The RMD Strategy Most Retirees Have Never Been Taught

Summary

Randy Smith argues that retirement tax planning should begin with a projection of future required minimum distributions (RMDs), rather than an automatic Roth-conversion target. Traditional IRA and 401(k) contributions may have provided tax benefits upfront, but withdrawals are generally taxable. A large pretax balance can produce RMDs that exceed a retiree’s planned spending, and excess taxable income may also affect Social Security taxation and Medicare premiums.

His approach is to estimate the first RMD, compare it with the amount the retiree expects to spend from the account, and decide whether there is a future tax problem worth addressing. Possible responses include Roth conversions, earlier IRA withdrawals used for spending, and qualified charitable distributions (QCDs). The appropriate choice can vary from year to year.

Planning Framework

• Estimate the traditional IRA balance around the start of RMDs and identify the applicable RMD age.
• Estimate how much the household will actually need to withdraw from traditional retirement accounts, accounting for Social Security, pensions, brokerage assets, Roth assets, and spending needs.
• Approximate the first RMD by dividing the projected account balance by the applicable IRS divisor. To work backward toward a target first RMD, multiply the desired withdrawal by the divisor.
• Compare the projected RMD with planned IRA withdrawals. If the RMD is close to planned spending, there may be little to solve. If it is substantially higher, consider planning options.
• Treat the years before RMDs begin as a potential tax-planning window, when salary may have ended and withdrawals are not yet mandatory.
• Evaluate year by year whether to convert IRA assets to a Roth, withdraw IRA funds earlier for spending, make a QCD, or take no action.
• Account for tax-bracket effects, Medicare premiums, other income, health-insurance costs, and the possibility that one spouse may outlive the other.

Key Figures and Examples

• RMD age: 73 for many retirees and 75 for some younger retirees, depending on birth year.
• IRS divisors cited: 26.5 at age 73 and 24.6 at age 75.
• A planned $50,000 annual IRA withdrawal at age 75 implies a rough target balance of $1.23 million ($50,000 × 24.6). Smith describes this as a planning reference, not a precise target.
• Social Security taxation: Smith cites provisional-income thresholds of $32,000 for married couples, above which some benefits may become taxable, and roughly $44,000, at which up to 85% may be included in taxable income. He says these thresholds have not been adjusted for inflation.
• Medicare/IRMAA: Smith cites a 2026 married-couple AGI threshold of $218,000 and first-tier surcharges of about $81 per person per month for Part B and $15 per person per month for Part D—approximately $2,300 annually for a couple. Medicare generally uses income from two years earlier, so 2026 income may affect 2028 premiums.

Robert and Ellie Example

Robert and Ellie are ages 63 and 61, have $1.5 million in traditional IRAs, expect about $65,000 in annual Social Security once both claim, and plan to spend $95,000 annually.

Assuming they need $30,000 per year from a traditional IRA, an unchanged $1.5 million balance at Robert’s age 75 would imply a first RMD of about $61,000 ($1.5 million ÷ 24.6)—roughly twice their planned IRA withdrawal. A balance of about $738,000 would produce a first RMD near $30,000. The example gives them 12 years to consider options.

Risks and Cautions

• Converting too much may mean paying tax earlier than necessary; converting too little may not materially reduce future RMDs.
• Roth conversions can raise taxable income and potentially increase Medicare premiums, so timing matters.
• The goal is not to empty a traditional IRA quickly or convert the same amount every year. Each year’s decision should reflect that year’s income and circumstances.
• A surviving spouse may receive a lower household Social Security benefit, retain retirement assets in an IRA, and file as a single taxpayer—with narrower tax brackets and different Medicare thresholds. Smith says planning should consider this possibility.
• QCDs may be available to IRA owners age 70½ or older. After RMDs begin, qualifying donations made directly from an IRA to charity may count toward the RMD and be excluded from taxable income, subject to applicable rules.

Assets and Instruments Mentioned

Traditional IRAs, 401(k)s, Roth IRAs, brokerage accounts, Social Security benefits, Medicare Parts B and D, and qualified charitable distributions. No stock, ETF, bond, commodity, or crypto tickers are mentioned.

Disclosure

Smith says the video is educational information, not personal tax advice, and advises viewers to check their numbers with an accountant.

Presenter and Sources

Presenter: Randy Smith, CFP® and registered life planner; associated with Fairway Financial.

Sources and institutions referenced: IRS RMD rules and divisors, Social Security taxation rules, and Medicare/IRMAA.