RMD Tax Cost: What Required Withdrawals Cost

A $2 million traditional IRA generates a required minimum distribution of roughly $75,472 at age 73—fully taxable as ordinary income, potentially triggering Medicare surcharges on top of the federal income tax bill. Most coverage focuses on the mechanics of required minimum distributions (RMDs). This article focuses on the dollars they cost.

Key Figures at a Glance

Sources: IRS Publication 590-B (2025 edition); IRS Rev. Proc. 2025-32; Centers for Medicare & Medicaid Services (CMS) 2026 Premiums release.

How the RMD Formula Works—and Why It Accelerates

The calculation is mechanical: divide the prior December 31 account balance by the applicable life expectancy factor from the IRS Uniform Lifetime Table (IRS Publication 590-B, Appendix B, Table III). At age 73, that divisor is 26.5—meaning roughly 3.77% of the balance must come out that year. By age 80, the divisor drops to 20.2, pushing the required withdrawal to about 4.95% of balance. At age 90, the divisor reaches 12.2, forcing out roughly 8.2% annually.

What the divisor decline means practically: even if the account grows at 7% per year, the mandatory withdrawal percentage grows faster than growth can offset in late retirement. A $2 million balance at 73 that earns 7% annually becomes roughly $2.07 million a year later—but the required minimum distribution (RMD) at age 74 off a $2.07 million balance (using the divisor 25.5) reaches $81,176. The withdrawals keep rising in nominal terms even as the account eventually begins to shrink.

For high-income earners still drawing a salary or with substantial other retirement income, that rising RMD stream piles onto existing taxable income at the worst possible marginal rates. This is the core cost problem RMDs create for $150k+ households—not just the withdrawal itself, but where on the tax bracket schedule it lands.

The table below shows how the mandatory withdrawal rate escalates across age cohorts, using a $2 million starting balance and 7% annual growth assumption. Balances reflect year-end values before the current year’s RMD.

Divisors: IRS Publication 590-B (2025), Appendix B Table III. Balance and RMD figures calculated for illustration using 7% compounding on prior year ending balance after each year’s RMD; actual results will vary with market returns.

The Three Tax Costs RMDs Actually Trigger

1. Federal Income Tax at Ordinary Rates

Every dollar of RMD from a traditional IRA or 401(k) is taxed as ordinary income—not at capital gains rates. For a married couple filing jointly with $200,000 in other 2026 taxable income (pension, Social Security, wages), a $75,472 RMD from a $2 million IRA lands squarely in the 24% bracket. The 24% bracket begins at $211,400 for MFJ under IRS Rev. Proc. 2025-32, so depending on exact other income, portions of the RMD could spill into the 32% bracket (which starts at $403,550 MFJ). At a blended 24%–32% marginal rate, that single RMD costs $18,113–$24,151 in federal income tax alone.

Contrast that with a household that structured the same accumulation inside a Roth IRA: zero RMD, zero federal income tax on qualified distributions. The Roth vs. traditional 401(k) decision made decades earlier determines whether you’re paying this bill at 73.

2. Medicare IRMAA Surcharges

RMDs raise modified adjusted gross income (MAGI)—the figure the Social Security Administration uses to set Medicare Part B and Part D premiums with a two-year lookback. IRMAA surcharges in 2026 kick in at $218,000 MAGI for joint filers. A couple with $180,000 in pension and Social Security income who adds a $75,472 RMD reaches $255,472 MAGI—landing in the Tier 1 IRMAA bracket. The annual surcharge for Tier 1 in 2026 costs approximately $2,297 per year for a couple both on Medicare (Kiplinger, 2026; Income Laboratory, 2026).

The cliff structure makes this particularly punishing. One dollar above the $218,000 threshold triggers the full Tier 1 surcharge—there is no gradual ramp. A couple at $217,999 MAGI pays nothing extra. At $218,001, they pay $2,297 more. Precise RMD management, including qualified charitable distributions (QCDs), can keep MAGI below these thresholds.

