Required Minimum Distributions, or RMDs, are designed to make sure you eventually pay taxes on money that has been sitting in a traditional IRA or retirement plan. Starting at age 73, most traditional IRA owners must take a certain amount out each year, whether they need the money or not.¹
At first, an RMD may not seem like a big problem. But what happens when the account keeps growing?
That is where the RMD problem can get serious
Consider a 73-year-old retiree with $2 million in a traditional retirement account, earning an assumed 8% annual return, with RMDs taken at the end of each year. Using the Leap Systems RMD Calculator, the first required distribution is about $75,472. If the account continues earning 8%, the RMD rises to about $128,256 at age 80 and nearly $197,000 by age 86. At the same time, the IRA has grown to more than $3.03 million, even after nearly $1.8 million of total RMDs have been taken out.
The retiree is taking money out every year because the government says they must. Yet the account is still getting bigger.
This is the RMD trap: the account can grow faster than the IRS requires you to take money out of it.
And that can create several problems.
Problem #1: Your RMD Can Push You Into Higher Tax Brackets
RMDs are generally taxable as ordinary income when they come out of a traditional IRA.¹
That means the larger the RMD becomes, the more income you may have to report on your tax return.
For 2026, a married couple filing jointly reaches the 24% federal tax bracket once taxable income exceeds $211,400 and the 32% bracket once taxable income exceeds $403,550.²
Even though the higher rate applies only to the dollars that fall into that bracket, a growing RMD can still create a much larger tax bill.²
The retiree may not need the money, but the IRS requires the money to come out anyway.
Problem #2: You May Not Want More Income at 80 or 85
People save for retirement so they can have enough money to live the life they want. They do not necessarily plan to earn more and more income as they get older.
In fact, many retirees spend less as they age.
Yet the RMD system can work in the opposite direction.
Your account may continue to grow. Your RMD percentage increases as you get older. And the amount you are required to withdraw can become larger and larger.
At age 73 in the example, the RMD is about $75,000 and nearly $197,000 at age 86.
What if you only need $60,000 or $80,000 a year to live?
You may put the remainder of the RMD into a bank account, invest it in a taxable account, or even give some away. But once the money leaves the IRA, the tax bill generally comes with it.
This can create the strange situation of having more income than you actually want or need.
Problem #3: Higher Income Can Also Affect Social Security Taxes
Social Security benefits can become taxable when a person’s income rises above certain levels. Depending on the taxpayer’s situation, as much as 85% of Social Security benefits may be included in taxable income.³
That means an RMD can do more than simply add the RMD itself to your taxable income.
It can also cause more of your Social Security benefits to become taxable.
This is one reason retirement income planning is more complicated than simply asking, “How much money do I need each year?”
Problem #4: Medicare Can Become More Expensive
Medicare uses income from a prior tax return to determine whether a retiree must pay an additional charge called the Income-Related Monthly Adjustment Amount, or IRMAA.⁴
For 2026, a married couple filing jointly with modified adjusted gross income above $218,000 can begin paying higher Medicare Part B and Part D premiums.⁴
The higher-income brackets can become much more expensive. For example, a married couple with 2024 MAGI above $410,000 and below $750,000 pays a 2026 Part B premium of $649.20 per person per month, compared with the standard $202.90 premium.⁴
So, a larger RMD can potentially create a chain reaction:
Bigger RMD → higher income → higher taxes → potentially higher Medicare premiums.
Problem #5: The Tax Problem May Not End With You
Eventually, IRA money may pass to children or other heirs.
Beneficiaries generally must pay ordinary income tax on distributions received from the inherited IRA. Under current rules, many non-spouse beneficiaries must empty an inherited retirement account within 10 years of the owner’s death.⁵
Imagine leaving a child a $2 million or $3 million traditional IRA. The child does not simply receive that inheritance tax-free. The taxable withdrawals become part of the child’s income.
In other words, you may spend decades building a large retirement account, only to leave your children a large future tax bill.
That does not mean traditional IRAs are bad. They are powerful retirement savings tools.
But they are not tax-free accounts. They are tax-deferred accounts.
Eventually, somebody has to pay the tax.
So, What Can Be Done?
The answer is not necessarily to spend the money just to get rid of it.
Depending on the person’s situation, strategies may include taking withdrawals above the minimum in lower-income years, making qualified charitable distributions, considering Roth conversions, or simply building a retirement income plan that uses different account types in a smart order. Qualified charitable distributions can satisfy all or part of an RMD while generally keeping the qualifying amount out of taxable income.⁶
A retiree does not want to wait until age 85, look at a nearly $200,000 RMD, and ask, “How did this happen?”
Instead, they can ask, “What can I do today to control the tax bill tomorrow?”
The $2 million account in the example is not a bad thing. It means the retiree saved successfully! But retirement planning is not just about accumulating money. It is about turning that money into income, managing taxes, protecting retirement cash flow, and deciding how much wealth should ultimately go to the next generation.
A large IRA can look like a blessing on a statement. If it grows unchecked, it can also become a growing tax bill with your name on it — and eventually, your heirs’ names on it too.
Have more questions about RMDs or how they may impact your retirement? Whether you already have a financial advisor or are looking for guidance, schedule an appointment with Millstone Financial Group to review the strategies that may be implemented to soften that impact. Visit www.millstonefinancial.net/contact-us/.
Sources & Footnotes:
- ¹ Internal Revenue Service — “Retirement Plan and IRA Required Minimum Distributions FAQs.” IRS — Retirement Plan and IRA Required Minimum Distributions FAQs
- ² Internal Revenue Service — “Internal Revenue Bulletin 2025-45,” Revenue Procedure 2025-32. IRS — 2026 Tax Brackets and Inflation Adjustments
- ³ Internal Revenue Service — Publication 915, “Social Security and Equivalent Railroad Retirement Benefits.” IRS — Publication 915
- ⁴ Social Security Administration — “IRMAA Sliding Scale Tables” and Medicare premium guidance for 2026. Social Security Administration — 2026 IRMAA Tables
- ⁵ Internal Revenue Service — Publication 590-B, “Distributions from Individual Retirement Arrangements,” and “Retirement Topics — Beneficiary.” IRS — Publication 590-B
- ⁶ Internal Revenue Service — Publication 590-B, “Distributions from Individual Retirement Arrangements.” IRS — Publication 590-B, QCD Rules
- ⁷ Leap Systems — RMD Calculator. Used for the hypothetical example in this article.
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