RMDs and Roth Conversions: The Tax Strategy Most Retirees Miss
The years between retirement and age 73 are a golden window for tax-efficient Roth conversions.
Most retirement advice focuses on saving money. Far less attention is paid to the equally important question of how to withdraw it tax-efficiently. Required Minimum Distributions and Roth conversions are two sides of the same coin — and understanding them together can save retirees tens of thousands of dollars in taxes.
The core idea
Pre-tax retirement accounts (Traditional 401(k) and IRA) require you to start taking mandatory withdrawals at age 73. These forced withdrawals are taxed as ordinary income and can push you into higher brackets. By strategically converting some of that money to Roth accounts during low-income years before RMDs begin, you can permanently reduce your tax burden.
What Are Required Minimum Distributions?
RMDs are the minimum amounts the IRS requires you to withdraw each year from Traditional IRAs, 401(k)s, 403(b)s, and other pre-tax retirement accounts starting at age 73 (under SECURE 2.0, effective 2023). The amount is calculated by dividing your account balance by a life expectancy factor from the IRS Uniform Lifetime Table.
RMD = Account Balance ÷ Life Expectancy Factor
| Age | Life Expectancy Factor | RMD % of Balance | RMD on $500,000 |
|---|---|---|---|
| 73 | 26.5 | 3.77% | $18,868 |
| 75 | 24.6 | 4.07% | $20,325 |
| 80 | 20.2 | 4.95% | $24,752 |
| 85 | 16.0 | 6.25% | $31,250 |
| 90 | 12.2 | 8.20% | $40,984 |
Notice how the percentage increases each year — the IRS wants you to draw down the account over your remaining lifetime. By your late 80s and 90s, RMDs can force very large taxable withdrawals.
The penalty for missing an RMD
If you fail to take your full RMD, the IRS imposes a 25% excise tax on the amount not withdrawn (reduced from the previous 50% penalty by SECURE 2.0). If corrected within two years, the penalty drops to 10%. This is one of the harshest penalties in the tax code.
Why RMDs Are a Problem for Retirees
RMDs create several cascading tax problems that go beyond the income tax itself:
- Higher tax brackets — Large RMDs can push your marginal rate from 12% to 22% or even 24%, costing thousands in extra tax.
- Social Security taxation — RMD income counts toward "combined income," potentially making up to 85% of your Social Security benefits taxable.
- IRMAA surcharges — If RMDs push your MAGI above certain thresholds, you pay significantly more for Medicare Part B and Part D premiums.
- Net Investment Income Tax — High RMDs can trigger the 3.8% NIIT on investment income if your MAGI exceeds $200K (single) or $250K (married).
- Loss of deductions — Higher AGI can phase out certain deductions and credits.
The Roth Conversion Window
The years between retirement (when your earned income drops) and age 73 (when RMDs begin) represent a golden window for Roth conversions. During this period, many retirees find themselves in an unusually low tax bracket — often the lowest they will experience for the rest of their lives.
By converting Traditional IRA or 401(k) money to a Roth IRA during these low-income years, you pay tax at today's low rate to permanently avoid forced taxable distributions later. Once money is in a Roth, it grows tax-free and has no RMDs.
The shrinking window
If you retire at 60, you have roughly 13 years before RMDs begin at 73. If you retire at 65, you have about 8 years. The earlier you retire (or the earlier you start planning), the more time you have to execute conversions in low tax brackets.
How Roth Conversions Work
A Roth conversion moves money from a Traditional IRA or 401(k) into a Roth IRA. The converted amount is added to your taxable income for the year. Here is a simplified process:
Calculate your tax headroom
Determine how much income you can add before jumping to the next tax bracket. In 2026, the 12% bracket for single filers ends at $50,400 and the 22% bracket ends at $105,700.
Convert up to the bracket ceiling
Move that amount from your Traditional IRA to your Roth IRA. Your brokerage can do this as a trustee-to-trustee transfer.
Pay the tax from non-retirement funds
Critical: pay the income tax from a taxable account, not from the converted amount itself. This maximizes the money that ends up in the tax-free Roth.
Repeat annually
Each year during your conversion window, reassess your income and convert up to the optimal bracket. Consistency over multiple years is the key.
IRMAA: The Hidden Medicare Tax
Income-Related Monthly Adjustment Amount (IRMAA) is a surcharge on Medicare Part B and Part D premiums for higher-income beneficiaries. The thresholds are based on your Modified Adjusted Gross Income from two years prior. Large RMDs — or poorly timed Roth conversions — can trigger these surcharges.
| Single MAGI | Married MAGI | Part B Monthly Surcharge (2026) | Part D Monthly Surcharge (2026) |
|---|---|---|---|
| ≤ $109,000 | ≤ $218,000 | $0 | $0 |
| $109,001–$137,000 | $218,001–$274,000 | +$81.20 | +$14.50 |
| $137,001–$171,000 | $274,001–$342,000 | +$202.90 | +$37.50 |
| $171,001–$205,000 | $342,001–$410,000 | +$324.60 | +$60.40 |
| $205,001–$500,000 | $410,001–$750,000 | +$446.30 | +$83.30 |
| > $500,000 | > $750,000 | +$487.00 | +$91.00 |
When planning Roth conversions, always check IRMAA thresholds. A conversion that saves you $3,000 in future RMD taxes but triggers $5,000 in IRMAA surcharges is counterproductive. The sweet spot is converting enough to fill your current bracket without crossing an IRMAA tier.
Worked Example: The Power of Systematic Conversions
Meet Sarah, age 62, newly retired with a $500,000 Traditional IRA and $200,000 in a taxable account. Her Social Security (claimed at 67) will be $24,000/year. She plans to live on taxable account withdrawals and Social Security during the conversion window.
| Strategy | Taxes Paid (Ages 62–90) | RMDs at Age 80 | Roth Balance at 80 |
|---|---|---|---|
| No conversions | $186,000 | $38,600/year | $0 |
| Convert $50K/year (ages 62–72) | $142,000 | $14,200/year | $412,000 |
| Convert $40K/year (ages 62–72) | $148,000 | $19,800/year | $328,000 |
By converting $50,000 per year for 11 years, Sarah pays $44,000 less in lifetime taxes and cuts her RMDs at age 80 by more than half. Her Roth balance of $412,000 continues to grow tax-free with no mandatory withdrawals.
Why $50K per year?
Sarah's other income (Social Security + small capital gains) is roughly $30,000. Adding a $50,000 conversion brings her total to $80,000 — comfortably within the 22% bracket. Converting more would push income into the 24% bracket, where the marginal benefit diminishes. The optimal amount varies each year based on actual income.
The Bottom Line
RMDs and Roth conversions represent one of the largest tax planning opportunities available to retirees, yet most people ignore it until it is too late. The key insight is simple: pay taxes when your rate is low to avoid paying more when your rate is high. The conversion window between retirement and age 73 is your best chance to execute this strategy. Even partial conversions — filling up the 12% or 22% bracket each year — can save tens of thousands of dollars over a retirement spanning decades.
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