Retirement Questions · Hypothetical case study
Will Required Minimum Distributions Increase My Taxes?
Patricia Williams’s hypothetical case shows how required withdrawals may affect taxes and retirement savings.
The short answer
They can. Once required minimum distributions (RMDs) begin, you may have to withdraw money from certain retirement accounts even when you do not need it for living expenses. Those withdrawals generally count as taxable income. They can also affect how much of your Social Security is taxable and, for some retirees, Medicare premiums.
An RMD does not automatically push everyone into a higher tax bracket. The impact depends on your income, accounts, age, and tax situation.
Meet Patricia: Planning before RMDs begin
Patricia Williams is 66 and plans to retire at 67. She has $600,000 saved, including $450,000 in traditional retirement accounts, $100,000 in taxable savings, and $50,000 in Roth savings. She expects $30,000 a year from Social Security and plans to spend $48,000 a year after taxes.
Patricia wants to know whether future required withdrawals could increase her taxes. She also wants to see whether there is a better way to use her savings before those withdrawals begin.
What SageonRQ found
SageonRQ compared Patricia’s Current Plan with a Modeled Plan that includes Roth conversions. The ledger projects the following results through age 90. Net-of-tax ending value is the projected amount left after accounting for taxes embedded in ending savings.
| Retirement measure | Current Plan | Modeled Plan |
|---|---|---|
| Net-of-Tax Ending Value | $1,480,538 | $1,483,811 |
| Lifetime federal taxes | $91,624 | $89,101 |
| Lifetime RMDs | $678,482 | $20,296 |
| Ending Roth savings | $312,088 | $1,483,811 |
The Modeled Plan increases Patricia’s projected after-tax ending value by $3,273, reduces lifetime federal taxes by $2,523, and reduces lifetime RMDs by $658,186. Ending Roth savings increase by $1,171,723. The plan includes $346,491 in projected Roth conversions.
Why these changes matter
1. Fewer forced withdrawals
Under Patricia’s Current Plan, required withdrawals total about $678,482. Under the Modeled Plan, they fall to about $20,296. That gives Patricia more control over when she takes money from her retirement savings.
A $658,186 reduction in RMDs is not a $658,186 tax saving. It means less money is required to come out of accounts that generally create taxable income when withdrawn. Read Betty Jones’s RMD case study.
2. Lower projected lifetime taxes
The ledger shows $2,523 less in lifetime federal taxes under the Modeled Plan. That is a modest tax saving, but it comes alongside a large change in where Patricia’s savings are held.
3. More Roth savings for future needs
At age 90, the Modeled Plan projects $1,483,811 in Roth savings, compared with $312,088 under Current. Qualified Roth withdrawals are generally free from federal income tax. This may give Patricia more choices when she needs extra money later in retirement.
4. A small increase in after-tax ending wealth
Patricia’s projected ending value increases by $3,273. That is a small gain. The more noticeable change is the much larger Roth balance and the reduction in required withdrawals. Those benefits may matter differently to different people.
Could RMDs affect Social Security or Medicare?
Yes, depending on your circumstances. RMDs can increase the amount of Social Security subject to federal income tax. They may also increase the income Medicare uses to determine certain premium surcharges, known as IRMAA. Medicare generally uses tax information from two years earlier. Read IRS guidance on Social Security taxation and Medicare’s explanation of income-related premiums.
Patricia’s ledger shows changes in taxable Social Security income, but this case does not establish a specific Medicare premium saving. No Medicare savings amount is claimed here.
What if you do not need the RMD money?
You generally must still take the required amount. You can use it, save it, or reinvest the amount left after taxes. Roth conversions made before future RMD years may help reduce later required withdrawals, but conversions can create taxes when made. An RMD itself cannot be converted to a Roth IRA. See IRS guidance on RMDs.
Is a Roth conversion right for everyone?
No. The amount you convert, when you convert it, how you pay the taxes, and your future income all matter. A conversion may help one person and hurt another. Your own results may look very different from Patricia’s. Read the Roth conversion case study.
What should you do next?
You do not have to wait until RMDs begin to understand their possible impact. SageonRQ’s Retirement Opportunity Audit compares your current retirement path with a modeled strategy based on your information. Retirement Strategy Navigator is planned to show the year-by-year details and help you consider your next steps.
Start My Retirement AnalysisFrequently asked questions
Do I have to take an RMD if I do not need the income?
Generally yes, once RMD rules apply to your account. You can reinvest the amount left after taxes.
Will an RMD always increase my tax bracket?
No. It adds to income that may be taxable, but the result depends on your other income and deductions.
Can Roth conversions reduce future RMDs?
They may. Roth IRA assets are generally not subject to lifetime RMDs for the original owner, but conversions usually create taxable income when made.
Can RMDs raise Medicare premiums?
They can if the added income pushes you above an applicable IRMAA threshold. The effect depends on your own tax return and Medicare rules.
Should I use Patricia’s conversion amount?
No. Her results reflect her own inputs and assumptions. You should compare strategies using your personal circumstances before deciding what to do.