A $1.8 Million Portfolio, Two Withdrawal Plans: One Triggers IRMAA and RMD Taxes, One Never Does

A $1.8 million nest egg is a strong finish line, but the account it sits in determines how much of that income actually reaches your checking account. Two retirees with identical balances can end up in very different places once Medicare surcharges and required minimum distributions enter the picture. The withdrawal plan matters more than the balance.

Start with the income math. At a 3.5% yield, $1.8 million produces about $63,000 a year. At 6%, it produces $108,000. At 10%, it produces $180,000. Each of those figures carries a different tax profile depending entirely on where the capital lives.

The Yield Tiers on a $1.8M Base

Conservative tier (3% to 4%). Broad dividend growth equity, quality dividend ETFs, and investment-grade municipals fit here. The 10-year Treasury yield is currently around 4.75%, which places even plain Treasuries near the top of this band. A $1.8 million portfolio at a 3.5% yield produces roughly $63,000 annually with room to grow. Dividend growth compounds over time, principal appreciates, and income disruption risk stays at its lowest.

Moderate tier (5% to 7%). Covered call equity funds, preferred stock funds, REITs, and high-dividend equity occupy this range. At 6%, $1.8 million produces $108,000. The tradeoff: dividend growth flattens, upside is often capped, and real purchasing power lags inflation. That last point carries weight when Core PCE sits in the upper range of its 12-month trend and CPI continues grinding higher.

Aggressive tier (8% to 14%). Leveraged covered call funds, business development companies, mortgage REITs, and high-yield credit live here. At 10%, $1.8 million throws off $180,000. That headline income comes with principal erosion, distribution cuts during credit stress, and an asset base that often shrinks in real terms over a full market cycle.

Plan A: The Pretax Path That Triggers IRMAA and RMDs

Assume the entire $1.8 million sits in a traditional IRA or 401(k). Every dollar withdrawn is ordinary income. Starting at age 73, the IRS forces distributions whether or not the retiree needs the cash. A moderate-tier portfolio yielding 6% generates $108,000 inside the IRA, and every dollar counts toward Modified Adjusted Gross Income.

That MAGI figure drives Medicare’s Income-Related Monthly Adjustment Amount. In 2026, the first IRMAA tier kicks in at $109,000 for single filers and $218,000 for joint filers. Cross that line and Part B and Part D premiums step up immediately. The standard Part B premium is $202.90 per month in 2026, but IRMAA can push that total as high as $689.90 per month for higher earners. Cross additional tiers and the surcharges compound further. At the 22% marginal bracket, which begins at $50,400 for single filers in 2026, a six-figure IRA withdrawal quickly pushes a retiree into the 24% bracket and into IRMAA territory in the same motion. Add the 2.8% 2026 Social Security COLA and the taxable-income creep accelerates. Congress permanently extended the current bracket structure through the One Big Beautiful Bill Act, signed in July 2025, so these thresholds are not going away.

Plan B: The Structure That Sidesteps Both

Now split the same $1.8 million differently: $900,000 in a Roth IRA and $900,000 in a taxable brokerage account holding qualified-dividend equity and municipal bonds. The Roth carries no RMDs and no tax on qualified distributions. The taxable account pays qualified dividends at 0%, 15%, or 20% depending on bracket, and muni interest is federally tax-free.

At a blended 4% yield, this structure produces about $72,000 of annual cash flow. Very little of it lands in MAGI, and none of it is forced. The retiree controls the timing, the character, and the amount of every withdrawal. IRMAA becomes a variable they manage rather than a penalty they absorb.

The Insight Most Retirees Miss

Chasing the aggressive yield tier to boost headline income inside a pretax account is the worst of both worlds: the highest ordinary-income tax rate applied to the least durable income stream. A 3.5% dividend growth portfolio that raises its payout at roughly 8% annually doubles its income in about nine years. A 10% high-yield portfolio with flat or declining distributions stays where it started, or slips.

Account location often matters more than yield selection. Moving $500,000 from a traditional IRA to a Roth over a decade of conversions, executed during lower-income years before RMDs begin, can permanently remove that capital from the IRMAA calculation. With the fed funds rate at a 3.5%–3.75% target range, short-term rates still reward patience, and conversion tax costs can be locked in at known rates before RMD-driven income spikes them higher.

What to Do Next

1. Map every dollar by tax bucket. Separate the $1.8 million into pretax, Roth, and taxable columns. The mix determines IRMAA exposure long before yield selection does.
2. Model Roth conversions before age 73. With the 24% bracket for joint filers running to $394,600, there is often room to convert at a known rate today rather than a higher, unknown rate once RMDs begin stacking on top of Social Security income.
3. Compare after-tax yield, not headline yield. A 6% covered call ETF inside an IRA may net less than a 3.5% qualified-dividend portfolio in a taxable account once IRMAA and ordinary-income rates are applied.

Editor’s note: This update corrects the upper bound of the 2026 24% federal tax bracket for joint filers (from $211,400 to $394,600), refreshes the 10-year Treasury yield to approximately 4.75% and the federal funds target range to 3.5%–3.75%, and adds the 2026 IRMAA first-tier income threshold of $109,000 for single filers and the standard Part B premium of $202.90 per month.

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