Your Best Retirement Tax Years May Come Before the IRS Forces You to Withdraw

A large traditional IRA is usually treated as evidence that retirement planning went well. It represents decades of tax-deferred contributions and compound growth. Yet for retirees who accumulate several million dollars in 401(k)s and traditional IRAs, that success can eventually produce a problem: the government begins deciding when taxable income must appear.

The most valuable tax-planning period can therefore occur before required minimum distributions begin. Salary has disappeared, Social Security may still be delayed and the traditional account can be deliberately reduced through Roth conversions while the household retains control over its tax bracket.

For someone currently in the late 50s or early 60s with a large pretax balance, these “control years” can stretch for more than a decade. Waiting until the first RMD arrives to think about the problem can waste the years when the retiree had the greatest freedom to solve it.

RMD Age Is Not 73 for Everyone

The first planning step is getting the RMD age right. SECURE 2.0 created different applicable ages depending on birth year rather than imposing one universal starting age.

IRS guidance provides that people who reach age 73 before 2033 generally have an applicable RMD age of 73. For people who reach age 74 after December 31, 2032, the applicable age becomes 75.

That distinction is important for younger retirees. Someone currently in the mid-50s will generally be planning around RMDs beginning at age 75 under present law, not 73.

A retirement beginning at 62 can therefore create more than a decade before mandatory distributions start. Those years are not merely a waiting period. They can be an unusually valuable tax asset.

Large Pretax Accounts Can Grow Faster Than You Can Empty Them

Suppose someone approaches retirement with $2.7 million in a traditional retirement account. At a hypothetical 6% annual return, the balance would roughly double in about 12 years without withdrawals, although actual markets obviously do not produce a smooth 6% every year.

Even substantial withdrawals may not prevent the account from growing if investment returns remain strong. The result can be reaching age 75 with considerably more pretax money than existed when work ended.

RMDs then force a percentage of that balance out each year. The retiree may not need the money for spending, yet the distribution still becomes taxable income.

That is why postponing every traditional-account withdrawal until the government requires one can be a poor strategy for affluent households. Tax deferral is valuable, but indefinite tax deferral is generally unavailable.

Roth Conversions Let the Retiree Choose the Tax Year

A Roth conversion deliberately moves assets from a traditional retirement account into a Roth account. The taxable portion of the conversion is recognized as ordinary income during the year of the transaction, but future qualified Roth withdrawals can generally be tax-free.

The appeal is control. Instead of allowing a future RMD to determine the amount of income reported, the retiree chooses how much income to recognize now.

For 2026, married couples filing jointly remain in the 22% federal bracket from taxable income above $100,800 through $211,400 and in the 24% bracket through $403,550. Those ranges can create significant conversion capacity for a retired couple whose wages have disappeared.

The optimal conversion does not automatically fill the 22% or 24% bracket. The relevant question is whether today’s marginal rate is lower than the expected future rate on the same dollar.

The 22% Bracket Can Be Valuable Without Being Magical

Some retirement strategies recommend converting traditional money each year until the top of the 22% bracket. That can be a reasonable starting point, particularly for households expecting large RMDs, but tax brackets are not investment products.

A retiree who would otherwise withdraw the money at 12% later should not enthusiastically pay 22% today. Conversely, a retiree facing likely 24% or 32% taxation in later years can have a strong reason to use available 22% capacity while it exists.

The strategy becomes more compelling when the traditional account is unusually large relative to retirement spending. Someone who needs to withdraw most of the account naturally over retirement has a different problem from someone whose investments are likely to keep growing faster than withdrawals.

Tax planning should therefore project the traditional balance, RMDs and other income sources across decades. The goal is minimizing expected lifetime taxation rather than celebrating a large conversion.

Delaying Social Security Can Expand the Conversion Window

Social Security timing can interact directly with Roth conversions. For people born in 1960 or later, full retirement age is 67, and waiting until 70 increases the worker’s monthly retirement benefit to 124% of the full-retirement-age amount.

A retiree who delays Social Security may have several years in which wages are gone and benefits have not yet begun. That leaves additional room for IRA withdrawals or Roth conversions before another recurring source of taxable income enters the return.

Later, the larger Social Security payment can reduce reliance on portfolio withdrawals. The retiree effectively uses assets more aggressively during the control years while strengthening guaranteed income in the later years.

That does not mean everyone should delay Social Security for tax reasons. Health, longevity and cash-flow needs remain central, but well-funded retirees should model Social Security and Roth conversions together rather than solving them independently.

A Market Decline Can Create a Better Conversion Opportunity

Investors often become paralyzed when the market declines. Account balances shrink, financial headlines become frightening and the natural instinct is to avoid making major decisions until conditions feel safer.

A decline can actually improve the mechanics of a planned Roth conversion. If shares that were worth $100,000 fall to $75,000, converting those shares creates taxable income based on the lower value at the time of conversion.

If the investments subsequently recover inside the Roth, that recovery occurs in the Roth environment rather than increasing the future traditional-account balance. The retiree has effectively moved more shares across the tax line at a lower valuation.

This is not a reason to predict market bottoms or convert assets indiscriminately. It is a reason to remain prepared so that a conversion strategy already supported by the tax plan can be accelerated when markets offer a favorable opportunity.

