Managing RMDs Before They Manage You
Managing RMDs Before They Manage You
Most people with significant retirement savings aren't thinking about Required Minimum Distributions until they're staring down age 73. By then, the window to do something meaningful has largely closed. The accounts are large. The withdrawals are mandatory. And the tax bill is whatever it is.
That's the wrong way to approach this. RMDs are one of the most predictable events in retirement planning — and predictable problems are the ones you can actually solve, if you start early enough.
What RMDs Actually Are
When you contribute to a traditional IRA or 401(k), you defer taxes. The money grows without being taxed, which is the whole point. But the government isn't forgiving that tax bill — it's just waiting. Starting at age 73, the IRS requires you to begin withdrawing a minimum amount from those accounts each year, whether you need the money or not. That withdrawal is fully taxable as ordinary income.
The amount is calculated by dividing your prior year-end account balance by an IRS life expectancy factor. The older you get, the shorter that divisor becomes — and the larger your required withdrawal grows as a percentage of the account. At 73, the factor is 26.5. By 85, it's down to 16. By 90, it's 12.2. The withdrawals keep climbing even as the account balance may be shrinking.
Fail to take your RMD, and the penalty is 25% of the amount you should have withdrawn. That's in addition to the income tax you'd owe anyway.
The Problem Gets Bigger Over Time — Literally
Here's what makes this more than a compliance issue: for people with large pre-tax balances, the RMD problem compounds. If your account continues to grow — because you don't need the withdrawals for living expenses — your future RMDs grow too. You end up being forced to recognize income you didn't ask for, at a rate you may not have planned for.
Consider someone with $3 million in pre-tax retirement accounts at age 65. They're retired, drawing a 4% withdrawal rate from a $2 million brokerage account instead, and letting the IRA sit and grow in a 60/40 portfolio. That seems sensible. But here's what happens to those accounts over time:
| Age | Pre-Tax Balance | IRS Factor | Annual RMD | Monthly RMD |
|---|---|---|---|---|
| 73 | $4,320,000 | 26.5 | $163,019 | $13,585 |
| 75 | $4,580,000 | 24.6 | $186,179 | $15,515 |
| 80 | $4,820,000 | 20.2 | $238,614 | $19,885 |
| 85 | $4,600,000 | 16.0 | $287,500 | $23,958 |
| 90 | $4,100,000 | 12.2 | $336,066 | $28,006 |
That's not a typo on the age-90 figure. A 60/40 portfolio with a 4% withdrawal rate from the brokerage account continues to grow the IRA for years, and the mandatory withdrawals at 80, 85, and 90 are generating over $200,000–$330,000 per year in taxable income — income this person may not need and didn't ask for.
The Hidden Costs Nobody Warns You About
The income tax on the RMD itself is the obvious cost. But large RMDs trigger a cascade of secondary consequences that catch many retirees off guard.
Medicare IRMAA surcharges. Medicare Part B and Part D premiums are income-dependent, based on your MAGI from two years prior. At $163,000 in RMD income alone — before Social Security, interest, or dividends from the brokerage account — a single filer is well into IRMAA territory. In 2025, the highest IRMAA tier adds over $400 per month to Part B premiums alone. That's $4,800 per year on top of what you'd otherwise pay, and it keeps going up as RMDs grow.
Social Security taxation. Up to 85% of Social Security income becomes taxable once provisional income crosses certain thresholds — and those thresholds have never been adjusted for inflation since they were set in the 1980s. A large RMD almost certainly triggers maximum Social Security taxation for anyone with meaningful benefits.
The tax torpedo. In certain income ranges, effective marginal tax rates — once IRMAA, Social Security phase-ins, and other provisions are combined — can be significantly higher than the nominal bracket suggests. A dollar of additional RMD income can cost more than a dollar in combined taxes and surcharges. This isn't a loophole or an edge case; it's a known feature of the tax code that hits hardest at RMD-level incomes.
The Window That Closes at 73
Here's the part that matters most: the best time to address a growing RMD problem is during the years before RMDs begin. For most retirees, that means the window between leaving work and turning 73 — often a period when income is lower than it was while working, and significantly lower than it will be once RMDs start arriving.
