Make Sure You Calculate Your 401(k) RMD Before IRMAA Surcharges Hit Your Medicare

The post Make Sure You Calculate Your 401(k) RMD Before IRMAA Surcharges Hit Your Medicare appeared first on 24/7 Wall St..

A 73-year-old logs into the 401(k) on a quiet Tuesday and sees the balance still north of $1.6 million after a steady market year. They retired at 67, kept withdrawals modest, and the account kept growing. Then the custodian’s letter lands: the first required minimum distribution is due by April 1, 2027. There is no opt-out. A recent post in r/FinancialPlanning from the adult child of a 73-year-old with roughly $1 million tax-deferred captured the same panic in three sentences: how much, how fast, how taxed.

Plug $1.5 million into the IRS Uniform Lifetime Table divisor of 26.5 at age 73 and the gross RMD lands at roughly $56,600. After federal tax, state tax, the Social Security benefits the distribution drags into the taxable column, and the Medicare premium surcharge two years later, the spendable cash falls to about $43,000. That gap is the part most retirees miss until the tax return arrives.

How the Cascade Eats $13,000 of the Distribution

The RMD stacks on top of every other dollar of income the household already reports. For a couple drawing roughly $60,000 from Social Security plus the $56,600 RMD, taxable income lands inside the 22% federal bracket, and up to 85% of those Social Security benefits become taxable. Add a typical 5% state income tax and the combined slice on the RMD itself runs about $13,000 to $15,000.

The Medicare piece arrives later and stings harder because it is a two-year lookback. The 2026 RMD shows up on the 2026 tax return, and that 2026 modified adjusted gross income sets 2028 Medicare premiums. The first IRMAA tier hits at $109,000 for single filers and $218,000 for married filing jointly. Cross it and Part B jumps above the roughly $203 standard premium, with Part D surcharges layered on top, for both spouses, for the full year.

What the $43,000 Actually Buys

The Bureau of Labor Statistics pegs average annual household spending at $78,535 for 2024, the most recent year reported. Pair the after-cascade RMD with a typical Social Security benefit and the household is roughly covered without selling additional assets. Park the proceeds and the 10-Year Treasury yields about 4.5%, while the national average 12-month CD pays only about 1.7% (top online banks pay several times that benchmark).

Reinvesting all of it inside a taxable brokerage account creates the next problem. Interest income from a CD or Treasury counts as ordinary income too. It stacks on top of next year’s RMD, which only grows as the divisor shrinks every birthday: 25.5 at 74, 24.6 at 75, 23.7 at 76. The dollar amount climbs even if the portfolio is flat.

The Three Moves That Change the Math

1. Run the exact RMD against the December 31, 2025 balance. The divisor at 73 is 26.5, then drops every year. Knowing the next three years of RMDs in dollar terms is the only way to plan around IRMAA tiers before they trigger, because the lookback is locked in two years before the premium hits.
2. Use a Qualified Charitable Distribution to offset the taxable portion. The 2026 QCD limit is $111,000 per individual, or up to $222,000 for a married couple if both have IRAs. A QCD counts toward the RMD but is excluded from gross income, which sidesteps the Social Security taxation trigger and the IRMAA threshold at the same time. For retirees who already write checks to charity, redirecting that giving through the IRA is the cleanest tax move available after 73.
3. Map projected MAGI against the first IRMAA tier before pulling anything extra. The 2026 thresholds are $109,000 single and $218,000 joint. If the planned RMD plus Social Security plus dividends already sits within $5,000 of that line, a discretionary withdrawal or a partial Roth conversion can cost $1,000 to $2,500 in surcharges per person two years out. That is the exact scenario where a fee-only advisor’s hourly fee pays for itself many times over.

The traditional 401(k) deferred the tax bill. Age 73 is when the IRS comes to collect, and the retirees who keep their effective bill near $43,000 instead of north of $50,000 are the ones who plan three tax years in advance.

The post Make Sure You Calculate Your 401(k) RMD Before IRMAA Surcharges Hit Your Medicare appeared first on 24/7 Wall St..