Medicare Creates a Second Tax System

A conversion can be attractive for income taxes and still create another cost through Medicare. Higher-income Medicare beneficiaries pay income-related monthly adjustment amounts, known as IRMAA, on Parts B and D.

For 2026, the first IRMAA tier begins when modified adjusted gross income exceeds $109,000 for single filers or $218,000 for married couples filing jointly. The standard Part B premium is $202.90 monthly, while total Part B premiums at higher IRMAA levels range as high as $689.90 per person.

Medicare generally bases IRMAA on tax information from two years earlier, meaning a large conversion can create higher Medicare premiums later. That does not automatically make the conversion a mistake.

The appropriate calculation compares the temporary additional Medicare expense with the lifetime tax savings the conversion is expected to create. Avoiding a $2,000 surcharge is not economically helpful if doing so preserves a future tax liability worth $20,000.

The Widow’s Tax Trap Can Be Worse Than RMDs

Married retirees frequently plan taxes as though they will file jointly forever. Eventually, one spouse dies, and the survivor typically moves to single tax brackets while potentially retaining much of the same investment income.

The survivor may still own the same traditional IRA, receive substantial RMDs and collect one Social Security benefit. Household expenses often decline only modestly because housing, property taxes and many healthcare costs continue.

Yet the tax brackets contract substantially. In 2026, the 24% bracket begins above $105,700 for single filers but above $211,400 for married couples filing jointly. The IRMAA threshold likewise falls from $218,000 for a married couple to $109,000 for a single beneficiary.

That creates a strong reason to consider paying some tax while both spouses remain alive and filing jointly. Roth conversions can reduce the traditional balance the survivor eventually owns and provide a source of future cash that does not generally add taxable income when qualified.

Children Can Inherit the Tax Problem Too

Legacy planning creates another reason not to judge a traditional IRA only by its gross value. Under current rules, many nonspouse beneficiaries inheriting retirement accounts after 2019 are subject to a 10-year distribution framework, although exceptions apply to eligible designated beneficiaries.

An adult child inheriting a large traditional IRA during peak earning years can therefore face sizable taxable distributions on top of salary and other income. The parents may have had opportunities to convert the same money during relatively low-income retirement years.

Inherited Roth accounts can also be subject to beneficiary distribution requirements, but qualified Roth distributions generally avoid the same ordinary-income tax burden. That makes Roth conversions potentially valuable as a family tax strategy, not merely a retiree tax strategy.

The comparison should include the heirs’ likely circumstances if legacy is an important objective. A conversion that looks only marginally beneficial during the parents’ lives can become much more attractive when the next generation’s taxes are considered.

Failing to Take an RMD Is Expensive, but the Rules Are Less Punitive Than Before

RMDs deserve attention because failing to take the required amount can trigger an excise tax. SECURE 2.0 reduced the penalty from the older 50% level, but the consequences can still be meaningful and retirees should not casually miss required withdrawals.

More important, the existence of a penalty should not become the focus of planning. A properly organized retirement system should automate or calendar RMDs so that compliance becomes routine.

The real opportunity occurs years before the first required withdrawal. By shrinking pretax accounts strategically, retirees can potentially reduce future RMD amounts and preserve more control over taxable income.

RMD planning is therefore best viewed as a decades-long income-management problem rather than an annual deadline problem.

Tax Brackets Should Be Modeled, Not Simply Inflated

Financial projections frequently assume tax brackets rise 2% or 3% annually with inflation. That can be a reasonable modeling convention, but tax law does not evolve as predictably as a spreadsheet.

Congress can change rates, deductions, indexing formulas and retirement rules. A long-term plan should therefore test multiple tax environments rather than assume today’s law simply grows at 3% every year.

One scenario might hold current rates approximately constant in real terms. Another might assume higher future marginal rates, while a third could test lower rates.

If a Roth conversion strategy succeeds only when Congress dramatically raises taxes, it is less robust than one that remains beneficial under several plausible outcomes.

The Goal Is Control, Not a Zero IRA Balance

Aggressive planners sometimes conclude that every traditional IRA dollar should be converted before RMDs begin. That is rarely a necessary objective.

Traditional accounts can remain extremely useful when withdrawals fill low tax brackets. Eliminating the account by paying 32% today merely to avoid 12% or 22% later would sacrifice wealth rather than protect it.

The better target is tax diversification. A retiree with taxable assets, traditional accounts and Roth accounts can choose which source funds spending based on that year’s tax situation.

That optionality becomes particularly valuable during large purchases, market downturns, widowhood and years involving unusual medical expenses or capital gains.

The Years Before 75 Belong to the Retiree

Once RMDs begin, some control over taxable income disappears. Before that point, the household has considerably more ability to decide when money leaves the traditional account.

That makes the retirement-to-RMD period one of the most valuable planning windows available to affluent savers. Conversions can be sized to tax brackets, coordinated with delayed Social Security and accelerated during market declines when valuations are temporarily lower.

Medicare surcharges and current taxes must be included rather than ignored. Paying tax earlier makes sense only when it improves expected after-tax wealth later.

The mistake is assuming tax deferral should continue for as long as technically possible. For someone with millions in pretax accounts, the cheapest year to recognize income may arrive long before the IRS requires a single dollar to be withdrawn.

A successful retirement tax plan does not eliminate taxes. It decides when the household has the greatest bargaining power over them and uses those years before that control disappears.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

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• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

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