RMDs, IRMAA, and Roth Conversions: The Tax Planning Issues Every Village Retiree Needs to Understand

Three issues show up repeatedly when Village retirees sit down to review their tax situation: Required Minimum Distributions that push them into a higher tax bracket than expected, Medicare premium surcharges triggered by income they did not realize was taxable, and missed windows for Roth conversions that could have saved them thousands over the course of their retirement.

None of these are exotic or unusual problems. They affect the majority of retirees with meaningful savings in tax-deferred accounts. And all of them are manageable with the right planning. This guide breaks down each one clearly so you understand what is at stake and what options are available.

Required Minimum Distributions (RMDs): What They Are and Why They Matter

An RMD is the minimum amount the IRS requires you to withdraw from most tax-deferred retirement accounts — traditional IRAs, 401(k)s, 403(b)s, and similar accounts — starting at age 73. The IRS has been deferring taxes on this money since you first contributed it, and RMDs are how they ensure those taxes are eventually paid.

The amount you are required to withdraw is calculated each year based on your account balance and an IRS life expectancy factor. As you age, the required percentage increases. At 73, you might withdraw roughly 3.7% of your account balance. By 85, that percentage climbs to over 6%.

The Problem With Ignoring RMDs Until They Start

Many retirees do not begin seriously thinking about RMDs until the year they turn 73. By then, tax-deferred accounts that have been growing untouched for a decade or more can generate very large mandatory withdrawals — sometimes large enough to push a retiree into a significantly higher tax bracket, increase the taxability of Social Security benefits, and trigger IRMAA surcharges on Medicare premiums.

The time to plan for RMDs is in the years before they become mandatory — specifically, during what planners call the “low-income window” between retirement and age 73, when you may have flexibility to draw down tax-deferred accounts at a lower rate through strategic withdrawals or Roth conversions.

Penalty for Missing an RMD

Failing to take your full RMD in any given year triggers a 25% penalty on the amount not withdrawn. This is one of the most expensive mistakes retirees make and one of the easiest to avoid with proper tracking and planning.

IRMAA: The Medicare Surcharge Most Retirees Do Not See Coming

IRMAA stands for Income-Related Monthly Adjustment Amount. It is a surcharge added to Medicare Part B and Part D premiums for retirees whose income exceeds certain thresholds. In 2026, the surcharge kicks in when your Modified Adjusted Gross Income (MAGI) from two years prior exceeds approximately $106,000 for individuals and $212,000 for couples.

The surcharge is not trivial. Depending on your income level, IRMAA can add several hundred dollars per month to your Medicare costs — costs that could have been reduced or avoided with better income timing and withdrawal planning.

Why IRMAA Catches Retirees Off Guard

IRMAA is based on your income from two years ago, not the current year. This means a large Roth conversion, the sale of a property, or an unusually large IRA withdrawal in one year can trigger higher Medicare premiums two years later — by which point the income event that caused it is long past.

This two-year lookback makes proactive planning essential. Understanding how any significant income event will affect your Medicare premiums in the future is a key part of comprehensive retirement tax planning.

Roth Conversions: Why the Window Matters

A Roth conversion involves moving money from a traditional IRA or 401(k) into a Roth IRA. You pay ordinary income tax on the converted amount in the year of conversion. In exchange, the money grows tax-free and can be withdrawn tax-free in retirement. Roth accounts also have no RMD requirement, which gives you more control over your taxable income in later years.

The Best Window for Roth Conversions

The years between retirement and age 73 — before RMDs begin and often before full Social Security is claimed — represent one of the best windows for Roth conversions for many retirees. During this period, your taxable income may be at one of its lowest points in your retirement, meaning you can convert traditional IRA money to Roth at a lower tax rate than you might pay later.

Converting the right amount each year — enough to fill up a lower tax bracket without pushing into a higher one or triggering IRMAA — requires careful calculation. Too much conversion in one year creates an unnecessarily large tax bill. Too little misses the opportunity entirely.

Roth Conversions and Inherited IRAs

Under the SECURE Act and SECURE 2.0, most non-spouse beneficiaries who inherit an IRA are now required to withdraw the entire balance within 10 years. If your heirs are in their peak earning years when they inherit, those withdrawals could be taxed at very high rates.

Converting traditional IRA assets to Roth during your lifetime — and paying taxes at your own rate rather than your heirs’ rate — can be a highly effective strategy for maximizing the after-tax value of what you leave behind.

How These Three Issues Work Together

RMDs, IRMAA, and Roth conversions do not exist in isolation. They interact in ways that can either compound your tax burden or, with the right planning, offset each other significantly.

A well-executed Roth conversion strategy in your late 60s and early 70s can reduce your future RMD amounts, lower your IRMAA exposure, and decrease the taxability of your Social Security benefits — all at the same time. But getting the calibration right requires coordinating multiple variables simultaneously, and it needs to be done with a clear picture of your complete financial situation.

This is exactly the kind of integrated planning West Financial Group provides through our retirement tax strategies service.

Working With an Advisor Who Understands All Three

Skip West has worked with retirees in The Villages and Wildwood for over 20 years, and the combination of RMDs, IRMAA, and Roth conversion planning is one of the most common and consequential sets of issues he addresses with clients. The good news is that all three are manageable with the right approach and the right timing.

If you are holding significant assets in traditional IRAs or 401(k)s and have not yet had a detailed conversation about how these three issues will affect your retirement, this is one of the most valuable conversations you can have. Learn more about our retirement income planning approach and how we integrate tax strategy from the beginning.

Get a Clear Picture of Your Tax Situation

If you are a retiree in The Villages, Wildwood, or surrounding Sumter County and want to understand how RMDs, IRMAA, and Roth conversions apply to your specific situation, we would be glad to walk through it with you at no cost.

Call us at (352) 461-0645, email Skip@WestFinancialVillages.com, or schedule your free consultation online.

The tax decisions you make in retirement can be just as impactful as the investment decisions you made during your working years. Getting them right is worth the effort.