Retirement Tax Planning
A guide by Taxstra Tax & Accounting — CPA-led tax strategy for business owners
Required Minimum Distributions
When mandatory withdrawals start and how to calculate them
Required Minimum Distributions (RMDs) are mandatory annual withdrawals from Traditional IRAs, 401(k)s, 403(b)s, and similar retirement accounts. RMDs begin the year you turn age 73 (as of 2026; age 75 starting in 2033 per SECURE Act 2.0). You must withdraw and report as ordinary income, or face a 25% penalty on the shortfall (reduced to 10% if corrected timely within 2 years).
RMD Age 73 Rule (2026)
First RMD required in calendar year you turn 73. Formula: December 31 prior-year account balance ÷ life expectancy divisor (IRS Table). Example: age 73, balance $500k, divisor 24.7, RMD = $500k ÷ 24.7 = $20,242. Failure to withdraw: 25% penalty on shortfall ($505 if you miss $20,242). Must be taken in cash; cannot roll over to Roth after age 73 penalty-free (distributions count as RMD first).
Roth IRAs are exempt from RMDs during the account owner's lifetime. You can leave a Roth IRA untouched forever (ideal for leaving to heirs). Once you inherit a Roth IRA (non-spouse beneficiary), you must distribute within 10 years, but distributions are tax-free.
Pre-RMD Planning: Roth Conversions
Before age 73, convert portions of Traditional IRA to Roth (ages 59.5-72 are ideal low-income transition years). Convert $50k-$100k/year if income is low. Pay tax upfront (24% bracket = $12k-$24k tax), but money grows tax-free in Roth. Result: at 73, smaller Traditional IRA balance (lower RMD) and larger Roth (tax-free withdrawals). Reduces lifetime RMD burden and Medicare IRMAA surcharges.
RMD Calculation: Multiple Accounts
If you have multiple Traditional IRAs, calculate RMD separately for each, but you can aggregate and withdraw from one account. Example: IRA #1 ($300k, RMD $12,158), IRA #2 ($200k, RMD $8,097), total RMD $20,255. You can withdraw entire $20,255 from IRA #1 (or any combination). Cannot aggregate 401(k) RMDs—each 401(k) has separate RMD (must track carefully if multiple employers).
RMD deadline: December 31 of RMD year. If you miss the deadline, you have until April 1 of next year (no penalty if corrected before April 1). However, annual deadline continues each year (e.g., if first RMD year is 2026, deadline is Dec 31, 2026; second RMD deadline is Dec 31, 2027). Set calendar reminder; RMD mistakes are costly.
Social Security benefits are partially taxable. The amount taxable depends on your combined income, calculated as: Adjusted Gross Income (AGI) + 50% of Social Security benefits + tax-exempt interest. If combined income exceeds thresholds, up to 85% of benefits are taxable as ordinary income.
Social Security Taxation Thresholds (2026)
Single filer: combined income under $25k = 0% taxable SS. $25k-$34k = up to 50% taxable. Over $34k = up to 85% taxable. MFJ: under $32k = 0% taxable. $32k-$44k = up to 50% taxable. Over $44k = up to 85% taxable. Example: single, $50k wages + $20k SS = $60k combined income. Taxable SS: $4,500 (22.5% of benefits) using formula. Married couple: $150k wages + $30k SS = $180k combined. Taxable SS: ~$25.5k (85% of benefits).
This creates a disincentive to work or take large IRA withdrawals in retirement. RMDs, Roth conversions, and other income push you into higher SS taxation brackets. Strategic planning minimizes SS taxation by controlling combined income.
Minimize Social Security Taxation
Strategy 1: Delay SS to 70 if working (higher benefit, smaller taxable amount). Strategy 2: Before age 73, take brokerage withdrawals (capital gains = favorable rates) instead of RMD (ordinary income). Strategy 3: Convert Traditional IRA to Roth before age 73 in low years, reducing future RMD (and future SS taxation). Strategy 4: Bunch charitable donations in high-income years, lower AGI. Goal: keep combined income under $34k (single) or $44k (MFJ) to minimize SS taxation.
Deemed Filing and Early Claiming
If you file for SS before full retirement age (67), deemed filing applies: you're also applying for spousal/survivor benefits. This can reduce your benefit. Recent changes: deemed filing only applies if you file before age 62 (effective 2026). Strategically claim at full retirement age or later to avoid deemed filing reductions.
Roth Conversion Strategy
Converting Traditional IRA to Roth in low-income years
A Roth conversion is moving money from a Traditional IRA or 401(k) to a Roth IRA. The conversion amount is taxed as ordinary income in the year of conversion, but the money then grows tax-free forever in the Roth. The most valuable conversions happen in low-income years (retirement transition ages 59.5-73, before RMDs start).
