The tax bill that arrives at 73

For most of your working life, a traditional IRA or 401(k) was a good deal. You contributed money before paying taxes on it. The IRS left it alone, letting it compound year after year. In exchange for that deferral, you made an implicit promise: eventually, you'd pay the tax.

At age 73, the IRS calls in that promise.

Required minimum distributions — RMDs (the withdrawals the IRS requires once you turn 73) — force you to take money out of pre-tax retirement accounts each year, whether you need it or not. Every dollar that comes out is ordinary income, taxed at your marginal rate. You can't leave it to compound indefinitely, and you can't pick a more convenient year.

This isn't a surprise. The rules have been in place for decades. What surprises people is how large the distributions can become, how quickly they grow, and how many other costs they can trigger. Understanding how RMDs work — well before they start — gives you meaningful planning time.

The core idea: the government wants its share

The IRS allowed you to defer income tax on your retirement savings for 30 or 40 years. RMDs are the mechanism that ensures that deferral eventually ends. The government isn't willing to let pre-tax accounts grow tax-free forever; at some point it requires the income to be recognized.

The amount you must take is calculated from two inputs: your account balance and a life expectancy factor tied to your age. The factor comes from the IRS's Uniform Lifetime Table — a standardized actuarial schedule.

RMD = account balance ÷ life expectancy factor

That's the formula. The factor at age 73 is 26.5. The factor decreases each year, meaning the percentage of the account you must withdraw increases as you age.

A worked example

With $1,000,000 in a traditional IRA at age 73, your first RMD is:

$1,000,000 ÷ 26.5 = $37,736

That's roughly 3.8% of the account in year one — not enormous, but it's ordinary income. It layers on top of Social Security, pension payments, and anything else you have coming in.

Now notice what happens in subsequent years.

The balance you used for year-one was $1,000,000. The remaining balance after the RMD is roughly $962,264. But that remaining money keeps growing. If your portfolio earns 7%, the balance by the following December 31 is about $1,029,623. The second-year RMD uses a smaller factor (25.5 at age 74):

$1,029,623 ÷ 25.5 = $40,377

The RMD grows — because the balance grows faster than the distributions draw it down. Retirees with large balances and healthy portfolio returns are sometimes startled to find their RMDs increasing year over year rather than declining. With a large enough balance, RMDs can continue rising well into their eighties.

How RMDs interact with the rest of your tax picture

RMDs are ordinary income. They don't come in isolation — they stack on top of everything else. That stacking produces effects that go beyond the simple income tax on the distribution itself.

Social Security taxation. Up to 85% of your Social Security benefit can become taxable, depending on your combined income. The threshold for that taxation is based on a concept called provisional income — essentially, your other income plus half your Social Security. A large RMD can push provisional income above the threshold and make a significant portion of your Social Security benefit taxable for the first time, or increase how much of it is taxed.

IRMAA surcharges. Medicare Part B and Part D premiums are income-based. Above certain income thresholds, the income-related adjustment amounts (IRMAA) add hundreds of dollars per person per year to your Medicare costs. These surcharges are assessed based on your Modified Adjusted Gross Income (MAGI) from two years prior — so an RMD in year one raises your Medicare premiums starting two years later. The jumps happen at specific thresholds, and crossing one by a dollar triggers the full surcharge for that tier.

Tax bracket creep. A large RMD can push you from a lower bracket into a higher one. A couple who carefully managed income to stay in the 12% or 22% bracket may find themselves in the 24% or higher bracket once required distributions begin and compound year over year.

None of this is inevitable. What makes it manageable — or not — is the size of the pre-tax balance when RMDs start. That size is directly shaped by decisions made in the years before 73.

The conversion window: planning before RMDs start

If you have traditional IRA or 401(k) balances, the years between retirement and age 73 are a planning opportunity that closes and doesn't come back. The people who make the most of this window tend to have meaningfully lower tax costs in their eighties and nineties than those who arrive at 73 with large untouched balances.

Roth conversions. Moving money from a traditional account to a Roth is a taxable event in the year of conversion — but it permanently reduces the pre-tax balance that will be subject to future RMDs. Every dollar converted is a dollar that won't show up as forced income later, and won't compound the IRMAA and Social Security taxation effects.

Conversions are most effective when done at lower marginal rates: years before Social Security begins, years with lower income from other sources, years where you have room in a lower bracket. Converting at 22% now to avoid forced distributions at 24% or higher later is not unusual.

Roth accounts also carry no lifetime RMDs — they pass to beneficiaries untouched — which means conversions benefit not just your own tax situation but also the surviving spouse and ultimately your heirs.

Qualified charitable distributions (QCDs). If you're 70½ or older and charitably inclined, QCDs allow you to direct up to $108,000 per year (2026 limit, indexed for inflation) from an IRA directly to a qualified charity. The amount transferred doesn't count as income — it doesn't appear in your adjusted gross income, doesn't trigger Social Security taxation, and doesn't count toward IRMAA thresholds.

For retirees who give regularly, using QCDs to satisfy part of an RMD is one of the most tax-efficient strategies available. Donating $10,000 from an IRA directly to charity via a QCD saves more in taxes than taking the $10,000 as income and writing a check separately.

The decision: how much to convert, and when

There's no universal optimal conversion strategy. The right pace depends on your balance size, income from other sources, current marginal rate, and — critically — the tax situation of any surviving spouse.

The case for converting more aggressively: Larger balances generate larger RMDs. If a surviving spouse will face the same income stream but file as single, their brackets are narrower and their IRMAA exposure is higher. Converting now at joint rates prevents a worse outcome for the survivor later. The next guide covers this in detail.

The case for moderation: Conversions are fully taxable in the year done. Converting too much in a single year can push you into a higher bracket, trigger IRMAA surcharges on current Medicare premiums, or make more of your Social Security taxable right now. The goal is usually to fill a lower bracket without crossing into a higher one — not to convert everything as fast as possible.

The case for using QCDs: If charitable giving is already part of your plan, routing IRA distributions through a QCD is almost always more efficient than taking the distribution as income and donating from after-tax dollars. The math strongly favors QCDs for regular givers.

Common mistakes

  • Doing nothing until forced. Retirees who don't plan often arrive at 73 with large untouched pre-tax balances and no remaining conversion window. The opportunity to convert at lower rates expires; it cannot be recreated.
  • Ignoring IRMAA thresholds. Crossing an IRMAA tier by a small amount adds substantial Medicare surcharges — for two years. Staying just below a threshold is worth real money, and it takes deliberate income management in the RMD years.
  • Forgetting that inherited IRAs have different rules. Under SECURE 2.0, most non-spouse beneficiaries must fully distribute an inherited IRA within 10 years of the original owner's death. Conflating inherited IRA rules with your own account rules is a common and sometimes costly error.
  • Not taking the RMD. Missing a required distribution triggers a 25% excise tax on the shortfall (reduced to 10% if corrected promptly). This is not a small penalty. The IRS does not waive it for first-time errors without a correction process.
  • Underestimating RMD growth. Many retirees assume RMDs will be a modest, roughly flat number. For large balances in growing portfolios, distributions can increase materially year over year — compounding the IRMAA and bracket effects over time.

Run your numbers →

Run your numbers →

Enter your IRA balance, expected growth rate, and starting age. The calculator projects each year's required distribution and the remaining balance, so you can see how the distributions evolve over time and what the cumulative tax exposure looks like.

This is educational content about retirement planning concepts, not personalized financial advice.

Keep learning →

RMDs don't just affect you. For married couples, the same RMD income that looks manageable on a joint return becomes much more expensive once a spouse dies and the survivor must file alone. That's the subject of the next guide.