after Dec. 31, 2023, employees do not have to take lifetime RMDs from designated Roth accounts (i.e., Roth accounts within qualified employer plans). The RMD rules do, however, apply to the beneficiaries of Roth IRA and designated Roth accounts [Reg. §1.401(a)(9)-1(a)(1)].
The RMD is the minimum amount an individual must withdraw from their account each year. However, they can withdraw more than the minimum amount.
Example: designated Roth IRA
In 2023, Rita retired and became subject to RMDs from her designated Roth account. Although she can delay her first RMD until April 1, 2024, that distribution will still count as her RMD for 2023. After taking her RMD for 2023, she is not required to take any further RMDs from her designated Roth account in future years.
IRAs
RMDs from IRAs generally follow the same rules as RMDs from qualified plans, with some modifications [Proposed Reg. §1.408-8].
Required beginning date (RBD)
RMDs are mandatory withdrawals that must be taken from an individual’s retirement account during retirement. These mandatory withdrawals must start on the RBD [§401(a)]. RMDs from a traditional IRA, including a SEP and SIMPLE IRAs, must begin on or before April 1 of the year following the year an IRA owner turns the applicable age (age 73 for most current retirees). This is their RBD. The owner must receive an RMD each year once they reach the applicable age, even if they’re still working and making IRA contributions. Subsequent RMDs must be received each year by Dec. 31 [Reg. §1.401(a)(9)-5(a)(3)].
Example: RBD
Rose turns 73 in 2025, which means she must take her first RMD from her traditional IRA for 2025. However, she can defer this first RMD as late as April 1, 2026. Starting with her second RMD (for 2026), she must take each RMD by Dec. 31 of that year. Therefore, if Rose delays her 2025 RMD until April 1, 2026, she will still need to take her 2026 RMD by Dec. 31, 2026, resulting in two RMDs in 2026.
Taking two RMDs in one year could push Rose into a higher tax bracket, so the tax impact of this strategy should be carefully evaluated. Other considerations include her cash flow needs, the potential benefit of deferring income tax on the first RMD, the extra period of tax-deferred growth if she delays, and the fact that delaying the first RMD could result in a higher second-year RMD because the account balance will be larger at the end of the first year due to not having taken the distribution (see RMD calculations later in article).
Starting in 2020, individuals of any age can contribute to a traditional IRA if they have compensation. Before 2020, traditional IRA contributions were not allowed once an individual reached age 70½. Compensation generally means earned income from wages or self-employment. Stated another way, individuals who have earned income, including those already taking RMDs, can still contribute to a traditional IRA. Social Security benefits are not considered compensation for IRA purposes and can’t be used to make an IRA contribution. However, a spousal IRA may be an option for a married couple. A spousal IRA for the retired spouse, up to the annual contribution limits, is possible if the couple files jointly. The employed spouse’s compensation must be at least equal to the total contribution. A spousal IRA is an option to continue building retirement savings for a non-working spouse or retired spouse with no earned income (or low income).
Example: still working and contributing to an IRA
Jeff, 64, is working part-time and earning $35,000 per year. Although he plans to retire in the next 18 months, he wants to continue building his retirement savings. Jeff will contribute $8,000 to his traditional IRA for 2025 ($7,000 regular contributions plus $1,000 catch-up contributions).
Because Jeff earns income from his part-time job, he is eligible to contribute to a traditional IRA. The couple could also contribute to a spousal IRA for Sandy, his wife, even though she is collecting Social Security.
Note: If the taxpayer died after reaching the applicable age but before April 1 of the following year, no RMD is required because they died before their RBD.
Age requirements
The age to start taking RMDs has steadily increased under different tax laws. The most recent legislation (the Securing a Strong Retirement Act of 2022 (SECURE 2.0), enacted as part of the Consolidated Appropriations Act of 2023 (CCA)) increased the age to start taking RMDs from age 72 to age 73 for taxpayers reaching age 72 after 2022.
Prior to SECURE 2.0, the Setting Every Community Up for Retirement Enhancement (SECURE) Act changed the start date for RMDs from age 70½ to age 72 for individuals who reach 70½ after Dec. 31, 2019.
In general, taxpayers must take their first lifetime RMD (RMDs while living) from their IRAs and qualified plans after reaching the applicable age.
