The other day, I was talking with a client about the different scenarios we could implement under a Roth Conversion strategy. He told me, “You know, all my life I thought that when I retired I would have no income and my taxes would be much lower.
For that very reason, I felt that saving under a Traditional 401(k) all these years had been a wonderful decision, because I was able to reduce my taxes during those years when my professional income was higher, and simply, when I retired, I would be in a much lower tax bracket.”
However, he was realizing that, quite contrary to what he thought, now that he was 74 years old, the mandatory withdrawals, Required Minimum Distributions (RMDs) that he had to make each year from his Traditional 401(k) and Traditional IRA were forcing him to pay almost more taxes than during his best years of professional life.
He told me, “Now I only have Social Security income and a pension, and I pay more taxes than when I was working because of the RMDs that come in as income to my accounts.”
Many might say that is not a problem. But it is indeed a problem, of course, a thousand times more pleasant than being worried about not having money in your retirement, but in the same way, it is still a problem.
By the way, this problem has become much more complex in recent years, from 2023 through the second half of 2026, as retirement plan portfolios have continued to grow substantially year after year.
Now let’s look at some of the most common questions or situations retirees ask as they go through this same journey.
1. Is there any way to transfer my RMDs to another account without having to withdraw that money in case I don’t need it?
The DNA of most of my clients is specially structured to make them savers. Some of them tell me their goal is to maximize the optimization of their investments; they like to see their balance grow over the years and to keep saving and investing during their working years.
So RMDs have the opposite effect of what they want. They force them to withdraw money from their accounts and pay high taxes.
Since they are savers, they likely don’t need that money and simply want to leave it there to grow with tax benefits.
But Uncle Sam wants his money, and that’s where things get complicated. There isn’t much of a solution other than withdrawing it.
You cannot move it to a Roth account because a Roth Conversion the process of transferring from a tax-deferred account to a Roth account by paying the corresponding taxes isn’t available for RMDs.
You must withdraw it from the account; you can’t transfer it to a Roth IRA or a Traditional IRA.
However, that doesn’t mean you should leave all that money in a checking account earning nothing, especially if you won’t need it in the short term. Instead, you can reinvest it in an investment or brokerage account.
2. Is it true that if I make withdrawals from my Traditional 401(k) or do a Roth Conversion, I will start paying taxes on the money I receive from my Social Security?
Perhaps you have heard something on social media about what they call the “Tax Torpedo,” where they tell you that if you receive any additional income, such as a withdrawal from your Traditional 401(k) or Traditional IRA, your Social Security check will no longer be tax-free.
Instead, up to 85% of the amount you receive can be included as income on your taxes and will no longer be tax-free.
To understand why this happens, if you only received a Social Security check, 100% of that check would be tax-free. But if you have another type of income, you must know what Combined Income is and how your taxes can go up.
Without wanting to be very technical, Combined Income is used to determine what part of your Social Security check will be taxed.
Put simply, it includes any income you have, whether from withdrawals from your Traditional 401(k) or IRA, interest, dividends, or salary. If you did a Roth Conversion, that amount is also included as income.
Then, any non-taxable interest you received is added, plus half the amount you received from Social Security.
As we can see, many things add up. The bad news is that if you file as Married Filing Jointly and the formula total is more than $44,000 a year, then 85% of your Social Security check will be included in your taxes, so you pay tax on that amount.
If you manage to keep it below $32,000, you don’t have to worry because it will remain 100% tax-free.
But if it stays between $32,000 and $44,000, then 50% of your check will be counted toward your taxes (referential figures for the year 2026).
My client would say, “You see how taxes keep growing as one gets older? In addition, withdrawals from your Traditional 401(k) or IRA might come simply because you have to make your RMDs, not because you want to.”
3. Perhaps some of your friends have told you that when RMDs start, you start paying much more in Medicare premiums, mainly Part B and Part D?
