Required Minimum Distributions Can Push Retirees Into a Higher Tax Bracket. Here’s How to Plan Ahead

There is a version of retirement that looks fine on paper right up until it does not. The portfolio is healthy, Social Security is in place, and expenses feel manageable. Then the required minimum distributions begin, and what looked like a comfortable income picture becomes a tax problem nobody fully anticipated.

Required minimum distributions are mandatory annual withdrawals from tax-deferred retirement accounts, including traditional IRAs, 401(k)s, and 403(b)s. The IRS requires that distributions begin at age 73 (for those born in 1959 or earlier and 75 for those born after 1960), and the amount is calculated each year by dividing the prior December 31 account balance by a life expectancy factor from IRS distribution period tables.

Unlike most financial decisions in retirement, this one does not wait for a convenient market environment or a good time in the tax calendar.

Why RMDs Catch Retirees Off Guard

The problem is not that RMDs are complicated, it is that they tend to arrive at the same time as other income sources already in place. A retiree receiving Social Security and drawing from a pension or brokerage account may feel their income is planned out. What they have not accounted for is that the RMD layered on top is treated as ordinary income, taxed at whatever rate applies to the total.

For a retiree with a $1 million IRA balance at 73, the RMD is calculated using a distribution period of 26.5 from IRS tables, producing a required withdrawal of roughly $37,736. At 75, the distribution period shrinks to 24.6, and the same balance, if it has grown, generates a larger required withdrawal.

By 80, the distribution period is 20.2, and by 85 it is 16.0. Each year the denominator gets smaller, and the required withdrawal gets larger, even as the account continues compounding. The cascading effect pushes taxable income higher across the retirement years when many people assume their tax situation should be settling down.

Higher taxable income from RMDs can cause more Social Security benefits to become taxable, up to 85% of the benefit at certain income thresholds. It can trigger IRMAA surcharges on Medicare Part B and Part D premiums. And it reduces eligibility for certain deductions and credits that phase out at higher income levels. One required distribution does not just raise one number, it can move several at once.

Starting the Planning Process Earlier

The most effective window for managing future RMD exposure is the period between retirement and age 73, particularly the years before Social Security begins. During that gap, taxable income is often at its lowest point in decades, creating room to act.

Roth conversions are the primary tool that most financial planners point to here. Converting a portion of a traditional IRA to a Roth account in a lower-income year moves money out of the pool that will eventually generate RMDs. Roth accounts are not subject to RMDs during the account owner’s lifetime, and qualified distributions are not counted in taxable income or MAGI. A retiree who converts meaningful amounts for several years in the early retirement window can significantly reduce the traditional IRA balance that will be producing mandatory withdrawals at 73 and beyond.

The conversion amount is taxable in the year it occurs. The calculation is whether paying tax now at a known rate is preferable to paying tax later at an unknown rate on a larger balance. For retirees who expect their income to rise as RMDs grow, or who expect tax rates to increase over time, the conversion often comes out ahead. This planning tends to work best with a tax professional running the actual numbers.

Qualified charitable distributions offer a second path for retirees already past age 70 and a half. A QCD allows a direct transfer from a traditional IRA to a qualified charity of up to $108,000 per year, satisfying part or all of an RMD without the amount counting as taxable income. For retirees who give to charity regularly, routing the gift through a QCD rather than taking the distribution and then writing a check produces the same charitable outcome without adding to gross income.

Still working at 73 or beyond is a third factor worth noting. A retiree still employed and participating in their current employer’s plan may be able to delay RMDs from that specific plan until actual separation from service. This does not apply to IRAs or plans from former employers, but it can defer part of the RMD calculation for retirees who continue working past the standard starting age.

What a Better RMD Plan Looks Like

A large traditional IRA balance at 73 is not a problem in isolation, but it becomes one when it generates mandatory income on top of everything else a retiree is already receiving, with no room to absorb it without moving into a higher bracket or triggering secondary consequences.

Planning ahead means building a retirement income strategy that treats RMDs as a predictable feature, not an afterthought. Running projections on what required withdrawals will look like at 75, 80, and 85 before they begin gives retirees a realistic picture of their future tax exposure.

For many people, taking voluntary distributions or completing Roth conversions in the years before 73 is the most direct way to keep that picture manageable. The goal is not to avoid taxes entirely, but to spread them more evenly across retirement rather than concentrating them at the worst possible time.

Contact [email protected] for any questions or corrections.