The following chart shows when RMDs must begin based on when the taxpayer was born (date range or birth year) and the applicable law changes over time.
The age at which baby boomers must begin taking RMDs depends on their exact birth date and changes under the SECURE Act (2019) and SECURE 2.0 (2022). For IRA owners born in 1959, there is a discrepancy as to whether the applicable age is 73 or 75. Proposed regulations state that the applicable age for employees born in 1959 is 73, which is consistent with Congressional intent [Prop. Reg. §1.401(a)(9)-2(b)(2)(vi)].
Older boomers, born in 1946 through June 30, 1949, already started RMDs at age 70½ under the pre-SECURE Act rules. Mid-boomers, born between July 1, 1949, and Dec. 31, 1950, began RMDs at age 72 under the SECURE Act of 2019. Younger boomers, born from 1951 through 1959, will start RMDs at age 73 under SECURE 2.0. Finally, the youngest boomers, born in 1960 or later, will begin RMDs at age 75 starting in 2033 under SECURE 2.0 provisions.
Example: RMD age 70½ (pre-SECURE Act rules)
Charles turned 70½ on Dec. 30, 2018, and was required to take an RMD by April 1, 2019. Charles is required to take his RMD annually by Dec. 31.
Example: RMD age 75 (SECURE 2.0 rules)
Ronald was born on Dec. 7, 1960, and turns 74 on Dec. 7, 2034. Because he turns 75 after 2032, he must begin taking RMDs when he reaches age 75. Ronald turns 75 in 2035, so his first RMD must be taken by April 1, 2036.
As seen with Charles, who began taking RMDs at age 70½ under pre-SECURE Act rules, and Ronald, who will start taking RMDs at age 75 under SECURE 2.0, these examples illustrate how the applicable RMD age depends on both birth date and the legislative framework in place when an individual reaches the triggering age.
The IRS has issued final regulations governing RMDs from qualified plans. These plans include 401(k) plans, IRAs, Roth IRAs, §403(b) plans and §457(b) eligible deferred compensation plans. These regulations generally apply to tax years beginning after Dec. 31, 2024.
Normal distributions
Taxpayers between the ages of 59½ and 73 can take normal distributions from an IRA. A normal distribution is not the same as an RMD. A normal distribution can be taken without penalties and, depending on the type of IRA, taxes may be due. A common situation where you may see clients taking normal RMDs is when a client is retired, collecting Social Security benefits and is below the RMD age but needs extra money to meet their yearly income needs. If a taxpayer younger than 59½ receives a distribution from an IRA, it is considered an early distribution by the IRS and the distribution will generally be subject to tax and penalty.
Taxability
Amounts distributed from an IRA are taxable to the distributee under the §72 annuity rules. These rules allocate the distribution between nontaxable investment in the contract, if any, and taxable income [§408(d)(1)].
Under the annuity rules, all IRAs are treated as one contract, all distributions during any tax year are treated as one distribution, and the value of the contract, income on the contract and investment in the contract are computed as on the close of the calendar year in which the tax year begins.
Distributions from a traditional IRA are generally taxable in the year the individual receives them. The taxable amount is includable in gross income and taxed as ordinary income.
If all the contributions to a traditional IRA were deductible (no non-deductible contributions were made), there is no basis in the IRA and all distributions are fully taxable as ordinary income.
If the taxpayer made any non-deductible contributions (contributions for which the taxpayer did not take a deduction), they have a basis in their IRA. Each distribution will be partly taxable and partly a tax-free return of their basis. The nontaxable portion is calculated using IRS Form 8606, Nondeductible IRAs, and a pro-rata formula. The nontaxable portion is determined by the ratio of the individual’s total basis in all traditional IRAs to the total value of all their traditional IRAs, including distributions, at year-end.
Example: taxable portion
A taxpayer has a $2,000 basis in their IRA (nondeductible contributions). The total IRA value as of Dec. 31, 2025, is $20,000, and the taxpayer received a $5,000 distribution during 2025. The nontaxable portion is $400 ($2,000 / ($20,000 + $5,000) = .08), then (.08 × $5,000 = $400). Thus, the taxable portion is $4,600 ($5,000-$400).
