Here's the Real Problem With RMDs (It's Not Just Taxes)

When retirees hear about required minimum distributions, or RMDs, their first concern is usually taxes. And that's understandable. Those mandatory withdrawals are not only subject to an IRS bill, but they could also bump you into a higher tax bracket.

But taxes are only part of the problem with RMDs. There's a less obvious consequence that could become a huge issue later on in retirement if you don't take action.

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Could your RMDs lead to surcharges on your Medicare premiums?

You may know to anticipate taxes on your RMDs each year. What you may not realize is that RMDs could boost your income to the point where your Medicare premiums cost you more money.

Higher-income seniors can be subject to IRMAAs, which is short for income-related monthly adjustment amounts. Many retirees don't even realize IRMAAs exist until they get a notice informing them that their Medicare premiums will be higher than the standard premium.

That can feel like a double hit, though. Not only are RMDs taxable when you may not even want to withdraw the money, but now you're stuck paying more for Medicare simply because the IRS told you that you have to take a withdrawal from your IRA or 401(k).

And IRMAAs aren't small, either. This year, the highest IRMAA tier adds $487 a month to the cost of Medicare Part B, bringing its total cost to $689.90, as opposed to the $202.90 most retirees pay.

IRMAAs apply to Part D drug plan premiums, too. And while those aren't nearly as high, they could add as much as $91 a month to the cost of Part D in 2026.

Plus, IRMAAs can increase over time. So they're important to both be aware of and plan for.

How to avoid getting stuck with IRMAAs

If you don't like the idea of having to pay more for Medicare premiums in retirement, one of the best things to do is reduce your RMDs before they begin. You can do this by withdrawing from traditional retirement accounts strategically before RMDs start or doing a Roth conversion.

With a Roth conversion, you move money from a traditional IRA or 401(k) to a Roth IRA. You do have to pay taxes on the money you convert. But once that money is in a Roth IRA, a few great things happen.

First, that money gets to grow tax-free. Second, withdrawals are tax-free and don't count as income. So even if you tap your Roth IRA, it won't push you into IRMAA territory.

Finally, Roth IRAs don't impose RMDs. You can leave that money in your account to grow as long as you want to.

Now, if you can't manage a Roth conversion before RMDs start, there's another option to look at. If you make qualified charitable distributions, or QCDs, out of a traditional IRA, you can avoid paying taxes and having those withdrawals count as income.

With QCDs, you're sending money directly from your IRA to a registered charity. QCDs allow you to satisfy your RMD without increasing taxable income.

It's a big win if you're charity-minded. And it's a good option if there's little opportunity for you to do a Roth conversion ahead of RMDs (such as if you continue working into your 70s and therefore have a high income year after year, making conversions less tax-efficient).

Don't get caught off guard

You may know that the money you have in a traditional retirement plan will be subject to RMDs. But that doesn't tell the whole story.

Those RMDs could subject you to hidden Medicare costs that make healthcare a lot less affordable. So it's important to plan around that and do what you can to minimize the financial hit.

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