The RMD Tax Bomb Is Built Years Before It Hits

How a Required Minimum Distribution Actually Gets Built

Most people treat required minimum distributions as something that happens to them at 73. Take the withdrawal, pay the tax, move on. That framing treats RMDs as a fixed cost of having saved well, and it's wrong in a way that costs real money.

An RMD isn't an event. It's the output of a calculation: your pre-tax account balance divided by an IRS life expectancy factor. At 73, that factor is 26.5. The larger your pre-tax balance is in the year you turn 73, the larger the mandatory withdrawal, and the more ordinary income the IRS forces you to report in a single year, alongside Social Security and everything else you're bringing in.

For people who have been saving diligently and compounding for decades, the balance at 73 is often meaningfully larger than they expected. Nobody addressed the pre-tax balance in the years leading up to it, so the IRS hands them a forced withdrawal they may not need and taxes it as ordinary income in the same year as Social Security.

The Triple Tax Cascade

A large RMD rarely shows up as one isolated problem. It tends to hit three places at once.

• It can push you into a higher marginal tax bracket.
• It can trigger IRMAA — the income-related adjustment that raises Medicare Part B and Part D premiums.
• It can cause up to 85% of your Social Security benefit to become taxable, a threshold many retirees don't expect to cross.

The 2026 IRMAA thresholds for individuals: below $109,000 in income, the standard Part B premium is $202.90 a month. Cross $109,000 and it jumps to $284.10. Cross $137,000 and it's $405.80. Cross $171,000 and it's $486. At $205,000 and above, it's $689.90 a month. For married couples filing jointly, those thresholds are roughly doubled.

IRMAA has a two-year lookback: your Medicare premium is based on your income from two years earlier. That means the RMD that hits at 73 is setting the IRMAA tier you'll be paying at 75. Once you're inside a surcharge tier, it compounds forward across both Part B and Part D. For a married couple with sustained RMD exposure, that can add $6,000 to $12,000 a year in Medicare surcharges on top of the income tax from the RMD itself.

The Window That Closes at 73

Here's the part that matters: the tax bill at 73 was built in the years before 73, every year pre-tax dollars sat in an IRA or 401(k) without any tax-diversification strategy applied to them. Which means the fix is also in the years before 73 — specifically, the window between retirement and the year RMDs begin.

The tax at 73 was built in the years before 73. The RMD is just when that gap becomes visible.

Retirement typically starts somewhere between 62 and 67. Income often drops sharply in that stretch — Social Security hasn't started yet, earned income is gone or reduced, and if you're drawing from Roth or taxable accounts, reportable income is low. For a lot of retirees, that creates several years of unusually low marginal tax rates — a window where converting pre-tax IRA money to Roth at a 12% or 22% rate beats letting it compound toward a forced distribution taxed at 32% or 35% a decade later.

Every year that window goes unused, the IRA balance grows larger, the projected RMD grows larger, and the eventual tax bill compounds along with it. The window closes permanently the year RMDs begin — whether it was used or not.

James: What Happens If the Window Goes Unused

James is 64, recently retired, with $1.1 million in a traditional IRA, $85,000 in a Roth, and Social Security of $34,000 a year starting at 66. His annual expenses are $72,000, and he's drawing about $38,000 a year from the IRA to bridge the gap until Social Security starts.

Left alone, his IRA is projected to grow to $1.28 million by 73 — the balance still grows because the account's return exceeds his draw rate. His first mandatory RMD: $1.28 million divided by 26.5, or $48,300.

At 73, James's income picture is his $34,000 Social Security plus his $48,300 RMD — $82,300 in combined income. At that level, up to 85% of his Social Security becomes taxable, adding $28,900 of previously untaxed income into the calculation. After standard deductions, his effective taxable income is around $77,000, putting him in the 22% marginal bracket. He isn't over the first IRMAA threshold yet, but a year with a large discretionary withdrawal on top of the RMD — a roof, a car, a vacation — could push him across it. The federal tax on the RMD alone comes to roughly $10,400, an effective rate of about 21% once the Social Security inclusion is factored in.

What Nine Years in the Window Changes

Between 64 and 66, before Social Security starts, James's taxable income is low — just the $38,000 he's drawing to bridge the gap. In that window, he can convert $35,000 to $40,000 a year from the IRA to Roth at a 12% marginal rate without approaching the 22% bracket.

Converting $38,000 a year for nine years, from 64 to 73, moves $342,000 total — all of it taxed at 12% to 22% instead of compounding toward a forced distribution later. His projected IRA balance at 73 drops to $890,000 instead of $1.28 million. The math on the first RMD changes with it: $890,000 divided by 26.5 is $33,600, instead of $48,300.

At $33,600 in RMD plus $34,000 in Social Security, James stays in the 12% bracket, keeps less of his Social Security taxable, and stays clear of the IRMAA thresholds. The conversion window reduced his annual RMD by $14,700. Over a 20-year RMD period, that's more than $290,000 in distributions — and the tax on them — that simply never happen.

James's situation isn't unusual. A large IRA, an open planning window nobody used, and a projected RMD nobody modeled until it was close enough to feel urgent — that's the norm, not the exception.

What an Unused Window Costs in Silence

Run the unused-window version forward and the cost shows up gradually, with nothing urgent ever happening.

From 64 to 66, James draws $38,000 a year from the IRA at a 12% marginal rate — about $4,560 a year in federal tax, roughly $9,100 across the two-year bridge. Manageable. From 66 to 73, Social Security starts, his IRA draw drops, and the account grows faster than it's withdrawn. The conversion window is still open, but nothing forces action, so nothing happens.

At 73, the first RMD lands at $48,300, combines with Social Security, and triggers the Social Security inclusion formula — federal tax on the RMD of about $10,400. By 75, the RMD has grown to roughly $51,000, crossing the first IRMAA tier and adding an estimated $839 a year in additional Medicare premiums. By 80, the RMD reaches about $62,000 a year, partly because the IRS life expectancy factor shrinks as you age, and James is firmly in the 22% bracket with ongoing IRMAA exposure.

Across a 20-year RMD period, from 73 to 93, the cumulative federal tax on distributions James didn't need and didn't choose comes to roughly $190,000. IRMAA surcharges over the same period add about $50,000. Total avoidable cost: approximately $240,000 — not lost to a market downturn, just paid in full on income nobody planned for, built quietly across nine years of an unused conversion window and twenty years of forced distributions that followed.

This article is for general informational and educational purposes only and does not constitute financial, tax, legal, investment, or Social Security advice. It is not a recommendation to buy or sell any product. Examples are hypothetical illustrations, not predictions of any individual result. The Income Standard is the educational platform of Long Financial Services, LLC (LFS), a licensed insurance agency operating across the United States. Insurance products are offered by independently licensed insurance professionals offering fixed insurance and annuity products only. Securities and investment advisory services, where applicable, are offered through an independently registered investment adviser, separate from LFS. This is not legal, tax, investment, or Social Security advice.