Roth Conversion Example
Retire at 62, no earned income, Traditional IRA balance $800k. 2026: Convert $100k. Conversion taxed as ordinary income (24% bracket = $24k tax). Roth grows tax-free. 2027-2035: convert $50k-$100k each year in low brackets (12-24% rates). By age 73, you've converted $500k at average 18% tax = $90k total conversion tax. At 73, RMD from remaining $300k IRA ($12k/year), Roth withdrawals tax-free. Lifetime tax savings: $80k+ (avoided 37% tax on converted $500k later).
Income limits for Roth contributions no longer apply once you convert (converted to Roth directly, not through contribution limit). You can convert any amount. The catch: the converted amount is immediately taxable, so only converts amounts you can afford to pay tax on.
Multi-Year Conversion Strategy
Ideal retirement conversion schedule: ages 59.5-73 (14 years before RMD). Convert 5% of balance each year. $800k balance, convert $40k/year over 14 years. Annual tax: 24% × $40k = $9,600. Total 14-year tax: $134.4k. Advantage: keeps annual income moderate (minimizes SS taxation and IRMAA). Reduces RMD balance at 73 by 40%. Flexibility: convert more in low years, less in high years (work part-time, consulting income). Maximize conversions before RMDs start.
Pro-Rata Rule on Roth Conversions
If you have both Traditional IRA and SEP/SIMPLE IRA, the pro-rata rule applies. Converting $100k Traditional IRA to Roth when you have $900k in total pre-tax IRAs: only 10% of conversion is tax-free ($10k), 90% is taxable ($90k). Calculate basis and non-deductible contributions carefully. Best practice: consolidate IRAs, minimize pre-tax balance before conversion.
Medicare IRMAA Surcharges
Income-related premium adjustments and how to avoid them
Income-Related Monthly Adjustment Amount (IRMAA) is an extra surcharge on Medicare Part B (medical) and Part D (drug coverage) premiums for high-income retirees. IRMAA is calculated based on Modified Adjusted Gross Income (MAGI) from 2 years prior. Thresholds in 2026: $97,500 (single), $195,000 (MFJ). For every $1 above threshold, surcharge increases.
2026 IRMAA Thresholds and Surcharges
Single: $97.5k = no surcharge. $97.5k-$122.5k = +$11/month. Over $560k = +$255/month. MFJ: $195k = no surcharge. $195k-$245k = +$11/month. Over $1.12M = +$255/month. Example: single, MAGI $180k. Surcharge: 85% of amount over $97.5k = $82.5k × 85% = $70.125k, capped at max surcharge. Additional Medicare Tax: 0.9% on wages over $200k (single), applies to W-2 wages and self-employment income.
IRMAA is based on MAGI: AGI + 50% of Social Security benefits + tax-exempt interest + foreign earned income + specified investment income. This includes RMD withdrawals, IRA distributions, capital gains, and rental income. Strategic tax planning can significantly reduce IRMAA.
IRMAA Avoidance Strategies
Strategy 1: Before age 73, take brokerage withdrawals (capital gains excluded from IRMAA calculation only if from 1202 qualified small business stock or other exceptions—typically NOT excluded). Better: use tax-free distributions. Strategy 2: Roth conversions in early retirement reduce future RMD (and thus IRMAA). Strategy 3: Charitable giving (charitable deduction lowers AGI). Strategy 4: Municipal bonds (interest exempt from IRMAA MAGI, per IRS Rev. Rul. 2012-17). Strategy 5: Delay RMD as long as possible (convert to Roth pre-73, lower RMD at 73+).
IRMAA Cliff Effect
Each dollar over IRMAA threshold can increase surcharge 5-10 times (example: $1 income increase = $5-$10 total increase including additional Medicare tax). Example: MAGI $195k, no surcharge. MAGI $195.1k triggers surcharge = $11/month ($132/year) for that one person, and same for spouse if MFJ. One additional IRA distribution of $1k could cost $100+ in additional IRMAA for that year. Plan carefully near thresholds.
Withdrawal Sequencing
Tax-efficient order of withdrawals in retirement
Withdrawal sequence determines the tax efficiency of your retirement. The optimal sequence depends on your age, account types, and tax situation. Most retirees benefit from withdrawing from taxable accounts first, then Traditional pre-tax accounts (after RMD age), and Roth accounts last.
Optimal Withdrawal Sequence
Ages 59.5-73 (pre-RMD): prioritize taxable brokerage (long-term capital gains at 0%, 15%, 20% rates). Then Traditional IRA for Roth conversions (pay conversion tax upfront in low bracket). Preserve Roth for later. Age 73+ (RMD): withdraw required amount from Traditional IRA (mandatory). Supplement with taxable brokerage or Roth if needed. Save Roth for last (continues to compound tax-free, can leave to heirs tax-free). This sequence minimizes lifetime taxes.
