A 67-Year-Old Wants Smaller RMDs From Her $1 Million 401(k), but Moving $200,000 to a Roth Creates a Bill Today
Converting a chunk of a retirement account to a Roth looks like a tax win on paper, but the projection most retirees see hides a bill that arrives before any savings do.
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Imagine a 67-year-old retired person with a fully pretax $1 million 401(k) looking over a projection. One column shows her future required minimum distributions (RMDs) getting smaller after a $200,000 Roth conversion. It looks like a win. What the chart leaves out is the tax she pays this year to get there.
She’s a hypothetical case, but the scenario is quite common. Her problem comes down to two different numbers. A smaller RMD only tells you how much the IRS will force out of the account later. The conversion bill tells you how much leaves her pocket today. Whether she ends up ahead depends on how today’s conversion bill compares with the taxes and other costs she avoids later.
How $200,000 Shrinks Her Future RMDs
Converting $200,000 leaves $800,000 in the pretax account before market moves. Once the converted money sits in a Roth, it stops generating lifetime required distributions for her as the owner.
Her RMDs start at age 73. IRS Notice 2026-13 sets that age for anyone who turns 72 after December 31, 2022, and turns 73 before January 1, 2033.
The IRS Uniform Lifetime Table gives a distribution period of 26.5 at that age. Holding balances constant, the $1 million account would require about $37,736 in her first RMD year.
After the conversion, the $800,000 balance would require $30,189. That’s roughly $7,547 less taxable income she is forced to take that year. Whether those future tax savings outweigh the conversion bill is the real test.
Conversion Tax Hits in a Single Year
IRS guidance says converted pretax dollars count as gross income in the year of the conversion. The full $200,000 lands on top of her pension, Social Security, interest and anything else she reports.
Three things set the price. The first is her other income. The second is how many tax brackets the converted money climbs through. The third is whether the higher income triggers Medicare’s income-related monthly adjustment amounts, which raise both Part B and Part D premiums. Medicare bases those surcharges on tax returns from earlier years, so the bill can show up long after the conversion is done.
How she pays the tax matters just as much. If she pays it with cash she already has outside retirement plans, the full amount keeps growing in the Roth. If she withholds the tax from the conversion itself, the Roth ends up with less money. In that case she pays to lower her RMDs on dollars that never end up protected.
One Big Conversion vs. Smaller Installments
The years before her RMDs begin are her conversion window. IRS guidance says amounts required to be distributed for a year can’t be converted. Once RMDs start, each year’s required amount has to come out before any conversion. Converting earlier avoids that problem.
A fair comparison runs both paths with the same investment returns and equal spending. One path is a single conversion this year. The other is smaller installments spread across the years before 73. Then compare two results: total taxes paid and after-tax assets at the end. Installments often keep more income in lower brackets and under Medicare surcharge levels (the silent years between retiring and the first RMD are the whole subject of our free Roth conversion window guide), but she needs to run the numbers on her own situation.
Social Security belongs in the model. Federal law makes up to 85% of benefits taxable once other income tops legal thresholds, and IRS worksheets count pensions and other taxable income in that test. A large one-year conversion can make more of her benefits taxable that year. Spreading it out can limit how much gets pulled in.
Before running any of it, she should confirm when RMDs begin: age 73 for those born from 1951 through 1959, or 75 for those born in 1960 or later. Her RMD start age determines how many conversion years she actually has. Missing a required distribution can trigger a 25% excise tax on the shortfall, reduced to 10% with timely correction, so the timeline needs to be right.
Judge the Plan by What She Can Spend
The RMD column is the easiest number to reduce and the least useful one to aim at. The real question is simple. After she pays the conversion tax, any Medicare surcharges and any added tax on Social Security, will she have more to spend over her lifetime, or more to leave her heirs, than if she had done nothing?
If the projection can’t answer that, she should ask for a version that shows the tax bill in the year it hits, right next to the RMD savings. That side-by-side view tells her whether to convert $200,000 now, spread it out or keep the money where it is.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
