Why RMDs quietly wreck tax plans
Required Minimum Distributions are the IRS's final reckoning on the tax deduction you took decades ago. Starting at age 73 (75 for anyone born 1960 or later under SECURE 2.0), you must withdraw a percentage of your pre-tax IRA and 401(k) balance each year. The first-year factor is 26.5 — so 1/26.5 = 3.77% of your balance. By age 85, it's 1/16 = 6.25%. By 95, it's 1/8.9 = 11.2%.
A $1.5M pre-tax balance at 73 forces a $56,600 withdrawal whether you need it or not. That withdrawal is ordinary income — adding to Social Security taxability, potentially tripping IRMAA Medicare surcharges, and pushing capital gains into higher brackets. Couples with $2M+ pre-tax commonly find themselves in higher tax brackets in retirement than during their working years. This is the RMD trap.
Worked example: $1.2M at 63, 10-year conversion window
At $1.2M today growing at 6%, your balance hits $1.92M at age 73 with no action. First-year RMD: $72,500, growing to $100,000+ by age 82. At 24% federal + 5% state tax, 10 years of RMDs pay $290,000+ in taxes before Social Security interactions and IRMAA.
Now run the conversion strategy: convert $50,000/year for 10 years at 22% = $110,000 total tax. The pre-tax balance at 73 drops to $1.25M instead of $1.92M. First-year RMD: $47,000 instead of $72,500. Cumulative RMD tax over 10 years: $190,000 instead of $290,000 — $100,000 saved, minus $110,000 paid = net -$10,000 on immediate tax.
But the real win is the $500,000 now sitting in Roth (grown from $50k × 10 contributions compounding). That money is never taxed again, never creates RMDs, never triggers IRMAA. Over the remaining 20+ years of retirement, it compounds tax-free. The conversion strategy usually nets $150,000–$300,000 of lifetime benefit for a couple with $1.2M+ pre-tax.
When conversions make sense — and when they don't
Roth conversions are worth doing when your conversion tax rate is lower than your future RMD tax rate. Four situations where this clearly holds:
- Retired between 60 and 73 with no Social Security or pension yet — low-bracket years.
- Married couple where one spouse will likely die earlier, leaving survivor in single-filer brackets (roughly 1.5x the rate).
- $1.5M+ pre-tax balances where RMD at 75+ will push into 24–32% bracket.
- Heirs will inherit — Roth is tax-free to them, Traditional must be drained in 10 years at their top bracket.
Conversions don't help when your current bracket equals or exceeds your future bracket (retired to lower-tax state, modest pre-tax balances, no heirs), or when you cannot pay the conversion tax from non-retirement assets (paying it from the IRA itself is a wash).
The Medicare IRMAA trap
Income-Related Medicare Adjusted Amount (IRMAA) is a cliff, not a ramp. In 2025, MAGI above $106,000 single / $212,000 married triggers an extra $75/month per Part B premium; above $133,000 / $266,000 adds $185; above $167,000 / $334,000 adds $295, and so on up to $512/month at the top tier. These are per person — a couple pays double.
Roth conversions and RMDs both count as MAGI. The planning move is to manage your conversions and RMDs to stay just under the IRMAA thresholds, even if that means doing smaller conversions. Our Retirement Tax Bracket Planner models the combined bracket + IRMAA cliff.