A $2 Million Dividend Portfolio Could Pay $80,000 a Year. At Age 73, a Roth IRA Has a Big Advantage
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At age 73, a $2 million traditional IRA stops being optional income. Using the IRS Uniform Lifetime Table factor of 26.5, the first required minimum distribution (RMD) on that balance comes to about $75,472. At the 24% bracket, roughly $18,113 of that goes to federal income tax, whether or not the owner needs the cash.
Same $80,000 in Dividends, Two Different Rulebooks
A hypothetical $2 million dividend portfolio yielding 4% generates $80,000 in annual dividends before any changes in share prices or payouts. The 4% yield is only an example. In both a traditional IRA and a Roth account, dividends are generally not taxed while they stay in the account. The two accounts split apart when money comes out.
- Investor A (traditional IRA): Must withdraw about $75,472 in year one. That amount comes from the prior year-end balance divided by the IRS life expectancy factor. It has nothing to do with how much the portfolio paid in dividends. Distributions are generally subject to ordinary income rates, except for any after-tax basis. Missing the RMD triggers an excise tax of 25% of the shortfall. That drops to 10% if the shortfall is fixed within the correction window.
- Investor B (Roth IRA): According to the IRS, “The RMD rules do not apply to Roth IRAs or Designated Roth accounts while the owner is alive.” Qualified withdrawals are federally tax-free. They generally require being age 59½[1] and meeting the 5-year period rule under 26 U.S.C. § 408A(d)(2).
Both accounts earn the same $80,000. The Roth’s advantage is control over timing. Investor B can reinvest the full $80,000, take part of it, or take nothing. Investor A’s dividends cover the RMD with $4,528 left over, but the full $75,472 still shows up as taxable income.
That taxable income also counts toward Medicare premiums. The first Part B surcharge (IRMAA) for joint filers starts at income above $218,000[2] and adds $81.20 a month per person. Qualified Roth withdrawals generally do not raise adjusted gross income.
How Your Bracket Multiplies the RMD Tax Bill
The table below applies each marginal rate to the full first-year RMD to keep the math simple. For reference, the 24% bracket for joint filers covered taxable income from $206,701 to $394,600 under the 2025 schedule.
| Bracket | Tax on $75,472 RMD | After-Tax RMD | Roth Advantage |
|---|---|---|---|
| 22% | $16,604 | $58,868 | $16,604 |
| 24% | $18,113 | $57,359 | $18,113 |
| 32% | $24,151 | $51,321 | $24,151 |
| 37% | $27,925 | $47,547 | $27,925 |
A retiree in the 37% bracket gives up about $27,925 on the same forced withdrawal, so the decision about where to hold these assets matters more the higher the bracket.
Compounding Cost Most Retirees Overlook
Say the $18,113 tax cost at 24% came up every year and that money were reinvested at a conservative 4% instead. The cumulative gap would reach about $217,467 after 10 years and about $539,370 after 20 years. Without compounding, the amounts are $181,130 and $362,260. These figures assume the share price stays flat and hold the first-year RMD constant.
In practice, RMDs are recalculated each year, and the life expectancy factor shrinks with age, so the required share of the balance rises over time. These figures show what the forced-withdrawal rule costs over time. They are not a forecast of returns.
The protection has a limit. “RMD rules do apply to the beneficiaries of Roth IRAs and Designated Roth accounts.”
Three Steps to Run Before Year-End
- Compare your 2027 RMD with your dividend income. Divide your December 31, 2026, balance by your Uniform Lifetime Table factor. Then line that number up against the dividends the portfolio actually paid to see how much of the withdrawal you would not otherwise take.
- Model conversions one bracket at a time. A Roth conversion from a pre-tax IRA is taxable in the year you do it, and converting $2 million at once could produce a large tax bill. With new 2027 tax brackets in effect, check how much fits within your current bracket and below the IRMAA thresholds.
- Use qualified charitable distributions to cover part of the RMD. The 2026 limit on qualified charitable distributions is $111,000. These gifts count toward the RMD without being included in gross income.
For investors who do not need all their dividend income right away, the Roth IRA’s exemption from lifetime RMDs may be worth as much as its tax-free qualified withdrawals. The years between retirement and the first RMD are often the cheapest window to shift money over, which is the whole subject of our free Roth conversion guide.
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After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years, he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, Money Morning, and, of course, 24/7 Wall St. He has been featured in both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.