Certain distributions are not taxable, including qualified charitable distributions (QCDs). QCDs are discussed later in the article.
Distributions are reported to the taxpayer and IRS on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
Qualified plans
Participants in qualified plans, other than 5% owners, are not required to receive distributions after reaching age 73 (or applicable age, if different) if they are still employed [§401(a)(9)(C)(i)]. Five-percent owners must begin receiving distributions no later than April 1 of the calendar year following the calendar year they reach age 73 (or applicable age, if different) [§401(a)(9)(C)(ii)]. In effect, there are two required beginning dates: one for 5% owners and one for all other plan participants.
This means that qualified plan participants may qualify for an exception from taking RMDs from their current employer-sponsored retirement plan if:
They are still working
They do not own more than 5% of the business they are working for
The business has an employer-sponsored plan
If all the requirements are met, the individual may delay taking an RMD from the account until April 1 of the year after the year they retire. The employee should check with the employer and inquire about the plan’s terms, which govern when RMDs must be taken. This does not apply to the individual’s IRAs or other retirement accounts from prior employers.
Example: benefits after reaching age 79
Randall works for Heavy Lifter Inc. and has no ownership in the company. He participates in the company’s 401(k) plan, turns 73 during 2025 and does not retire. Assuming Heavy Lifter allows for a deferral of benefits, the company would not be required to issue Randall an RMD until he retires.
If Randall retires in 2025, distributions would generally be required by April 1, 2026.
Calculation
Account owners (IRAs and qualified plans) calculate each year’s RMD by dividing the prior year-end account balance (its value as of Dec. 31) by the applicable distribution period or life expectancy. No adjustments are made for contributions or distributions after that date.
An IRA trustee is required to report the RMD amount to IRA owners [Reg. §1.408-8(f)]. Trustees can use Form 5498, IRA Contribution Information, to report this information. However, the IRA owner is ultimately responsible for ensuring the correct RMD amount is received in a timely manner [Retirement plan and IRA required minimum distributions FAQsQ&A-6].
The plan administrator is responsible for calculating and timely paying the RMD for qualified plans.
Unlike IRA RMDs, individuals with a qualified plan may have no control over the actual date the RMD is paid. For qualified retirement plans, the plan administrator may reserve the right to determine the actual date the RMD is paid [IRS Information Letter 2016-0072]. The RMD could be received in January, December or in monthly increments.
If the owner has more than one traditional IRA, calculate a separate RMD for each IRA. However, the IRA owner does not have to take separate RMDs from each IRA. Instead, they may aggregate their RMDs and take the total amount from one or more of their IRAs [Reg. §1.408-8; Retirement plan and IRA required minimum distributions FAQs Q&A-5].
Only amounts that an individual holds as an IRA owner may be aggregated. IRAs held as a beneficiary of the same decedent may be aggregated; however, these amounts may not be aggregated with amounts held in IRAs that the individual holds as an IRA owner or as the beneficiary of another decedent [Reg. §1.408-8(c)(2)(i); Reg. §1.408-8(c)(2)(ii)].
Example: multiple IRAs
Benny, age 71, holds two IRAs as the owner. He also inherited one IRA from Barb, his sister, and one IRA from Bill, his brother. Benny must calculate the RMD for each of his four IRA accounts. The total distribution required from the two IRAs he owns as the account holder may be taken from either account (or both) in any proportion. The total distribution required from the two inherited accounts must be taken separately from each of those accounts.
If, instead of inheriting an IRA from his brother, he inherited two IRAs from his sister, the total distribution required from the two inherited accounts may be taken from either account (or both) in any proportion. There is no change in how he can take the distributions from the accounts he holds as the owner.
The owner can always take more than the minimum amount. However, they will not receive credit for the additional amount taken when determining RMDs for future years. In other words, the owner cannot use the excess to satisfy part of their RMD in a later year.
Generally, tax professionals do not calculate RMDs for clients; for more information, refer to IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), which provides detailed guidance on RMD rules and calculations.
