The RMD Dilemma: How a Well-Built Nest Egg Can Trigger a Heavy Tax Burden

Saving aggressively can create a serious tax issue once required minimum distributions begin, which is why proactive income planning and careful withdrawals matter if you want to keep more of what you saved.

For years, American workers heard the same advice: put money into a 401(k), take the company match, and leave the account alone.

Many followed that guidance, moving old plans into IRAs and riding out multiple bear markets while building the kind of balances that pensions once supplied.

But at some point in retirement, the rules change. The account that took a lifetime to build suddenly comes with a withdrawal schedule you did not choose. That is the problem at the heart of required minimum distributions, or RMDs.

The better you are at saving in a tax-deferred account, the more likely your RMD becomes a tax issue instead of a source of spending money.

Estimate your first RMD now, even if retirement is years away

RMDs usually start at 73 for people born from 1951 through 1959, and at 75 for those born in 1960 or later. You do not need to wait to get a rough estimate. Take your current traditional IRA and 401(k) balances, divide by 26.5, the IRS Uniform Lifetime Table factor for age 73, and you have a useful estimate of the first required withdrawal: about 3.8% of the balance.

On a $2 million account, that works out to roughly $75,000 in taxable income in the first RMD year, whether you spend the money or not.

Then do the part most people ignore: compare what you actually need each year with what the rules force you to withdraw. A retiree who needs $80,000 but must take $120,000 is not really $40,000 better off; the extra amount just sits in a brokerage account, and the tax return still counts it as income.

That gap is what you need to manage, and it gets larger over time. By age 90, the table factor falls to 12.2, so the same balance produces about 8.2% a year instead of 3.8%.

Figure out which threshold you are most likely to hit first, then work to stay below it.

Instead of trying to follow every rule, identify the one that will affect you soonest. Compare your projected income at RMD age with these benchmarks and see which is closest:

• $44,000 married filing jointly, $34,000 single. Above those levels, up to 85% of Social Security benefits becomes taxable. The lower tier begins at $32,000 and $25,000. These base amounts are set by law and are not indexed, so rising RMDs can push you up the scale permanently.
• $150,000 joint, $75,000 single. Above that modified adjusted gross income, the new deduction for older adults begins to phase out. That deduction adds $6,000 per person age 65 and older, or $12,000 for a couple when both qualify, and is available for a limited period. It is a threshold many retirees do not yet know about.
• $218,000 joint, $109,000 single. Once you cross it, your Part B premium rises from $202.90 a month to $284.10, plus a Part D surcharge. That is roughly $975 per person over the year.

The practical lesson is narrower than it sounds: in any year when you control your income, aim for a number just below the nearest threshold instead of trying to reduce taxes in general. Being $2,000 under $218,000 is more valuable than trimming $2,000 from a middle bracket.

Medicare surcharges are based on a two-year lookback and are determined from the return filed two years earlier. That makes age 63 a real planning deadline, because the income you report then affects your premium at 65.

If a large Roth conversion or property sale is coming, doing it at 62 rather than 63 may keep it out of the calculation altogether.

Roth conversions are the main way to reduce future RMDs, since Roth IRAs are not subject to lifetime distributions for the original owner. But the conversion itself is taxable in the year you do it, so it can trigger every threshold above. Two rules make it easier to manage.

• First, size the conversion around a threshold, not a vague target: converting as much as possible can create an avoidable surcharge.
• Second, once RMDs begin, take the distribution before converting, because an RMD cannot be rolled over or converted.

If you give to charity, consider using your IRA instead of your checkbook.

In 2026, you can direct up to $111,000 per person from an IRA to a qualified charity as a qualified charitable distribution, available starting at age 70½, counted toward your RMD, and excluded from income rather than deducted.

That exclusion is the key benefit. Because the money never enters your adjusted gross income, it does not push you toward the thresholds above, which a cash donation and deduction would not accomplish in the same way.

Two details matter. The transfer must go directly from the custodian to the charity, and donor-advised funds do not qualify. It is better to alert your custodian well before the end of the year rather than waiting until the final days of December.

Think through the survivor tax return before you need it

Take this year’s income and mentally rework it as a single filer: one Social Security benefit instead of two, single brackets, and Medicare thresholds cut roughly in half from the joint levels. The IRA balance and RMD often remain almost the same after one spouse dies, which means the survivor may pay a higher tax rate on less income.

If that exercise pushes the survivor into a higher premium tier, you have a clear reason to consider more Roth conversions now, while joint brackets and joint thresholds are still available. That is the kind of decision to make in your 60s, not something to discover in your 80s.

A $3 million IRA may look better on paper than a $2 million IRA. But if the bigger account leads to larger forced withdrawals, more taxable Social Security, and higher Medicare premiums, the balance by itself does not tell the full story.

The 401(k) generation was judged by how much it could accumulate. In retirement, the real question is how much of it you get to keep.