Required minimum distributions end your choice of when to touch a traditional retirement account. Starting at age 73 or 75, the IRS forces a taxable withdrawal out of every tax-deferred account you hold, needed or not, and taxes it as ordinary income. The forced dollars stack on top of Social Security and any pension, so a large distribution can lift your bracket, pull more of your Social Security into taxable territory, and raise your Medicare premiums two years later.
We entered a retired couple into our calculator to price the effect. Both are 65 and filing jointly, holding $1.2 million in a traditional 401(k) and $80,000 in cash, spending $5,500 a month against $3,200 of combined Social Security at 67. Left alone, the 401(k) compounds for a decade and then funds two decades of forced, taxed withdrawals. The calculator's conversion planner puts the cost of leaving it there at about $1 million of after-tax value by age 95, measured against the same money moved to Roth before the withdrawals begin. The rest of this article covers how RMDs are figured, why they cost what they do, and how the pre-RMD years buy the difference.
The rule in one line
An RMD is your prior year-end balance divided by a life-expectancy factor the IRS publishes for your age. At 73 the factor is 26.5, which works out to about 3.8% of the balance. The factor shrinks every year, so the required share climbs with age, from roughly 3.8% at 73 to about 5% at 80 and 6.3% at 85. Because the percentage and, in good markets, the balance can both rise, the dollar amount the IRS forces out tends to grow for decades.
When the withdrawals begin
The SECURE 2.0 Act of 2022 split the starting age by birth year. Born between 1951 and 1959, your first RMD year is the year you turn 73. Born in 1960 or later, it moves to 75. The couple above was born in 1961, so their withdrawals begin at 75, which leaves the ten years from 65 to 74 to plan around. Miss a distribution and the penalty is 25% of the shortfall, cut to 10% if you fix it quickly, so the safe habit is to take each year's amount well before the December 31 deadline.
Which accounts the rule touches
RMDs apply to traditional IRAs, 401(k)s, 403(b)s, the federal Thrift Savings Plan, and SEP and SIMPLE IRAs, everything where you deducted the contribution or deferred the tax going in. Roth IRAs never require distributions during the owner's lifetime, and as of 2024 Roth 401(k)s no longer do either. That gap between the two account types is the lever this article turns on, and our comparison of Roth versus traditional accounts covers the wider trade.
Why a forced withdrawal reshapes a plan
The reason RMDs earn their own line in a plan is that they convert a balance you controlled into taxable income on a schedule you do not. Three costs follow. A forced withdrawal in your eighties can land on top of other income and push the total into a higher bracket than you planned around. It also raises the combined-income figure that decides how much of your Social Security is taxed, a calculation our guide to how Social Security is taxed walks through. And it can lift your Medicare Part B and Part D premiums through the income-based IRMAA surcharge, set from your tax return two years earlier. None of those costs show up in a straight-line projection, which is why the effect is worth modeling.
Convert before the withdrawals start
The years between retiring and your RMD start age hold the leverage. Wages have stopped and distributions are not yet required, so taxable income often dips into a low bracket, which opens room to move money out of the traditional account at a rate you control. Our calculator's IRA Calculators tab reads your plan and your Monte Carlo run, finds that window, and prices filling it.
For this couple the window is ten years wide, and filling to the top of the 22% bracket each year converts about $1.43 million for $207,369 in tax, a 14.5% effective rate. That is the price. The payoff is the right-hand column of the card. The converted balance compounds untouched to $8.71 million of tax-free Roth by 95, with no distributions ever required. Leave the same money in the 401(k) and it nets $7.68 million after tax, and that figure already credits the leave-in path with the conversion tax it never paid, invested and grown. The roughly $1 million gap is the RMD tax drag the left column carries and the right column skips.
Reading the trade honestly
The conversion is not free money, and the planner is an estimate. Paying the conversion tax from outside cash rather than from the converted balance is what makes the math work, so the comparison assumes it. The figures use current federal brackets and one blended capital-gains rate, and they set aside state tax, IRMAA surcharges during the conversion years, ACA subsidies, and the Roth five-year rule. A large conversion also raises your own income in the year you make it, so filling only to the top of a bracket you are comfortable in, rather than converting everything at once, is usually the point. A retiree already past 70½ has a second lever, the qualified charitable distribution, which sends money straight from an IRA to a charity where it counts toward the RMD but never enters taxable income.
The bottom line
RMDs do not take your money. They decide when you pay the tax you deferred on it, and left unplanned they bunch that tax into your seventies and eighties and pull Social Security and Medicare costs up with them. The deferral years before 73 or 75 are the window to convert at a lower rate so the required withdrawals later land softer, or never come at all. Because the effect compounds over decades, the way to judge it is to model it. Enter your own accounts, run the plan, and open the IRA Calculators tab to see what your own conversion window is worth.
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