Special rule: in low-income years, convert Traditional IRA to Roth (pay conversion tax at low rate). This reduces the Traditional IRA balance, which lowers future RMDs, which lowers future IRMAA and Social Security taxation. The cost of conversions is paid back many times over through avoided taxes later.
Example: 40-Year Retirement (Ages 62-100)
Ages 62-72 (11 years): withdraw $60k/year from brokerage ($660k total, LTCG rates ~15% = $99k tax). Ages 73-100 (28 years): RMD averages $20k/year ($560k total). Supplement to $60k from Roth ($1.12M, tax-free). Result: $99k tax over 40 years. Alternative (no conversion): ages 73-100, RMD $35k/year in high bracket (37%) = $36.4k/year tax = $1.02M total tax. Conversion strategy saves $923k in taxes. Massive difference from sequencing.
Beware Bunching Income in Single Year
If you need large lump sum (home purchase, large expense), avoid taking entire amount from Traditional IRA (pushes into high bracket). Instead: take from brokerage (spread over time, capital gains rates). Or take Traditional IRA distribution and use it to fund multiple years of Roth conversions (spreads tax over time). Bunching $200k Traditional IRA in one year at 37% = $74k tax. Spreading over 5 years at 24% average = $48k tax. Savings: $26k.
Early Retirement Planning
Strategies for retirement before age 59.5
Early retirement (before age 59.5) presents challenges accessing IRA and 401(k) funds without 10% penalty. Two primary strategies: Rule 72(t) (SEPP—Substantially Equal Periodic Payments) or bridge distributions using taxable brokerage accounts.
Rule 72(t) SEPP: Penalty-Free IRA Withdrawals
If you retire before 59.5, you can set up SEPP schedule under IRC 72(t). IRS calculates required annual withdrawal amount using one of three methods (RMD, amortization, annuitization). Withdraw that amount annually without 10% penalty. Must continue 5 years or until age 59.5 (whichever is longer). Example: retire at 55 with $500k IRA. SEPP calculation: $19.5k/year for 5 years (must continue until 60). Inflexible—cannot change amount mid-schedule.
Most retirees use brokerage bridge strategy: keep enough in taxable accounts to cover living expenses ages 55-59.5 (5 years). Take taxable brokerage withdrawals (no penalty), live on those proceeds. At 59.5, access IRA/401(k) penalty-free. Roth conversions can happen anytime (no age restriction), so convert Traditional IRA to Roth during early retirement in low-income years.
Bridge Strategy: Brokerage + Roth Conversions
Retire at 55: $300k brokerage + $500k Traditional IRA. Ages 55-59 (5 years): live on $60k/year brokerage (~$300k, paid with capital gains tax 15% = $30k total tax). Simultaneously convert $100k Traditional IRA to Roth each year (5 × $100k = $500k total, at 24% bracket = $60k conversion tax). At 60: $0 brokerage, $0 Traditional IRA, $500k Roth IRA (tax-free forever). Ages 60+: live on Roth distributions (tax-free). Effective bridge + tax optimization.
Avoid Triggering IRMAA in Early Retirement
IRMAA does not apply until age 65 (Medicare enrollment). However, planning withdrawal income ages 62-65 is important. If you claim Social Security at 62 and simultaneously take large Traditional IRA distributions, MAGI spikes, increasing SS taxation (up to 85% taxable). Delay SS to 67-70 if doing large pre-age-59.5 conversions. Check IRMAA impact years 1-2 of Medicare (IRMAA based on MAGI 2 years prior).
Charitable Giving in Retirement
Qualified charitable distributions and maximizing deductions
At age 73+, Qualified Charitable Distribution (QCD) is the most tax-efficient giving strategy. A QCD allows you to direct up to $100k per year from your IRA directly to a qualified charity. The distribution counts toward your RMD, avoids income tax entirely, and does not count toward IRMAA.
Qualified Charitable Distribution (QCD)
Age 73+, Traditional IRA: direct up to $100k/year to qualified charity (not donor-advised funds). Counts as RMD, not reported as income, avoids tax entirely. Does not count toward IRMAA, Social Security taxation, or premium support thresholds. Most tax-efficient charitable giving. Example: age 73, RMD $20k, donate via QCD to charity. Zero tax on $20k (would be $4.8k-$7.4k tax if taken as distribution).
For those not itemizing deductions (use standard deduction), QCD is especially valuable. Traditional charitable deduction requires itemization; QCD avoids tax without itemization. For high-income retirees, bunch charitable giving: donate $10k one year, $5k next year—but concentrate donations in one year to exceed standard deduction threshold and itemize that year.
Charitable Giving Strategy: Bunching
Donate $20k in 2026 (exceed standard deduction $15.9k single), itemize, deduct charitable donation. 2027: donate $0, take standard deduction. This alternates: even years $20k donations + itemize, odd years standard deduction. Result: average $10k/year charitable giving, but every other year you get deduction benefit. Saves taxes on $10k in charitable deductions ~$2.4k-$3.7k total over 2-year cycle.