That window is the opportunity. It doesn't stay open forever.
In the scenario above, the person retires at 65 with $3 million in pre-tax accounts. They have eight years before RMDs begin. During those years, their taxable income may be modest — maybe just Social Security and some brokerage dividends. Those are years when it's possible to move money from pre-tax to Roth at a relatively low tax cost, systematically reducing the balance that will eventually be subject to mandatory withdrawals.
Tom and Linda are both 65 and recently retired. They have $3 million in traditional IRA and 401(k) accounts and $2 million in a brokerage account. They're living comfortably on a 4% withdrawal rate from the brokerage — about $80,000 per year — and not touching the IRA at all.
Their taxable income right now is low. Social Security won't start for a few more years, and they're drawing from a taxable account rather than their IRAs. That means they're in the 22% bracket with room to spare.
If they do nothing, the IRA grows to roughly $4.3 million by 73, and their RMDs push them into the 32% bracket or higher from day one — with IRMAA surcharges on top. If they instead convert $150,000 per year from pre-tax to Roth during those eight years, they reduce the eventual RMD balance by over $1.2 million and cut future mandatory income significantly. The tax paid during conversions is real, but it's paid at 22% rather than 32% — on money they would have been taxed on eventually anyway.
The Roth accounts also pass to their heirs income-tax-free, which changes the estate picture meaningfully.
Strategies Worth Knowing
Roth conversions during the gap years. The most powerful lever available before RMDs begin. Convert enough each year to fill up your current bracket without crossing into the next one. Done consistently over several years, this can materially reduce the account balance that generates mandatory withdrawals — and the taxes that come with them.
Qualified Charitable Distributions. Once you reach age 70½, you can direct up to $108,000 per year (in 2025, indexed to inflation) straight from your IRA to a qualified charity. The distribution counts toward your RMD but is completely excluded from taxable income. For charitably inclined retirees who don't itemize — which is most retirees — this is a significantly more efficient way to give than writing a check.
Drawing down the IRA first. If you have both a taxable brokerage account and a large pre-tax IRA, it's not automatically the right move to spend the brokerage first. Spending some pre-tax dollars early — when you're in a lower bracket — can reduce the balance that generates RMDs later, at a lower tax cost than if you waited.
What This Means for the Brokerage Account
The $2 million brokerage account in this scenario creates a second layer of planning complexity that's worth naming. Gains in that account will eventually be subject to capital gains tax — either during the owner's lifetime or, depending on the estate plan, when inherited. But long-term capital gains rates are significantly lower than ordinary income rates, and the step-up in basis at death eliminates embedded gains for heirs entirely.
That means the pre-tax IRA — not the brokerage — is generally the higher-priority account to reduce through conversions or strategic withdrawals. The brokerage's after-tax nature and favorable rate treatment make it a better candidate to hold (and potentially pass on) than to spend down aggressively. This is a key piece of the sequencing question that gets overlooked when retirees default to drawing from taxable accounts first simply because it feels more conservative.
The Honest Summary
RMDs aren't surprising. The age is known. The formula is public. The tax consequences are calculable years in advance. The only variable is whether you've done anything about them while you still could.
For someone with $3 million in pre-tax accounts at 65, the choice to do nothing is itself a decision — one that likely means paying six figures per year in taxes on mandatory withdrawals for the rest of their life, at rates higher than they're paying today, on income they may not even need. That's a solvable problem. But the window closes faster than most people expect.
If you're in your 60s and haven't had a serious conversation about what your RMDs will look like at 75, 80, and 85 — you should.
Want to know where you stand? If you have significant pre-tax retirement savings, it's worth running the projections now — while there's still time to act. A one-hour conversation can clarify whether a Roth conversion strategy makes sense for your situation.
Book a Free ConsultationEric Niergarth is a CFP® and fee-only financial planner in San Diego. Retirement Roadmap Financial Planning works with retirees on tax-focused retirement strategies. Nothing here constitutes tax or legal advice — but it's a good starting point for a conversation. RMD projections are illustrative and based on assumed rates of return; actual results will vary.