Here again, my client would say, “You see, I keep paying more taxes or insurance premiums as I get older.
” They might add, “My income was supposed to be low upon retiring, and I wouldn’t have to worry about paying more for Medicare because I paid FICA taxes for so many years.”
Indeed, when starting your RMDs, that could lead to an increase in gross income, technically called your MAGI – Modified Adjusted Gross Income, the not-so-good news is that if the average of that income over the last two years exceeds certain limits by just one dollar, you will have to pay an additional amount for Medicare premiums.
This amount is called IRMAA (Income-Related Monthly Adjustment Amount). If you file your taxes as a married couple and your annual income exceeds $218,000 in 2026, you will have to pay an additional $81.20 per month for Medicare Part B and $ 14.50 per month for Part D for each of you.
By the way, if you happen to have a gross income above $750,000, this monthly amount for Part B rises to $487 and for Part D to $91, which adds up to more than $13,800 a year for a couple due to these IRMAA surcharges.
For some of you, these amounts may sound high, but remember that your retirement account balance will likely continue growing over time. Your RMDs at age 73 or 75 will be quite significant and will continue to grow.
4. If taxes do not change in the future, how is it possible that you could have to pay more in taxes?
Many of you may be thinking that taxes could rise in the future because the United States has a large deficit and will need more income. With AI advances, people will live longer, causing Social Security and Medicare spending to keep rising as more people enjoy these benefits for many more years.
But I am not referring to any change in tax laws. Rather, as the years go by, you lose deductions or credits that you used to use before.
Some of my retired clients used to itemize their deductions, and a big part came from the amount they paid in mortgage interest. But as the years go by, that amount goes down, and you might have to switch to the standard deduction, thereby paying more in taxes.
On the other hand, numerous studies show that women tend to live longer on average than men, so there is a high probability that one spouse will pass away first. The remaining spouse will then have to use the Single filing status in the future, which offers almost half the standard deduction amount they previously reduced when filing taxes as a couple.
One change in the One Big Beautiful Bill Act is a deduction called the Enhanced Senior Deduction. This allows couples over 65 with income under $250,000 to reduce their taxes by almost $12,000, depending on their income. But this benefit will expire after the year 2028. For the year 2029, if there is no change in the law, that benefit will no longer be available, and the amount you pay in taxes will be higher.
Strategies to Optimize Your Retirement Taxes
So the big question is: How can you prepare, optimize your taxes, and avoid paying more when you are over 73 or 75, and RMDs arrive?
Of course, one of the best strategies is not to wait until the time comes without taking action. We will always suggest that you seek to hire a CERTIFIED FINANCIAL PLANNER® who is Fee-Only, provides hourly services, and specializes in Roth Conversions.
Because that is precisely one of the best strategies you could apply: making an optimization study of your tax brackets to determine what amount you can convert from your Traditional 401(k) or IRA to a Roth IRA. This prevents the balance from continuing to grow tax-deferred, allowing it to grow tax-free instead. You could see it as a kind of insurance policy you pay so that, if taxes are higher in the future, your money is already in a tax-free account.
Another widely used tax-planning strategy is Qualified Charitable Distributions (QCDs) from IRAs to reduce RMD income. If you are charitably inclined, this is a good way to donate that money directly to a charitable entity and lower your future RMDs.
Remember that to apply this strategy, you must be at least 70½ years old, and the money must go directly to a 501(c)(3) public charity from your retirement plan. The amount you can contribute per year is substantial, up to $111,000 per person, meaning a couple filing jointly can reach a contribution of $222,000 in 2026.
Get Personalized Guidance for Your Financial Journey
Of course, no matter how much information you can get from AI, each case is different based mainly on those human factors that a professional with more than 28 years of experience who is a CERTIFIED FINANCIAL PLANNER® and a Fee-Only fiduciary without conflicts of interest can provide.
Therefore, we invite you to request a free appointment so we can discuss your particular circumstances.
