Required minimum distributions are not a suggestion — once a retiree turns 73, the IRS forces a taxable withdrawal from traditional IRA and retirement plan balances every year for the rest of that person’s life, whether the money is needed or not. But the size of that forced withdrawal is not fixed; it is recalculated annually off the account’s prior year-end balance, which means a retiree who moves money out of a traditional IRA and into a Roth IRA before turning 73 permanently shrinks the balance the IRS uses to calculate every future RMD — along with the tax bill that comes with it.
How RMDs Are Actually Calculated
Required minimum distributions apply to traditional IRAs, SEP and SIMPLE IRAs, and most employer retirement plan accounts, and under current law the obligation starts with the year an account owner turns 73. According to the IRS’s RMD FAQ page, the amount is calculated “by dividing the prior December 31 balance of that IRA or retirement plan account by a life-expectancy factor” published in IRS tables — meaning the RMD for any given year is a direct function of how large the account was on the preceding December 31, not of a fixed percentage decided once at retirement. The life-expectancy factors themselves come from tables published in IRS Publication 590-B, which assigns a different divisor depending on whether a spouse more than 10 years younger is the sole beneficiary.
That structure is what makes Roth conversions before age 73 mathematically powerful. Every dollar converted out of a traditional IRA into a Roth IRA in the years before RMDs begin reduces the balance that will later be divided by the life-expectancy factor — permanently, since the money is gone from the traditional account. A retiree who converts a meaningful share of a large traditional IRA balance in their late 60s, before RMDs start, is not deferring a future tax bill; they are shrinking the base off which every RMD for the rest of their life, and potentially a surviving spouse’s life, will be calculated.
The effect compounds year over year rather than applying just once. Because each year’s RMD is recalculated off the prior December 31 balance, a smaller traditional IRA balance produces a smaller RMD not just in the first year after 73, but in every subsequent year, since the shrunken balance also has less room to grow back through investment returns than an unconverted account would. A series of moderate conversions spread across several years before 73, rather than one large conversion, can manage the tax impact of each individual year while still compounding the long-term reduction in future RMDs.
Free retirement updates: Want plain-English help keeping more of your money in retirement? The free Retirement Shield newsletter covers the benefits, deadlines, and money mistakes that cost retirees, a couple times a week. Subscribe free.
Why Roth IRAs Escape the Rule Entirely
The other half of the mechanism is what happens to money once it lands inside a Roth IRA. The IRS FAQ page states directly that “the RMD rules do not apply to Roth IRAs or Designated Roth accounts while the owner is alive.” A traditional IRA balance forces annual taxable withdrawals starting at 73 regardless of whether the retiree wants or needs the income; a Roth IRA balance of any size can simply sit and continue growing tax-free for as long as the original owner lives, with no withdrawal requirement at all.
Converted funds do not escape taxation altogether — the conversion itself is a taxable event, with the converted amount added to that year’s taxable income at the retiree’s ordinary income tax rate. The strategic value lies in choosing when that tax hit happens. A retiree who converts during a lower-income year, such as after leaving a job but before Social Security and RMDs begin pushing income back up, can pay tax on the conversion at a lower marginal rate than they would likely face on the same money withdrawn as a mandatory RMD years later, once Social Security, pension income and RMDs are all layered on top of each other.
A smaller traditional IRA balance produced by earlier conversions also shrinks a second, less-discussed cost: the Medicare Income-Related Monthly Adjustment Amount, which raises Part B and Part D premiums for retirees whose income crosses set thresholds. Because RMDs count as taxable income in the year they are forced out, a retiree with a large unconverted traditional balance can find an RMD alone pushing them into a higher IRMAA bracket in their 70s or 80s, an outcome a lower RMD from a partially converted account is less likely to trigger.
The Timing Rule That Limits the Strategy
Once RMDs actually begin, the IRS closes off a shortcut some retirees hope to use: an account owner cannot convert that year’s required minimum distribution itself into a Roth IRA. The RMD must be withdrawn and taxed as ordinary income first, and only amounts above that year’s required distribution are eligible to convert. The FAQ page also confirms that a distribution larger than one year’s RMD cannot be applied to satisfy a future year’s requirement, so a retiree cannot “pre-pay” several years of RMDs in a single large conversion to simplify the process — each year’s minimum distribution has to be satisfied on its own before any additional conversion in that same year makes sense.
The penalty for skipping an RMD entirely underscores why the timing matters: failing to withdraw the required amount by the deadline can trigger an excise tax of 25% on the shortfall, reduced to 10% if corrected within two years, according to the same IRS guidance. For a retiree with a substantial traditional IRA balance, the years between retirement and age 73 represent a narrow, one-time window to reduce that balance through conversions at a controlled tax cost — a window that closes the moment RMDs begin and the annual withdrawal becomes mandatory rather than optional.
There is a further wrinkle for retirees who delay their very first RMD using the special rule allowing it to be taken by April 1 of the year after turning 73: doing so means two RMDs land in the same calendar year, both taxed as ordinary income, which can push a retiree into a higher tax bracket than spreading the withdrawals across two separate years would. Conversions completed in the years leading up to that first RMD deadline sidestep the bunching problem entirely, since a smaller remaining traditional balance produces a smaller mandatory withdrawal whenever it is finally taken.
This article was researched and drafted with the assistance of artificial intelligence.
More Financial Reading
