RMD Strategy No. 5: Pro Rata Payout
If you can’t reduce your RMD, you may be able to reduce the tax bill on the RMD—that is, if you have made and kept records of nondeductible contributions to your traditional IRA, says Steffen. In that case, a portion of the RMD can be considered as coming from those nondeductible contributions—and will therefore be tax-free.
Figure the ratio of your nondeductible contributions to your entire IRA balance. For example, if you contributed a total of $200,000 to your IRA and $20,000 was nondeductible, 10% of a distribution from the IRA will be tax-free. Each time you take a distribution, you’ll need to recalculate the tax-free portion until all the nondeductible contributions have been accounted for.
