Withdraw your retirement account online. Look at the balance. Let’s say it’s $1.2 million. Feeling good, right?
Now let me ruin your afternoon.
That number is a lie. This isn’t a big, dramatic lie – it’s the kind of lie your bathroom scale tells when you measure your weight with your shoes on. Balance is real. But how much of it is actually yours? This is a completely different question.
Because if that $1.2 million sits in a traditional IRA or 401(k), you have a silent business partner. They have a share in that account from the day you open it. And as you approach retirement, they’re supposed to start accumulating – on their own time, not yours.
That partner is the IRS.
And before you decide this is a rich person’s problem: It’s not. Whether your number is $1.2 million or $120,000, the government’s share is the same. The scale of the problem.
I’ve been a CPA since 1981, and I’ve seen a lot of smart people get confused by this. They spend 40 years watching a number go up, mentally spending money that was never entirely theirs. Then the tax bills come and the math goes haywire rapidly.
Here’s the good news: There is a window to get some of that money back. Most people miss this. Let’s make sure you don’t.
Why is your balance smaller than it seems?
A traditional IRA is tax-deferred, not tax-free. Every dollar you contribute gets tax deductible down the road. This means that taxes are owed on every dollar when it goes out.
So that $1.2 million is not $1.2 million. When you factor it all back in, it’s less than the $1.2 million that the government takes.
Let’s say you’ll pay 22% on those withdrawals. That’s approximately $264,000 of your balance that was never yours. This is the IRS’s share, deposited into your account, waiting patiently. Live in a state with income tax? Your silent partner brought a friend.
Nobody prints that number on your statement. But it’s there, every single month.
The part where you lose control
For years, you decide when to touch that money. Then you turn 73, and the IRS takes over the wheel.
They are called required minimum distributions or RMDs. Once you turn 73, the government forces you to withdraw a portion every year so that it can eventually tax it. According to the IRS, the starting age increases to 75 for anyone born in 1960 or later.
You don’t choose the amount. They do. Formula: Your December 31 balance is divided by the life expectancy factor from the IRS Uniform Lifetime Table.
At 73, that factor is 26.5. On a balance of $1.2 million, your first forced withdrawal is approximately $45,283 – whether you need the money or not.
Skip it, and the penalty is a brutal 25% of what you should have taken. You can read more about the trap that can be a retiree’s most expensive mistake.
And it gets worse every year
Here’s the part that really stings. That life expectancy factor decreases annually. Therefore the percentage of forces being carried out by the IRS is increasing.
At 73, you’re withdrawing about 3.8% of the balance. By 80, it’s about 5%. By 90, you’re north of 8% – every year, all taxable, all at ordinary income rates.
Translation: The older you are, the bigger your silent partner will suffer. When you want to keep your income low, the tax code demands the opposite.
Medicare ambushes hidden inside your RMDs
Now see how the damage spreads.
That forced withdrawal is simply not taxed. It increases your income – and Medicare is watching. Crossing a certain income line requires you to pay a surcharge called IRMAA (Income-Related Monthly Adjustment Amount) on top of your Medicare Part B and Part D premiums.
For 2026, that limit sits at $109,000 for single filers and $218,000 for couples, according to the Centers for Medicare and Medicaid Services. A $45,000 RMD on Social Security and pensions could push a single retiree over the top.
And it’s a cliff, not a ramp. One dollar off, and the entire surcharge takes effect – about $1,148 more per person that year, and it gets reapplied.
Even worse, Medicare looks at your income from two years ago. So withdrawing today will increase your premium in 2028. You can see other income types that can cause this trap in “8 Types of Income That Can Increase Your Medicare Premiums.”
Quick gut-check – If your money advice is coming from random online influencers, you’re playing a dangerous game. I’ve been a CPA since 1981 and have been writing about money since before the Internet existed. Sign up for the free Money Talks newsletter and get time-tested expert advice.
Your new tax break? Your RMDs can eat that up too
Congress just gave seniors a gift — and your silent partner can snatch back a portion of it.
Under the 2025 tax law, taxpayers age 65 and older get a new $6,000 deduction for tax years 2025 through 2028, or a $12,000 deduction for a couple where both are eligible. The IRS says this is on top of your standard deduction whether you itemize or not.
But it ends when your income exceeds $75,000 for single filers or $150,000 for couples filing jointly. Guess what adds to that income? Your RMD. So the withdrawals the IRS imposes on you may wipe out the deductions Congress just gave you.
One more thing: That senior deduction lowers your income tax bill, but it doesn’t lower the income figure used by Medicare for IRMAA. This will not protect you from overload.
Co-owner chases your kids’ money
Do you think it will end when you’re gone? It’s not like that.
Leave a traditional IRA for your kids and your silent partner tag along. Most non-spousal heirs now must liquidate an inherited IRA within 10 years, paying ordinary income taxes on every dollar.
Often this occurs at their highest rates during their peak earning years. I explain the related tax hit to spouses in “The ‘Widow’s Penalty’: The Tax Ambush That Hits the Year After the Spouse Dies – and 5 Ways to Beat It.”
So the tax you are avoiding today will not disappear. It is usually handed down to someone you love, usually in bad times.
How to buy your silent companion?
Enough doom. Here’s how you fight back.
The best weapon is the time between the day you stop working and the day RMDs are triggered. This is your lowest earning window – and your best chance to move money on your terms.
1. Convert interval years
Move pieces of your traditional IRA to a Roth. You pay taxes now, but it grows later and grows tax-free, with no future RMDs. This reduces the balance of the tax owed on your silent partner. Here’s how conversions work.
2. Fill a bracket, not a level
Convert only up to the top of the lower tax bracket, and stay under the IRMAA line when doing so. The whole game is to transfer money to you at a rate you choose instead of the rate the IRS chose at 80.
3. Use QCD when you’re 70½
A qualified charitable distribution (QCD) sends money from your IRA directly to charity – up to $111,000 in 2026. It counts toward your RMD but never shows up as taxable income. If you’re giving anyway, this is the tax-smartest way to do so.
4. Pay tax from outside the account
Cover the taxes on the conversion with brokerage or savings money, not the IRA. Raid the IRA to pay the bills and everything you’re trying to protect is gone — and probably subject to a penalty if you’re under age 59½.
fair warning
Converting religion is not always the right step. If your heirs will be in a lower class than you, if you are extremely philanthropic and plan to give through a QCD, or if your life expectancy is really short, the math may be against you.
And if you’re under 65 on an Affordable Care Act plan, a large conversion could wipe out your premium subsidy.
There is no universal answer here. The answer is only yours, and it depends on your income, your heirs, your health, and your plans. Run the numbers – or hire someone who will.
Hint: If you have $100,000 or more in assets, SmartAsset Will instantly connect you with three fiduciary advisors – legally required to put your interests first. They identify tax savings, social security strategies, and planning gaps that you would never see alone. Matches are free, and first appointments are also free. So if you need help, get it.
Here is the last line. The number on your statement is not fake. This is not the complete truth. Part of that balance always belonged to your silent partner. The only real question is simple: Do you submit their share on the IRS’s schedule, or your share?