3. Social Security Benefit Taxation

Up to 85% of Social Security benefits become taxable when combined income—defined as adjusted gross income plus nontaxable interest plus half of Social Security benefits—exceeds $44,000 for joint filers. For most $150k+ retirees taking RMDs, 85% of Social Security is already taxable regardless. The incremental harm from RMDs here is less about crossing the threshold and more about the additional taxable income multiplier: more income means the taxable 85% of Social Security hits at a higher marginal rate. A couple receiving $48,000 in annual Social Security benefits has $40,800 of it taxable. That $40,800 doesn’t generate additional tax directly—but it stacks under the RMD income and pushes the RMD itself into higher brackets.

Scenario Analysis: Three Households, Same Account Balance

The dollar cost of RMDs varies dramatically based on other income sources. The three scenarios below use the same $2 million traditional IRA at age 73 (2026 RMD: $75,472), different income profiles, and married filing jointly status throughout.

Tax brackets: IRS Rev. Proc. 2025-32. IRMAA brackets: CMS 2026 Medicare Parts A & B Premiums release; Kiplinger (2026). RMD: $2,000,000 ÷ 26.5 (IRS Pub. 590-B Table III, age 73). Figures are estimates based on MFJ filing; state income tax excluded. Federal tax on RMD calculated at marginal rate; effective rate differs.

The Overlooked Insight: Delay Compounds the Problem

Most discussion of RMD planning centers on how to minimize withdrawals after they begin. The more consequential lever is what happens before age 73—specifically, whether the account balance itself has been reduced through Roth conversion in the years between retirement and the required beginning date.

A household that retires at 62 and defers Social Security until 70 has roughly eight years during which their marginal rate may drop substantially—no wages, no RMDs yet, Social Security not yet in payment. Those eight years represent the lowest-rate window most high earners will ever see. Converting $100,000 per year from traditional IRA to Roth IRA at a 22% rate over that window costs $176,000 in total federal income taxes on $800,000 of conversions. At 24%, the cost rises to $192,000. Either figure is lower than what that same $800,000—grown to over $1.3 million at 7% by age 73—would generate in RMD-driven tax at 32%+ over a decade of mandatory withdrawals.

What the data consistently shows but most RMD coverage misses: the eight-year window between retirement and RMD onset is the single highest-leverage tax planning period for $150k+ retirees. Not the RMD years themselves. By the time RMDs begin, the account balance is fixed; you’re managing the cascade, not preventing it. The backdoor Roth strategy addresses this for those still in accumulation phase; the conversion ladder addresses it post-retirement.

Finluxy Retirement Tax Advantage Score: RMD Context

The Finluxy Retirement Tax Advantage Score calculates the total tax deferred or avoided over a 30-year period from maximizing tax-advantaged accounts, expressed in today’s dollars using a 7% growth assumption at the current marginal rate. For RMD analysis, the score reveals what’s at stake when a traditional pre-tax account converts to a mandatory taxable withdrawal stream—and what alternative structures would have preserved.

*2026 401(k) employee contribution limit: verify at IRS.gov; 2025 limit was $23,500 per IRS; 2026 limit reflects inflation-adjusted figure. Finluxy Retirement Tax Advantage Score formula: (pre-tax contribution × contribution marginal rate) × 7.612 (30-year growth factor at 7%). Score represents present-value equivalent of tax deferred or avoided. If withdrawal marginal rate at RMD age equals or exceeds contribution marginal rate, traditional pre-tax advantage is partially or fully offset by future RMD taxation.

The score does not make the Roth decision automatically superior—it quantifies what the pre-tax account shelters during the accumulation phase and what gets recaptured when RMDs begin. At a 32% contribution rate and a 32% expected withdrawal rate, the traditional advantage is exactly zero on a net basis. At a 32% contribution rate and a 22% withdrawal rate (realistic for earners whose retirement income falls substantially), the traditional structure wins. The Roth vs. traditional IRA comparison and the 401(k) contribution limits strategy both hinge on this marginal rate differential at contribution versus withdrawal.