QCD Rules: Qualified Charity Only
Qualified charity: public charities, private foundations, donor-advised funds (some restrictions). Not qualified: donor-advised funds (disqualified use), charitable gift annuities, charitable remainder trusts (distribution from trust to charity, not from IRA). Confirm charity 501(c)(3) status. QCD must transfer directly from trustee to charity (not you receiving funds then donating—that counts as distribution and is taxable).
| Scenario | Strategy | Tax Rate | Impact on Taxable Income | Planning Edge |
|---|---|---|---|---|
| Traditional IRA at Age 73 (RMD) | Take RMD (mandatory) at ordinary income rates | Ordinary income: 24%-37% depending on income | RMD added to Social Security, creates IRMAA surcharge | Required; no choice. Plan withdrawals before age 73 to minimize RMD impact. |
| Roth IRA at Any Age | No RMD during your lifetime. Take withdrawals anytime tax-free. | Tax-free to beneficiary after 5-year holding period | Roth withdrawals do not trigger SS taxation or IRMAA | Most tax-efficient in retirement. No RMDs mean flexibility. Strategic timing of conversions pre-73 maximizes Roth value. |
| Brokerage Account (Taxable) | Withdraw anytime. Long-term capital gains taxed at favorable rates (0%, 15%, 20%). | 0% LTCG rate: $0-$59.75k (single 2026); 15% rate above that | Capital gains do not count toward IRMAA or SS taxation thresholds | Most flexible account type. Use before RMD age. Capital gains taxed more favorably than ordinary income. No RMDs ever. |
| Sequence: Brokerage + Trad IRA + Roth | Ages 59.5-73: draw brokerage (LTCG rates). Age 73+: RMD from Trad IRA. Anytime: supplement with Roth (tax-free). | Blended: LTCG at 15%, ordinary income at 24%, Roth at 0% | Keep income below IRMAA/SS thresholds ($25k single, $32k MFJ) | Minimizes lifetime taxes. Controls IRMAA surcharges. Keeps SS taxation low. |
| Roth Conversion (Low-Income Year) | Convert Traditional IRA to Roth during low-income year (ages 59.5-73 before RMDs). Pay tax upfront, grow tax-free. | Conversion taxed as ordinary income (may be 12%-24% bracket in low year) | Conversion amount added to AGI (impacts SS/IRMAA this year only) | Strategically pay tax upfront at low rate. Roth grows tax-free forever. Reduces RMD burden at 73+. Saves 37% tax later. |
| Social Security at 62 vs 70 (6-Year Delay) | Age 62: $30k/year. Age 70: $42k/year (40% more). Longevity breakeven ~80. | Up to 85% SS taxable if income exceeds thresholds ($25k single) | Claiming at 62 increases SS income; may push into higher tax bracket | Delay if healthy/long life expectancy or still working. Delay if converting to Roth (maximize conversion in low-income years). |
| Age 73 RMD in High-Bracket Situation | RMD: $500k account, $20k withdrawal. Problem: RMD pushes into 37% bracket + IRMAA surcharge. | 37% ordinary income + 10-15% IRMAA surcharge = 47%-52% effective tax | RMD increases MAGI, triggers Medicare premium increase ($255/month) | Pre-plan with Roth conversions ages 59.5-73. Convert $50k-$100k/year to reduce RMD balance and account balance at 73. |
| Charitable Giving (Qualified Charitable Distribution) | Age 73+: direct IRA withdrawal to charity (up to $100k/year). Counts as RMD, avoids income tax. | 0% tax on QCD. Do not report as income. | QCD does not count toward SS taxation or IRMAA | Satisfy RMD and charitable intent without paying tax. Must donate to qualified charity. If you itemize, no deduction (already QCD). Most tax-efficient giving in retirement. |
| Early Retirement Without Penalties (Age 55-59.5) | Rule 72(t) SEPP: IRA distributions penalty-free (5 years or until 59.5). Rigid formula. | Ordinary income tax on SEPP withdrawals, but no 10% penalty | SEPP taxable income, impacts IRMAA later if retired long-term | Access IRA before 59.5 without penalty. Plan conversion before Rule 72(t) to minimize SEPP burden. |
| Medicare IRMAA Cliff Avoidance | MAGI threshold 2026: $97.5k (single), $195k (MFJ). Each $1 over threshold affects Medicare premiums. | Premium surcharge: $11-$255/month per person (Part B and Part D) | MAGI = AGI + 50% SS + tax-exempt interest + foreign earned income | Plan Roth conversions, charitable giving, withdrawal sequence to stay under IRMAA thresholds. Even $1 savings compounds across years. |
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