Example: determining which account balance to use
Chester turned 73 in 2025. His RBD is April 1, 2026. Chester’s first RMD is for the distribution year 2025, even though it’s not required to be made until his RBD, which is in 2026. When calculating the 2025 RMD, Chester will use the value of his IRA on Dec. 31, 2024. Based on his Dec. 31, 2024, IRA value, Chester’s 2025 RMD is $15,000. Chester waits until April 1, 2026, to take his 2025 RMD. The value of his IRA on Dec. 31, 2025, is $450,000. The account balance of $450,000 is used to compute Chester’s 2026 RMD. No adjustment is made for the 2025 RMD of $15,000 distributed on April 1, 2026. Chester must receive his 2026 RMD no later than Dec. 31, 2026.
Missed RMD
If there are no RMDs or the RMDs are not large enough, a 25% excise tax on the amount not distributed as required may be assessed, unless the taxpayer qualifies for the reduced rate or a waiver (§4974(a)).
To report the excise tax, file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, Part IX, for each year the taxpayer fails to take their RMD or takes less than what is required.
If the taxpayer does not have to file an income tax return, file Form 5329 by itself at the time and place where the taxpayer would be required to file their income tax return. When filing Form 5329 by itself, it cannot be e-filed.
The 25% excise tax is reduced to 10% if the taxpayer meets specific requirements. If the taxpayer takes a distribution of the missed RMD amount during the correction window, they may submit a return reflecting a 10% excise tax instead of the 25% tax [§4974(e)].
The correction window is the period beginning on the date the excise tax was imposed with respect to the excess accumulation and ending on the earliest of the following:
• Date a notice of deficiency was mailed with respect to the excise tax
• Date on which the excise tax was assessed
• Last day of the second year following the end of the year in which the excise tax was imposed
The final regulations clarify that the corrective distribution must be taken from the qualified plan from which the taxpayer failed to take an RMD. However, if the taxpayer failed to take an RMD from an IRA and has multiple IRAs, the corrective distribution can be taken from any of the taxpayer’s IRAs [Reg. §54.4974-1(a)(2)(iv)]. In addition, if the corrective distribution for a given tax year is received in a subsequent calendar year, the proposed regulations state the RMD for the subsequent year must be made in addition to the corrective distribution [proposed Reg. §1.401(a)(9)-5(g)(2)(iv)].
Also, the IRS has the authority to waive the 25% (10% if applicable) penalty if the taxpayer can establish that the shortfall between the RMD and the actual amount distributed was due to reasonable error and steps are being taken to correct the shortfall [§4974(d)]. To request a waiver, attach an explanation to Form 5329, complete Lines 52–55 as instructed (noting “RC” and the waiver amount on line 54), pay any tax due, and wait for the IRS to notify you of approval or any remaining penalty owed.
Comparison chart
Below is a comparison chart for quick reference of some common questions regarding RMDs for account owners.
Note: The below reference to age 73 is for tax years 2023–2032. The applicable age is used in other years.
Qualified charitable distribution (QCD)
Generally, a QCD is an otherwise taxable distribution from an IRA that’s excludable from gross income because it is transferred directly from the IRA to a qualified charitable organization when the IRA owner is 70½ or older. A qualified charitable organization generally includes 50% charities eligible for tax-deductible contributions (other than private foundations), supporting organizations and donor-advised funds. For 2025, up to $108,000 (indexed for inflation) can be transferred from an IRA to a qualified charitable organization.
Effective Jan. 1, 2025, the IRS will require IRA custodians and trustees to include a new Code Y in Box 7 of Form 1099-R when reporting QCDs. This change is intended to improve the accuracy of QCD reporting, streamline processing and provide more precise documentation for the IRS and taxpayers.
Previously, QCDs were reported using only Code 7 (normal distribution) or Code 4 (death distribution), and the taxpayer had to indicate the QCD exclusion on their return.
With this update, Code Y must now be used in combination with the applicable Code 7 or 4 (e.g., Y7 for a normal QCD distribution or Y4 for a death QCD distribution).
The gross distribution amount will continue to be reported in Box 1 and 2a following the standard taxable reporting rules, and taxpayers remain responsible for claiming the QCD exclusion on their returns.
Additional information regarding QCDs can be found in our July 2025 TAXPRO.
