The Tax Bill Nobody Expects at 73 When Required Distributions Kick In (and How To Avoid It)
When people think of major retirement milestones, the big three tend to be 62, when Social Security eligibility begins; 65, the year of Medicare enrollment; and 67, full retirement age.
However, the decisions that retirees make before a lesser-known but equally consequential age-based landmark could mean the difference of thousands of dollars. At 73, required minimum distributions (RMDs) begin, and retirees must start taking withdrawals from tax-deferred accounts such as traditional 401(k) plans and IRAs.
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Many know to prepare for the tax implications involved with this new income stream, and that’s a good start — but it’s only part of how planning starts getting tricky at 73.
RMDs Can Increase Your Taxable Income
According to Charles Schwab, the IRS requires withdrawals from tax-deferred accounts to begin on April 1 of the year after the account holder turns 73. From year two on, the annual RMD deadline is Dec. 31.
IRS Publication 590-B outlines distribution periods (DPs), a divisor that determines how much of your balance you must withdraw based on your age and life expectancy. At 73, it’s 26.5, and the DP gradually decreases until it reaches 6.4 at age 100.
A 73-year-old with a $500,000 401(k) balance must withdraw $18,867.92 ($500,000/26.5) in year one. This new influx of income could bump you into a higher tax bracket, and even if it doesn’t, it will likely increase your tax bill, which requires some planning that most retirees know to do beforehand.
Many others, however, overlook an associated side effect that could trigger a major and unforeseen secondary expense.
More Taxable Income Could Trigger an IRMAA
Higher-earning Medicare recipients can be charged an Income-Related Monthly Adjustment Amount (IRMAA), a surcharge added to monthly Part B and Part D premiums for those with income above specific thresholds.
For those with incomes on the borderline, RMDs could push them over the threshold, resulting in not only a larger income tax bill but also an IRMAA that can make their monthly Medicare payments much more expensive.
According to the Social Security Administration (SSA), the 2026 modified adjusted gross income (MAGI) thresholds are as follows.
Single Filers, Heads of Households and Married Filing Separately
MAGI: $109,000.01 – $137,000.00
Part B monthly adjustment: $81.20
Part D monthly adjustment: $14.50
MAGI: $137,000.01 – $171,000.00
Part B monthly adjustment: $202.90
Part D monthly adjustment: $37.50
MAGI: $171,000.01 – $205,000.00
Part B monthly adjustment: $324.60
Part D monthly adjustment: $60.40
MAGI: $205,000.01 – $499,999.99
Part B monthly adjustment: $446.30
Part D monthly adjustment: $83.30
MAGI: More than $499,999.99
Part B monthly adjustment: $487.00
Part D monthly adjustment: $91.00
Married Couples Filing Jointly
MAGI: $218,000.01 – $274,000.00
Part B monthly adjustment: $81.20
Part D monthly adjustment: $14.50
MAGI: $274,000.01 – $342,000.00
Part B monthly adjustment: $202.90
Part D monthly adjustment: $37.50
MAGI: $342,000.01 – $410,000.00
Part B monthly adjustment: $324.60
Part D monthly adjustment: $60.40
MAGI: $410,000.01 – $749,999.99
Part B monthly adjustment: $446.30
Part D monthly adjustment: $83.30
MAGI: More than $749,999.99
Part B monthly adjustment: $487.00
Part D monthly adjustment: $91.00
Use Roth Conversions To Reduce RMDs and Avoid IRMAAs
The key to avoiding a sudden increase in taxable income through RMDs, which could trigger an IRMAA, is to reduce the balance of your tax-deferred accounts before age 73. The crucial Roth conversion window is the time between age 62, or whenever you claim Social Security and stop working for regular income, and age 72, just before RMDs begin.
During these years, when income is typically lowest, Schwab suggests gradually converting your tax-deferred accounts to after-tax Roth accounts. You’ll pay taxes on the amount you convert, but you can do so strategically to minimize the tax implications today while reducing RMDs and preventing massive spikes in your Medicare premiums tomorrow.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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