For many retirees, a Required Minimum Distribution, or RMD, sounds harmless. After all, it is simply money being moved from an IRA or retirement account into the retiree’s checking account. But there are less obvious cost that many retirees discover only after they are already in retirement: an RMD can create a chain reaction of additional taxes and higher Medicare premiums.
Starting generally at age 73 (75 for those born in 1960 or later), retirees must begin taking RMDs from traditional IRAs and many employer-sponsored retirement plans. Those distributions are generally taxable as ordinary income.
The problem is that an RMD doesn’t exist in isolation.
One Dollar of RMD Income Can Create Several Dollars of Cost
The IRS uses a formula that considers one-half of Social Security benefits plus other income to determine whether Social Security is taxable. Depending on filing status and income, up to 85% of Social Security benefits can ultimately be included in taxable income. This creates an important phenomenon: taking additional money from an IRA can cause more of your Social Security benefit to become taxable. So the retiree may experience a double effect. The RMD itself is taxable, and the RMD may cause additional Social Security benefits to become taxable.
RMDs Can Also Trigger IRMAA Surcharges
Medicare has an income-based premium system known as IRMAA—the Income-Related Monthly Adjustment Amount. Medicare uses a retiree’s modified adjusted gross income to determine whether higher Part B and Part D premiums apply.
For 2026, for example, a married couple filing jointly with modified adjusted gross income of $218,000 or less pays the standard Part B premium. Once income crosses that threshold, the couple moves into a higher premium tier. The 2026 Part B total monthly premium rises from $202.90 at the standard level to $284.10, $405.80, $527.50, $649.20 and ultimately $689.90 as income moves through the higher brackets. Part D also carries additional IRMAA charges at higher income levels.
That means an RMD can potentially have consequences far beyond the income tax return.
A retiree who needs only $30,000 from an IRA may nevertheless be required to withdraw $60,000. If that additional income pushes the household across an IRMAA threshold, the retiree can end up paying substantially more for Medicare. And here’s the frustrating part: the retiree may not even need the money.
The Retirement Planning Paradox
This is where RMDs can become fiscally consequential.
During their working years, many people diligently contributed to traditional IRAs and 401(k)s because the contributions were tax-advantaged. The money grew tax-deferred for decades. But tax deferral isn’t tax elimination; eventually the IRS requires the money to come out. If the account has grown substantially, the RMD may be much larger than the retiree’s actual spending needs.
The result can be a retirement income paradox: the more successfully someone saved in tax-deferred accounts, the greater the potential for future taxable income.
That income can affect three different areas simultaneously:
- Federal income taxes on the RMD.
- The taxability of Social Security benefits.
- Medicare Part B and Part D premiums through IRMAA.
In other words, the real cost of an RMD isn’t necessarily the tax rate applied to the distribution. The real cost is the marginal impact of the distribution on the entire retirement tax picture.
Planning Before the RMD Years
This is why retirement income planning should begin well before age 73.
For some retirees, strategically taking withdrawals from traditional retirement accounts before RMDs begin can reduce future account balances and therefore future RMDs. Others may consider Roth conversions (taxable) during lower-income years, since qualified Roth IRA distributions generally aren’t included in the owner’s taxable income and Roth IRAs don’t require lifetime RMDs for the original owner.
The objective isn’t simply to pay the least tax this year.
The objective is to manage the retiree’s lifetime tax burden.
A thoughtful retirement strategy looks at today’s tax bracket, future RMDs, Social Security taxation, Medicare premiums, and the potential tax consequences for surviving spouses and heirs.
The key lesson is simple: RMDs are not just a withdrawal requirement—they are a retirement income planning issue. Waiting until age 73 to address them may mean discovering that a lifetime of tax-deferred savings has created tax consequences that might have been reduced or better managed through earlier planning.
Think about it, start your retirement income planning early, and God bless your efforts! Shaun
“Asset ‘location’ is as important to retirement income planning as asset allocation is to investing.” ~Shaun Scott
“The prudent sees danger and hides himself, but the simple go on and suffer for it.” ~Proverbs 22:3
Disclosure(s): This material is provided for general informational and educational purposes only and should not be construed as individualized investment, tax, legal, or accounting advice. Information regarding Required Minimum Distributions (RMDs), Roth conversions, Social Security taxation, and Medicare premiums, including Income-Related Monthly Adjustment Amounts (IRMAA), is based on current laws, regulations, and published thresholds, which are subject to change.
Tax and retirement planning strategies involve numerous considerations and may not be appropriate for everyone. Roth conversions and retirement account withdrawals generally have tax consequences, and their impact will vary based on an individual’s specific circumstances. Individuals should consult with their tax professional, attorney, and financial advisor regarding their specific situation before implementing any strategy discussed herein.
Any examples provided are hypothetical and for illustrative purposes only and are not intended to represent the circumstances of any specific individual. There is no guarantee that any particular planning strategy will reduce taxes, Medicare premiums, or otherwise achieve a particular outcome.
Old Forge Wealth Management, LLC is a registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training.