Roth conversions
As baby boomers enter retirement, many evaluate Roth conversions to optimize their lifetime tax liabilities. A Roth IRA is a nondeductible IRA from which qualified distributions are not subject to income tax. Under certain circumstances, existing IRAs can be converted to Roth IRAs. A distribution from any eligible retirement plan (e.g., §403(b), §457(b), or qualified plans) may be contributed to a Roth IRA as a qualified rollover contribution if the applicable rollover rules are met.
A Roth conversion involves transferring funds from a traditional IRA or qualified workplace retirement plan into a Roth IRA. Taxable income is created in the year of the conversion [Reg. §1.408A-4]. To make a Roth conversion economically beneficial, it is generally necessary for taxpayers to pay the resulting income tax using funds outside of the IRA. If a taxpayer does not have other available funds and instead pays the tax using amounts withdrawn from the IRA, the conversion’s benefits are significantly reduced. This is because the withdrawn IRA funds used to pay the tax are subject to income tax and, if the taxpayer is under age 59½, they may also incur the 10% early distribution penalty (e.g., the funds used to pay the conversion tax are not converted to the Roth, so they are subject to the 10% penalty).
A traditional IRA can be converted to a Roth IRA by three methods [Reg. §1.408A-4]. In the first method, the rollover method, the taxpayer receives a traditional IRA distribution and converts it to a Roth IRA within 60 days. The second method is a trustee-to-trustee transfer. With this method, the taxpayer requests that the traditional IRA trustee transfer an amount directly to the Roth IRA trustee. With the final method, if the traditional IRA and Roth IRA are with the same financial institution, the taxpayer can request that the trustee directly transfer an amount from the traditional IRA to the Roth IRA.
Taxpayers with nondeductible IRAs need to be concerned with a partial conversion. Because all IRAs are treated as one contract for tax purposes, taxpayers can’t convert only a nondeductible IRA or a portion of a nondeductible IRA and offset their basis against that portion. A proration of the nondeductible amount must be done over the total amount of all the taxpayer’s IRAs.
Example: proration
Beth has two IRAs. One is a deductible IRA with a value of $10,000, and the other is a nondeductible IRA with a value of $10,000 and a basis of $4,000 (nondeductible contributions). If Beth converts only the nondeductible IRA to a Roth, she will still recognize income of $8,000.
For tax purposes, she had one IRA with a value of $20,000 and a basis of $4,000. She is converting half of the total value of her IRAs. The basis allocated to the conversion is one-half of $4,000, or $2,000. She would recognize income of $8,000 on the conversion ($10,000 converted, less $2,000 basis).
Distributions from qualified retirement plans, §403(b) annuity plans or §457(b) plans can be rolled directly into a Roth IRA. These rollovers are treated the same as under the conversion rules for traditional IRAs. Rollovers from designated Roth accounts are treated as rollovers to another Roth IRA [Notice 2009-75]. The rollover contribution must satisfy the specific rollover rules that apply to the type of retirement plan involved.
When a plan participant receives a distribution that includes both pre-tax and after-tax contributions, they can choose to roll over these amounts into different types of accounts. Specifically, the participant can direct the pre-tax portion to a traditional IRA and the after-tax portion to a Roth IRA, as long as both amounts are rolled over within the required rollover period. This rule applies to indirect rollovers and direct trustee-to-trustee transfers, allowing participants to avoid income tax withholding on the distribution [Notice 2014-54].
The Roth conversion will be reported on Form 8606, Part II. On the taxpayer’s Form 1040, the gross distribution from the conversion should be shown on Line 4a (IRA) or 5a (qualified retirement plan), and the taxable income due to the conversion should be shown on Line 4b or 5b, respectively. The trustee receiving the IRA funds reports the Roth IRA conversion contribution in Box 3 of Form 5498, IRA Contribution Information.
Once made, Roth conversions are irrevocable; the taxpayer does not get a redo if they later change their mind. Also, RMDs are not eligible for rollover treatment.
Baby boomers, now aged 61 to 79, continue to navigate critical financial decisions as they approach or live in retirement. Understanding Social Security taxation, RMDs and Roth conversions is essential for optimizing their tax strategies and preserving retirement savings. While Social Security benefits may be partially taxable depending on income thresholds, RMDs ensure taxable distributions begin at the applicable age under evolving legislation.
Baby Boomers and Taxes: Navigating Social Security, Required Distributions, and Roth Strategies by NATP
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