The RMD Trap: Why Required Minimum Distributions Could Ruin Your Retirement

The Income You Never Asked For

At age 73, the IRS stops asking politely. Your traditional IRA and 401(k) start distributing money to you whether you need it or not. These Required Minimum Distributions — RMDs — are calculated based on your account balance and age, and they grow larger every year.

For retirees with $500,000 or more in traditional retirement accounts, RMDs can create a cascading tax problem that affects everything from your federal tax bracket to your Medicare premiums to how much of your Social Security is taxable.

It's a trap that's entirely legal, entirely predictable, and entirely avoidable — if you plan ahead.

How RMDs Work

The IRS publishes life expectancy tables that determine what percentage of your traditional IRA balance you must withdraw each year starting at age 73 (raised from 72 by SECURE 2.0).

Here's how the percentages escalate:

Age	Distribution Period	Approximate % of Balance
73	26.5	3.77%
75	24.6	4.07%
80	20.2	4.95%
85	16.0	6.25%
90	12.2	8.20%

At age 73, you withdraw roughly 3.8% of your balance. By 90, it's over 8%. These percentages are applied to your December 31 balance from the prior year — which means if your investments grow, your RMDs grow too.

The penalty for missing an RMD is 25% of the amount you should have withdrawn (reduced from 50% by SECURE 2.0). If you correct the mistake promptly, the penalty drops to 10%.

Use our Quick RMD Calculator to see your projected RMDs over time.

The Four Ways RMDs Hurt You

1. Higher Federal Tax Brackets

RMD income stacks on top of all your other income — Social Security, pensions, rental income, investment dividends. For a married couple already receiving $50,000 in Social Security:

• A $60,000 RMD pushes total income to $110,000+
• After the standard deduction ($31,500 MFJ under the OBBBA), taxable income is ~$78,500
• That lands in the 22% bracket — not terrible
• But as the account grows and RMDs increase, you start pushing into the 24% bracket at $96,950 (2026)

By age 80, with larger RMD percentages and a growing account, combined income could easily exceed $150,000-$200,000 — pushing into the 24% or even 32% bracket.

The irony: you may end up in a higher tax bracket in retirement than you were during your working years.

2. IRMAA Medicare Surcharges

This is the hidden penalty that catches most retirees off guard. Medicare Part B and Part D premiums increase if your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds. For 2026:

• Below $206,000 (MFJ): Standard premium
• $206,000-$258,000: +$70.90/month per person
• $258,000-$322,000: +$177.00/month per person
• $322,000-$386,000: +$283.30/month per person
• Above $386,000: +$354.00/month per person

IRMAA is based on income from two years prior. So a large RMD in 2026 hits your Medicare premiums in 2028. For a married couple both on Medicare, the surcharges are per person — double the impact.

A retiree with $2 million in traditional IRAs could face $3,000-$8,000 per year in IRMAA penalties that are entirely caused by RMDs they didn't need.

Our IRMAA Penalty Calculator shows exactly where these cliffs are for your income level.

3. Social Security Taxation

Up to 85% of Social Security benefits become taxable when "combined income" (AGI + nontaxable interest + half of Social Security) exceeds $44,000 for married couples. RMD income counts directly toward this threshold.

For many retirees, RMDs are the single factor that pushes Social Security from partially taxable to 85% taxable. On a $40,000 Social Security benefit, that's the difference between paying taxes on $0-$17,000 versus $34,000.

4. The Compounding Problem

Here's what makes RMDs insidious: they get worse over time. If your traditional IRA earns 7% but you only withdraw 4% (the early RMD percentages), the balance keeps growing. That means next year's RMD is even larger. Which pushes you further into higher brackets. Which triggers more IRMAA. Which taxes more of your Social Security.

This compounding tax burden accelerates through your 80s and 90s — exactly when you have the least capacity to do tax planning.

The Strategic Response

Option 1: Pre-RMD Roth Conversions (The Best Option)

The most effective strategy is converting traditional IRA assets to Roth before age 73. During the conversion window (typically ages 60-73), you control how much you convert each year. You can:

• Fill up lower tax brackets strategically (the 12% and 22% brackets)
• Stay below IRMAA thresholds
• Take advantage of the OBBBA's senior standard deduction ($4,000/person for ages 65+, 2025-2028)
• Eliminate or dramatically reduce future RMDs
• Create a tax-free income source that doesn't trigger any of the four problems above

The Tax Impact Calculator helps you find the optimal annual conversion amount.

Option 2: Qualified Charitable Distributions (QCD)

If you're 70½ or older and charitably inclined, you can direct up to $105,000 per year (2024, indexed for inflation) from your IRA directly to qualified charities. QCDs count toward your RMD but are excluded from taxable income.

This is a powerful tool for retirees who already planned to give to charity — it satisfies the RMD requirement without the tax consequences. But it doesn't build Roth assets or address the underlying structural problem.

Option 3: Strategic Withdrawal Sequencing

Even without Roth conversions, the order in which you draw from different accounts matters. In years with lower income (before Social Security starts, or in a down market year), drawing more from traditional accounts can be advantageous.

But this is a second-best approach — it manages the problem rather than eliminating it.

The Pre-RMD Window: Why Timing Matters

The window between retirement and age 73 is the most valuable tax planning period of your life. Here's why:

Before retirement:

• Employment income fills up most tax brackets
• Limited room for conversions without jumping brackets

After RMDs begin (73+):

• RMDs fill up brackets automatically
• Limited room for additional strategic moves
• IRMAA and Social Security taxation already triggered

The sweet spot (retirement to 73):

• Employment income is gone
• Social Security may not have started yet (or is minimal)
• RMDs haven't begun
• You're in the lowest tax brackets of your adult life
• Under the OBBBA: higher standard deduction ($31,500 MFJ) + senior deduction ($4,000/person, ages 65+) = even more room
• SALT deduction cap at $40,000 (through 2029) helps in high-tax states

Every year you wait is a year of lost opportunity. The earlier you start, the more you can convert at lower rates.

A Real-World Example

Tom and Sarah, both 64, recently retired:

• $1.8 million in traditional IRAs
• $45,000 combined Social Security starting at 67
• No other significant income

Without conversions (RMDs start at 73):

• Account grows to ~$2.6 million by 73
• Year-one RMD: ~$98,000
• Combined with Social Security: ~$143,000 income
• 22-24% federal bracket + IRMAA risk

With a 9-year conversion strategy (ages 64-73):

• Convert $120,000/year in ages 64-66 (no Social Security yet) — 22% bracket
• Convert $80,000-$100,000/year in ages 67-73 (coordinating with Social Security) — 22% bracket
• By 73: traditional IRA reduced to ~$400,000, Roth IRA at ~$900,000+
• RMD at 73: ~$15,000 (manageable)
• Social Security + small RMD keeps them in the 12% bracket
• No IRMAA
• Tax-free Roth income available as needed

Estimated lifetime tax savings: $160,000-$220,000

Take Action

RMDs are predictable. The IRS published the tables. You know your account balance. You can calculate exactly when and how hard they'll hit.

The question isn't whether RMDs will create a tax problem — for anyone with $500,000+ in traditional retirement accounts, they will. The question is whether you address it proactively or reactively.

• Quick RMD Calculator — See your projected RMDs and their tax impact
• Tax Impact Calculator — Model different conversion scenarios
• IRMAA Penalty Calculator — Find the Medicare surcharge thresholds that matter for you
• Schedule a consultation — Discuss a personalized pre-RMD conversion strategy