Strategies That Actually Reduce the RMD Tax Bill

Qualified Charitable Distributions

Taxpayers age 70½ or older can direct up to $111,000 per person per year (2026 limit, per IRS/Fidelity Charitable) from a traditional IRA directly to a qualified 501(c)(3) charity. The QCD satisfies the RMD requirement for that amount but is excluded entirely from adjusted gross income—it never enters the MAGI calculation. For a couple both on Medicare who would otherwise push into an IRMAA bracket, a well-sized QCD can eliminate thousands in premium surcharges while also satisfying philanthropic goals. The transfer must go directly from the IRA custodian to the charity; a distribution taken first and then donated does not qualify.

Roth Conversions Before Age 73

Every dollar converted from a traditional IRA to Roth IRA before the required beginning date reduces the future RMD base permanently. A $500,000 conversion spread across five years eliminates roughly $18,868–$24,752 in annual RMDs by age 73 (using divisors 26.5–20.2). The tax paid on conversion at today’s rate must be weighed against the tax avoided on the future RMD stream—a calculation that depends on current vs. projected withdrawal marginal rates. For those with a clear view that their retirement marginal rate will match or exceed their working rate, the conversion math generally favors acting before age 73.

Account Sequencing

RMDs apply to traditional IRAs, SEP-IRAs, SIMPLE IRAs, and traditional 401(k)s—not to Roth IRAs (original owner) or to taxable brokerage accounts. A retiree who draws first from taxable accounts and Roth IRAs in the early retirement years while allowing traditional accounts to continue compounding is often making a mistake. The math favors spending down taxable accounts and Roth IRAs more slowly, while converting traditional IRA dollars to Roth during lower-income years—specifically to reduce the mandatory withdrawal base. Deferred compensation plan payouts also need to be layered into this sequence, as they hit as ordinary income in the year paid and interact with RMD income.

Delay the First RMD—But Understand the Cost

The IRS allows the first RMD to be deferred until April 1 of the year following the year in which a taxpayer turns 73. That sounds like a free year—it isn’t. Deferring the first RMD to April of year two means two RMDs hit in the same calendar year: the year-one RMD (taken by April 1) and the year-two RMD (due by December 31). Two full RMDs in one tax year can push taxable income substantially higher and trigger IRMAA or a higher marginal rate. The strategy only makes sense in narrow circumstances, such as when year-one income was unusually high due to a one-time event.

For the $150k+ Household: The Real Decision Points

At this income level, RMDs are unlikely to be financially devastating—the accounts are large enough that the mandatory withdrawal isn’t an unwanted burden in itself. The problem is tax efficiency: a pre-tax accumulation machine that delivered 22%–32% savings on contributions during working years can generate 32%–35% taxation on withdrawals in retirement if account balances grow substantially and other income remains high. That marginal rate crossover is where the real cost lives.

The practical threshold to monitor: if traditional IRA and 401(k) balances collectively exceed $2 million entering retirement, the RMD stream starting at 73 will likely exceed $75,000 annually and grow from there. Combined with Social Security and pension income, that frequently pushes the household into the 24%–32% federal brackets—and into IRMAA territory for Medicare. At that level, the employer 401(k) match value calculation and the SEP-IRA contribution limit for self-employed earners both warrant reexamination: maximizing pre-tax contributions may not be optimal if the withdrawal rate will equal or exceed the contribution rate. The defined benefit plan alternative adds another layer of complexity, as those mandatory payout structures also generate RMD-equivalent taxable income.

RMD planning is not a retirement-age problem. The decisions that determine the size of the mandatory withdrawal stream—account type, contribution structure, conversion timing—are made one to three decades earlier. Any $150k+ household not yet at RMD age should be asking, right now, whether their current allocation between traditional and Roth accounts reflects what their retirement marginal rate is actually likely to be—not what it was when they first enrolled in a 401(k).