What Are Required Minimum Distributions? The RMD Rules That Catch Retirees Off Guard

Why Do RMDs Exist in the First Place?

The government gave you a tax break when you contributed to your traditional IRA or 401(k). RMDs are the government collecting on that deferred tax. They're saying: 'You got a deduction going in — now it's time to pay tax on the way out.'

Under SECURE 2.0, the starting age is 73 for people born 1951-1959, and 75 for those born 1960 or later. Before SECURE Act, it was 70.5. This change gives you more years to plan — and more years for potential Roth conversions before RMDs force your hand.

The penalty for missing an RMD used to be 50% of the amount you should have withdrawn. SECURE 2.0 reduced it to 25% (and 10% if corrected within 2 years). Still painful enough to take seriously.

How Are RMD Amounts Actually Calculated?

The formula is straightforward: divide your December 31 account balance by the IRS Uniform Lifetime Table factor for your age. At 73, the divisor is 26.5 — meaning roughly 3.8% of your balance. At 80, it's 20.2 (about 5%). At 90, it's 12.2 (about 8.2%).

The amounts grow faster than most people expect. If you have $1.2 million in tax-deferred accounts at 73, your first RMD is about $45,283. By 80 (assuming 5% growth), the balance might be $1.4 million with an RMD of about $69,307. That's taxable income on top of Social Security and any pension.

One detail that trips people up: RMDs are calculated per account but can be satisfied from any traditional IRA. You don't have to take proportional withdrawals from each account. For inherited IRAs, however, each must satisfy its own RMD.

What Is the Roth Conversion Window Before RMDs?

The years between retirement and RMD start are often the most valuable tax planning window of your entire financial life. I saw this pattern repeatedly as a CFP — clients who used those years strategically saved tens of thousands in lifetime taxes.

Here's why: after you stop working but before RMDs and full Social Security kick in, your taxable income drops. You might be in the 12% or 22% bracket. Converting traditional IRA funds to Roth during these years means paying tax at today's lower rate instead of tomorrow's potentially higher rate.

The analysis engine models this window year by year — showing how much you can convert while staying within a target tax bracket. The goal isn't to convert everything, it's to 'fill up' lower brackets that would otherwise go unused.

How Do RMDs Interact with Medicare Premiums?

This is the hidden cost that blindsides retirees. Medicare Part B and Part D premiums are income-tested through IRMAA (Income-Related Monthly Adjustment Amount). If your modified adjusted gross income exceeds certain thresholds, your premiums increase — sometimes dramatically.

For 2025, the first IRMAA threshold for individuals is about $103,000. A large RMD plus Social Security can easily push you over. The surcharge can add $900-$4,000+ per year per person to your Medicare costs.

The two-year lookback makes this worse: IRMAA is based on your tax return from two years prior. A large Roth conversion in 2026 affects your 2028 premiums. Planning requires looking at least 2-3 years ahead.

Want to See How RMDs Affect Your Specific Retirement Plan?

The analysis at myaifinancialplan.com models your RMD projections year by year — showing the tax impact, IRMAA implications, and Roth conversion opportunities specific to your account balances and income. Start free at myaifinancialplan.com.